Half Yearly Report

RNS Number : 9496R

Investors Capital Trust PLC

11 November 2011

 



To:                   RNS

From:              Investors Capital Trust plc

Date:               11 November 2011

Highlights

·     Net asset value per share total return for the six months of -8.0 per cent, better than the FTSE All-Share Capped 5% Index total return of -11.8 per cent

·     Distribution yield of 6.0 per cent and 5.3 per cent on A and B shares respectively at 30 September 2011, compared to the yield on the FTSE All-Share Capped 5% Index of 3.6 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 2011

Chairman's Statement

Introduction

As the Company's current financial year began, financial markets took encouragement from the steady improvement in economic data, particularly from the United States, together with continued strong growth in profits from the corporate sector. I highlighted in my last report that high levels of indebtedness and record fiscal deficits in developed economies were likely to constrain economic prospects for some time to come. Indeed this has proven to be the case. In recent months uncertainty over the strength and sustainability of the global economic recovery, together with a deepening of the Eurozone debt crisis, have once again conspired to undermine investor confidence. In recent weeks, acknowledging the heightened risk to both the UK economy and the banking system of current tensions in the global economy, the Bank of England announced a further £75 billion of monetary stimulus through expansion of its quantitative easing program. It is against this background that I report on the Company's financial results for the six month period to 30 September 2011.

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 2011, 73.3 per cent. of total assets was allocated to the Equities Portfolio and 19.4 per cent. to the Higher Yield Portfolio. The remaining 7.3 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 gearing, resulted in the net asset value total return for the A and B shares of -8.0 per cent. over the six months to 30 September 2011.  This return was better than the -11.8 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 and B shares has been 4.1 per cent. which exceeds the -0.3 per cent. return from the benchmark index.

During the six months to 30 September 2011 the Company's Equities Portfolio produced a total return of -6.7 per cent per cent. which exceeded the benchmark index return of -11.8 per cent. and reflected favourable stock selection. Covering the period since the Company's launch in March 2007, the Equities Portfolio is 7.4 per cent. ahead of the benchmark index in total return terms. The Higher Yield Portfolio is invested in predominantly investment grade corporate bonds and returned -1.2 per cent. in total return terms for the six months to 30 September 2011.

Earnings, Dividends and Capital Distributions

The Company achieved total revenue income of £3.2m for the six months. The yield on the Equities Portfolio was 4.4 per cent. as at 30 September 2011, compared to the yield on the FTSE All-Share Capped 5% Index of 3.6 per cent.

The Company's revenues were slightly ahead of the level achieved during the comparable six month period last year. The level of dividends received from investee companies has been encouraging and generally ahead of investors' expectations. During the period there was a reduction in assets allocated to the Higher Yield Portfolio in favour of both the Equities Portfolio and cash. This asset allocation has been broadly neutral from a revenue perspective.

The dividend for the year ending 31 March 2012 is estimated, barring unforeseen circumstances, to be 4.28p per share (2011: 4.28p). 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 annual distribution level represents a yield for A shareholders of 6.0 per cent. and for B shareholders of 5.3 per cent. based on the A share price of 71.0p per share and B share price of 81.0p as at 30 September 2011. For those shareholders that hold units (each comprising 3 A shares and one B share) the distribution yield on this unit holding was 5.4 per cent. based on a unit price of 319.0p as at 30 September 2011. These yields compare favourably with the yield on the FTSE All-Share Index of 3.6 per cent. at that date.

After providing for the second quarter dividend, the Company had revenue reserves of £1.9m at 30 September 2011.

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.

Discount and buy backs

The Company's A share price was at a discount to net asset value of 7.6 per cent. at 30 September 2011. The Company's B shares were at a premium to net asset value of 5.5 per cent. at the same date. 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 4.7 per cent. and the Company's B shares traded at an average premium of 4.7 per cent. No shares were bought back, issued, or re-sold from treasury by the Company during the six month period.

Duration

As the Company is intended as a long-term investment vehicle, it does not have a fixed life. However, in the event that the net asset value total return performance of the Company is less than the benchmark index over the relevant period from launch to 31 March 2012, then shareholders will be given the opportunity at the 2012 Annual General Meeting to vote on whether the Company should continue. As noted above, at 30 September 2011 the Company had outperformed the benchmark index since launch.

