Proposals for the Company

RNS Number : 1718E

Investment Company PLC

08 May 2013

 



For immediate release on 8 May 2013

The Investment Company plc

Proposals for the future of the Company

1                 Introduction

The Board is pleased to announce that it is at an advanced stage of discussions relating to the future of the Company which would involve seeking the approval of Ordinary Shareholders, and where appropriate Preference Shareholders, for the following Proposals:

§   to appoint Miton Capital Partners Limited as investment manager to the Company;

§   to amend the Investment Policy;

§   to re-organise the Company's share capital so that there remains only one class of ordinary shares in issue and a new class of Fixed Rate Preference Shares which will be held by one of the Company's wholly-owned subsidiaries;

§   to amend the Articles of Association;

§   to implement a Placing Programme to enable the issue of up to 7,000,000 Ordinary Shares;

§   to raise up to £5 million through the issue of new Ordinary Shares pursuant to the Initial Placing as part of the Placing Programme; and

§   to apply to HMRC for investment trust status.

When finalised, formal details of the Proposals, Notice of the General Meeting at which Ordinary Shareholders' approval for certain of the Proposals will be sought and Notice of a Class Meeting at which the Preference Shareholders' approval for certain of the Proposals will be sought, will be sent to Shareholders and Preference Shareholders.

2                 Appointment of Miton Capital Partners Limited as investment manager to the Company

The Company proposes to appoint Miton Capital Partners Limited, a subsidiary company of Miton Group plc, an AIM-quoted asset management firm, as its external investment manager. Miton Capital Partners Limited is authorised and regulated by the FCA.

Miton Group plc is the ultimate parent company of a fund management group trading under the "Miton" brand. Miton Group plc has offices in Liverpool, Reading and London.

Originally conceived and founded in 2001 as a private client investment manager, the Proposed Manager's group has expanded since both geographically and in the range and scale of activities offered within the financial services industry. In 2004, Miton Group plc floated on AIM as iimia Investment Group plc. The Miton group has undergone a number of name changes since then that reflect, in part, the development of the group through acquisitions: iimia MitonOptimal plc (October 2007); Midas Capital plc (March 2008); MAM Funds plc (July 2010); and Miton Group plc (January 2013).

Since autumn 2009, the Proposed Manager's group has concentrated on the provision of fund management services to institutional and professional clients. The Proposed Manager's group currently manages various UK-based open and closed-ended funds and a small number of segregated accounts.

As at 31 December 2012, the Proposed Manager's group had total funds under management of approximately £1.8 billion, including three investment trusts, Midas Income & Growth Trust plc, Miton Worldwide Growth Investment Trust plc and The Diverse Income Trust plc, with combined assets of approximately £205.6 million.

It is proposed that Gervais Williams, Managing Director of Miton Group plc, will be the lead manager of the Company's portfolio. Martin Turner will be the co-fund manager.

Gervais Williams

Gervais joined the Proposed Manager on 1 March 2011. Gervais has been an equity portfolio manager since 1985. His career includes 5 years with Throgmorton Investment Management (later part of the Framlington Group), 3 years with Thornton Investment Management (part of Dresdner Bank) and 17 years with Gartmore Group Ltd where he was Head of UK Small Companies investing in UK smaller companies and Irish equities. At Gartmore, Gervais managed the Gartmore Growth Opportunities and Gartmore Irish Growth funds, and co-managed the Gartmore Fledgling Trust.

He won Investor of the Year as awarded by Grant Thornton at their Quoted Company dinner in both 2009 and 2010.  He has sat on two DTI committees on the quoted small-cap sector, is a member of the AIM Advisory Council and is a member of the board of the Quoted Companies Alliance.

Martin Turner

Martin Turner joined the Proposed Manager in May 2011. Prior to joining the Proposed Manager, Martin spent nearly 20 years in the City. He qualified as a Chartered Accountant with Arthur Andersen in 1995 before moving to Rothschild and in time on to Head of Pan European Mid and Small Caps Sales at Merrill Lynch. Following this, Martin was Head of Sales at Teathers/Landsbanki before taking the Head of Small/Mid Cap Equities role covering research, sales and trading at Collins Stewart.

