Half-year Report

RNS Number : 3059K

BMO Global Smaller Companies PLC

13 December 2018

 

Date:                13 December 2018

Contact:          Peter Ewins                                                   

                        BMO Investment Business Limited                 

                        020 7628 8000                                               

BMO Global Smaller Companies PLC

(formerly F&C Global Smaller Companies PLC)

Unaudited statement of results

for the half-year ended 31 October 2018

SUMMARY OF UNAUDITED RESULTS FOR THE HALF-YEAR ENDED 31 OCTOBER 2018

·    Diluted Net Asset Value ("NAV") decreased to 1,353.16p, giving a total return of -0.4% compared to the Benchmark total return of -2.3%

·    The share price ended the period at 1,365p, a 0.9% premium to the Diluted NAV, delivering a total return of 0.0%

·    Interim dividend up by 13.6% to 5.0p per ordinary share

 

Manager's Review

Peter Ewins. Lead Manager

Although the global economy is still expanding at a good pace, this was a more challenging period for equities, with returns being negative from many of the leading indices over the six months after a particularly weak October.

The markets were not helped by the fact that geo-political risk remained elevated, whether stemming from the US administrations' trade battle with China, Brexit, revived political uncertainty across parts of Europe, or the conflict and regional tensions in the Middle East. Alongside this, the move from central banks led by the US Federal Reserve to start to normalise monetary policy by increasing interest rates, placed pressure on government bond prices. For many years share prices have been supported by the limited returns available from other sources, so it should not be a surprise to see something of a reverse effect when future returns from holding cash or bonds become more attractive.

Smaller company shares lagged larger stocks across most markets but the Company's portfolio performed resiliently and it was comfortably in positive territory before the reverse towards the end of the period. For the full six months the diluted Net Asset Value ("NAV") total return was -0.4%. The Company's Benchmark (30% Numis UK Smaller Companies excluding investment companies Index/70% MSCI All Country World ex UK Small Cap Index) returned -2.3%, with positive overall stock selection leading to our outperformance.

Although the Company's share price spent the majority of the period trading at a modest discount to the diluted NAV, it closed at 1,365p, a 0.9% premium. Taking account of the 10.0p dividend paid to shareholders in August, the total shareholder return for the period was therefore 0.0%. Some 417,655 new shares were issued, mainly due to conversions from the Convertible Unsecured Loan Stock ("CULS") elections.

Dividends

Investment income from the portfolio remained on a positive trajectory and revenue returns per share were up 13.5%. The Board has decided to increase the interim dividend by 13.6% to 5.0p. This will be paid to shareholders on 31st January 2019.

Market background

While not unexpected, the two further interest rate rises in the US and the prospect of more to come, negatively impacted upon global equity market sentiment. The Federal Reserve has been reacting to indications that the US labour market has tightened after a long period of net job creation. Markets have also had to get used to a greater volume of government bond issuance in the US, partly as a consequence of the tax cuts announced in late 2017. The tariffs imposed on Chinese imports by the US and vice versa, combined with higher oil prices following OPEC's moves to curb output also impacted upon financial markets and the outlook for inflation globally.

Increasing US interest rates placed particular pressure on emerging market countries with a large current account or fiscal deficit. Argentina, Turkey and a number of Asian countries including India and Indonesia were forced to respond by raising their own interest rates. Japanese stocks were relatively weak as trade war fears and indications of an industrial slowdown in China affected sentiment towards the market.

Closer to home, the problems for the UK government in moving the Brexit process forward continued to sap investor confidence around domestic focused companies and caused delay to business investment decisions. European markets were also impacted by political developments with the populist Italian government's move to introduce a stimulatory budget facing determined opposition from the European Commission. The more recent decision of Angela Merkel to hand over leadership of the CDU party in Germany has created further uncertainty around the future evolution of European policy. Economic growth in both the UK and much of Europe has slowed somewhat in 2018, though trends in employment markets have remained pleasing, with unemployment reaching close to record lows in a number of countries.

Regional portfolio performance

As the table on the next page shows, only the North American portfolio ended in positive territory. The lower corporate tax rate introduced in the US has been a big influence in giving company earnings a step-change, providing a lift to share prices in the market, with returns in sterling also helped along by a stronger dollar. Pleasingly the numbers show that our returns in North America, the UK and Europe were comfortably ahead of the local small cap indices.

