Half Yearly Report

RNS Number : 2559H

Investors Capital Trust PLC

27 November 2015

 



To:                   RNS

From:              Investors Capital Trust plc

Date:               27 November 2015

Highlights

·     Net asset value per share total return for the six months of -6.1 per cent, compared to the FTSE All-Share Capped 5% Index total return of -7.0 per cent.

·     Expected distribution yield of 5.1 per cent on A shares and B shares at 30 September 2015, based on expected dividends for the year ended 31 March 2016. This compares with the yield on the FTSE All-Share Index of 3.7 per cent.

·     Distributions paid quarterly. Interim dividends in respect of the period increased by 2.7 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 2015.

Chairman's Statement

Introduction

In my last report to shareholders I highlighted that a number of challenges lay ahead for financial markets, not least the economic and political difficulties affecting the Eurozone, an uncertain economic growth outlook in China, and the heightened level of global geopolitical risk. Indeed, while all of these issues have remained very much at the forefront of investors' thoughts in recent months, it has been the deteriorating outlook for the Chinese economy which has weighed most heavily on financial markets. The Chinese economy is undergoing a transition from an export and investment led growth model to one that is more focused on the trade in services and domestic consumption; an economic rebalancing that should ultimately lead to more stable and durable economic growth. However, it is unsurprising that the uncertain near-term outlook for growth in the region has triggered concerns over the prospects for the global economy and contributed to a rise in volatility in global equity markets.

The outlook for UK corporate earnings has also been a concern for investors. Corporate profitability and cash flow recovered quickly in the early years following the financial crisis. However, over the past few years, with profit margins already high, the economic backdrop anaemic and competition acute, many companies, particularly the largest ones, have struggled to grow their earnings. Unless we see an acceleration in the pace of global growth it is difficult to see a sustainable improvement in earnings and dividends.

Geopolitical risks have intensified over the past year with rising instability across the Middle East and North Africa, the continued rise of radical Islam and deteriorating bilateral relations between the United States and Russia. Even within the Eurozone, where signs of economic stability have been more encouraging, albeit largely a result of the European Central Bank's stimulus program, deep political divisions are evident. Nevertheless against a background of plentiful global liquidity and reasonable corporate sector fundamentals, equity and bond markets have remained generally well supported.

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 2015, 82.3 per cent. of total assets was allocated to the Equities Portfolio and 10.8 per cent. to the Higher Yield Portfolio. The remaining 6.9 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 -6.1 per cent. over the six months to 30 September 2015.  This return was ahead of the -7.0 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 55.0 per cent. which exceeds the 46.1 per cent. return from the benchmark index and reflects strong outperformance from the Equities Portfolio.

During the six months to 30 September 2015, the Company's Equities Portfolio produced a total return of -5.1 per cent. which was ahead of the benchmark index return of -7.0 per cent. The Higher Yield Portfolio is invested in predominantly investment grade corporate bonds and returned -1.6 per cent. in total return terms for the six months to 30 September 2015.

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 4.1 per cent. as at 30 September 2015, compared to the yield on the FTSE All-Share Index of 3.7 per cent.

Income from the Equities Portfolio fell compared with the same six month period last year. This decrease was largely due to the lower level of one-off special dividends received during the period. In total, special dividends added £57,000 to the revenue account during the period compared with £306,000 during the same period in the prior year. The majority of investee companies have continued to demonstrate good underlying dividend growth even though pace of dividend growth from the market as a whole has been subdued, reflecting the weakness in corporate earnings growth.

Movements in the Sterling exchange rate, most notably against the US dollar, have an important influence on the Company's revenue as over a third of the Company's equity income comes from UK-listed companies that declare dividends in US dollars. Over the past year the US Dollar / Sterling exchange rate has at times been volatile but remained broadly unchanged overall.