Conditional on the Resolutions being passed and with effect from Admission, the Proposed Manager shall be entitled to a management fee of one per cent. of the Net Asset Value per annum (exclusive of VAT) for its services under the Management Agreement, save that its fee will be reduced by such amount (but not more than one per cent. of the Net Asset Value per annum (exclusive of VAT)) so as to seek to ensure that the Ongoing Charges Ratio of the Company does not exceed 2.5 per cent. per annum.

It is expected that Stephen Cockburn will step down as managing director but will take up a non-executive appointment as well as being retained as a consultant to the Proposed Manager in respect of the Legacy Portfolio.

The appointment of Miton Capital Partners Limited as investment manager to the Company does not require Shareholder approval. However, the appointment of the Proposed Manager is conditional upon the Resolutions being passed and will take effect from Admission.

3                 Change of Investment Policy

In light of the proposed appointment of Miton Capital Partners Limited as investment manager to the Company, the Board believes that it would be appropriate to amend the Company's investment objective and policy.

Existing investment objective and policy

The existing investment objective and policy is as follows:

"The Group's objective is to achieve attractive and sustainable growth in Earnings per Share and Net Asset Value principally through investment in preference shares and prior charge securities.

The Board seeks to achieve this objective through investment in a diversified portfolio of holdings such that no investment, at the time it is made, results in more than 20 per cent. of the portfolio being in the securities of any one company or issuer. In addition, the Board seeks to ensure that the portfolio is substantially invested into preference shares and prior charge securities with no more than 10 per cent. of the portfolio invested in ordinary shares, with the portfolio being, subject to special circumstances, predominantly in sterling denominated instruments of United Kingdom-based issuers."

Proposed investment objective and policy:

If approved by Ordinary Shareholders at the General Meeting, the Company's investment objective and policy will be as follows:

"Investment objective

The Company's investment objective is to provide Shareholders with an attractive level of dividends coupled with capital growth over the long term, through the investment in a portfolio of equities, preference shares, loan stocks, debentures and convertibles.

Investment policy

The Company will invest primarily in the equity securities of quoted UK companies with a wide range of market capitalisations many of which are, or are expected to be dividend paying, with anticipated dividend growth in the long term. The Company may also invest in large capitalisation companies, including FTSE 100 constituents, where this may increase the yield of the portfolio and where it is believed that this may increase shareholder value.

The Company will also make investments in preference shares, loan stocks, debentures, convertibles and related instruments of quoted UK companies.

The Proposed Manager will adopt a stock specific approach in managing the Company's portfolio and therefore sector weightings will be of secondary consideration. As a result of this approach, the Company's portfolio will not track any benchmark index.

The Company may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions.

Risk diversification

Portfolio risk will be mitigated by investing in a diversified spread of investments. Investments in any one company shall not, at the time of acquisition, exceed 15 per cent. of the value of the Company's investment portfolio. In the long term it is expected that the Company's investments will be a portfolio of between 40 and 60 securities, most of which will represent no more than 3 per cent. of the value of the Company's total investment portfolio as at the time of acquisition.

The Company will not invest more than 10 per cent. of its gross assets, at the time of acquisition, in other listed closed-ended investment funds, whether managed by the Proposed Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15 per cent. of their gross assets in other listed closed-ended investment funds.

Unquoted investments

The Company may invest in unquoted companies from time to time subject to prior Board approval.

Investments in unquoted companies in aggregate will not exceed 5 per cent. of the value of the Company's investment portfolio as at the time of investment.

Borrowing and gearing policy                                                             

The Company may use gearing, including bank borrowings and the use of derivative instruments such as contracts for differences. The Company may borrow (through bank facilities and derivative instruments) up to 15 per cent. of NAV (calculated at the time of borrowing).

The Board will oversee the level of gearing in the Company, and will review the position with the Proposed Manager on a regular basis.

In the event of a breach of the investment policy set out above and the investment and gearing restrictions set out therein, the Proposed Manager shall inform the Board upon becoming aware of the same and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service.

No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution.

Investment Strategy

The Proposed Manager intends a bottom-up investment approach for the portfolio, with a diversified portfolio of securities of various market capitalisation sizes. There will be a bias towards dividend paying smaller companies but the portfolio will also include preference shares, loan stocks, debentures and convertibles with attractive yields.

