Annual Results for the year ended 30th June 2020
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New Star Investment Trust PLC (NSI)
NEW STAR INVESTMENT TRUST PLC
This announcement constitutes regulated information.
UNAUDITED RESULTS FOR THE YEAR ENDED 30TH JUNE 2020
New Star Investment Trust plc (the 'Company'), whose objective is to achieve long-term capital growth, announces its consolidated results for the year ended 30th June 2020.
FINANCIAL HIGHLIGHTS
* The total return figure for the Group represents the revenue and capital return shown in the Consolidated Statement of Comprehensive Income divided by the net asset value at the beginning of the period. CHAIRMAN'S STATEMENT
PERFORMANCE Your Company generated a positive total return of 0.80% over the year to 30th June 2020, taking the net asset value (NAV) per ordinary share to 160.35p. By comparison, the Investment Association's Mixed Investment 40-85% Shares Index fell 0.15%. The MSCI AC World Total Return Index rose 5.72% while the MSCI UK Total Return Index fell 15.21%. Over the year, UK government bonds returned 11.98%. Further information is provided in the investment manager's report.
Your Company made a revenue profit for the year of £1.32 million (2019: £1.28 million).
GEARINGS AND DIVIDEND Your Company has no borrowings. It ended the year under review with cash representing 9.63% of its NAV and is likely to maintain a significant cash position. In respect of the financial year to 30th June 2020, your Directors recommend the payment of a dividend of 1.4p per share (2019: 1.4p). The level of future dividends may, in the short term, be adversely affected by Covid-19-related dividend cuts.
DISCOUNT During the year under review, your Company's shares continued to trade at a significant discount to their NAV. The Board keeps this issue under review.
PERFORMANCE FEE In November 2019, your Company announced that the arrangement for performance fees was not appropriate in a low interest rate environment, with the result that the existing performance fee arrangement ceased from 1st January 2020. A performance fee of £623,000 (2019: £410,000) was payable in respect of the year to 30th June 2020.
OUTLOOK Over the late summer of 2020, equities appeared attractive for long-term investors, supported by large-scale monetary and fiscal stimulus measures. By July, leading indicators for some of the world's major economies had risen significantly from their lows, implying that a global economic recovery was on the horizon, and there was some positive news on vaccines and treatments for Covid-19. Corporate bonds may also perform well as yield spreads over sovereign bonds narrow. Resurgent Covid-19 infection rates in some countries, tense Sino-US relations and the approaching US election may, however, lead to renewed short-term weakness. Shortly after the year end, your Company took some profits from investments in equity funds because of uncertainty regarding the spread of Covid-19.
ANNUAL GENERAL MEETING
NET ASSET VALUE Your Company's unaudited net asset value per share at 31st August 2020 was 162.94p.
INVESTMENT MANAGER'S REPORT
MARKET REVIEW The Covid-19 pandemic and the impact of lockdowns to contain the spread of the virus dominated financial markets during the second half of your Company's financial year. Global equities fell 25.33% in sterling from their high on 20th February 2020 to their 16th March low. Global equities recovered, however, during the final quarter, extending the 4.89% gain in sterling at the interim stage to close the year up 5.72%. The announcements by central banks and governments of large-scale monetary and fiscal stimulus measures softened the impact of the lockdowns on businesses and households and reassured investors. .. Global bonds outperformed equities over the year, rising 7.35% in sterling as leading central banks cut interest rates to near-zero and increased quantitative easing. UK government bonds were particularly strong, returning 11.98%. Interest rates are likely to remain low for some time. In March, the yield spreads of corporate and high-yield bonds widened over sovereign bond yields as investors anticipated more businesses would default, particularly in the hard-pressed energy, retail and travel and leisure sectors. The Fed expanded its asset purchase programme to include corporate bonds, leading to improved liquidity and lower yields overall. Sterling corporate and high-yield bonds returned 6.52% and 0.62% respectively over the year.
US equities outperformed, returning 10.73% in sterling, buoyed by the 41.67% rise by US technology stocks. Technology companies benefitted from their strong balance sheets and an acceleration in the established trends towards home working and online shopping and entertainment.
UK equities lagged, falling 15.21% as the London market's heavy weighting in cyclical sectors such as energy, financials and industrials proved a headwind. Uncertainty regarding European Union-UK trade negotiations also weighed on stocks as the government allowed the 30th June deadline for a request to extend the Brexit transition period to lapse. Sterling lost 2.92%, 2.78% and 1.57% respectively against the dollar, yen and euro.
