Half Yearly Report

RNS Number : 4367R

Investors Capital Trust PLC

19 November 2012

 



To:                   RNS

From:              Investors Capital Trust plc

Date:               19 November 2012

Highlights

·     Net asset value per share total return for the six months of 3.9 per cent, compared to the FTSE All-Share Capped 5% Index total return of 2.0 per cent

·     Distribution yield of 5.2 per cent on A and B shares at 30 September 2012, 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 2012

Chairman's Statement

Introduction

In my report to shareholders earlier this year I suggested that the enduring nature of the Eurozone debt crisis remained the most significant challenge to financial markets in the year ahead. Indeed, as the Company's financial year began, an escalation of funding concerns within the European banking system together with weaker than expected economic data from both the United States and China, triggered sharp falls in global financial markets. However, the European Union summit held in Brussels at the end of June finally demonstrated that Europe's leaders were serious about restoring confidence in the currency union. A bold range of measures was announced which helped allay concerns over the region's fiscal condition. This announcement was crucial to Europe's third and fourth largest economies, Italy and Spain, where the cost of borrowing had risen to near unsustainable levels despite efforts to reduce government spending and introduce economic reform. The decision to allow a more flexible approach to the use of bailout funds, together with an agreement to work towards tighter budgetary and monetary union in the future, signalled a turning point for financial markets. In September, further significant policy stimulus was announced in the United States. The US Federal Reserve cited the stubbornly high level of unemployment as the key factor in the decision to implement a further round of quantitative easing. In the UK the Bank of England maintained interest rates at a record low level of 0.5 per cent but resisted pressure to extend its own stimulus programme. However, the policy initiatives undertaken in both Europe and the United States provided the impetus for the UK market to recoup its earlier losses.

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 2012, 84.8 per cent. of total assets was allocated to the Equities Portfolio and 13.7 per cent. to the Higher Yield Portfolio. The remaining 1.5 per cent. was held as cash and cash equivalents.

The Company refinanced its term borrowings during the period and now has a reduced level of borrowings (£18m compared to £33.5m) with a significantly lower fixed rate of annual interest (3.15 per cent compared to 5.86 per cent). The new borrowings have a five year term to September 2017.

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 and B shares of 3.9 per cent. over the six months to 30 September 2012.  This return was better than the 2.0 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 24.1 per cent. which exceeds the 17.3 per cent. return from the benchmark index and reflects strong outperformance from the Equities Portfolio.

During the six months to 30 September 2012 the Company's Equities Portfolio produced a total return of 3.4 per cent. which exceeded the benchmark index return of 2.0 per cent. and reflected favourable stock selection. The Higher Yield Portfolio is invested in predominantly investment grade corporate bonds and returned 3.8 per cent. in total return terms for the six months to 30 September 2012.

Earnings, Dividends and Capital Distributions

The Company earned total revenue income of £3.0m for the six months. The yield on the Equities Portfolio was 4.1 per cent. as at 30 September 2012, compared to the yield on the FTSE All-Share Capped 5% Index of 3.6 per cent.

Income from the Equities Portfolio rose compared with the same six month period last year but this was offset by reduced income from the Higher Yield Portfolio. During the period there was a reduction in assets allocated to the Higher Yield Portfolio in favour of the Equities Portfolio. It is encouraging that the majority of investee companies continued to demonstrate good dividend growth during the period.

The Company's dividend for the year ending 31 March 2013 is estimated, barring unforeseen circumstances, to be 4.28p per share (2012: 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 dividends are received by A shareholders.

The annual distribution level represents a yield for A and B shareholders of 5.2 per based on the share prices as at 30 September 2012. For those shareholders that hold units (each comprising three A shares and one B share) the distribution yield on this unit holding was 5.4 per cent. 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 £2.5m at 30 September 2012.

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

Discount and buy backs

The Company's A and B share price stood at a discount to net asset value of 5.2 per cent. at 30 September 2012. 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 5.9 per cent. and the Company's B shares traded at an average discount of 2.8 per cent. During the six month period, the Company bought back to be held in treasury 1,650,000 A shares and 630,000 B shares at a discount to net asset value, thereby enhancing value for remaining shareholders.