The investment approach can be described as active and universal, as the Company will not seek to replicate any benchmark and will target a significant proportion of smaller company equities within an overall diversified portfolio. Potential investments are assessed against the key criteria including, inter alia, their yield, growth prospects, market positions, calibre of management and risk and cash resources."

4                 Re-organisation of share capital

The Company is proposing to re-organise its share capital so that, if the Resolutions are passed, there will be only one class of ordinary shares in issue and a new class of Fixed Rate Preference Shares.

The Company currently has three classes of shares in issue: Ordinary Shares, Non-Voting Ordinary Shares and Preference Shares.  The Ordinary Shares and the Preference Shares are admitted to trading on the Main Market of the London Stock Exchange.  The Non-Voting Ordinary Shares are not admitted to listing.

Conversion of Preference Shares to Ordinary Shares

The Preference Shares are currently entitled to a priority dividend of 7 pence per annum paid semi-annually on 1 April and 1 October. In addition, the Preference Shares are entitled to 25 per cent. of any dividend in excess of 2 pence per Ordinary Share for any financial year, subject to a maximum participating dividend in respect of any year of 3 pence per Preference Share. On a return of capital, the Preference Shares are entitled to the amount paid up on the shares plus a premium of 50 pence per Preference Share.

In light of the Proposals and in order to simplify its share capital, the Company proposes to convert the 4,994,805 Preference Shares currently in issue into Ordinary Shares through a  procedure of consolidation and sub-division (the "Conversion"), completed in accordance with the Companies Act.

The Ordinary Shares arising as a result of the Conversion will rank pari passu in all respects with the existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid on the existing Ordinary Shares after Admission.

Each Preference Shareholder will be entitled to such number of Ordinary Shares as equals the number of Preference Shares held by that Preference Shareholder as at the Record Date multiplied by the Preference Share Conversion Ratio.

The Preference Share Conversion Ratio will be calculated as the aggregate number of Ordinary Shares to be issued on the Conversion of the Preference Shares divided by the aggregate number of Preference Shares in issue, where the number of Ordinary Shares to be issued on the Conversion of the Preference Shares will be the aggregate number of Preference Shares in issue multiplied by 1.07 and divided by the Pro Forma NAV per Share as at the Calculation Date.

The Preference Share Conversion Ratio will therefore be such that the NAV of the Ordinary Shares arising following Conversion of the Preference Shares will be equal to 107p per Preference Share based on the Pro Forma NAV per Ordinary Share as at the Calculation Date.

For illustrative purposes only, based on the NAV per Ordinary Share of 400.69p as at 30 April 2013  and the Assumptions, the Preference Share Conversion Ratio would be 0.3089 and, accordingly, 308.9 Ordinary Shares would be issued for every 1,000 Preference Shares.

Re-designation of Non-Voting Ordinary Shares to Fixed Rate Preference Shares

At the date of this announcement, the Company has 1,717,565 Non-Voting Ordinary Shares in issue. These shares are held by the Company's subsidiary, New Centurion Trust Limited, and have been designated as Non-Voting Ordinary Shares in order to avoid breaching section 136 of the Companies Act which prohibits a subsidiary holding shares in its holding company. As well as having no right to vote, any holder of the Non-Voting Ordinary Shares may also elect not to receive a dividend in respect of any financial period. Save as set out above, the Non-Voting Ordinary Shares rank pari passu in all respects with the Ordinary Shares.

In order to simplify further its share capital and to allow the Company to apply for investment trust status, the Company proposes to re-designate the Non-Voting Ordinary Shares as Fixed Rate Preference Shares (the "Re-desigination"). The Fixed Rate Preference Shares will be entitled to receive a fixed cumulative cash dividend of 0.01p in priority to the Ordinary Shares, will receive the nominal value of the shares on a return of capital, will not have the right to vote and have limited rights on transfer. Following the Re-designation, the Re-designated Shares will be retained by NCT, the sole holder of the Non-Voting Ordinary Shares. NCT has approved the Re-designation of the Non-Voting Ordinary Shares to Fixed Rate Preference Shares.