Equities in Europe excluding the UK underperformed, falling 3.50% in sterling on fears that fiscally-prudent northern countries might oppose an EU rescue package that included grants rather than loans to heavily-indebted southern countries. Such a deal was, however, agreed shortly after your Company's year-end. Equities in Asia excluding Japan and emerging markets also lagged, rising 5.03% and falling 0.14% respectively in sterling despite a leading indicator suggesting China would emerge strongly from the crisis. Sino-US relations deteriorated as Beijing passed a new security law governing Hong Kong and the US retaliated by revoking Hong Kong's special status under US law.
Oil prices fell 63.66% in sterling as lower demand during the lockdowns compounded the impact of the Russo-Saudi oil price war. By contrast, gold rose 29.44% in sterling, benefitting from safe-haven buying and the lower opportunity cost of holding this nil-yielding asset in an environment of near-zero interest rates.
PORTFOLIO REVIEW Your Company's total return over the year under review was 1.34% before performance fees and 0.80% after performance fees. By comparison, the Investment Association's Mixed Investment 40-85% Shares sector, comprising a peer group of multi-asset funds that typically invest 40-85% of their assets in global equities, fell 0.15%. The MSCI AC World Total Return Index rose 5.72% in sterling while the MSCI UK Total Return Index fell 15.21%. Your Company benefitted from strong performance by investments in technology and gold mining.
Performance was, however, held back by poor performance by UK equities and a relatively low investment in global bonds.
Polar Capital Global Technology made the biggest positive contribution to your Company's performance, rising 39.78% over the year. The fund increased in size from $3.4 billion to $5.8 billion, with inflows totalling $1.1 billion. In response, Polar Capital soft-closed the fund in July, with the result that only existing investors such as your Company may add to their holdings. Fundsmith Equity, your Company's largest investment, also benefitted from the strong performance of technology stocks, which account for a significant proportion of its portfolio, with Facebook and Microsoft among its 10 largest holdings. At the year end, prospects for technology companies remained bright although increasing regulatory pressures were a potential headwind. In June, the European Commission opened two anti-trust investigations into Apple; in July, the chief executives of Amazon, Apple, Facebook and Google were invited to testify before Congress as part of an anti-trust investigation.
Underperformance by UK equities detracted from performance. Investments in UK equity income funds have contributed significantly to your Company's income and capacity to pay dividends. The UK equity income allocation increased in November 2019 through an additional purchase of Chelverton UK Equity Income. In March, following market falls, the UK equity allocation increased further through the purchase of the SPDR UK FTSE All-Share exchange-traded fund. In May, following a partial recovery by UK stocks from their March through, Schroder Income, which invests in UK equities, was sold in favour of Baillie Gifford Global Income Growth.
Higher-yielding UK stocks fell as dividends were cancelled, cut or deferred. Dividends from UK stocks are expected to fall more than in the US and mainland Europe because of the London market's relatively high weighting in cyclical sectors such as financials and energy. In March, the Prudential Regulation Authority, the banking regulator, said the seven largest UK banks would suspend dividends and buybacks until the end of 2020. BP and Royal Dutch Shell, which accounted for a significant proportion of all dividends paid by UK companies, cut their dividends. In the case of Royal Dutch Shell, this was for the first time since the Second World War. Aberforth Split Level Income was the portfolio's worst performer, falling 35.14% as declines by UK stocks were compounded by the manager's out-of-favour value style of investing and gearing resulting from its zero dividend preference shares. Man GLG UK Income fell 15.61% but Trojan Income, down only 5.58%, proved more resilient as a result of its holdings in defensive consumer stocks such as Reckitt Benckiser and Unilever.
BlackRock Gold & General, up 43.95%, was the second largest positive contributor to your Company's returns. Gold mining profits are highly sensitive to gold price movements and bullion benefitted over the year from safe-haven buying and fears that large-scale monetary easing might result in the debasement of fiat currencies.
Amongst your Company's lower-risk investments, Aquilus Inflection, a euro-hedged long/short equity fund, rose 10.21% while Trojan, a multi-asset fund with investments in defensive equities, inflation-linked bonds, gold and cash, rose 7.52%. An investment in Chelsea Managed Monthly Income, which has a multi-asset portfolio, was purchased to provide further diversification and an income.