The collapse in the price of crude oil and other hard commodities, such as copper and iron ore, due to a combination of demand and supply side factors, has been one of the key developments of the past year. If the current weakness in commodity markets persists over the medium term, we would expect the high level of dividend income offered by shares of the integrated oil and mining companies, to come under pressure. The Board would not expect modest dividend reductions across this segment of the market to impact the Company's current dividend level.

There has been a further reduction in assets allocated to the Higher Yield Portfolio. In light of the low level of yield available on corporate bonds, particularly higher quality, investment grade corporate bonds, we expect this trend to continue. Income from the Higher Yield Portfolio has consequently decreased, compared to the same period in the prior year.

The Company's dividend for the year ending 31 March 2016 is estimated, barring unforeseen circumstances, to be 4.6p per share which represents an increase of 2.7 per cent compared to the prior year (2015: 4.48p per share).  The first three quarterly dividends will be paid in equal instalments of 1.14p per share and a fourth quarterly dividend of approximately 1.18p 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 5.1 per cent. based on share prices as at 30 September 2015. For those shareholders that hold units (each comprising three A shares and one B share) the distribution yield on this unit holding would be 5.1 per cent. These yields compare favourably with the yield on the FTSE All-Share Index of 3.7 per cent. at that date.

After providing for the second quarter dividend, the Company had revenue reserves of £4.3m at 30 September 2015.

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 6.0 per cent. at 30 September 2015. 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 6.0 per cent. and the Company's B shares traded at an average discount of 4.3 per cent.

During the six month period, the Company did not buy back any shares to be held in treasury nor resell any shares from treasury.

Outlook

The global economy has continued to make progress over the past six months although, as has been the case in recent years, growth remains sluggish and uneven. The UK economy has been the fastest growing of the major developed economies and continues to perform well. In the United States, after six years of recovery, the improvement in economic conditions has been such that the Federal Reserve now appear to be considering an increase in interest rates. In contrast the Eurozone recovery remains nascent and fragile, with the European Central Bank widely expected to expand its stimulus program in an effort to lift inflation and support growth. Looking forward, headwinds from the slowdown in emerging market economies, most notably China, are likely to dampen global growth prospects for the year ahead. The collapse in crude oil prices, while helpful for consumers, especially in developed economies, is damaging for the economies of the oil exporting nations such as Russia and Venezuela. Against this background there is little evidence of global inflationary pressure, suggesting that monetary policy will remain broadly expansionary across the major developed economies. This environment is likely to remain broadly supportive for equity markets.

Iain McLaren

Chairman

27 November 2015

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the six month period to 30 September 2015

	Six months to 30 September 2015
	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on investments held at fair value	-	(9,361)	(9,361)
Exchange differences	-	(3)	(3)
Investment income	2,851	-	2,851
Investment management fee	(134)	(312)	(446)
Other expenses	(193)	-	(193)
Profit/(loss) before finance costs and taxation	2,524	(9,676)	(7,152)
Net finance costs
Interest on bank loan	(89)	(208)	(297)
Total finance costs	(89)	(208)	(297)
Profit/(loss) before tax	2,435	(9,884)	(7,449)
Tax on ordinary activities	-	-	-
Profit/(loss) for the period	2,435	(9,884)	(7,449)
Total comprehensive income for the period	2,435	(9,884)	(7,449)
Earnings per share	1.99p	(8.08)p	(6.09)p

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 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	(142)	(331)	(473)
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

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the year to 31 March 2015

	Year to 31 March 2015*
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	2,597	2,597
Exchange differences	-	342	342
Investment income	5,721	-	5,721
Investment management fee	(283)	(660)	(943)
Other expenses	(391)	-	(391)
Profit before finance costs and taxation	5,047	2,279	7,326
Net finance costs
Interest on bank loan	(177)	(414)	(591)
Total finance costs	(177)	(414)	(591)
Profit before tax	4,870	1,865	6,735
Tax on ordinary activities	(22)	22	-
Profit for the period	4,848	1,887	6,735
Total comprehensive income for the period	4,848	1,887	6,735
Earnings per share	3.95p	1.54p	5.49p