Geographical performance (total return sterling adjusted)
for the half-year ended 31 October 2018
	Portfolio	Local smaller companies index
North America	+11.0%	+6.3%
UK	-6.1%	-8.2%
Europe	-3.4%	-5.7%
Japan	-8.4%	-5.6%
Rest of World	-11.1%	-12.7% (Pacific ex Japan)   -8.5% (Latin America)
Source: BMO

It was a difficult period for emerging markets as a whole, but our Rest of World portfolio which mainly provides exposure to Asian based companies, was ahead of the Asian small cap index. Returns in Japan were disappointing in both absolute and relative terms.

In general, this was a time when investors started to become more cautious in relation to companies with high balance sheet leverage reflecting the trend towards higher interest rates. This is something that we have been anticipating for a while. Later in the period, there was also a move towards more cheaply valued stocks, and out of some more cyclical parts of the market such as automotive, semiconductor and general industrial stocks. The US/Chinese trade war started to have an impact across some sectors, and cost pressures have also forced a variety of companies to reduce profit guidance in the last few months.

North America

There was a good performance from the portfolio with stock selection in technology and health care particularly pleasing. Our focus in the former area on profitable and relatively more stable business franchises paid off at a time when there have been a few casualties in the sector. CDW, the integrated IT services provider posted good results on the back of market share gains, while shares in software business Sabre recovered as performance improved in its travel network business. New management and a better overall governance structure is leading to better financial performance at voice recognition system supplier Nuance Communications. Intellectual property business Dolby Laboratories' shares also rose as results gained from a richer mix of revenues.

In the health care sector, managed care businesses Wellcare Health Plans and Molina Health were both up; the former due to a well-controlled series of acquisitions, and the latter due to better margins as a consequence of a change in leadership. The Ensign Group was helped by improved occupancy in its nursing care premises, while sterilisation services supplier STERIS once again delivered good results. Contract clinical research business ICON also did well as it's bookings continued to build. Finally, Encompass Health was another winner as its home health business did well and rehabilitation facilities reported strong utilisation numbers.

While the performance of consumer facing stocks was mixed across the market as interest rates rose, we benefited from our holding in car dealer Americas Car-Mart, where competition seems to be lessening and performance on the credit book improved. Automotive repair business Monro was another strong performer with a return to positive like for like outlet revenue growth being well-received.

Our decision to invest in fuel distribution and service suppliers Canadian based Parkland Fuels and World Fuel Services in the US proved timely, with both reporting solid numbers supported by cost savings. Parkland's refining business is also being helped by a more favourable operating environment.

Not all went our way, and shares in road equipment supplier Astec Industries fell back as demand disappointed and negative operating leverage fed through. Bank stocks were generally underperformers and Sterling Bancorp shares fell as a flatter bond yield curve fed through into margin pressure and loan growth slowed. Venture capital business Safeguard Scientific was weak as the likelihood of making portfolio disposals was undermined by some weakness in the quoted arena for biotech stocks. Elsewhere agricultural products supplier American Vanguard suffered as the US/China trade dispute placed pressure on US farmers. Catchmark Timber Trust shares fell late in the period as lumber prices dropped and the company pulled out from a surprise bid for a UK listed fund.

The US economy remains in better shape than most of the other large markets with good momentum heading into 2019. We are presently looking to focus the portfolio mainly around companies which have pricing power and where there is some margin upside. On the other hand, we are reducing exposure to stocks where margins are at peak levels or where financial leverage is high.

UK

The portfolio outperformed, with a good spread of companies bucking the downward trend of the overall market. By far the largest positive impact came from software supplier Craneware, which sells billing and revenue management software solutions into the US hospitals market. The shares rose by 68.9% as the company's contracted revenue base continued to build and earnings benefited from the cut in US corporate tax rates.

There were three major outperformers in the financials area. Draper Esprit, the venture capital investor posted better than expected book value appreciation as its team continued to make astute investments in digitally focused private businesses, with their capital resources augmented by a placing. AFH Financial, the IFA consolidator, also released good figures as management deployed additional equity capital into new acquisitions, and funds under management continued to grow dynamically. John Laing Group's shares advanced as the company made further progress in developing its international portfolio of infrastructure projects and realised further value by selling down its secondary UK investment portfolio.