Your Company has a significant allocation to cash, held primarily in dollars. It benefitted, therefore, from the dollar's 3.0% rise against sterling over the year.
At the year end, your Company's private equity holdings represented approaching 7.5% of its portfolio. Its investment in the Embark financial services group represented more than 80% of the value of the unquoted holdings. Following the completion of two successful equity issues to finance two acquisitions, the Embark holding was written up by 17.5% to reflect the latest external fundraising.
OUTLOOK Over the late summer of 2020, the outlook for equities remained positive given the monetary and fiscal support in place and the possibility that further stimulus measures might be forthcoming, particularly in the US. By July, leading indicators for some of the world's major economies had risen significantly, implying that a global economic recovery was on the horizon. Your Company did, however take some profits from investments in equity funds shortly after the year end because of uncertainty regarding the spread of Covid-19. In June, the World Health Organisation warned the worst could be to come.
SCHEDULE OF LARGEST HOLDINGS AT 30TH JUNE 2020
STRATEGIC REVIEW The Strategic Review is designed to provide information primarily about the Company's business and results for the year ended 30th June 2020. The Strategic Review should be read in conjunction with the Chairman's Statement and the Investment Manager's Report, which provide a review of the year's investment activities of the Company and the outlook for the future.
STATUS The Company is an investment company under section 833 of the Companies Act 2006. It is an Approved Company under the Investment Trust (Approved Company) (Tax) Regulations 2011 (the 'Regulations') and conducts its affairs in accordance with those Regulations so as to retain its status as an investment trust and maintain exemption from liability to United Kingdom capital gains tax.
The Company is a small registered Alternative Investment Fund Manager under the European Union Markets in Financial Instruments Directive.
PURPOSE CULTURE AND VALUES The Directors acknowledge the expectation under the Code that they formally define a purpose for the Company. The Directors have reviewed this requirement and consider that the Company's purpose is to deliver the Company's stated investment objective to achieve long-term capital growth for the benefit of its investors.
Similarly, the Directors have also considered the Company's culture and values in line with Code requirements. The Board has formed the view that as the Company has no direct employees, and with operational management outsourced to the Investment Manager, the Administrator and the Company Secretary, the Company's culture and values have to be those of the Board. Having a stable composition and established working practices, the Board is defined by experienced membership, trust and robust investment challenge. These are therefore the key characteristics of the Company's culture and values.
STAKEHOLDER RESPONSIBILITIES (S.172 STATEMENT UNDER COMPANIES ACT 2006) The Directors are aware of their responsibilities to stakeholders under both the Code and legislation through regular governance updates from the Company Secretary. As a UK listed investment trust, the Directors outsource operational management of the Company, including day to day management of the investment portfolio, to third parties. As a consequence, the Directors consider their key stakeholder groups to be limited to the Company's shareholders, its third party advisers and service providers, and individual board members.
The Company's Articles of Association, the Board's commitment to follow the principles of the UK Corporate Governance Code issued by the Financial Reporting Council in July 2018 ('the code') and the involvement of the independent Company Secretary in board matters enable the Directors to meet their responsibilities towards individual shareholder groups and board members. Governance procedures are in place which allow both investors and directors to ask questions or raise concerns appropriately. The Board is satisfied that those governance procedures mean the Company can act fairly between individual shareholders and takes account of Mr Duffield's significant shareholding. In considering the payment of the minimum dividend required to maintain investment trust tax status, the recommendations to vote in favour of the resolutions at the AGM, the change to the performance fee arrangements and the provision of temporary liquidity facilities, the Board assessed the potential benefits to shareholders and the manager of the investment portfolio.
The Board also regularly considers the performance of its independent third party service providers. Those third party service providers in turn have regular opportunities to report on matters meriting the attention of the Board, including in relation to their own performance. The Board is therefore confident that its responsibilities to each of its key stakeholder groups are being discharged effectively.
As the Company does not have any employees, the Board does not consider it necessary to establish means for employee engagement with the Board as required by the latest version of the Code.
INVESTMENT OBJECTIVE AND POLICY
Investment Objective The Company's investment objective is to achieve long-term capital growth.
