Half Yearly Report

RNS Number : 0185W

Investors Capital Trust PLC

11 November 2010

 



To:                   RNS

From:              Investors Capital Trust plc

Date:               11 November 2010

Highlights

·     Net asset value per share total return for the six months of 1.2 per cent matching the FTSE All-Share Capped 5% Index total return of 1.2 per cent

·     Distribution yield of 5.3 per cent on A and B shares at 30 September 2010, compared to the yield on the FTSE All-Share Capped 5% Index of 3.1 per cent

·     Distributions paid quarterly

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 2010

Chairman's Statement

Introduction

In my report to shareholders earlier this year I suggested that record high fiscal deficits in the developed world presented one of the most significant challenges for the global economy. Indeed, as the current reporting period began, financial markets weakened markedly as the sovereign debt crisis in Greece intensified and worries over the stability of the banking system returned. However, during the second half of the period those fears subsided and financial markets recovered as improving economic data, particularly from the US and China, together with better than expected profits growth from the corporate sector, helped counter investor concerns over an economic "double-dip" recession.

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.

At 30 September 2010, 68.0 per cent. of total assets was allocated to the Equities Portfolio and 27.7 per cent. to the Higher Yield Portfolio. The remaining 4.3 per cent. was held as cash and cash equivalents. This allocation will vary as a result of market movements and circumstances.

Investment Performance

Returns from the Equities Portfolio and the Higher Yield Portfolio, combined with the effect of gearing, resulted in the net asset value total return for the A and B shares of 1.2 per cent. over the six months to 30 September 2010.  This return matches the 1.2 per cent. total return for the FTSE All-Share Capped 5% Index. Since the Company's launch in March 2007, the net asset value total return for the A and B shares has been 5.2 per cent. which exceeds the 4.4 per cent. return from the benchmark index.

During the six months to 30 September 2010 the Company's Equities Portfolio produced a total return of 0.8 per cent per cent. which lagged the benchmark, the FTSE All-Share Capped 5% Index. Covering the period since the Company's launch in March 2007 the Equities Portfolio is 1.9 per cent. ahead of the benchmark index. The Higher Yield Portfolio is invested in predominantly investment grade corporate bonds and returned 4.3 per cent. in total return terms for the six months.     

Earnings, Dividends and Capital Distributions

The Company achieved total revenue income of £3.1m for the six months. The yield on the Equities Portfolio was 3.8 per cent. as at 30 September 2010, equivalent to a yield relative to the FTSE All-Share Capped 5% Index of 123 per cent.

While the Company's revenues are broadly in line with the level achieved during the comparable six month period last year, they remain lower than during 2008 due to the cumulative effect of dividend cuts during the economic downturn, most notably from the banking sector, together with the dividend suspension by BP and also the effect of falling corporate bond yields. As a result, the Board announced in July 2010 that it believed it prudent to revise the Company's dividend to a more sustainable level.

The dividend for the year ending 31 March 2011 is estimated, barring unforeseen circumstances, to be 4.28p per share (2010: 5.35p). The first three quarterly dividends will be paid in equal instalments of 1.06p per share and a fourth quarterly dividend of 1.1p will be paid to A shareholders. B Shareholders will receive capital distributions of the same amount per share at the same time as A shareholders.

The Board recognises the importance of distributions for shareholders, but needs to balance the income capable of being earned from portfolio holdings with maintaining the Company's existing investment approach and other objective of providing prospects for capital growth. The Directors continue to believe that the yield on the Company's shares, relative to that available from the stock market as a whole, remains attractive for investors.

The revised annual distribution level represents a yield for A shareholders of 5.1 per cent. and for B shareholders of 5.0 per cent. based on the A share price of 84.5p per share and B share price of 86.0p as at 9 November 2010. For those shareholders that hold units (each comprising 3 A shares and one B share) the distribution yield on this unit holding was 5.2 per cent. based on a unit price of 327.0p as at 9 November 2010. These yields compare favourably with the yield on the FTSE All-Share Index of 2.9 per cent. at that date.

After providing for the second quarter dividend, the Company had revenue reserves of £0.9m at 30 September 2010; such reserves are relatively limited as the new Company was launched only in 2007.

Dividends to A shareholders and capital distributions to B shareholders are paid quarterly in August, November, February and May each year. 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.