While property shares were generally out of favour, developer U and I Group's shares did well, as the company delivered strong full year results and paid out a large special dividend. Management are focusing more time now on larger mixed-use developments where the team has specialist expertise and good relationships with key local authority partners. With the oil price rising there was more interest in the energy sector, and shares in Faroe Petroleum rose as management maintained its good record, with exploration drilling and bid speculation providing additional support. Since the period end, the Company has indeed received a takeover approach.

In media, Huntsworth's shares continued last year's good run with the company announcing an earnings accretive deal in the health care marketing sphere, while the public relations business delivered improved margins. Entertainment One was also strong as its family orientated characters Peppa Pig and the newer PJ Masks showed promise and the television and films business performed satisfactorily. Gym Group's shares bounced as the company's position at the low end of the price spectrum in the fitness market continued to pay dividends. Shares in chilled/convenience foods supplier Greencore also rebounded from early 2018 weakness, as trading performance stabilised and the company revealed it was exiting the US market at an attractive price.

As with the strong performers, disappointments were scattered across a number of sectors. The market lost confidence in debt purchaser and collections company Arrow Global, following a period of management change. Several industrial stocks were hit by the general trend of derating of perceived cyclicals, with fastenings business Trifast and electronics components supplier XP Power the most impacted despite trading remaining solid to date. RPS Group's shares fell as the company flagged the need to increase investment under a new Chief Executive.

Of the other main fallers, consumer orientated companies were predominant. Retail remains a very difficult area and while we had limited exposure, our investment in Quiz slumped after a profit warning in September. We have subsequently sold this holding. Carpets and flooring supplier Victoria was also weak as guidance was pulled back shortly after a placing to finance another acquisition. Retail logistics business Clipper Logistics' shares fell as results emerged short of hopes and management guided to a slower conversion of the bidding pipeline, while online travel business On The Beach gave back some of the previous year's gains. A number of the company's peers have flagged a slowdown in trade given the better UK summer weather and higher oil prices were also unhelpful for sentiment.

With political risk remaining elevated, for now a more defensive positioning in the UK seems appropriate.

Europe

In spite of the political challenges, we remain relatively comfortable with the European economic outlook in the near term, though leading indicators which provide an early guide to the future are suggesting that the outlook is softening.

As elsewhere, winners came from a number of different market sectors. The largest positive contributor was Tomra. Increasing public concern about plastic waste has led to more interest in recycling and as the leading supplier in reverse vending machines, the company's shares continued their strong performance from the prior year. Helpfully the company's sorting solutions business is also now seeing better margins. We had benefited from our holdings in Scandinavian financial stocks in 2017/18 and shares in Norwegian based bank Sparebank and insurance/pensions business Storebrand continued to do well. To an extent this was helped by the recovery in the oil price which lifted sentiment across the local market but, fundamentally these businesses are well placed and are beneficiaries from rising interest rate expectations.

Food businesses received some more attention given the market back-drop and our investment from the last financial year in Dutch based Sligro Foods, the wholesaler, held up well in the recent market weakness. Agronomy business Origin Enterprises also outperformed as it delivered solid results despite variable weather conditions in the UK. The company has made acquisitions in Europe and Brazil which will reduce the historic reliance on the UK. Speciality ingredients solutions business Symrise also did well as it increased its guidance and grew its business particularly in the cosmetics area.

While industrial and more cyclical stocks tended to lose favour, there are always exceptions, and Swedish based Indutrade, the valves, hydraulics and measurement systems supplier, benefited from an uplift in the energy and marine markets. Alimak, the provider of construction lift systems did well after early year weakness, as the most recent quarterly results reassured the market, with the outlook in specialist areas like the energy and renewables sectors improving. Chemicals distributor IMCD was another stock that pleased the market with its results, and management concluded a couple of sensible deals to enhance the company's presence in the US.

One of our larger holdings, floorings business Forbo did well as the market welcomed indications that cost pressures were being managed and first half results surpassed expectations. Facilities management business Coor Management Services' shares were also resilient as the company won new accounts. There are limited upcoming contract renewals which hopefully means the outlook is underpinned for the coming period.