Investment Policy The Company's investment policy is to allocate assets to global investment opportunities through investment in equity, bond, commodity, real estate, currency and other markets. The Company's assets may have significant weightings to any one asset class or market, including cash.
The Company will invest in pooled investment vehicles, exchange traded funds, futures, options, limited partnerships and direct investments in relevant markets. The Company may invest up to 15% of its net assets in direct investments in relevant markets. The Company will not follow any index with reference to asset classes, countries, sectors or stocks. Aggregate asset class exposure to any one of the United States, the United Kingdom, Europe ex UK, Asia ex Japan, Japan or Emerging Markets and to any individual industry sector will be limited to 50% of the Company's net assets, such values being assessed at the time of investment and for funds by reference to their published investment policy or, where appropriate, the underlying investment exposure.
The Company may invest up to 20% of its net assets in unlisted securities (excluding unquoted pooled investment vehicles) such values being assessed at the time of investment.
The Company will not invest more than 15% of its net assets in any single investment, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used for the purposes of efficient portfolio management and currency hedging. Derivatives may also be used outside of efficient portfolio management to meet the Company's investment objective. The Company may take outright short positions in relation to up to 30% of its net assets, with a limit on short sales of individual stocks of up to 5% of its net assets, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used for the purposes of efficient portfolio management and currency hedging. Derivatives may also be used outside of efficient portfolio management to meet the Company's investment objective. The Company may take outright short positions in relation to up to 30% of its net assets, with a limit on short sales of individual stocks of up to 5% of its net assets, such values being assessed at the time of investment.
The Company may borrow up to 30% of net assets for short-term funding or long-term investment purposes.
No more than 10%, in aggregate, of the value of the Company's total assets may be invested in other closed-ended investment funds except where such funds have themselves published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds.
Information on the Company's portfolio of assets with a view to spreading investment risk in accordance with its investment policy is set out above.
FINANCIAL REVIEW Net assets at 30th June 2020 amounted to £113,885,000 compared with £113,971,000 at 30th June 2019. In the year under review, the NAV per Ordinary share decreased by 0.1% from 160.47p to 160.35p, after paying a dividend of 1.4p per share.
The Group's gross revenue increased to £2,419,000 (2019: £2,239,000). In 2019 and 2020 the Company increased its investment in income focused funds resulting in an increase in gross income in both years. The year under review was not impacted significantly by the Covid-19 pandemic. After deducting expenses and taxation, the revenue profit for the year was £1,325,000 (2019: £1,285,000).
Total expenses for the year amounted to £1,717,000 (2019: £1,364,000), mainly as a result of an increased performance fee becoming payable. In the year under review the investment management fee amounted to £697,000 (2019: £688,000). A performance fee of £623,000 (2019; £410,000) was payable in respect of the year under review. The performance fee has been allocated to the Capital account in accordance with the Company's accounting policy. Further details on the Company's expenses may be found in notes 3 and 4 below.
Dividends have not formed a central part of the Company's investment objective. The increased investment in income focused funds has enabled the Directors to declare an increased dividend in recent years. The Directors propose a final dividend of 1.40p per Ordinary share in respect of the year ended 30th June 2020 (2019: 1.40p). If approved at the Annual General Meeting, the dividend will be paid on 30th November 2020 to shareholders on the register at the close of business on 6th November 2020 (ex-dividend 5th November 2020).
The primary source of the Company's funding is shareholder funds.
While the future performance of the Company is dependent, to a large degree, on the performance of international financial markets, which in turn are subject to many external factors, the Board's intention is that the Company will continue to pursue its stated investment objective in accordance with the strategy outlined above. Further comments on the short-term outlook for the Company are set out in the Chairman's Statement and the Investment Manager's report.
Throughout the year the Group's investments included seven funds managed by the Investment Manager (2019: seven). No investment management fees were payable directly by the Company in respect of these investments.
PERFORMANCE MEASUREMENT AND KEY PERFORMANCE INDICATORS In order to measure the success of the Company in meeting its objectives, and to evaluate the performance of the Investment Manager, the Directors review at each meeting: net asset value, income and expenditure, asset allocation and attribution, share price of the Company and the discount. The Directors take into account a number of different indicators as the Company does not have a formal benchmark, and performance against these is shown in the Financial Highlights.
Performance is discussed in the Chairman's Statement and Investment Manager's Report.
