Half Yearly Report

RNS Number : 2305Y

Investors Capital Trust PLC

27 November 2014

 



To:                  RNS

From:              Investors Capital Trust plc

Date:               27 November 2014

Highlights

·     Net asset value per share total return for the six months of 0.7 per cent, compared to the FTSE All-Share Capped 5% Index total return of 1.1 per cent.

·     Expected distribution yield of 4.7 per cent on A shares and B shares at 30 September 2014, based on indicated dividends for the year ended 31 March 2015. This compares with the yield on the FTSE All-Share Index of 3.3 per cent.

·     Distributions paid quarterly. Interim dividends in respect of the period increased by 2.5 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 2014.

Chairman's Statement

Introduction

Over the past six months the global economic recovery has been lacklustre and increasingly divergent. Economic growth is strengthening in some regions of the world whilst weakening in others. Indeed since my last report to shareholders earlier this year, growth expectations have been reduced for most major economies with the exception of the United States and the United Kingdom. In recent weeks the US Federal Reserve confirmed it was ending its quantitative easing programme, citing confidence in the breadth and depth of the US recovery. In the UK, with the political uncertainty surrounding the Scottish referendum removed, the economy appears to remain on track to be one of the fastest growing of the developed economies this year. In marked contrast, in the Eurozone, economic growth appears to have stalled, raising concerns of recession and deflation in that region. Elsewhere, recent data has confirmed that the Japanese economy, the third largest in the world, has already slipped back into recession. Geopolitical risks to financial markets have also intensified throughout the year, most notably with widespread and rising unrest across the Middle East and with Russia's intervention in Ukraine. Despite this more challenging background, financial markets have been resilient, supported by reasonably healthy corporate sector fundamentals and, where needed, by the ongoing policy accommodation from Central banks and policymakers around the world.

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 2014, 82.6 per cent. of total assets was allocated to the Equities Portfolio and 13.1 per cent. to the Higher Yield Portfolio. The remaining 4.3 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 borrowings, resulted in the net asset value total return for the A and B shares of 0.7 per cent. over the six months to 30 September 2014.  This return was behind the 1.1 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 57.9 per cent. which exceeds the 48.6 per cent. return from the benchmark index and reflects strong outperformance from the Equities Portfolio.

During the six months to 30 September 2014, the Company's Equities Portfolio produced a total return of 1.1 per cent. which matched the benchmark index return. The Higher Yield Portfolio is invested in predominantly investment grade corporate bonds and returned 2.4 per cent. in total return terms for the six months to 30 September 2014.

Earnings, Dividends and Capital Distributions

The Company earned total revenue income of £3.1m for the six months. The yield on the Equities Portfolio was 3.5 per cent. as at 30 September 2014, compared to the yield on the FTSE All-Share Index of 3.3 per cent.

Income from the Equities Portfolio rose compared with the same six month period last year. This increase was due to the higher level of one-off special dividends received during the period, most notably from Compass Group, Intercontinental Hotels and Booker. In total, special dividends added £306,000 to the revenue account during the period. The majority of investee companies continued to demonstrate good dividend growth during the period although the pace of dividend growth from the market as a whole has continued to slow. With around two-thirds of the UK stock market revenues coming from overseas, the combination of strong sterling and falling commodity prices over the past year has proven to be a drag on the earnings of the UK market as a whole. However, in recent months, sterling has subsequently weakened appreciably against the US dollar.

Over the past six months there has been a further reduction in assets allocated to the Higher Yield Portfolio in favour of the Equities Portfolio and this trend is expected to continue going forward.  However, income from the Higher Yield Portfolio actually increased, compared to the same period in the prior year, due to an increase in its exposure to non-investment grade bonds.

The Company's dividend for the year ending 31 March 2015 is estimated, barring unforeseen circumstances, to be 4.48p per share (2014: 4.37p). The first three quarterly dividends will be paid in equal instalments of 1.11p per share and a fourth quarterly dividend of approximately 1.15p 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 both A shareholders and B shareholders of 4.7 per cent. based on share prices as at 30 September 2014. For those shareholders that hold units (each comprising three A shares and one B share) the distribution yield on this unit holding would be 4.9 per cent. These yields compare favourably with the yield on the FTSE All-Share Index of 3.3 per cent. at that date.

After providing for the second quarter dividend, the Company had revenue reserves of £3.8m at 30 September 2014.

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 and B share price both stood at a discount of 5.8 per cent. at 30 September 2014. Over the six month period, the price of the Company's A shares traded at an average discount to net asset value per share of 7.6 per cent. and the Company's B shares traded at an average discount of 4.4 per cent.

During the six month period, the Company bought back to be held in treasury 500,000 A shares at a discount to net asset value, thereby enhancing value for existing shareholders.

Alternative Investment Fund Managers (AIFM) Directive

As highlighted in the Annual Report, 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. During the period, the Board entered 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. The Company also appointed JP Morgan to act as Depositary. Both appointments commenced during July 2014.