Taxation of Capital Distributions paid to B shareholders

The Company has been advised that the Finance Bill published last month is drafted so that proposed legislative changes which could affect the taxation of capital distributions on the B shares do not apply for income tax purposes. Accordingly, assuming the legislation is enacted in its current form, distributions on the B shares will continue to constitute capital receipts (taxed under UK capital gains tax rules) for non-corporate holders (including individuals). For corporate holders, distributions on the B shares will constitute dividends (which for most corporates are exempt from tax). This represents a favourable outcome for B shareholders in general. For certain shareholders there are tax and other advantages in receiving capital distributions from the B shares

Discount and buy backs

The Company's A share price was at a discount to net asset value of 0.1 per cent. at 30 September 2010. The Company's B shares were also at a discount to net asset value of 0.1 per cent. at the same date. Over the six month period, the price of the Company's A shares traded at an average premium to net asset value per share of 0.7 per cent. and the Company's B shares traded at an average premium of 5.7 per cent. No shares were bought back, issued, or re-sold from treasury, by the Company during the six month period.

Directors

I am proposing to retire as Chairman and a Director of the Company on 31 December 2010, having been Chairman since the Company's launch in 2007 and Chairman and a Director of the predecessor company. I am happy to report that the Board has asked Iain McLaren to succeed me as Chairman and is actively considering the appointment of a further Director.

Outlook

Economic data suggests an ongoing, although somewhat fragile, recovery in the global economy. It is a concern that despite the unprecedented level of monetary and fiscal stimulus to developed economies, the pace of recovery is not more established. Record-high fiscal deficits continue to be one of the key challenges for policymakers, and macro-economic risks to financial markets remain. Modest valuations, improving corporate earnings and an upturn in merger and acquisition activity suggest a reasonably supportive backdrop to UK equities. The Company's Equities Portfolio continues to favour companies with strong balance sheets and attractive dividend yields. The Higher Yield Portfolio retains a bias to shorter-dated investment grade corporate bonds.

J Martin Haldane

Chairman

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the six month period to 30 September 2010

	Six months to 30 September 2010
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Losses on investments held at fair value	-	(938)	(938)
Exchange differences	-	453	453
Investment income	3,115	-	3,115
Investment management fee	(112)	(338)	(450)
Other expenses	(220)	-	(220)
Profit/(loss) before finance costs and taxation	2,783	(823)	1,960
Net finance costs
Interest on bank loan and interest rate swap	(297)	(693)	(990)
Total finance costs	(297)	(693)	(990)
Profit/(loss) before tax	2,486	(1,516)	970
Tax on ordinary activities	(169)	169	-
Profit/(loss) for the period	2,317	(1,347)	970
Other comprehensive income:
Net gain on cashflow hedged net of tax	-	202	202
Total comprehensive income for the period	2,317	(1,145)	1,172
Earnings/(losses) per share	1.8p	(1.0p)	0.8p

All of the profit/(loss) and comprehensive income for the period is attributable to the owners of the Company.

All items in the above statement derive from continuing operations.

Unaudited Consolidated Statement of Comprehensive Income

For the six month period to 30 September 2009

	Six months to 30 September 2009
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	21,144	21,144
Exchange differences	-	507	507
Investment income	3,148	-	3,148
Investment management fee	(102)	(307)	(409)
Other expenses	(187)	-	(187)
Profit before finance costs and taxation	2,859	21,344	24,203
Net finance costs
Interest on bank loan and interest rate swap	(297)	(693)	(990)
Total finance costs	(297)	(693)	(990)
Profit before tax	2,562	20,651	23,213
Tax on ordinary activities	(179)	179	-
Profit for the period	2,383	20,830	23,213
Other comprehensive income:
Net gain on cashflow hedged net of tax	-	418	418
Total comprehensive income for the period	2,383	21,248	23,631
Earnings per share	1.9p	16.5p	18.4p