Outlook

Since the trough in global activity in 2009, the pace of economic recovery in developed markets has been lacklustre, well below the pace of post-recession recovery experienced during previous economic cycles. This has contributed to a moderation of economic growth rates in the major emerging economies including China. It is likely that continued high levels of indebtedness together with ongoing fiscal retrenchment in developed economies will constrain the pace of global economic recovery for some time to come.

The UK corporate sector remains in generally good health. Over the past year corporate profits have continued to grow strongly. However, in the absence of any improvement in the pace of global recovery it is likely that the rate of growth in UK corporate earnings and dividends will slow during the coming year. The Company's Equities Portfolio continues to favour companies which have the ability to grow earnings and dividends over the long term, have strong balance sheets, generate surplus cash flow beyond the needs of the business and have a proven management team with a commitment to dividend growth. This approach has served investors well over the longer term.  

Iain McLaren

Chairman

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the six month period to 30 September 2012

	Six months to 30 September 2012
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	1,559	1,559
Exchange differences	-	181	181
Investment income	3,008	-	3,008
Investment management fee	(120)	(359)	(479)
Other expenses	(177)	-	(177)
Profit before finance costs and taxation	2,711	1,381	4,092
Net finance costs
Interest on bank loan and interest rate swap	(296)	(691)	(987)
Total finance costs	(296)	(691)	(987)
Profit before tax	2,415	690	3,105
Tax on ordinary activities	(11)	97	86
Profit for the period	2,404	787	3,191
Other comprehensive income:
Gain on cashflow hedge	-	749	749
Total comprehensive income for the period	2,404	1,536	3,940
Earnings per share	1.9p	0.6p	2.5p

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.

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)

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the year to 31 March 2012

	Year to 31 March 2012*
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	1,406	1,406
Exchange differences	-	364	364
Investment income	6,097	203	6,300
Investment management fee	(240)	(560)	(800)
Other expenses	(441)	-	(441)
Profit before finance costs and taxation	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 on ordinary activities	(122)	(113)	(235)
Profit/(loss) for the period	4,704	(78)	4,626
Other comprehensive income:
Gain on cashflow hedge	-	1,270	1,270
Total comprehensive income for the period	4,704	1,192	5,896
Earnings per share	3.7p	(0.1p)	3.6p

*These figures are audited

Condensed Unaudited Consolidated Balance Sheet

	As at 30 Sept 2012	As at 30 Sept 2011	As at 31 March 2012*
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	124,445	122,968	130,840
	124,445	122,968	130,840
Current assets
Other receivables	774	1,059	1,424
Cash and cash equivalents	1,575	8,993	11,452
	2,349	10,052	12,876
Total assets	126,794	133,020	143,716
Current liabilities
Other payables	(495)	(322)	(435)
Bank overdraft	-	-	(123)
Bank loan	-	(33,491)	(33,496)
Interest rate swap on bank loan	-	(1,495)	(749)
	(495)	(35,308)	(34,803)
Non-current liabilities
Bank loan	(18,000)	-	-
	(18,000)	-	-
Total liabilities	(18,495)	(35,308)	(34,803)
Net assets	108,299	97,712	108,913
Capital and reserves
Called-up share capital	134	134	134
Share premium	22	22	22
Capital redemption reserve	5	5	5
Buy back reserve	88,423	90,662	90,265
Special capital reserve	25,994	27,362	26,682
Capital reserves	(9,769)	(23,399)	(11,305)
Revenue reserve	3,490	2,926	3,110
Shareholders' funds	108,299	97,712	108,913
Net asset value per A share	87.0p	76.8p	85.9p
Net asset value per B share	87.0p	76.8p	85.9p

*These figures are audited 

Condensed Unaudited Consolidated Statement of Changes in Equity

	Six months to 30 Sept 2012	Six months to 30 Sept 2011	Year to 31 March 2012*
	£'000	£'000	£'000
Opening equity shareholders' funds	108,913	108,860	108,860
Net profit/(loss) for the period	3,191	(8,924)	4,626
Movement in fair value of interest rate swap	749	524	1,270
Shares bought back for treasury	(1,842)	-	(397)
Dividends paid on A shares	(2,024)	(2,056)	(4,074)
Capital distributions paid on B shares	(688)	(692)	(1,372)
Closing equity shareholders' funds	108,299	97,712	108,913