The Re-designation will also require the approval of the Ordinary Shareholders by way of an ordinary resolution at the General Meeting.

5                 Amendments to the Articles of Association

The Company proposes to amend and restate its Articles of Association to reflect the changes made should the Conversion and Re-designation be approved and to update the Articles in accordance with current law and practice. Accordingly, a special resolution will be proposed at the General Meeting to adopt the amended and restated articles of association. These articles of association shall be the same as the current Articles save for amendments in relation to: (i) the removal of Preference Share rights and addition of Deferred Share rights (which will arise as a result of the Conversion) and Fixed Rate Preference Share rights; (ii) the removal of the prohibition on distributing capital profits by way of a dividend; (iii) the removal of current gearing limits (since the proposed investment objective and policy limits gearing to 15 per cent. of NAV at the time of borrowing); and (iv) the addition of a requirement for the Directors to propose a continuation resolution at the annual general meeting in 2016 and annually thereafter. 

6                 Placing Programme

The Company proposes to implement the Placing Programme, comprising the Initial Placing (described below) and the Subsequent Placings, through the issue of up to 7,000,000 Ordinary Shares. The Placing Programme will not be underwritten.

The Placing Programme is being implemented to enable the Company to satisfy demand for its Ordinary Shares as well as to increase the size of the Company. Any issues of Ordinary Shares pursuant to the Subsequent Placings will be issued at a price not less than the prevailing Net Asset Value per Ordinary Share plus any expenses incurred in connection with such placing.

7                 Initial Placing

The Initial Placing of new Ordinary Shares is to raise up to £5 million before expenses. The Initial Placing is not being underwritten. The Initial Placing Price will be at the Pro Forma NAV per Ordinary Share as at the Calculation Date less 5 per cent.

For illustrative purposes only, based on the NAV per Ordinary Share of 400.69p as at 30 April 2013 and the Assumptions, the Initial Placing Price would be 329.1p per Ordinary Share.

8                 Dividend Policy

If the Resolutions are passed, the Company will target an annualised dividend yield of 6 per cent. of NAV at Admission for the period from Admission to 30 June 2014. The Company will seek to maintain this yield (based on the opening NAV at the start of each financial year) on an annual basis. It is intended that dividends will be paid twice-yearly.

Investors should note that the targeted annualised dividend is a target only and not a profit forecast and there can be no assurance that it will be met or that any growth in the dividend will be achieved.

It is expected that the Company's targeted annualised dividend yield of 6 per cent. will be met through the distribution of capital profits to the extent that income profits are not available for distribution. The proportion of the dividend represented by the distribution from capital profits may increase as the holdings in the Company's Legacy Portfolio are reduced.

9                 Intention to obtain investment trust and investment company status

If the Resolutions are passed, the Company intends to apply for approval from HMRC to operate as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010.  The Company intends to extend the current financial period to 30 June 2013 with the intention that the Company will be eligible to qualify as an investment trust for the first financial period beginning after Admission.

If the Resolutions are passed, the Company will also notify Companies House of its intention to be categorised as an investment company as defined in Section 833 of the Companies Act with effect from Admission.

10              The Board

Conditional upon the Resolutions being passed, it is expected that Mr Cockburn will take up a non-executive appointment, although he will be retained as a consultant to the Proposed Manager in respect of the management of the Legacy Portfolio. In addition, Miss Webb and Mr Lovegrove have indicated that they will not stand for re-election at the Company's next annual general meeting.  Furthermore, conditional upon the Resolutions being passed, Martin Perrin will join the Board at Admission as a non-executive director:

Martin Henry Withers Perrin (aged 58)

Mr Perrin is a chemist, Chartered Accountant and Chartered Wealth Manager with wide experience of operations and finance in industry. He was a partner in Grahams Rintoul & Co, a fund management company, which was sold to Lazards.  Mr Perrin joined the board of Fiske as a non-executive director in November 2003 and is currently chairman of Fiske's Audit Committee and Risk Committee.

