Half Yearly Report

RNS Number : 2295U

Investors Capital Trust PLC

29 November 2013

 



To:                   RNS

From:              Investors Capital Trust plc

Date:               29 November 2013

Highlights

·     Net asset value per share total return for the six months of 3.7 per cent, compared to the FTSE All-Share Capped 5% Index total return of 4.1 per cent.

·     Expected distribution yield of 4.6 per cent on A shares and 4.3 per cent on B shares at 30 September 2013, based on indicated dividends for the year ended 31 March 2014. This compares with the yield on the FTSE All-Share Capped 5% Index of 3.4 per cent.

·     Distributions paid quarterly. Interim dividends in respect of the period increased by 2.1 per cent compared to the prior year.

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 2013

Chairman's Statement

Introduction

In my report to shareholders earlier this year I highlighted that global economic growth had been uneven and anaemic and was likely to remain so as developed economies continued to bear the burden of deleveraging and austerity. The pace of economic growth has indeed remained lacklustre, however, the overall trajectory of recovery has been positive, supported by the highly accommodative policy stance adopted by Central Banks around the world. It will take some time for economic conditions to normalise in the wake of the worst financial crisis of the post-war era, however, in recent months the outlook appears to have brightened. Investor perception of diminishing macro risk, particularly from the Eurozone, together with rising economic optimism, has been good for risk assets, including equities, which have recorded further gains over the past six months.

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 2013, 82.3 per cent. of total assets was allocated to the Equities Portfolio and 13.0 per cent. to the Higher Yield Portfolio. The remaining 4.7 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 and B shares of 3.7 per cent. over the six months to 30 September 2013.  This return was behind the 4.1 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 48.2 per cent. which exceeds the 40.2 per cent. return from the benchmark index and reflects strong outperformance from the Equities Portfolio.

During the six months to 30 September 2013 the Company's Equities Portfolio produced a total return of 3.9 per cent. which was slightly behind the benchmark index return of 4.1 per cent. The Higher Yield Portfolio is invested in predominantly investment grade corporate bonds and returned 2.9 per cent. in total return terms for the six months to 30 September 2013.

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 3.6 per cent. as at 30 September 2013, compared to the yield on the FTSE All-Share Capped 5% Index of 3.4 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 further reduction in assets allocated to the Higher Yield Portfolio in favour of the Equities Portfolio. The majority of investee companies continued to demonstrate good dividend growth during the period although the pace of dividend growth has continued to moderate, a trend I highlighted in my last report to shareholders.

The Company's dividend for the year ending 31 March 2014 is estimated, barring unforeseen circumstances, to be 4.37p per share (2013: 4.28p). The first three quarterly dividends will be paid in equal instalments of 1.0825p per share and a fourth quarterly dividend of approximately 1.1225p 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 4.6 per cent. and a yield for B shareholders of 4.3 per cent. based on the respective share prices as at 30 September 2013. For those shareholders that hold units (each comprising three A shares and one B share) the distribution yield on this unit holding would be 4.7 per cent. These yields compare favourably with the yield on the FTSE All-Share Index of 3.4 per cent. at that date.

After providing for the second quarter dividend, the Company had revenue reserves of £3.0m at 30 September 2013.

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

Discount and buy backs

The Company's A share price stood at a discount to net asset value of 4.3 per cent. at 30 September 2013, whilst the B share price stood at a premium of 1.7 per cent. 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 6.6 per cent. and the Company's B shares traded at an average discount of 3.0 per cent.

During the six month period, the Company bought back to be held in treasury 750,000 A shares at a discount to net asset value and resold 325,000 B shares at the prevailing net asset value, thereby enhancing value for existing shareholders.

Alternative Investment Fund Managers (AIFM) Directive

The AIFM Directive is European legislation which creates a European-wide framework for regulating managers of alternative investment funds. Closed-ended investment companies fall within the remit of these new regulations. The Company has until July 2014, the end of the transitional period, to register and comply with the provisions of the AIFM Directive. The Board expects to enter into arrangements with the Manager, F&C Investment Business Limited, to act as the Company's Alternative Investment Fund Manager, at no additional cost to the Company. Under the Directive, the Company is also required to appoint a Depositary and the Board is well advanced in considering which organisation to appoint, with such appointment to commence from the end of the transitional period. Although this appointment will result in an additional cost to the Company, the Board does not expect this cost to be significant.

Outlook

The UK corporate sector remains in reasonably good health. Corporate profitability is strong, balance sheets are robust and dividends have continued to grow. However, over the past year corporate earnings have made little headway and consequently the pace of dividend growth from the market has continued to slow. The UK equity market has recovered strongly from the lows of early 2009. More recently stock market gains have been driven by a re-rating of shares rather than through underlying growth in corporate earnings. While the valuation of UK equities appears reasonable when viewed in the context of other competing asset classes such as cash and bonds it is more demanding when viewed in isolation. As the UK stock market is one of the most internationally exposed markets, continued growth in the global economy remains key to further progress in financial markets in the years ahead.

