Publication of Circular

RNS Number : 2950B

Investment Company PLC

07 October 2020

 

Embargoed for release at 7.05am on 7 October 2020

The Investment Company PLC

(the "Company")

Proposed change of investment objective and policy

This Announcement contains Inside Information as defined under the Market Abuse Regulation (EU) No. 596/2014

The Investment Company PLC, the premium listed investment trust originally incorporated in November 1868, is pleased to announce proposals for the future of the Company (the "Proposals") including recommendations for a new investment objective and policy.

The key features of the Proposals include:

· A new objective of wealth preservation and long term capital growth

· A new investment policy of investing both in quoted businesses which the Directors believe are suitable for the long-term compounding of earnings and also a portfolio of liquid reserves in cash, debt instruments and tangible assets such as gold bullion

· Adoption of a strong set of guiding principles which will guide the Board's process in relation to making investment decisions

· Two new directors, Tom Cleverly and Michael Weeks, to join the board.  Both individuals bring the relevant experience to contribute to the implementation of the proposed new investment objective and policy

· Changes to the articles of association to revise the continuation vote period to once every five years, consistent with the proposed long term investment objective, and to update provision for the remuneration of directors

A circular containing details of the Proposals and convening a general meeting of shareholders is today being dispatched to shareholders.

Ian Dighé, Chairman, commenting on the Proposals said:

"These proposals form a new foundation for our future dedicated to protecting the purchasing power of our shareholders' savings. In a time of incredible confusion about the nature of money, savings and wealth, we seek to return to an investment framework that values business judgment over formulas and where directors and shareholders share a common purpose of preserving their savings"

Enquiries:

The Investment Company PLC
Ian Dighé, Tel:  [phone]

Shore Capital (Financial Adviser and Broker)
Robert Finlay / Rose Ramsden, Tel:  [phone]

Maitland Administration Services Limited
Faith Pengelly, Tel: [phone]

Background to the Proposals

The Company's current structure is a legacy of arrangements made in 2012 to appoint an external investment manager, ostensibly to grow the assets of the Company.  These arrangements were further changed, as was the composition of the Board, in 2018.  The current investment manager, against a formidable income target, has, in the opinion of the Directors, administered the assets well.

The Company's historical antecedents as a split capital trust invested in fixed income securities have given it a history of a high level of dividend payments.  In recent years this has become increasingly difficult to achieve without detriment to the capital base of the Company.  By 2020, market interest rates had dropped to historically low levels and the Covid-19 pandemic has led to many companies re-appraising their dividend policies.  Although the Company's investment portfolio has not suffered unduly from dividend cuts so far, the current market conditions make further development under the current mandate problematic and, therefore, the future direction of the Company is now in sharp focus.

The Board has considered a range of alternatives for the future of the Company, including the possibility of merging the Company with other investment entities. Of the options considered, the Board believes that adopting an objective of wealth preservation and long term capital growth is likely to be most attractive to the majority of Shareholders. 

Accordingly, we announce today details of important new proposals for the future of the Company, being the adoption of a New Investment Objective and Policy and amendments to the Articles and to explain why the Board considers them to be in the best interests of the Shareholders as a whole.  The Board believes that, if implemented, the New Investment Objective and Policy will be attractive to those Shareholders who consider the preservation of capital paramount and should provide an opportunity to increase the size of the Company, so reducing its pro rata costs and improving its long term viability. 

If the Proposals are approved, the Board proposes to appoint two new directors, Tom Cleverly and Michael Weeks, to contribute to the implementation of the proposed New Investment Objective and Policy.  Both individuals are directors of Edelweiss Investments Limited, a wholly-owned subsidiary of Edelweiss Holdings plc ("Edelweiss"), a private investment holding company incorporated in Jersey.  Their background makes them well suited to the investment policy and guiding principles now being proposed by the Board. 

Implementation of the Proposals requires the approval of Shareholders and is therefore conditional on the passing of the Resolutions that will be proposed at a General Meeting to be held at 11.15 a.m. on 4 November 2020, or immediately after the conclusion or adjournment of the annual general meeting of the Company to be held on the same day, notice of which is set out in the circular being dispatched to shareholders

At the annual general meeting of the Company convened for the same date as the General Meeting, the Directors are proposing a resolution that the Company continue in existence as an investment trust.  If this resolution is not passed at the annual general meeting, the General Meeting will be adjourned indefinitely and the Proposals will not be put to Shareholders.