As elsewhere we were not immune to disappointments, with Italian holdings not helped by the market taking a negative view around the new government's approach. Both credit information business Cerved and fund management business Azimut suffered a pull-back, with the former producing a weak set of results in the third quarter, and the latter impacted by slower fund flows. A weaker automotive market in Europe and China plus the ongoing trade war fears, drove down shares in component suppliers Plastics Omnium and Norma. Specialist materials supplier Lenzing was also weak as the company decided to mothball a planned expansion of speciality fibre capacity in the US due to rising cost pressures and fears around labour availability.

We have focused over the period on looking to slightly reduce the cyclicality of the portfolio by adding within health care for example, and by looking more closely at individual company's balance sheets given the tick-up in medium term market rate expectations. The European Central Bank is about to curtail its bond buying but near term interest rate rises are not presently expected.

Japan

This was a difficult period for our Japanese performance, and the market as a whole was not helped by the US/China trade spat given the importance of global trade to many Japanese companies. We own two funds managed by Eastspring and Aberdeen. Eastspring focus on out of favour stocks but while this approach has worked well in the long term it has lagged of late with expensive defensives and highly rated technology stocks outperforming. Aberdeen's fund did better, more in line with the local small cap index, helped by positive performance from a number of consumer facing holdings.

Rest of World

Asian markets endured a tough six months as the trade war fears undermined sentiment, and the strength of the US dollar following the interest rate rises, drove extensive currency weakness in the region. While China is the main target of the US tariffs, their potential imposition on nearly all Chinese imports into the US resonated widely across the region given the nature of supply chains nowadays. Latin American markets were also generally lower as Argentina was forced to seek additional support from the IMF, but the election of a controversial right-wing President in Brazil, provided the grounds for a rally late in the period.

While the overall returns were disappointing, the best performance came from the Utilico Emerging Markets fund, where the focus on more stable underlying investments helped as the period proceeded. The Pinebridge Asia ex Japan Small Cap Fund also performed well and this is now our largest Asian-facing fund holding. Our weakest holding in the six months was the HSBC managed Asian small cap fund, where poor stock selection in the consumer sphere took its toll. We sold our holding in the Manulife Asian Smaller Companies Fund following news that the lead portfolio manager had left.

While sentiment could be supported in the coming period by fiscal actions in China, all eyes including our own will be focused on the trade developments. We will also continue to look for potential new fund investments for the portfolio.

Asset allocation

We ended the period with a higher exposure to North America than we started, mainly due to the strong relative performance here. We remained underweight in the UK given the ongoing Brexit uncertainties, and overweight to Europe, which remains earlier in the recovery cycle. The worsening trade situation between the US and China prompted us to reduce our exposure to the Rest of World segment during the six months. By contrast, a more settled political backdrop in Japan and positive underlying earnings momentum within the market led us to increase our Japanese weighting to its highest level for some years. In overall terms the contribution from asset allocation to relative performance was neutral with the benefit from being underweight to the UK offset elsewhere.

Geographical distribution of the investment portfolio
	Portfolio weighting
	31 October 2018 %	30 April 2018 %
North America	42.9	38.4
UK	25.4	27.6
Europe	11.7	11.8
Rest of World	10.0	12.4
Japan	10.0	9.8
Source: BMO

Gearing

The Board has adopted a structural approach to leverage, whereby they look to the Manager to remain geared on an ongoing basis. At the end of October, effective leverage was 5.0% taking account of drawings under the Company's revolving credit facility and the outstanding CULS in issue netted off versus cash holdings. Borrowings are now spread across the main currencies broadly in proportion to the equity market exposures, having been all sterling denominated at 30th April 2018.

Looking forward, the Board is assessing options for replacing the CULS which mature in July 2019. During the period, the revolving credit facility which runs to September 2019 was enlarged by £20m to replenish the borrowing capacity given up as a result of CULS conversions.

Outlook

Recent market developments and signs that corporate profitability may be coming under pressure have tested confidence in the outlook for equities on a global basis. In the UK, there remains a risk that Parliament fails to approve a Brexit deal, which could lead to further volatility and downside for Pan-European markets. The end-game on the US and Chinese trade war also remains hard to call. Against this backdrop, we have taken a slightly more cautious approach across the portfolio for now. More positively the set-back in markets is likely to present us with chances to acquire holdings in good quality companies at more attractive valuation points and we will continue to seek out such opportunities in the second half of the year.