*These figures are audited

Condensed Unaudited Consolidated Balance Sheet

	As at 30 Sept 2015	As at 30 Sept 2014	As at 31 March 2015*
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	125,346	136,143	136,821
	125,346	136,143	136,821
Current assets
Receivables	627	1,327	1,517
Cash and cash equivalents	8,994	5,237	7,309
	9,621	6,564	8,826
Total assets	134,967	142,707	145,647
Current liabilities
Payables	(332)	(431)	(761)
	(332)	(431)	(761)
Non-current liabilities
Bank loan	(18,000)	(18,000)	(18,000)
	(18,000)	(18,000)	(18,000)
Total liabilities	(18,332)	(18,431)	(18,761)
Net assets	116,635	124,276	126,886
Capital and reserves
Share capital	134	134	134
Share premium	153	153	153
Capital redemption reserve	5	5	5
Buy back reserve	86,425	86,868	86,425
Special capital reserve	21,789	23,236	22,524
Capital reserves	2,839	9,081	12,723
Revenue reserve	5,290	4,799	4,922
Shareholders' funds	116,635	124,276	126,886
Net asset value per A share	95.33p	101.16p	103.70p
Net asset value per B share	95.33p	101.16p	103.70p

*These figures are audited 

Condensed Unaudited Consolidated Statement of Changes in Equity

		Six months to 30 Sept 2015	Six months to 30 Sept 2014	Year to 31 March 2015*
		£'000	£'000	£'000
Opening equity shareholders' funds		126,886	126,552	126,552
Net(loss)/ profit for the period		(7,449)	960	6,735
Shares bought back for treasury	10	-	(488)	(931)
Dividends paid on A shares	7	(2,067)	(2,032)	(4,042)
Capital repayments paid on B shares	7	(735)	(716)	(1,428)
Closing equity shareholders' funds		116,635	124,276	126,886

*These figures are audited

Condensed Unaudited Consolidated Cash Flow Statement

	Six months to 30 Sept 2015	Six months to 30 Sept 2014	Year to 31 March 2015*
	£'000	£'000	£'000
Net cash flow from operating activities	4,753	2,512	7,931
Net cash flow from financing activities	(3,099)	(3,400)	(6,859)
Net increase/(decrease) in cash and cash equivalents	1,654	(888)	1,072
Currency gains	31	221	333
Net cash and cash equivalents at beginning of period	7,309	5,904	5,904
Net cash and cash equivalents at end of period	8,994	5,237	7,309

*These figures are audited

 Notes to the Condensed Accounts (unaudited)

1.    The condensed unaudited consolidated financial statements have been prepared in 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 2015. 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 2015, which were prepared under full IFRS requirements to the extent that they have been adopted by the European Union.

2.    Income for the period is derived from:

	30 Sept 2015	30 Sept 2014	31 March 2015
	£'000	£'000	£'000
Equity investments	2,468	2,650	4,766
Fixed interest investments	372	481	938
Deposit interest	11	6	15
Underwriting commission and other income	-	2	2
	2,851	3,139	5,721

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. 

4.    The earnings per share are based on the net profit for the period and on 123,354,847 shares (period to 30 September 2014 - 123,100,749; year to 31 March 2015 - 122,793,203), being the weighted average shares in issue during the period.

5.    Earnings for the six months to 30 September 2015 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 2015		30 September 2014		31 March 2015
	£'000	Pence per share	£'000	Pence per share	£'000	Pence per share
Shareholders' funds per financial statements	116,635	95.33	124,276	101.16	126,886	103.70
Closing fair value adjustment on fixed-rate term loan	(123)	(0.10)	229	0.18	(103)	(0.08)
Shareholders' funds with debt at fair value	116,512	95.23	124,505	101.34	126,783	103.62
(Loss)/profit for the period per financial statements	(7,449)	(6.09)	960	0.78	6,735	5.49
Movement in fair value on fixed-rate term loan	(20)	(0.02)	(79)	(0.06)	(411)	(0.33)
(loss)/profit for the period with debt at fair value	(7,469)	(6.11)	881	0.72	6,324	5.16