New Investment Objective and Policy

The Company's proposed New Investment Objective and Policy is set out below:

"Investment Objective

The Company's investment objective is to protect the purchasing power of its capital in real terms, and to participate in enduring economic activities which lend themselves to genuine capital accumulation and wealth creation.

Investment Policy

The Company will seek to acquire and hold, with no predetermined investment time horizon, a collection of assets which, in the Directors' judgment, are well-suited to the avoidance of a permanent loss of capital.  These assets will be comprised of minority participations in the equity, debt or convertible securities of quoted businesses which the Directors believe are led by responsible and like-minded managers and suitable for the long-term compounding of earnings.  In addition, to protect its capital as well as to maintain liquidity for future investments, the Company will keep reserves in (a) liquid debt instruments such as cash in banks or securities issued by governments and/or (b) liquid, non-debt, tangible assets such as gold bullion, whether held indirectly or in physical form.

The Company has no predetermined maximum or minimum levels of exposure to asset classes, currencies or geographies, and has the ability to invest globally.  These exposures will be monitored by the Board in order to ensure an adequate spreading of risks.  No holding in an individual company or debt instrument will represent more than 15 per cent. by value of the Company's total assets at the time of acquisition (such restriction does not, however, apply to gold bullion or cash balances). The Company's holdings of gold bullion may be as high as 35 per cent. of total assets at the time of investment.

Given the Company's investment objective, asset mix and time horizon, the portfolio will not seek to track any benchmark or index. The Company will not invest more than 10 per cent. of its total assets in other listed closed-ended investment funds.  The Company will not use derivative instruments for speculative purposes, nor will it use currency hedges to manage returns in any currency.

The Company's gearing will not exceed 20 per cent. of net assets at the time of drawdown."

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

Guiding principles

The success of the Company demands a shared understanding of the Company's goals and an appreciation of the values that will guide the Board's decision-making. While the investment work will speak for itself, we (your Board) believe it necessary to set out a statement of principles that will guide our investment decisions.

Our purpose is to protect the savings of our Shareholders.  It is not to try to make Shareholders rich or to impress anyone. We do not promise returns of any kind, either relative or absolute. Instead we promise two things: to be faithful to the principles outlined here, and to participate alongside those we serve as fellow Shareholders. The Company's financial results will be lumpy and, if considered over only a few years, will sometimes be disappointing. We are not concerned with tomorrow, but with preserving savings for the next generation.

We believe savings are scarce. It takes time, effort and sacrifice to acquire them, and holding on to them is difficult. We have the utmost respect for their irreplaceability. For this reason, our understanding of "risk" is fundamentally different from much of the financial industry.  We are unconcerned with the "risk" (singular) of the volatility of returns as compared to an index.  We are, however, profoundly concerned with understanding and managing the myriad "risks" (plural) that may result in a permanent loss of capital. In doing so, we believe that hubris, unaccountability, and financialisation are every bit as threatening as weak financial accounts and poor competitive standing.

We have no predetermined investment horizon or exit strategies and are keen to participate in the long-term compounding of earnings. We see ourselves as owners rather than investors, and we seek to deploy our capital alongside other owners whose life's work is committed to the long-term survival of their company. The attributes we prize most-scarcity, permanence and independence-are rare. When we do come across them, we are not looking to sell.

We pay no attention to the views of others in the financial industry, what they expect or what they consider valuable.  We are neither bearish nor bullish, but keen to distinguish what is real and true from what is not. We believe that our success will not come from a strict set of rules regarding asset allocation, position sizes, the blind pursuit of diversification, or the mimicking of any index. We do not rely on diversification to compensate us for risks we don't understand.

We do nothing complicated or formulaic. We invest in businesses and people we understand and avoid those we do not, no matter how compelling they may appear to be. We avoid the idea of growth for its own sake, short-term thinking, and financial engineering. We like natural monopolies and economic niches having scale, barriers to entry and pricing power. We prefer what is firm, durable, earned, and designed for continuity, rather than what is fragile, fleeting, and unsure. We think that endurance is valuable and that it is the result of focusing on the customer rather than financial rewards that ensue. Our emphasis on the qualitative may not be fashionable, but we believe it to be correct.

We believe our ability to hold adequate and suitable reserves is important to achieving our purpose, and that the quality of our reserves matters just as much as the quality of our investments. We want reserves that are timeless - true assets that are neither someone else's liability nor the plaything of central banks and political parties. For this reason gold bullion is well suited to be an important component of our reserves.