*These figures are audited

Condensed Unaudited Consolidated Cash Flow Statement

	Six months to 30 Sept 2012	Six months to 30 Sept 2011	Year to 31 March 2012*
	£'000	£'000	£'000
Net cash flow from operating activities	11,075	4,542	10,784
Net cash flow from financing activities	(21,032)	(3,731)	(7,805)
Net (decrease)/increase in cash and cash equivalents	(9,957)	811	2,979
Currency gains/(losses)	203	(124)	44
Net cash and cash equivalents at beginning of period	11,329	8,306	8,306
Net cash and cash equivalents at end of period	1,575	8,993	11,329

*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 2012. 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 2012, 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. 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 2012	30 Sept 2011	31 March 2012
	£'000	£'000	£'000
Equity investments	2,367	2,228	4,352
Fixed interest investments	620	935	1,684
Deposit interest	21	27	57
Special dividends credited to capital	-	203	203
Other income	-	-	4
	3,008	3,393	6,300

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 2012, will, subject to achieving stated performance criteria, be payable every five years. The current performance period will run for the five years from 1 April 2012 to 31 March 2017.

There was no performance fee accrued at 30 September 2012. Based on the outperformance to that date had the Company's net asset value per share been in excess of £1, all else being equal, a performance fee of £318,000 would have been accrued (30 September 2011 - £nil; 31 March 2012 - £nil).

4.    The returns per share are based on the net profit/(loss) for the period and on 125,360,339 shares (period to 30 September 2011 - 127,229,847; year to 31 March 2012 - 127,158,809), being the weighted average shares in issue during the period.

5.    Earnings for the six months to 30 September 2012 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 2012	Six months to 30 Sept 2011	Year to 31 March 2012
	£'000	£'000	£'000
In respect of the previous period:
Fourth interim dividend paid at 1.1p per A share	1,033	1,047	1,047
Fourth capital distribution paid at 1.1p per B share	353	352	352
In respect of the period under review:
First interim dividend paid at 1.06p per A share	991	1,009	1,009
First capital distribution paid at 1.06p per B share	335	340	340
Second interim dividend paid at 1.06p per A share	-	-	1,009
Second capital distribution paid at 1.06p per B share	-	-	340
Third interim dividend paid at 1.06p per A share	-	-	1,009
Third capital distribution paid at 1.06p per B share	-	-	340
	2,712	2,748	5,446

A second interim dividend for the year to 31 March 2013, of 1.06p per A share, was paid on 2 November 2012 to A shareholders on the register on 5 October 2012. A second quarter capital distribution of 1.06p per B share was paid on 2 November 2012 to B shareholders on the register on 5 October 2012. 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 2013, being the period during which they are paid. 

8.    On 28 September 2012 the Company repaid its existing £33.5 million term loan. On the same date the Company drew down an £18 million secured term loan from JPMorgan Chase Bank. The new facility has a five year 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 £18,132,000 at 30 September 2012.

9.    Over the period the Company bought back 1,650,000 A shares to hold in treasury (period to 30 September 2011 - nil A shares; year to 31 March 2012 - 500,000 A shares) and 630,000 B shares (period to 30 September 2011 - nil B shares; year to 31 March 2012 - nil B shares). The Company did not resell any shares from treasury (period to 30 September 2011 - nil; year to 31 March 2012 - nil).

At 30 September 2012 the Company held 9,039,000 A shares and 655,000 B shares in treasury (30 September 2011 - 6,889,000 A shares and 25,000 B shares; 31 March 2012 - 7,389,000 A shares and 25,000 B shares).

The Company did not issue any new shares during the period (period to 30 September 2011 - nil; year to 31 March 2012 - nil).

10.  The net asset value per share is based on shareholders' funds at the period end and on 93,028,144 A shares and 31,421,703 B shares, being the number of shares in issue at the period end (30 September 2011 - 95,178,144 A shares and 32,051,703 B shares; 31 March 2012 - 94,678,144 A shares and 32,051,703 B shares).

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

12.  The Company's auditors, Ernst & Young LLP, have not audited or reviewed the Interim Report to 30 September 2012 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 2012, 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 2012 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 2012. 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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