Outlook

Since the financial crisis of 2008, global liquidity has been a key driver of the re-rating of equity markets and it remains an important influence today. Against a background of subdued global growth expectations and continuing low inflation, both equity and credit markets have taken comfort from the accommodative stance adopted by policymakers. While the economic backdrop is muted, interest rates remain close to record low levels and corporate sector fundamentals reasonably healthy, suggesting the recent upturn in merger and acquisition activity will continue to be supportive for equity markets.

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 2014

	Six months to 30 September 2014
	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on investments held at fair value	-	(1,436)	(1,436)
Exchange differences	-	203	203
Investment income	3,139	-	3,139
Investment management fee - basic	(142)	(331)	(473)
Investment management fee - performance	-	-	-
Other expenses	(176)	-	(176)
Profit/(loss) before finance costs and taxation	2,821	(1,564)	1,257
Net finance costs
Interest on bank loan	(89)	(208)	(297)
Total finance costs	(89)	(208)	(297)
Profit/(loss) before tax	2,732	(1,772)	960
Tax on ordinary activities	(17)	17	-
Profit/(loss) for the period	2,715	(1,755)	960
Total comprehensive income for the period	2,715	(1,755)	960
Earnings per share	2.21p	(1.43)p	0.78p

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 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 - basic	(138)	(411)	(549)
Investment management fee - performance	-	-	-
Other expenses	(189)	-	(189)
Profit before finance costs and taxation	2,620	1,700	4,320
Net finance costs
Interest on bank loan	(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
Total comprehensive income for the period	2,519	1,504	4,023
Earnings per share	2.04p	1.22p	3.26p

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the year to 31 March 2014

	Year to 31 March 2014*
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	7,741	7,741
Exchange differences	-	227	227
Investment income	5,466	-	5,466
Investment management fee - basic	(278)	(837)	(1,115)
Investment management fee - performance	-	(395)	(395)
Other expenses	(386)	-	(386)
Profit before finance costs and taxation	4,802	6,736	11,538
Net finance costs
Interest on bank loan	(178)	(415)	(593)
Total finance costs	(178)	(415)	(593)
Profit before tax	4,624	6,321	10,945
Tax on ordinary activities	(26)	26	-
Profit for the period	4,598	6,347	10,945
Total comprehensive income for the period	4,598	6,347	10,945
Earnings per share	3.73p	5.14p	8.87p

*These figures are audited

Condensed Unaudited Consolidated Balance Sheet

	As at 30 Sept 2014	As at 30 Sept 2013	As at 31 March 2014*
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	136,143	133,840	139,566
	136,143	133,840	139,566
Current assets
Receivables	1,327	721	1,280
Cash and cash equivalents	5,237	6,777	5,904
	6,564	7,498	7,184
Total assets	142,707	141,338	146,750
Current liabilities
Payables	(431)	(892)	(2,198)
	(431)	(892)	(2,198)
Non-current liabilities
Bank loan	(18,000)	(18,000)	(18,000)
	(18,000)	(18,000)	(18,000)
Total liabilities	(18,431)	(18,892)	(20,198)
Net assets	124,276	122,446	126,552
Capital and reserves
Share capital	134	134	134
Share premium	153	80	153
Capital redemption reserve	5	5	5
Buy back reserve	86,868	87,575	87,356
Special capital reserve	23,236	24,640	23,952
Capital reserves	9,081	5,993	10,836
Revenue reserve	4,799	4,019	4,116
Shareholders' funds	124,276	122,446	126,552
Net asset value per A share	101.16p	99.13p	102.59p
Net asset value per B share	101.16p	99.13p	102.59p

*These figures are audited 

Condensed Unaudited Consolidated Statement of Changes in Equity

	Six months to 30 Sept 2014	Six months to 30 Sept 2013	Year to 31 March 2014*
	£'000	£'000	£'000
Opening equity shareholders' funds	126,552	121,498	121,498
Net profit for the period	960	4,023	10,945
Shares resold from treasury	-	319	657
Shares bought back for treasury	(488)	(696)	(1,180)
Dividends paid on A shares	(2,032)	(2,010)	(3,992)
Capital repayments paid on B shares	(716)	(688)	(1,376)
Closing equity shareholders' funds	124,276	122,446	126,552

*These figures are audited

Condensed Unaudited Consolidated Cash Flow Statement

	Six months to 30 Sept 2014	Six months to 30 Sept 2013	Year to 31 March 2014*
	£'000	£'000	£'000
Net cash flow from operating activities	2,512	4,877	7,152
Net cash flow from financing activities	(3,400)	(3,377)	(6,622)
Net (decrease)/increase in cash and cash equivalents	(888)	1,500	530
Currency gains	221	131	228
Net cash and cash equivalents at beginning of period	5,904	5,146	5,146
Net cash and cash equivalents at end of period	5,237	6,777	5,904