We value responsibility and accountability in corporate governance, as well as the avoidance of conflicts of interest consistent with the duty of loyalty and the duty of care.  We will strive to keep our costs low, but will not sacrifice our intellectual or operational freedom for the sake of lower costs.

Management and organisation

The Directors

The Board of the Company currently comprises the following individuals:

Ian Dighé (Chairman) was appointed as Chairman on 6 July 2018. He has significant listed company experience, particularly in the investment banking, corporate broking, asset management and closed end funds sectors. He was a co¬founder of Bridgewell Group plc and was Chairman of Miton Group plc ("Miton") from February 2011, overseeing the successful refinancing and subsequent growth of the group. He retired from the Miton board in December 2017. He is an Independent Director of Edelweiss Holdings plc, and a director of a number of private companies, and charities.

Tim Metcalfe was appointed to the Board on 6 July 2018. He is an experienced corporate financier, having spent over 20 years working at Robert Fleming & Co., N M Rothschild, Westhouse Securities, and Northland Capital Partners and was Joint CEO of Zeus Capital, prior to being the co-founder, in 2015, of IFC Advisory, an investor relations and financial PR adviser to small and mid-cap companies.

Martin Perrin (Audit Committee Chairman) was appointed to the Board in June 2013. He is a non-executive director of Fiske plc. He is a Chartered Accountant and Chartered Wealth Manager and has wide international experience of operations and finance in both regulated financial services firms and in technology companies.

Proposed Directors

Subject to the passing of the Resolutions, the following additional individuals (the "Proposed Directors") will be appointed to the Board:

Tom Cleverly spent the 10 years to 2011 in the audit profession, working for Grant Thornton in the UK and subsequently as a senior audit manager with Mazars in Bermuda. He served on the Board of Edelweiss Holdings plc between November 2011 and September 2015, and has since held directorships in Edelweiss group companies, and currently serves as the company's treasurer and member of its executive committee. He is a director of Kayson Green Limited, a family controlled distributor of abrasive products, based in the UK.  Mr Cleverly holds a degree in accounting and finance from the University of Plymouth and is a Fellow Member of the Institute of Chartered Accountants in England and Wales. He is a British citizen and resident of the UK.

Michael Weeks joined the investment team of Edelweiss Holdings plc in 2011, where he has since served as an analyst, head of research, and since 2014 as director in different Edelweiss group companies. He is a CFA charterholder and holds degrees in chemical engineering and philosophy from Rice University.  He is a US citizen and resident in Switzerland.

Proposed organisational structure

Currently, investment advisory services are provided to the Board by Fiske plc. On the basis that Shareholders approve the New Investment Objective and Policy, the advisory agreement with Fiske plc will be terminated in accordance with its terms. Overall responsibility for the investment of the portfolio will remain with the Board, including the Proposed Directors.  The Company is and will remain a small registered UK AIFM.  The Board will, however, delegate some day-to-day investment decisions to a sub-committee of the Board, for which appropriate terms of reference are in place, and may also delegate responsibility for the execution of specific transactions to a single Director. Any sub-committee of the Board, or any individual Director holding responsibility delegated by the Board, shall report to the Board regularly with regard to any decisions taken. More significant investment decisions will be made by the full Board. The Board believes that, with the addition of the two Proposed Directors, the Board will have the appropriate mix of investment skills and experience, including in portfolio construction and management. The membership of the investment sub-committee will include the Chairman of the Board, Tom Cleverly, and Michael Weeks.

For the time being the Company will continue to have no employees and company secretarial, administrative and custodial services will remain outsourced to third party suppliers. The Board retains ultimate responsibility for the delivery of these services and will oversee and monitor these service providers on a regular basis. The Board will be responsible for corporate governance.

Information on Edelweiss

Edelweiss is a privately owned investment holding company incorporated in Jersey, which is the continuation of a fund first formed in 2002.  Under the oversight of a Supervisory Committee of its Board of Directors, which includes Ian Dighé, the strategy implementation and day-to-day management of Edelweiss is the responsibility of its executive committee, which includes Tom Cleverly. Led by Michael Weeks, investment, industry and economic research is provided to Edelweiss's executive committee by Edelweiss Investments Limited, a company incorporated in Jersey, whose board of directors includes Michael Weeks and Tom Cleverly.  Edelweiss had shareholders' funds of USD 338 million as at 31 December 2019.