Unaudited Consolidated Statement of Comprehensive Income

For the year to 31 March 2010

	Year to 31 March 2010*
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	31,187	31,187
Exchange differences	-	752	752
Investment income	6,460	-	6,460
Investment management fee	(217)	(506)	(723)
Other expenses	(414)	-	(414)
Profit before finance costs and taxation	5,829	31,433	37,262
Net finance costs
Interest on bank loan and interest rate swap	(593)	(1,385)	(1,978)
Total finance costs	(593)	(1,385)	(1,978)
Profit before tax	5,236	30,048	35,284
Tax on ordinary activities	(425)	406	(19)
Profit for the period	4,811	30,454	35,265
Other comprehensive income:
Net gain on cashflow hedged net of tax	-	252	252
Total comprehensive income for the period	4,811	30,706	35,517
Earnings per share	3.8p	24.0p	27.8p

*These figures are audited

Condensed Unaudited Consolidated Balance Sheet

	As at 30 Sept 2010	As at 30 Sept 2009	As at 31 March 2010*
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	134,512	122,368	132,099
	134,512	122,368	132,099
Current assets
Other receivables	1,386	1,437	2,430
Cash and cash equivalents	7,830	11,939	9,278
	9,216	13,376	11,708
Total assets	143,728	135,744	143,807
Current liabilities
Other payables	(3,177)	(1,732)	(1,122)
	(3,177)	(1,732)	(1,122)
Non-current liabilities
Bank loan	(33,485)	(33,478)	(33,482)
Interest rate swap on bank loan	(2,958)	(2,994)	(3,160)
	(36,443)	(36,472)	(36,642)
Total liabilities	(39,620)	(38,204)	(37,764)
Net assets	104,108	97,540	106,043
Capital and reserves
Called-up share capital	134	134	134
Share premium	22	22	22
Capital redemption reserve	5	5	5
Buy back reserve	90,990	90,990	90,990
Special capital reserve	28,734	30,363	29,514
Capital reserves	(17,695)	(26,007)	(16,550)
Revenue reserve	1,918	2,033	1,928
Shareholders' funds	104,108	97,540	106,043
Net asset value per A share	81.6p	76.4p	83.1p
Net asset value per B share	81.6p	76.4p	83.1p

*These figures are audited 

Condensed Unaudited Consolidated Statement of Changes in Equity

	Six months to 30 Sept 2010	Six months to 30 Sept 2009	Year to 31 March 2010*
	£'000	£'000	£'000
Opening equity shareholders' funds	106,043	76,086	76,086
Net profit for the period	970	23,213	35,265
Unrealised gain on revaluation of interest rate swap	202	418	252
Shares sold from treasury	-	1,427	1,426
Shares bought back for treasury	-	(194)	(194)
Dividends paid on A shares	(2,327)	(2,584)	(5,117)
Capital distributions paid on B shares	(780)	(826)	(1,675)
Closing equity shareholders' funds	104,108	97,540	106,043

*These figures are audited

Condensed Unaudited Consolidated Cash Flow Statement

	Six months to 30 Sept 2010	Six months to 30 Sept 2009	Year to 31 March 2010*
	£'000	£'000	£'000
Net cash flow from operating activities	1,714	(9,673)	(7,787)
Net cash flow from financing activities	(4,094)	(3,649)	(8,016)
Net decrease in cash and cash equivalents	(2,380)	(13,322)	(15,803)
Currency gains	932	858	678
Cash and cash equivalents at beginning of period	9,278	24,403	24,403
Cash and cash equivalents at end of period	7,830	11,939	9,278

*These figures are audited

 Notes to the Accounts (unaudited)

1.    The condensed unaudited consolidated financial statements have been preparedin 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 2010. 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 2010, which were prepared under full IFRS requirements, to the extent that they have been adopted by the European Union.

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council in October 2009. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

2.    Income for the period is derived from:

	30 Sept 2010	30 Sept 2009	31 March 2010
	£'000	£'000	£'000
Equity investments	1,882	1,923	3,784
Fixed interest investments	1,183	1,158	2,472
Premium on written call options	21	-	112
Deposit interest	22	45	83
Other income	7	22	9
	3,115	3,148	6,460

3.    The Company's investment manager is F&C Investment Business Limited. F&C Investment Business Limited receives an investment management fee comprising a base fee and a performance fee.

The base fee is a management fee at 0.9 per cent per annum of the net asset value of the Company payable quarterly in arrears, subject to being reduced to 0.75 per cent if the net asset value at the end of the financial year is less than £1 per share. The performance fee, full details of which are contained in the Annual Report for the period ended 31 March 2010, will, subject to achieving stated performance criteria, be payable every five years.