*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 2014. 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 2014, 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 2014	30 Sept 2013	31 March 2014
	£'000	£'000	£'000
Equity investments	2,650	2,480	4,511
Fixed interest investments	481	455	933
Deposit interest	6	12	17
Underwriting commission and other income	2	-	5
	3,139	2,947	5,466

3.    The Company's investment manager is F&C Investment Business Limited. With effect from 1 April 2014, F&C Investment Business Limited receives an investment management fee of 0.75 per cent per annum of the net asset value of the Company payable quarterly in arrears.  For prior periods the fee comprised a base fee of 0.90 per cent per annum and a performance fee.  Full details can be found in the Company's Annual Report and Accounts for the year ended 31 March 2014.

4.    The earnings per share are based on the net profit for the period and on 123,100,749 shares (period to 30 September 2013 - 123,445,475; year to 31 March 2014 - 123,435,344), being the weighted average shares in issue during the period.

5.    Earnings for the six months to 30 September 2014 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 2014		30 September 2013		31 March 2014
	£'000	Pence per share	£'000	Pence per share	£'000	Pence per share
Shareholders' funds per financial statements	124,276	101.16	122,446	99.13	126,552	102.59
Closing fair value adjustment on fixed-rate term loan	229	0.18	208	0.17	308	0.25
Shareholders' funds with debt at fair value	124,505	101.34	122,654	99.30	126,860	102.84
Profit for the period per financial statements	960	0.78	4,023	3.26	10,945	8.87
Movement in fair value on fixed-rate term loan	(79)	(0.06)	394	0.32	494	0.40
Profit for the period with debt at fair value	881	0.72	4,417	3.58	11,439	9.27

7.    Dividends

	Six months to 30 Sept 2014	Six months to 30 Sept 2013	Year to 31 March 2014
	£'000	£'000	£'000
In respect of the previous period:
Fourth interim dividend paid at 1.1225p (2013: 1.1p) per A share	1,025	1,017	1,018
Fourth capital repayment paid at 1.1225p (2013:1.1p) per B share	360	346	346
In respect of the period under review:
First interim dividend paid at 1.11p (2013: 1.0825p) per A share	1,007	993	993
First capital repayment paid at 1.11p (2013: 1.0825p) per B share	356	342	342
Second interim dividend paid at 1.0825p per A share	-	-	993
Second capital repayment paid at 1.0825p per B share	-	-	344
Third interim dividend paid at 1.0825p per A share	-	-	988
Third capital repayment paid at 1.0825p per B share	-	-	344
	2,748	2,698	5,368

A second interim dividend for the year to 31 March 2015, of 1.11p per A share, was paid on 7 November 2014 to A shareholders on the register on 3 October 2014. A second quarter capital repayment of 1.11p per B share was paid on 7 November 2014 to B shareholders on the register on 3 October 2014. Although these payments relate to the period ended 30 September 2014, under IFRS they will be accounted for in the six months to 31 March 2015, 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	112,547
Opening fair value adjustment	27,019
Opening valuation	139,566
Movement in the period:
Purchases at cost	8,928
Sales - proceeds	(10,915)
- gains on sales	715
Decrease in fair value adjustment	(2,151)
Closing valuation at 30 September 2014	136,143
Closing book cost at 30 September 2014	111,275
Closing fair value adjustment at 30 September 2014	24,868
Closing valuation at 30 September 2014	136,143

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 2014.

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 £17,771,000 at 30 September 2014 (30 September 2013 - £17,792,000; 31 March 2014 - £17,692,000).

10.  Over the period the Company bought back 500,000 A shares to hold in treasury (period to 30 September 2013 - 750,000 A shares; year to 31 March 2014 - 1,250,000 A shares) and nil B shares (period to 30 September 2013 - nil B shares; year to 31 March 2014 - nil B shares). The Company did not resell any A shares or B shares from treasury (period to 30 September 2013 - 325,000 B shares; year to 31 March 2014 - 655,000 B shares).

At 30 September 2014 the Company held 11,289,000 A shares and nil B shares in treasury (30 September 2013 - 10,289,000 A shares and 330,000 B shares; 31 March 2014 - 10,789,000 A shares and nil B shares).

The Company did not issue any new shares during the period (period to 30 September 2013 - nil; year to 31 March 2014 - nil).

11.  The net asset value per share is based on shareholders' funds at the period end and on 90,778,144 A shares and 32,076,703 B shares, being the number of shares in issue at the period end (30 September 2013 - 91,778,144 A shares and 31,746,703 B shares; 31 March 2014 - 91,278,144 A shares and 32,076,703 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 2014.

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 2014 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 2014, 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 2014 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 Uncertainties and Risk Management' within the Business Model and Strategy in the Group's Annual Report for the year ended 31 March 2014. 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

 

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