For further information please contact:

Westhouse Securities Limited Alastair Moreton/Darren Vickers

020 7601 6118

APPENDIX

1                 Principal bases and assumptions

Unless otherwise indicated, the illustrative financial information contained in this announcement relating to the Proposals has been calculated on the following principal bases and assumptions:

a)      as at the latest practicable date prior to this announcement there are 1,899,891 Ordinary Shares, 1,717,565 Non-Voting Ordinary Shares  and 4,994,805 Preference Shares in issue;

b)     the Company holds 32,500 Ordinary Shares in treasury;

c)      the unaudited net asset value of the Company at 30 April 2013 was £9.98 million;

d)     as at 30 April 2013, the net asset value per Ordinary Share was 400.69p;

e)     gross proceeds raised pursuant to the Initial Placing are £5.0 million pursuant to an issue of 1,519,300 Ordinary Shares at a price of 329.1 pence per share;

f)      the costs of the Proposals are expected to be approximately £400,000;

g)      there are no changes to the generally accepted accounting policies relevant to the Company; and

h)     a Preference Share Conversion Ratio of 0.3089.

2                 Definitions

"Admission"	admission of the Placing Shares and/or the Conversion Shares (as applicable) to the Official List in accordance with the Listing Rules and admission of the Placing Shares and/or the Conversion Shares (as applicable) to trading on the Main Market in accordance with the Admission and Disclosure Standards
"Amendment to the Articles"	the proposed amendments to the Articles of Association as described in paragraph 5 of this announcement;
"Articles of Association" or "Articles"	the articles of association of the Company
"Assumptions"	the principal bases and assumptions set out in Appendix 1 of this announcement
"Board" or the "Directors"	the board of directors of the Company, or a duly constituted committee thereof
"Business Day"	any day (other than a Saturday or Sunday or public holiday) on which banks are generally open for business in London
"Calculation Date"	the date on which the Pro Forma NAV as at the Calculation Date, the Pro Forma NAV per Ordinary Share as at the Calculation Date, and the Pro Forma Ordinary Shares as at the Calculation Date are calculated
"Class Meeting"	the class meeting of the Preference Shareholders to be convened to consider the Preference Share Resolution, or any adjournment of that meeting
"Companies Act"	The Companies Act 2006, as amended
"Company"	The Investment Company plc, a company incorporated in England and Wales with registered number 4205
"Conversion"	the conversion of the Preference Shares into Ordinary Shares as described in paragraph 4 of this announcement
"Conversion Shares"	the Ordinary Shares arising on completion of the Conversion
"Earnings per Share"	the earnings per share of the Company determined in accordance with the Company's normal accounting policies
"Existing Ordinary Shares"	the Ordinary Shares in issue prior to the implementation of the Proposals
"FCA"	the Financial Conduct Authority
"General Meeting" or "GM"	the general meeting of the Company to be convened to consider the Resolutions, or any adjournment of that meeting
"Group"	the Company and its subsidiaries from time to time
"HMRC"	HM Revenue & Customs
"Initial Placing"	the placing by Westhouse Securities to raise up to £5 million through the issue of Initial Placing Shares at the Initial Placing Price as part of the Placing Programme, as described in this announcement
"Initial Placing Price"	the Pro Forma NAV per Ordinary Share as at the Calculation Date less 5 per cent.
"Initial Placing Shares"	the new Ordinary Shares in the Company proposed to be issued pursuant to the Initial Placing
"Investment Policy"	the investment policy of the Company from time to time
"Legacy Portfolio"	that part of the Company's existing portfolio that comprises preference shares, interest-bearing loans and bonds
"London Stock Exchange"	London Stock Exchange plc
"Management Agreement"	the management agreement to be entered into between the Proposed Manager and the Company
"Memorandum of Association"	the memorandum of association of the Company
"Miton Group"	Miton Group plc, a company incorporated in England and Wales with registered number 05160210
"Net Asset Value per Ordinary Share" or "NAV per Ordinary Share"	the net asset value of the Company, determined in accordance with the Company's normal accounting policies, adjusted by deducting the premium attributable to Preference Shareholders and divided by the number of Ordinary Shares in issue
"Net Asset Value" or "NAV"	the net asset value of the Company determined in accordance with the Company's normal accounting policies