Whilst there is no commercial agreement between the Company and Edelweiss, whether relating to the appointment of the Proposed Directors or otherwise, the independent members of the board of Edelweiss have nevertheless consented to their appointment to the Board.

Due to the very different scale of their operations, no conflicts of interest are expected to arise between the Company and Edelweiss in the immediate future.  However, should these circumstances change and situations emerge where a material conflict of interest does arise, this will be addressed by the independent members of the Board and the board of Edelweiss.

Changes to the Articles

Directors' remuneration

If the Company's New Investment Objective and Policy is adopted, in connection with the appointment of the Proposed Directors, the Board is proposing that the Articles be amended to remove the restriction which limits the remuneration of the Directors to £15,000 per Director per annum and replace it with a maximum aggregate amount of £250,000 per annum. Whilst there is no present intention that the aggregate of the Directors' annual remuneration will approach this level, the Directors believe that it is appropriate to have a limit which provides flexibility for the future development of the Company. The aggregate remuneration of the Directors following implementation of the Proposals and the appointment of the Proposed Directors will be lower than the aggregate of the Directors' and investment advisory fees currently payable to the Directors and to Fiske plc, respectively.

Continuation vote

Pursuant to the Articles, an ordinary resolution proposing that the Company continues in existence as a closed-ended investment company must be put to Shareholders at every annual general meeting. The Board considers that, in the event that Shareholders approve the adoption of the New Investment Objective and Policy, an annual continuation resolution is no longer appropriate because of the nature of the prospective portfolio and the Company's vision of itself as a long-term owner. The Board considers that the annual general meeting in 2025 will be an appropriate point at which Shareholders can reflect and re-evaluate the success of the new strategy and the performance of the Board, including the Proposed Directors, against the New Investment Objective and Policy and the guiding principles set out above at paragraph 3. The Board will of course maintain an ongoing and regular dialogue with Shareholders regarding the performance of the portfolio.

It is therefore proposed to amend the Articles to provide that an ordinary resolution proposing that the Company continues in existence as a closed-ended investment company next be put to Shareholders at the annual general meeting to be held in 2025, and, if passed, every 5 years thereafter.

Dividend policy

With the change of investment objective to be focused on protecting the purchasing power of its capital in real terms, payment of dividends will not, unlike the present position, be the key objective of the Company.  Nevertheless, in accordance with the legislative requirements for an investment trust, the Company will not retain more than 15 per cent. of its income in respect of each accounting period and the Board therefore expects to pay dividends reflecting the future investment portfolio's flow of income.

Discount management policy

The Board currently intends to seek Shareholder approval each year for the authority to repurchase up to 14.99 per cent. of the Company's issued share capital.  The Board will use this authority at its discretion to repurchase Ordinary Shares. No other mechanism to manage any discount/premium currently is, or will be in the immediate future, in place if the Proposals are approved. 

Benefits of the Proposals

The Directors believe that the Proposals are in the best interests of Shareholders and represent an appropriate and attractive future for the Company for the following reasons:

• the New Investment Objective and Policy offers a genuine opportunity and advantage to Shareholders when viewed against the costs of liquidation and other actions which would be the likely alternative to implementing the Proposals;

• the successful business track records of both the existing and Proposed Directors combined with the proposed New Investment Objective and Policy afford the prospect of protecting Shareholders' wealth and generating enhanced value over the longer term; and

• the New Investment Objective and Policy, and management may better place the Company in a position to attract further capital and so spread its fixed costs over a broader base, so improving the return to Shareholders.

In light of the above, the Board considers that implementing the Proposals is in the best interests of the Company and its Shareholders as a whole.  If the Proposals are not approved at the General Meeting, the Directors will consider alternative proposals for the future of the Company, which may include liquidation.

Voting intentions and undertakings

The Directors intend to vote in favour of the Resolutions in respect of their beneficial holdings amounting to 34,707 Ordinary Shares in aggregate (representing approximately 0.73 per cent. of the Ordinary Shares in issue as at the date of the circular).  Undertakings to vote in favour of the Resolutions have been received from Shareholders representing, in aggregate, a further 15 per cent. of the Ordinary Shares in issue as at the date of this document.

A copy of the circular to shareholders will submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The circular will also be available on the Company's website at https://www.maitlandgroup.com/investment-trusts/the-investment-company-plc/.

 

END

 

 

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