7.    Dividends and Capital Repayments

	Six months to 30 Sept 2015	Six months to 30 Sept 2014	Year to 31 March 2015
	£'000	£'000	£'000
In respect of the previous period:
Fourth interim dividend paid at 1.15p (2014: 1.1225) per A share	1,038	1,025	1,025
Fourth capital repayment paid at 1.15p (2014:1.1225p) per B share	369	360	360
In respect of the period under review:
First interim dividend paid at 1.14p (2014: 1.11p) per A share	1,029	1,007	1,007
First capital repayment paid at 1.14p (2014: 1.11p) per B share	366	356	356
Second interim dividend paid at 1.11p per A share	-	-	1,007
Second capital repayment paid at 1.11p per B share	-	-	356
Third interim dividend paid at 1.11p per A share	-	-	1,003
Third capital repayment paid at 1.11p per B share	-	-	356
	2,802	2,748	5,470

A second interim dividend for the year to 31 March 2016, of 1.14p per A share, was paid on 6 November 2015 to A shareholders on the register on 2 October 2015. A second quarter capital repayment of 1.14p per B share was paid on 6 November 2015 to B shareholders on the register on 2 October 2015. Although these payments relate to the period ended 30 September 2015, under IFRS they will be accounted for in the six months to 31 March 2016, 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	108,228
Opening fair value adjustment	28,593
Opening valuation	136,821
Movement in the period:
Purchases at cost	6,029
Sales - proceeds	(8,143)
- gains on sales	2,912
Decrease in fair value adjustment	(12,273)
Closing valuation at 30 September 2015	125,346
Closing book cost at 30 September 2015	109,026
Closing fair value adjustment at 30 September 2015	16,320
Closing valuation at 30 September 2015	125,346

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 2015.

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 £18,123,000 at 30 September 2015 (30 September 2014 - £17,771,000; 31 March 2015 - £18,103,000).

10.  The Company did not buy back any A shares to hold in treasury during the period (period to 30 September 2014 - 500,000 A shares; year to 31 March 2015 - 1,000,000 A shares) or any B shares (period to 30 September 2014 - nil B shares; year to 31 March 2015 - nil B shares). The Company did not resell any A shares or B shares from treasury (period to 30 September 2014 - nil A or B shares; year to 31 March 2015 - nil A or B shares).

At 30 September 2015 the Company held 11,789,000 A shares and nil B shares in treasury (30 September 2014 - 11,289,000 A shares and nil B shares; 31 March 2015 - 11,789,000 A shares and nil B shares).

The Company did not issue any new shares during the period (period to 30 September 2014 - nil; year to 31 March 2015 - nil).

11.  The net asset value per share is based on shareholders' funds at the period end and on 90,278,144 A shares and 32,076,703 B shares, being the number of shares in issue at the period end (30 September 2014 - 90,778,144 A shares and 32,076,703 B shares; 31 March 2015 - 90,278,144 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 2015.

13.  In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.

The Company's objective and policy, which is subject to regular Board monitoring processes, is designed to ensure that the Company is invested mainly in liquid, listed securities. The Company retains title to all assets held by its custodian and has agreements relating to its borrowing facilities with which it has complied. Cash is held only with banks approved and regularly reviewed by the Manager.

As part of the going concern review, the Directors noted that borrowing facilities of £18 million are committed to the Company until 28 September 2017.

The Directors believe, in the light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the accounts. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

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

15.  The Company's auditor, Ernst & Young LLP, has not audited or reviewed the Interim Report to 30 September 2015 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 2015, 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 2015 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 2015. 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' and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

·     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

27 November 2015

For further information, please contact:

Rodger McNair, Fund Manager                                   0207 628 8000

Ian Ridge, Company Secretary                                   0207 628 8000

 

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