"NCT"	New Centurion Trust Limited, a subsidiary of the Company
"Non-Voting Ordinary Shares"	non-voting ordinary shares of 50p each, having the rights set out in the Articles
"Notice of Class Meeting"	the notice of class meeting to be sent to Preference Shareholders
"Notice of General Meeting"	the notice of class meeting to be sent to Ordinary Shareholders
"Official List"	the official list maintained by the UK Listing Authority
"Ongoing Charges Ratio"	in relation to the Company the ratio of annualised ongoing charges to the average undiluted Net Asset Value in any period as calculated in accordance with the methodology published by the Association of Investment Companies from time to time
"Ordinary Shares"	ordinary shares of 50p each in the capital of the Company
"Ordinary Shareholder"	a holder of Ordinary Shares
"Placing Price"	the price at which new Ordinary Shares will be issued pursuant to the Placing Programme to placees, being not less than the prevailing Net Asset Value per Ordinary Share plus any expenses incurred in connection with such Placing, other than new Ordinary Shares issued pursuant to the Initial Placing which will be issued at the Initial Placing Price
"Placing Programme"	the proposed programme of Placings of up to 7,000,000 new Ordinary Shares in aggregate, as described in this announcement
"Placing Shares"	the new Ordinary Shares in the Company proposed to be issued pursuant to the Placing Programme
"Preference Share Resolution"	the resolution to be proposed at the Class Meeting, as set out in the Notice of Class Meeting
"Preference Shareholder"	a holder of Preference Shares
"Preference Shares"	participating preference shares of 50p each, having the rights set out in the Articles
"Preference Share Conversion Ratio"	the aggregate number of Ordinary Shares to be issued on the Conversion of the Preference Shares divided by the aggregate number of Preference Shares in issue
"Pro Forma NAV as at the Calculation Date"	the Net Asset Value as at the Calculation Date adjusted by adding the aggregate value of the paid up capital of all the Preference Shares (amounting to £2,497,403) and the net proceeds of the Initial Placing
"Pro Forma NAV per Ordinary Share as at the Calculation Date"	the Pro Forma NAV as at the Calculation Date divided by the Pro Forma Ordinary Shares as at the Calculation Date
"Pro Forma Ordinary Shares as at the Calculation Date"	the Existing Ordinary Shares of the Company in issue as at the date of this announcement together with the aggregate number of Ordinary Shares to be issued on the Conversion of the Preference Shares and the number of Ordinary Shares to be issued under the Initial Placing
"Proposals"	the proposals for the future  of the Company which comprise the appointment of the Proposed Manager, the amendment to the Investment Policy, the Share Capital Reorganisation, the Amendment to the Articles, the Placing Programme (including the Initial Placing and the Subsequent Placings) and the application to obtain investment trust status as described in this Prospectus
"Proposed Director"	Martin Perrin
"Proposed Manager"	Miton Capital Partners Limited
"Record Date"	to be announced in due course
"Re-designation"	the re-designation of the Non-Voting Ordinary Shares into Fixed Rate Preference Shares as described in paragraph 4 of this announcement
"Re-designated Shares"	the Non-Voting Ordinary Shares proposed to be re-designated as Fixed Rate Preference Shares
"Regulatory Information Service"	a regulatory information service approved by the London Stock Exchange for the distribution to the public of announcements and included within the list maintained on the London Stock Exchange's website
"Resolutions"	the resolutions to be proposed at the General Meeting, as set out in the Notice of General Meeting
"Share Capital Reorganisation"	the proposed Conversion and Re-designation as described in paragraph 4 of this announcement
"Shareholder"	a holder of Shares
"Shares"	Ordinary Shares, Non-Voting Ordinary Shares and/or Preference Shares as the context requires
"Sterling" or "£"	the lawful currency of the United Kingdom for the time being
"Subsequent Placings"	placings of Ordinary Shares under the Placing Programme other than the Initial Placing
"Subsequent Placing Shares"	the new Ordinary Shares in the Company proposed to be issued pursuant to the Subsequent Placings
"United Kingdom" or "UK"	the United Kingdom of Great Britain and Northern Ireland
"Westhouse Securities"	Westhouse Securities Limited, a company incorporated in England and Wales with registered number 00762818

 

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