 

 

Unaudited Condensed Income Statement

for the half-year ended 31 October	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
(Losses)/gains on investments	-	(6,395)	(6,395)	-	59,417	59,417
Foreign exchange gains/(losses)	8	(456)	(448)	(4)	(5)	(9)
Income	6,819	-	6,819	5,953	-	5,953
Management fees	(541)	(1,621)	(2,162)	(480)	(1,439)	(1,919)
Other expenses	(425)	(14)	(439)	(467)	(7)	(474)
Net return before finance costs and taxation	5,861	(8,486)	(2,625)	5,002	57,966	62,968
Finance costs	(201)	(604)	(805)	(190)	(571)	(761)
Net return on ordinary activities before taxation	5,660	(9,090)	(3,430)	4,812	57,395	62,207
Taxation on ordinary activities	(465)	-	(465)	(400)	-	(400)
Net return attributable to shareholders	5,195	(9,090)	(3,895)	4,412	57,395	61,807
Return per share (basic) - pence	8.67	(15.17)	(6.50)	7.64	99.34	106.98
Return per share (diluted) - pence	8.60	(15.17)	(6.50)	7.51	94.58	102.09

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

 

Unaudited Condensed Statement of Changes in Equity

Half-year ended 31 October 2018	Called- up	Share	Capital	Equity			Total
	share	premium	redemption	component	Capital	Revenue	shareholders'
	capital	account	reserve	of CULS	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2018	14,933	189,476	16,158	728	589,513	16,023	826,831
Movements during the half-year ended 31 October 2018
Dividends paid Conversion of Convertible Unsecured Loan Stock ("CULS")	- 100	- 3,870	- -	- (127)	- -	(5,973) -	(5,973) 3,843
Shares issued	5	245	-	-	-	-	250
Net return attributable to equity shareholders	-	-	-	-	(9,090)	5,195	(3,895)
Balance at 31 October 2018	15,038	193,591	16,158	601	580,423	15,245	821,056

Half-year ended 31 October 2017	Called-up	Share	Capital	Equity			Total
	share	premium	redemption	component	Capital	Revenue	shareholders'
	capital	account	reserve	of CULS	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2017	14,284	160,243	16,158	1,169	527,523	13,905	733,282
Movements during the half-year ended 31 October 2017
Dividends paid Conversion of Convertible Unsecured Loan Stock ("CULS")	- 71	- 2,731	- -	- (91)	- -	(4,751) -	(4,751) 2,711
Shares issued	232	12,017	-	-	-	-	12,249
Net return attributable to equity shareholders	-	-	-	-	57,395	4,412	61,807
Balance at 31 October 2017	14,587	174,991	16,158	1,078	584,918	13,566	805,298

Year ended 30 April 2018	Called-up	Share	Capital	Equity			Total
	share	premium	redemption	component	Capital	Revenue	shareholders'
	capital	account	reserve	of CULS	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2017	14,284	160,243	16,158	1,169	527,523	13,905	733,282
Movements during the year ended 30 April 2018
Dividends paid	-	-	-	-	-	(7,330)	(7,330)
Conversion of Convertible Unsecured Loan Stock ("CULS")	344	13,296	-	(441)	-	-	13,199
Shares issued	305	15,937	-	-	-	-	16,242
Net return attributable to equity shareholders	-	-	-	-	61,990	9,448	71,438
Balance at 30 April 2018	14,933	189,476	16,158	728	589,513	16,023	826,831

 

Unaudited Condensed Balance Sheet

	31 October 2018	31 October 2017	30 April 2018
	£'000s	£'000s	£'000s
Fixed assets
Investments	862,244	844,926	868,469
Current assets
Debtors	3,867	1,150	4,343
Cash at bank and short-term deposits	12,709	10,779	7,532
	16,576	11,929	11,875
Creditors: amounts falling due within one year
Loans	(34,745)	(12,000)	(24,000)
Creditors	(4,800)	(7,382)	(7,640)
	(39,545)	(19,382)	(31,640)
Net current liabilities	(22,969)	(7,453)	(19,765)
Total assets less current liabilities	839,275	837,473	848,704
Creditors: amounts falling due after more than one year
Convertible Unsecured Loan Stock ("CULS")	(18,219)	(32,175)	(21,873)
Net assets	821,056	805,298	826,831
Capital and reserves
Called-up share capital	15,038	14,587	14,933
Share premium account	193,591	174,991	189,476
Capital redemption reserve	16,158	16,158	16,158
Equity component of CULS	601	1,078	728
Capital reserves	580,423	584,918	589,513
Revenue reserve	15,245	13,566	16,023
Total shareholders' funds	821,056	805,298	826,831
Net asset value per share (basic) - pence	1,365.00	1,380.16	1,384.22
Net asset value per share (diluted) - pence	1,353.16	1,357.10	1,368.80