PRINCIPAL RISKS AND UNCERTAINTIES The principal risks identified by the Board, and the steps the Board takes to mitigate them, are discussed below. The audit committee reviews existing and emerging risks on a six monthly basis. The Board has closely monitored the societal, economic and market focused implications of the events in 2020 to date, and have accordingly added a new macro-economic event risk to reflect these considerations:
Investment strategy Inappropriate long-term strategy, asset allocation and fund selection could lead to underperformance. The Board discusses investment performance at each of its meetings and the Directors receive reports detailing asset allocation, investment selection and performance.
Business conditions and general economy The Company's future performance is heavily dependent on the performance of different equity and currency markets. The Board cannot mitigate the risks arising from adverse market movements. However, diversification within the portfolio will reduce the impact. Further information is given in portfolio risks below.
Macro-economic event risk The Covid pandemic has been felt globally in 2020. The scale and potential adverse impact of a macro-economic event, such as the Covid pandemic, has highlighted the possibility of a number of identified risks such as market risk, currency risk, investment liquidity risk and operational risk having an adverse impact at the same time. The risk may impact on: the value of the Company's investment portfolio, its liquidity, meaning investments cannot be realised quickly, or the Company's ability to operate if the Company's suppliers face financial or operational difficulties. The Directors closely monitor these areas and currently maintain a significant cash balance.
Portfolio risks - market price, foreign currency and interest rate risks Investment returns will be influenced by interest rates, inflation, investor sentiment, availability/cost of credit and general economic and market conditions in the UK and globally. A significant proportion of the portfolio is in investments denominated in foreign currencies and movements in exchange rates could significantly affect their sterling value. The Investment Manager takes all these factors into account when making investment decisions but the Company does not normally hedge against foreign currency movements. The Board's policy is to hold a spread of investments in order to reduce the impact of the risks arising from the above factors by investing in a spread of asset classes and geographic regions.
Net asset value discount The discount in the price at which the Company's shares trade to net asset value means that shareholders cannot realise the real underlying value of their investment. Over the last few years the Company's share price has been at a significant discount to the Company's net asset value. The Directors review regularly the level of discount, however given the investor base of the Company, the Board is very restricted in its ability to influence the discount to net asset value.
Investment Manager The quality of the team employed by the Investment Manager is an important factor in delivering good performance and the loss of key staff could adversely affect returns. A representative of the Investment Manager attends each Board meeting and the Board is informed if any major changes to the investment team employed by the Investment Manager are proposed. The Investment Manager regularly informs the Board of developments and any key implications for either the Investment Strategy or the investment portfolio.
Tax and regulatory risks A breach of The Investment Trust (Approved Company) (Tax) Regulations 2011 (the 'Regulations') could lead to capital gains realised within the portfolio becoming subject to UK capital gains tax. A breach of the FCA Listing Rules could result in suspension of the Company's shares, while a breach of company law could lead to criminal proceedings, financial and/or reputational damage. The Board employs Brompton Asset Management LLP as Investment Manager, and Maitland Administration Services Limited as Secretary and Administrator, to help manage the Company's legal and regulatory obligations.
Operational Disruption to, or failure of, the Investment Manager's or Administrator's accounting, dealing or payment systems, or the Custodian's records, could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational risk that one or more of its suppliers may not provide the required level of service. How the Board monitors its service providers, with an emphasis on their business interruption procedures, is set out in the Corporate Governance Statement.
The Directors confirm that they have carried out an assessment of the risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity.
VIABILITY STATEMENT The assets of the Company consist mainly of securities that are readily realisable or cash and it has no significant liabilities and no financial commitments. In the last few years investment income has exceeded annual expenditure and current liquid net assets cover current annual expenses for many years. Accordingly, the Company is of the opinion that it has adequate financial resources to continue in operational existence for the long term which is considered to be in excess of five years. Five years is considered a reasonable period for investors when making their investment decisions. In reaching this view the Directors reviewed the anticipated level of annual expenditure against the cash and liquid assets within the portfolio. The Directors have also considered the risks the Company faces, and have considered the economic and operational implications of third party suppliers arising from the Covid-19 pandemic in finalising this viability statement.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES The Company has no employees, with day-to-day operational and administration of the Company being delegated by the Board to the Independent Investment Manager and the Administrator. The Company's portfolio is managed in accordance with the investment objective and policy approved by shareholders. The Company is primarily invested in investment funds and exchange traded funds, where it has no direct dialogue with underlying investments. Environmental, social and governance considerations of underlying investee companies are not a key driver when evaluating existing and potential investments.