There was no performance fee accrued at 30 September 2010, or that would have been accrued had the Company's net asset value per share been in excess of £1, all else being equal (30 September 2009 - £nil; 31 March 2010 - £nil).

4.    The returns per share are based on the net profit/(loss) for the period and on 127,629,847 shares (period to 30 September 2009 - 126,472,333; year to 31 March 2010 - 127,049,504), being the weighted average shares in issue during the period.

5.    Earnings for the six months to 30 September 2010 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 Company is engaged in a single segment of business, of investing in equity and higher yielding securities, and that therefore the Company 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 Company. The key measure of performance used by the Board to assess the Company's performance is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated financial statements.

7.    Dividends

	Six months to 30 Sept 2010	Six months to 30 Sept 2009	Year to 31 March 2010
	£'000	£'000	£'000
In respect of the previous period:
Fourth interim dividend paid at 1.375p per A share	1,314	1,317	1,317
Fourth capital distribution paid at 1.375p per B share	441	413	413
In respect of the period under review:
First interim dividend paid at 1.06p (prior year: 1.325p) per A share	1,013	1,267	1,267
First capital distribution paid at 1.06p (prior year: 1.325p) per B share	339	413	413
Second interim dividend paid at 1.325p per A share	-	-	1,267
Second capital distribution paid at 1.325p per B share	-	-	424
Third interim dividend paid at 1.325p per A share	-	-	1,266
Third capital distribution paid at 1.325p per B share	-	-	425
	3,107	3,410	6,792

A second interim dividend for the year to 31 March 2011, of 1.06p per A share, was paid on 5 November 2010 to A shareholders on the register on 15 October 2010. A second quarter capital distribution of 1.06p per B share was paid on 5 November 2010 to B shareholders on the register on 15 October 2010. Although these payments relate to the period ended 30 September 2010, under IFRS they will be accounted for in the six months to 31 March 2011, being the period during which they are paid. 

8.    Over the period the Company did not buy back to hold in treasury any A shares (period to 30 September 2009 - 240,000 A shares; year to 31 March 2010 - 240,000 A shares) or any B shares (period to 30 September 2009 - 80,000 B shares; year to 31 March 2010 - 80,000 B shares). The Company did not resell any shares from treasury (period to 30 September 2009 - 2,105,000 B shares; year to 31 March 2010 - 2,105,000 B shares).

At 30 September 2010 the Company held 6,489,000 A shares and 25,000 B shares in treasury (30 September 2009 - 6,489,000 A shares and 25,000 B shares; 31 March 2010 - 6,489,000 A shares and 25,000 B shares).

The Company did not issue any new shares during the period (period to 30 September 2009 - nil; year to 31 March 2010 - nil)

9.    The net asset value per share is based on shareholders' funds at the period end and on 95,578,144 A shares and 32,051,703 B shares, being the number of shares in issue at the period end (30 September 2009 - 95,578,144 A shares and 32,051,703 B shares; 31 March 2010 - 95,578,144 A shares and 32,051,703 B shares).

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

11.  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 2010, 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 2010 have been reported on by the Company's auditors or delivered to the Registrar of Companies.

The Interim Report will be posted to shareholders during November and will be available on the website:

       www.investorscapital.co.uk

Independent Review Report to Investors Capital Trust plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2010 which comprises the Condensed Unaudited Consolidated Statement of Comprehensive Income, Condensed Unaudited Consolidated Balance Sheet, Condensed Unaudited Consolidated Statement of Changes in Equity, Condensed Unaudited Consolidated Cash Flow Statement and the Notes to the Accounts (unaudited). We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Ernst & Young LLP, London

10 November 2010

Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed securities and its principal risks are therefore market related. 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 external, investment and strategic, regulatory, operational and financial risks. These risks, and the way in which they are managed, are described under the heading Principal Risks and Risk Management within the Report of the Directors in the Group's Annual Report for the year ended 31 March 2010. 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.

Statement of Directors' Responsibilities in Respect of the Half Yearly Financial 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';

·     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

J Martin Haldane

Director

For further information, please contact:

Rodger McNair, Fund Manager                                   0207 628 8000

Michael Campbell, Company Secretary                     0207 628 8000

 

END

 

 

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