 

Unaudited Condensed Statement of Cash Flows

	Half-year ended	Half-year ended
	31 October 2018	31 October 2017
	£'000s	£'000s
Cash flows from operating activities before dividends received and interest paid	(2,714)	(2,630)
Dividends received	7,335	6,196
Interest paid	(704)	(813)
Cash flows from operating activities	3,917	2,753
Investing activities
Purchases of investments	(154,292)	(112,245)
Sales of investments	150,992	90,733
Other capital charges	(13)	(12)
Cash flows from investing activities	(3,313)	(21,524)
Cash flows before financing activities	604	(18,771)
Financing activities
Ordinary dividends paid	(5,973)	(4,751)
Proceeds from issue of shares	250	12,249
Movement on loans	10,483	12,000
Cash flows from financing activities	4,760	19,498
Net movement in cash and cash equivalents	5,364	727
Cash and cash equivalents at the beginning of the period	7,532	10,061
Effect of movement in foreign exchange	(187)	(9)
Cash and cash equivalents at the end of the period	12,709	10,779
Represented by:
Cash at bank and short-term deposits	12,709	10,779

 

Unaudited Notes on the Condensed Accounts

1    Significant accounting policies

These condensed financial statements have been prepared on a going concern basis in accordance with the Companies Act 2006, FRS 102, Interim Financial Reporting (FRS 104) and the revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (SORP) issued by the AIC in November 2014 and updated in February 2018.

The accounting policies applied for the condensed set of financial statements are set out in the Company's annual report for the year ended 30 April 2018.

2    Dividend

The Directors have declared an interim dividend in respect of the year ended 30 April 2019 of 5.0p per share, payable on 31 January 2019 to all shareholders on the register at close of business on 4 January 2019. The amount of this dividend will be £3,009,000 based on 60,180,447 shares in issue at 10 December 2018. This amount has not been accrued in the results for the half-year ended 31 October 2018.

3    Results

The results for the half-year ended 31 October 2018 and 31 October 2017, which are unaudited and which have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information', constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 April 2018; the report of the auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The condensed financial statements shown above for the year ended 30 April 2018 are an extract from those accounts.

The report and accounts for the half-year ended 31 October 2018 will be posted to shareholders and made available on the website www.bmoglobalsmallers.com shortly. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

Legal Entity Identifier: 2138008RRULYQP8VP386

By order of the Board

BMO Investment Business Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

12 December 2018

 

Directors' Statement of Principal Risks and Uncertainties

Most of the Company's principal risks and uncertainties are market related and no different from those of other investment trusts investing primarily in listed equities. They are described in more detail under the heading "Principal risks and future prospects" within the strategic report in the Company's annual report for the year ended 30 April 2018. They have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company's financial year.

The risks include having an inappropriate strategy in relation to investor needs; failure on the part of the Manager to continue to operate effectively; unfavourable markets or inappropriate asset allocation, sector and stock selection and currency exposure leading to investment underperformance and its effect on share price discount/premium and dividends.  Also included are risks in relation to errors, fraud or control failures at service providers, or loss of data through cyber-threats or business continuity failure.

The Company has put in place the necessary steps to comply with the General Data Protection Regulation ("GDPR"). 

Statement of Directors' Responsibilities in Respect of the Half-Yearly Financial Report

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules the Directors confirm that to the best of their knowledge:

·       the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards on a going concern basis, and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;

·       the half-yearly report includes a fair review of the development and performance of the Company and important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·       the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year;

·       the half-yearly report includes details on related party transactions that have taken place in the first six months of the financial year.

On behalf of the Board

Anthony Townsend

Chairman

12 December 2018

 

END

 

 

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