GREENHOUSE GAS EMISSIONS As the Company has no premises, properties or equipment of its own, the Directors deem the Company to be exempt from making any disclosures under the Companies Act 2006 (Strategic Reports and Directors' Reports) Regulations 2013.
STREAMLINED ENERGY AND CARBON REPORTING The Company is categorised as a lower energy user under the HMRC Environmental Reporting Guidelines March 2019 and is therefore not required to make the detailed disclosures of energy and carbon information set out within the guidelines. The Company's energy and carbon information is not therefore disclosed in this report.
MODERN SLAVERY ACT The Directors rely on undertakings given by its independent third party advisers that those companies continue to have no instances of modern slavery either within their businesses or supply chains. Given the financial services focus and geographical location of all third-party suppliers to the Company, the Directors perceive the risks of a contravention of the legislation to be very low.
GENDER DIVERSITY The Board of Directors comprises three male directors, and currently no female board members. Composition of the Board has not changed since 2017, and the Board has benefitted from stable membership and strong working relationships between individual directors in that time. For this reason, the Board does not currently anticipate making future changes.
The Board is committed to the benefits of diversity, including gender, ethnicity and background when considering new appointments to the Board, whilst always seeking to base any decision on merit, measured by knowledge, experience and ability to make a positive contribution to the Board's decision making.
LISTING RULE 9.8.4 Listing rule 9.8.4 required the Company to include certain information in a single identifiable section of the Annual Report or a cross-reference table indicating where the information is set out. The Directors confirm that there were no disclosures to be made in this regard.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AT 30TH JUNE 2020
The total column of this statement represents the Group's profit and loss account, prepared in accordance with IFRS, as adopted by the European Union. The supplementary Revenue Return and Capital Return columns are both prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations.
The Company did not have any income or expense that was not included in 'Profit for the year'. Accordingly, the 'Profit for the year' is also the 'Total comprehensive income for the year', as defined in IAS1 (revised) and no separate Statement of Comprehensive Income has been presented.
No operations were acquired or discontinued during the year.
All income is attributable to the equity holders of the parent company. There are no minority interests.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30TH JUNE 2020
Included within Retained earnings were £2,018,000 of Company reserves available for distribution.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30TH JUNE 2019
Included within Retained earnings were £1,687,000 of Company reserves available for distribution.
CONSOLIDATED BALANCE SHEET AT 30TH JUNE 2020
CONSOLIDATED CASH FLOW STATEMENTS AT 30TH JUNE 2020
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30TH JUNE 2020
1. ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'). These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee ('IASC') that remain in effect, and to the extent that they have been adopted by the European Union.
These financial statements are presented in pounds sterling, the Group's functional currency, being the currency of the primary economic environment in which the Group operates, rounded to the nearest thousand.
(a) Basis of preparation: The financial statements have been prepared on a going concern basis (see 1 (p)). The principal accounting policies adopted are set out below.
Where presentational guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') issued by the Association of Investment Companies ('AIC') in November 2014 and updated in February 2018 and October 2019 with consequential amendments is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
(b) Basis of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiary made up to 30th June 2020. No statement of comprehensive income is presented for the parent company as permitted by Section 408 of the Companies Act 2006.
The Company is an investment entity as defined by IFRS 10 and assets are held at their fair value. The consolidated accounts include subsidiaries which are an integral part of the Group and not investee companies.
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiary used in the preparation of the consolidated financial statements are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising therefrom, are eliminated. Subsidiaries are valued at fair value, which is considered to be their NAV, in the accounts of the Company.
(c) Presentation of Statement of Comprehensive Income: In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the consolidated statement of comprehensive income between items of a revenue and capital nature has been presented alongside the consolidated statement of comprehensive income.
In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of a dividend. Additionally, the net revenue profit is the measure the Directors believe is appropriate in assessing the Group's compliance with certain requirements set out in the Investment Trust (Approved Company) (Tax) Regulations 2011.