Outlook

At the time of writing, markets are focused on the financial and political crisis within the European Union. Elsewhere signs are more encouraging that the outlook for the global economy has at least stabilised. However, developed economies will remain burdened by high levels of indebtedness and record fiscal deficits for many years to come.

Notwithstanding the current economic challenges, UK equity market fundamentals are broadly supportive.  The UK corporate sector remains in good financial health while valuation measures continue to be undemanding, particularly when viewed against government bonds and cash. The Company's Equities Portfolio continues to focus on companies which offer international diversification, strong balance sheets and cash flows, attractive dividend yields and good dividend cover. Against an uncertain economic backdrop we believe a portfolio of companies with these characteristics will continue to serve investors well. The Higher Yield Portfolio retains a bias to shorter-dated, investment grade corporate bonds.

Iain McLaren

Chairman

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the six month period to 30 September 2011

	Six months to 30 September 2011
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Losses on investments held at fair value	-	(10,800)	(10,800)
Exchange differences	-	126	126
Investment income	3,190	203	3,393
Investment management fee	(120)	(361)	(481)
Other expenses	(178)	-	(178)
Profit/(loss) before finance costs and taxation	2,892	(10,832)	(7,940)
Net finance costs
Interest on bank loan and interest rate swap	(295)	(689)	(984)
Total finance costs	(295)	(689)	(984)
Profit/(loss) before tax	2,597	(11,521)	(8,924)
Tax on ordinary activities	(95)	95	-
Profit/(loss) for the period	2,502	(11,426)	(8,924)
Other comprehensive income:
Gain on cashflow hedge	-	524	524
Total comprehensive income for the period	2,502	(10,902)	(8,400)
Earnings/(losses) per share	2.0p	(9.0p)	(7.0p)

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 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:
Gain on cashflow hedge	-	202	202
Total comprehensive income for the period	2,317	(1,145)	1,172
Earnings/(losses) per share	1.8p	(1.0p)	0.8p

Unaudited Consolidated Statement of Comprehensive Income

For the year to 31 March 2011

	Year to 31 March 2011*
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	4,195	4,195
Exchange differences	-	358	358
Investment income	6,498	-	6,498
Investment management fee	(234)	(545)	(779)
Other expenses	(461)	-	(461)
Profit before finance costs and taxation	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 on ordinary activities	(305)	284	(21)
Profit for the period	4,906	2,912	7,818
Other comprehensive income:
Gain on cashflow hedge	-	1,141	1,141
Total comprehensive income for the period	4,906	4,053	8,959
Earnings per share	3.8p	2.3p	6.1p

*These figures are audited

Condensed Unaudited Consolidated Balance Sheet

	As at 30 Sept 2011	As at 30 Sept 2010	As at 31 March 2011*
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	122,968	134,512	136,524
	122,968	134,512	136,524
Current assets
Other receivables	1,059	1,386	1,422
Cash and cash equivalents	8,993	7,830	8,306
	10,052	9,216	9,728
Total assets	133,020	143,728	146,252
Current liabilities
Other payables	(322)	(3,177)	(1,883)
Bank loan	(33,491)	-	-
Interest rate swap on bank loan	(1,495)	-	-
	(35,308)	(3,177)	(1,883)
Non-current liabilities
Bank loan	-	(33,485)	(33,490)
Interest rate swap on bank loan	-	(2,958)	(2,019)
	-	(36,443)	(35,509)
Total liabilities	(35,308)	(39,620)	(37,392)
Net assets	97,712	104,108	108,860
Capital and reserves
Called-up share capital	134	134	134
Share premium	22	22	22
Capital redemption reserve	5	5	5
Buy back reserve	90,662	90,990	90,662
Special capital reserve	27,362	28,734	28,054
Capital reserves	(23,399)	(17,695)	(12,497)
Revenue reserve	2,926	1,918	2,480
Shareholders' funds	97,712	104,108	108,860
Net asset value per A share	76.8p	81.6p	85.6p
Net asset value per B share	76.8p	81.6p	85.6p