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 2013

	Six months to 30 September 2013
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	1,959	1,959
Exchange differences	-	152	152
Investment income	2,947	-	2,947
Investment management fee	(138)	(411)	(549)
Other expenses	(189)	-	(189)
Profit before finance costs and taxation	2,620	1,700	4,320
Net finance costs
Interest on bank loan and interest rate swap	(89)	(208)	(297)
Total finance costs	(89)	(208)	(297)
Profit before tax	2,531	1,492	4,023
Tax on ordinary activities	(12)	12	-
Profit for the period	2,519	1,504	4,023
Other comprehensive income:
Items that are or may be reclassified subsequently to profit of loss
Movement in fair value of interest rate swap	-	-	-
Total comprehensive income for the period	2,519	1,504	4,023
Earnings per share	2.1p	1.2p	3.3p

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 2012

	Six months to 30 September 2012
	Revenue	Capital	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:
Items that are or may be reclassified subsequently to profit of loss
Movement in fair value of interest rate swap	-	749	749
Total comprehensive income for the period	2,404	1,536	3,940
Earnings per share	1.9p	0.6p	2.5p

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the year to 31 March 2013

	Year to 31 March 2013*
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	16,309	16,309
Exchange differences	-	(28)	(28)
Investment income	5,478	-	5,478
Investment management fee	(250)	(583)	(833)
Other expenses	(445)	-	(445)
Profit before finance costs and taxation	4,783	15,698	20,481
Net finance costs
Interest on bank loan and interest rate swap	(384)	(897)	(1,281)
Total finance costs	(384)	(897)	(1,281)
Profit before tax	4,399	14,801	19,200
Tax on ordinary activities	(8)	244	236
Profit for the period	4,391	15,045	19,436
Other comprehensive income:
Items that are or may be reclassified subsequently to profit of loss
Movement in fair value of interest rate swap	-	749	749
Total comprehensive income for the period	4,391	15,794	20,185
Earnings per share	3.5p	12.1p	15.6p

*These figures are audited

Condensed Unaudited Consolidated Balance Sheet

	As at 30 Sept 2013	As at 30 Sept 2012	As at 31 March 2013*
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	133,840	124,445	133,611
	133,840	124,445	133,611
Current assets
Other receivables	721	774	1,045
Cash and cash equivalents	6,777	1,575	5,146
	7,498	2,349	6,191
Total assets	141,338	126,794	139,802
Current liabilities
Other payables	(892)	(495)	(304)
	(892)	(495)	(304)
Non-current liabilities
Bank loan	(18,000)	(18,000)	(18,000)
	(18,000)	(18,000)	(18,000)
Total liabilities	(18,892)	(18,495)	(18,304)
Net assets	122,446	108,299	121,498
Capital and reserves
Called-up share capital	134	134	134
Share premium	80	22	22
Capital redemption reserve	5	5	5
Buy back reserve	87,575	88,423	88,010
Special capital reserve	24,640	25,994	25,328
Capital reserves	5,993	(9,769)	4,489
Revenue reserve	4,019	3,490	3,510
Shareholders' funds	122,446	108,299	121,498
Net asset value per A share	99.1p	87.0p	98.0p
Net asset value per B share	99.1p	87.0p	98.0p

*These figures are audited 

Condensed Unaudited Consolidated Statement of Changes in Equity

	Six months to 30 Sept 2013	Six months to 30 Sept 2012	Year to 31 March 2013*
	£'000	£'000	£'000
Opening equity shareholders' funds	121,498	108,913	108,913
Net profit for the period	4,023	3,191	19,436
Movement in fair value of interest rate swap	-	749	749
Shares issued from treasury	319	-	-
Shares bought back for treasury	(696)	(1,842)	(2,255)
Dividends paid on A shares	(2,010)	(2,024)	(3,991)
Capital returns paid on B shares	(688)	(688)	(1,354)
Closing equity shareholders' funds	122,446	108,299	121,498

*These figures are audited

Condensed Unaudited Consolidated Cash Flow Statement

	Six months to 30 Sept 2013	Six months to 30 Sept 2012	Year to 31 March 2013*
	£'000	£'000	£'000
Net cash flow from operating activities	4,877	11,075	18,187
Net cash flow from financing activities	(3,377)	(21,032)	(24,372)
Net increase/(decrease) in cash and cash equivalents	1,500	(9,957)	(6,185)
Currency gains	131	203	2
Net cash and cash equivalents at beginning of period	5,146	11,329	11,329
Net cash and cash equivalents at end of period	6,777	1,575	5,146

*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, except as described below, the accounting policies set out in the statutory accounts of the Group for the year ended 31 March 2013. 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 2013, which were prepared under full IFRS requirements to the extent that they have been adopted by the European Union.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards. The following changes in accounting standards are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 March 2014.

·     Presentation of Items of Other Comprehensive Income (Amendments to IAS 1 'Presentation of Financial Statements'). The amendments to IAS 1 change the grouping of items presented in Other Comprehensive Income in its condensed consolidated statement of comprehensive income. Items that could be reclassified to profit or loss at a future point in time are now required to be presented separately from items that will never be reclassified. The amendment has no impact on the recognised assets, liabilities and comprehensive income of the Group.