(d) Use of estimates: The preparation of financial statements requires the Group to make estimates and assumptions that affect items reported in the consolidated and company balance sheets and consolidated statement of comprehensive income and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on the Directors' best knowledge of current facts, circumstances and, to some extent, future events and actions, the Group's actual results may ultimately differ from those estimates, possibly significantly. The most significant estimate relates to the valuation of unquoted investments (see note 18(h)).
(e) Revenue: Dividends and other such revenue distributions from investments are credited to the revenue column of the consolidated statement of comprehensive income on the day in which they are quoted ex-dividend. Where the Company has elected to receive its dividends in the form of additional shares rather than in cash and the amount of the cash dividend is recognised as income, any excess in the value of the shares received over the amount recognised is credited to the capital reserve. Deemed revenue from offshore funds is credited to the revenue account. Interest on fixed interest securities and deposits is accounted for on an accruals basis.
(f) Expenses: Expenses are accounted for on an accruals basis. Management fees, administration and other expenses, with the exception of transaction charges, are charged to the revenue column of the consolidated statement of comprehensive income. Performance fees and transaction charges are charged to the capital column of the consolidated statement of comprehensive income.
(g) Investments held at fair value: Purchases and sales of investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value.
All investments are classified as held at fair value through profit or loss on initial recognition and are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Investments in units of unit trusts or shares in OEICs are valued at the bid price for dual priced funds, or single price for non-dual priced funds, released by the relevant investment manager. Unquoted investments are valued by the Directors at the balance sheet date based on recognised valuation methodologies, in accordance with International Private Equity and Venture Capital ('IPEVC') Valuation Guidelines such as dealing prices or third party valuations where available, net asset values and other information as appropriate.
(h) Taxation: The charge for taxation is based on taxable income for the year. Withholding tax deducted from income received is treated as part of the taxation charge against income. Taxation deferred or accelerated can arise due to temporary differences between the treatment of certain items for accounting and taxation purposes. Full provision is made for deferred taxation under the liability method on all temporary differences not reversed by the Balance Sheet date. No deferred tax provision is made against deemed reporting offshore funds. Deferred tax assets are only recognised when there is more likelihood than not that there will be suitable profits against which they can be applied.
(i) Foreign currency: Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Foreign currency transactions are translated at the rates of exchange applicable at the transaction date. Exchange gains and losses are taken to the revenue or capital column of the consolidated statement of comprehensive income depending on the nature of the underlying item. (j) Capital reserve: The following are accounted for in this reserve:
- gains and losses on the realisation of investments together with the related taxation effect; - foreign exchange gains and losses on capital transactions, including those on settlement, together with the related taxation effect; - revaluation gains and losses on investments; - performance fees payable to the investment manager; and - trail rebates received from the managers of the Company's investments.
The capital reserve is not available for the payment of dividends.
(k) Revenue reserve: This reserve includes net revenue recognised in the revenue column of the Statement of Comprehensive Income.
(l) Special reserve: The special reserve can be used to finance the redemption and/or purchase of shares in issue.
(m) Cash and cash equivalents: Cash and cash equivalents comprise current deposits and balances with banks. Cash and cash equivalents may be held for the purpose of either asset allocation or managing liquidity.
(n)Dividends payable: Dividends are recognised from the date on which they are irrevocably committed to payment.
(o) Segmental Reporting: The Directors consider that the Group is engaged in a single segment of business with the primary objective of investing in securities to generate long term capital growth for its shareholders. Consequently no business segmental analysis is provided.
(p) Going concern basis of preparation: The Directors considered the impact of Covid-19 pandemic and the impact this may have on the Group, in particular noting that, in addition to its significant cash balances the Group holds a highly liquid portfolio, which could be sold. The Directors also reviewed scenarios of a significant drop in value of the assets and falls in income received. They have also considered the resiliency of the Group's key service providers and are satisfied that they have worked adequestly during the Covid-19 pandemic and are sustainable. Therefore, the going concern basis has been adopted in preparing the Group's Financial statements.
(q) New standards, interpretations and amendments effective for the periods beginning on or after 1 July 2019: There are no new standards, amendments to standards and interpretations that are relevant to the Group and should be disclosed.
(r) New standards, interpretations and amendments issued which are not yet effective and applicable for the periods beginning on or after 1 July 2020: The following amendments to standards issued but are not yet effective are relevant and applicable to the Group, although they have no impact on the financial statements of the Group: - IFRS 3: Definition of a Business - Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform - Amendments to IAS 1 and IAS 8 - Definition of Material
The above dividend and interest income has been included in the profit before finance costs and taxation included in the cash flow statements.