*These figures are audited 

Condensed Unaudited Consolidated Statement of Changes in Equity

	Six months to 30 Sept 2011	Six months to 30 Sept 2010	Year to 31 March 2011*
	£'000	£'000	£'000
Opening equity shareholders' funds	108,860	106,043	106,043
Net (loss)/profit for the period	(8,924)	970	7,818
Unrealised gain on revaluation of interest rate swap	524	202	1,141
Shares bought back for treasury	-	-	(328)
Dividends paid on A shares	(2,056)	(2,327)	(4,354)
Capital distributions paid on B shares	(692)	(780)	(1,460)
Closing equity shareholders' funds	97,712	104,108	108,860

*These figures are audited

Condensed Unaudited Consolidated Cash Flow Statement

	Six months to 30 Sept 2011	Six months to 30 Sept 2010	Year to 31 March 2011*
	£'000	£'000	£'000
Net cash flow from operating activities	4,542	1,714	6,343
Net cash flow from financing activities	(3,731)	(4,094)	(8,106)
Net increase/(decrease) in cash and cash equivalents	811	(2,380)	(1,763)
Currency (losses)/gains	(124)	932	791
Cash and cash equivalents at beginning of period	8,306	9,278	9,278
Cash and cash equivalents at end of period	8,993	7,830	8,306

*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 2011. 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 2011, 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 2011	30 Sept 2010	31 March 2011
	£'000	£'000	£'000
Equity investments	2,228	1,882	4,175
Fixed interest investments	935	1,183	2,247
Special dividends credited to capital	203	-	-
Deposit interest	27	22	44
Premium on written call options	-	21	24
Other income	-	7	8
	3,393	3,115	6,498

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 2011, will, subject to achieving stated performance criteria, be payable every five years.

There was no performance fee accrued at 30 September 2011, 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 2010 - £nil; 31 March 2011 - £nil).

4.    The returns per share are based on the net profit/(loss) for the period and on 127,229,847 shares (period to 30 September 2010 - 127,629,847; year to 31 March 2011 - 127,594,779), being the weighted average shares in issue during the period.

5.    Earnings for the six months to 30 September 2011 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 2011	Six months to 30 Sept 2010	Year to 31 March 2011
	£'000	£'000	£'000
In respect of the previous period:
Fourth interim dividend paid at 1.1p (prior year: 1.375p) per A share	1,047	1,314	1,314
Fourth capital distribution paid at 1.1p (prior year: 1.375p) per B share	353	441	441
In respect of the period under review:
First interim dividend paid at 1.06p per A share	1,009	1,013	1,014
First capital distribution paid at 1.06p per B share	339	339	340
Second interim dividend paid at 1.06p per A share	-	-	1,013
Second capital distribution paid at 1.06p per B share	-	-	340
Third interim dividend paid at 1.06p per A share	-	-	1,013
Third capital distribution paid at 1.06p per B share	-	-	339
	2,748	3,107	5,814

A second interim dividend for the year to 31 March 2012, of 1.06p per A share, was paid on 4 November 2011 to A shareholders on the register on 7 October 2011. A second quarter capital distribution of 1.06p per B share was paid on 4 November 2011 to B shareholders on the register on 7 October 2011. Although these payments relate to the period ended 30 September 2012, under IFRS they will be accounted for in the six months to 31 March 2012, 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 2010 - nil A shares; year to 31 March 2011 - 400,000 A shares) or any B shares (period to 30 September 2010 - nil B shares; year to 31 March 2011 - nil B shares). The Company did not resell any shares from treasury (period to 30 September 2010 - nil; year to 31 March 2011 - nil).

At 30 September 2011 the Company held 6,889,000 A shares and 25,000 B shares in treasury (30 September 2010 - 6,489,000 A shares and 25,000 B shares; 31 March 2011 - 6,889,000 A shares and 25,000 B shares).

The Company did not issue any new shares during the period (period to 30 September 2010 - nil; year to 31 March 2011 - nil)

9.    The net asset value per share is based on shareholders' funds at the period end and on 95,178,144 A shares and 32,051,703 B shares, being the number of shares in issue at the period end (30 September 2010 - 95,578,144 A shares and 32,051,703 B shares; 31 March 2011 - 95,178,144 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.  The Company's auditors, Ernst & Young LLP, have not audited or reviewed the Interim Report to 30 September 2011 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 2011, 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 2011 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

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 2011. 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

Iain McLaren

Director

For further information, please contact:

Rodger McNair, Fund Manager                                   0207 628 8000

Michael Campbell, Company Secretary                     0207 628 8000

 

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