·     IFRS 13 'Fair Value Measurement' (2011). IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. In particular, it unifies the definition of fair value as the price at which an ordinary transaction to sell an asset or to transfer a liability would take place between investor participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 'Financial Instruments: Disclosures'. Some of these disclosures are specifically required in interim financial statements for financial instruments; accordingly, the Group has included additional disclosures in this regard (see notes 8 and 12). The change has no significant impact on the measurement of the Group's assets and liabilities.

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 2013	30 Sept 2012	31 March 2013
	£'000	£'000	£'000
Equity investments	2,480	2,367	4,364
Fixed interest investments	455	620	1,086
Deposit interest	12	21	28
	2,947	3,008	5,478

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 year ended 31 March 2013, 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 2013. 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 £271,000 would have been accrued (30 September 2012 - £318,000; 31 March 2013 - £351,000).

4.    The earnings per share are based on the net profit for the period and on 123,445,475 shares (period to 30 September 2012 - 125,360,339; year to 31 March 2013 - 124,767,984), being the weighted average shares in issue during the period.

5.    Earnings for the six months to 30 September 2013 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 2013		30 September 2012		31 March 2013
	£'000	Pence per share	£'000	Pence per share	£'000	Pence per share
Shareholders' funds per financial statements	122,446	99.13	108,299	87.02	121,498	98.02
Fair value adjustment on fixed-rate term loan	208	0.17	(132)	(0.10)	(186)	(0.15)
Shareholders' funds with debt at fair value	122,654	99.30	108,167	86.92	121,312	97.87
Profit for the period per financial statements	4,023	3.26	3,191	2.55	19,436	15.58
Fair value adjustment on fixed-rate term loan	394	0.32	(132)	(0.11)	(186)	(0.15)
Profit for the period with debt at fair value	4,417	3.58	3,059	2.44	19,250	15.43

7.    Dividends

	Six months to 30 Sept 2013	Six months to 30 Sept 2012	Year to 31 March 2013
	£'000	£'000	£'000
In respect of the previous period:
Fourth interim dividend paid at 1.1p per A share	1,017	1,033	1,033
Fourth capital distribution paid at 1.1p per B share	346	353	353
In respect of the period under review:
First interim dividend paid at 1.0825p (2012: 1.06p) per A share	993	991	991
First capital distribution paid at 1.0825p (2012: 1.06p) per B share	342	335	335
Second interim dividend paid at 1.06p per A share	-	-	986
Second capital distribution paid at 1.06p per B share	-	-	333
Third interim dividend paid at 1.06p per A share	-	-	981
Third capital distribution paid at 1.06p per B share	-	-	333
	2,698	2,712	5,345

A second interim dividend for the year to 31 March 2014, of 1.0825p per A share, was paid on 1 November 2013 to A shareholders on the register on 4 October 2013. A second quarter capital distribution of 1.0825p per B share was paid on 1 November 2013 to B shareholders on the register on 4 October 2013. Although these payments relate to the period ended 30 September 2013, under IFRS they will be accounted for in the six months to 31 March 2014, 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	111,809
Opening fair value adjustment	21,802
Opening valuation	133,611
Movement in the period:
Purchases at cost	7,433
Sales - proceeds	(9,163)
- gains on sales	899
Increase in fair value adjustment	1,060
Closing valuation at 30 September 2013	133,840
Closing book cost at 30 September 2013	110,978
Closing fair value adjustment at 30 September 2013	22,862
Closing valuation at 30 September 2013	133,840

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 2013.

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 £17,792,000 at 30 September 2013 (30 September 2012 -£18,132,000; 31 March 2013 - £18,186,000).

10.  Over the period the Company bought back  750,000 A shares to hold in treasury (period to 30 September 2012 - 1,650,000 A shares; year to 31 March 2013 - 2,150,000 A shares) and nil B shares (period to 30 September 2012 - 630,000 B shares; year to 31 March 2013 - 630,000 B shares). The Company did not resell any A shares from treasury (period to 30 September 2012 - nil; year to 31 March 2013 - nil). The Company resold 325,000 B Shares from treasury (period to 30 September 2012 - nil; year to 31 March 2013 - nil).

At 30 September 2013 the Company held 10,289,000 A shares and 330,000 B shares in treasury (30 September 2012 - 9,039,000 A shares and 655,000 B shares; 31 March 2013 - 9,539,000 A shares and 655,000 B shares).

The Company did not issue any new shares during the period (period to 30 September 2012 - nil; year to 31 March 2013 - nil).

11.  The net asset value per share is based on shareholders' funds at the period end and on 91,778,144 A shares and 31,746,703 B shares, being the number of shares in issue at the period end (30 September 2012 - 93,028,144 A shares and 31,421,703 B shares; 31 March 2013 - 92,528,144 A shares and 31,421,703 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 2013.

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

14.  The Company's auditor, Ernst & Young LLP, have not audited or reviewed the Interim Report to 30 September 2013 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 2013, 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 2013 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

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 2013. 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

Donald Cameron, Company Secretary                      0207 628 8000

 

END

 

 

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