3. MANAGEMENT AND PERFORMANCE FEES
At 30th June 2020 there were amounts accrued of £177,000 (2019: £177,000) for investment management fees and £nil (2018: £410,000) for performance fees.
4. OTHER EXPENSES
5. TAXATION
(a) Analysis of tax charge for the year:
(b) Factors affecting tax charge for the year: The charge for the year of £nil (2019: £nil) can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
Due to the Company's tax status as an investment trust and the intention to continue meeting the conditions required to maintain approval of such status in the foreseeable future, the Company has not provided tax on any capital gains arising on the revaluation or disposal of investments.
There is no deferred tax (2019: £nil) in the capital account of the Company. There is no deferred tax charge in the revenue account (2019: £nil).
At the year-end there is an unrecognised deferred tax asset of £929,000 (2019: £520,000) based on the enacted tax rates of 19% for financial years beginning 1st April 2020, as a result of excess expenses.
6. COMPANY RETURN FOR THE YEAR
The Company's total return for the year was £908,000 (2019: £3,315,000).
7. RETURN PER ORDINARY SHARE
Total return per Ordinary share is based on the Group total return on ordinary activities after taxation of £908,000 (2019: £3,315,000) and on 71,023,695 (2019: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Revenue return per Ordinary share is based on the Group revenue profit on ordinary activities after taxation of £1,325,000 (2019: £1,285,000) and on 71,023,695 (2019: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on net capital (losses)/gains for the year of £(417,000) (2019: £2,031,000) and on 71,023,695 (2019: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
8. DIVIDENDS ON EQUITY SHARES
Amounts recognised as distributions in the year:
It is proposed that a dividend of 1.4p per share will be paid in respect of the current financial year.
9. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
ANALYSIS OF INVESTMENT PORTFOLIO - GROUP AND COMPANY
* Quoted investments include unit trust and OEIC funds and one monthly priced fund.
Transaction costs
The purchase and sale proceeds figures above include transaction costs on purchases of £2,002 (2019: £3,260) and on sales of £nil (2019: £638).
10. INVESTMENT IN SUBSIDIARY UNDERTAKING
The Company owns the whole of the issued share capital (£1) of JIT Securities Limited, a company registered in England and Wales.
The financial position of the subsidiary is summarised as follows:
11. OTHER RECEIVABLES
12. CASH AND CASH EQUIVALENTS
13. OTHER PAYABLES
14. CALLED UP SHARE CAPITAL
15. RESERVES
The components of retained earnings are set out below:
16. NET ASSET VALUE PER ORDINARY SHARE
The net asset value per Ordinary share is calculated on net assets of £113,885,000 (2018: £113,971,000) and 71,023,695 (2098: 71,023,695) Ordinary shares in issue at the year end.
17. ANALYSIS OF CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
18. FINANCIAL INFORMATION
2020 Financial information The figures and financial information for 2020 are unaudited and do not constitute the statutory accounts for the year. The preliminary statement has been agreed with the Company's auditors and the Company is not aware of any likely modification to the auditor's report required to be included with the annual report and accounts for the year ended 30th June 2020.
A copy of the Annual Report will be posted to the Company's website and will also be submitted to the FCA's National Storage Mechanism and will be available for inspection.
2019 Financial information The figures and financial information for 2019 are unaudited and do not constitute the statutory accounts for the year. The preliminary statement has been agreed with the Company's auditors and the Company is not aware of any likely modification to the auditor's report required to be included with the annual report and accounts for the year ended 30th June 2019.
Annual Report and Accounts The accounts for the year ended 30th June 2020 will be sent to shareholders in October 2020 and will be available on the Company's website or in hard copy format at the Company's registered office, 1 Knightsbridge Green, London SW1X 7QA.
The Annual General Meeting of the Company will be held on 12th November 2020 at 11.00am at 1 Knightsbridge Green, London SW1X 7QA.
30th September 2020
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| ISIN: | GB0002631041 |
| Category Code: | ACS |
| TIDM: | NSI |
| OAM Categories: | 1.1. Annual financial and audit reports |
| Sequence No.: | 85172 |
| EQS News ID: | 1137932 |
| End of Announcement | EQS News Service |
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