Annual Results

From:  Capital Gearing Trust P.l.c

LEI:   213800T2PJTPVF1UGW53

Date:  30 May 2022

Results for the period ended 31 March 2022

The Directors of Capital Gearing Trust P.l.c (“the Company”) are pleased to announce the Company's results for the period ended 31 March 2022.

The following is an extract from the Company's Annual Report and Financial Statements for the period to 31 March 2022. The Annual Report is expected to be posted to shareholders later this month.  Members of the public may obtain copies from the registered office, Murray House, Murray Street, Belfast BT1 6DN or from its website: www.capitalgearingtrust.com. A copy will also shortly be available for inspection at the National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Annual General Meeting (“AGM”) of the Company will be held at 11.00 a.m. on Tuesday 12 July 2022. Now that Covid restrictions have been lifted, we welcome shareholders back in person to the meeting. The AGM will be held at the offices of J.P. Morgan Cazenove, the Great Hall, 60 Victoria Embankment, London, EC4Y 0JP.

Performance Summary

Total Return Performance (to 31 March 2022)

	6 April 2021 to 31 March 2022	1 Year	3 Years	5 Years	10 Years
Share Price	10.0%	10.6%	27.3%	38.1%	79.2%
NAV per Share	10.5%	10.7%	27.0%	37.1%	85.1%
MSCI UK Index	18.7%	19.1%	15.8%	24.4%	89.0%
Inflation (RPI)	9.0%	9.0%	13.5%	20.1%	34.3%
Share price relative to MSCI UK	-7.3%	-7.1%	9.9%	11.0%	-5.2%
Share price relative to RPI	0.9%	1.5%	12.2%	15.0%	33.4%

Chairman’s Statement

Forty years

Capital Gearing Trust has passed several milestones this year, including its fortieth anniversary under the same investment management team, headed by Peter Spiller.

Over the 40 years from 1982, the Company’s primary investment objective has been the same: to preserve shareholders’ wealth. It has achieved this objective comfortably, even during challenging market conditions. Only once in the last 40 years has the Company registered a negative annual return, which is a commendable record by any measure.

The Company’s secondary objective has been to grow shareholders’ real wealth. The Company has provided a compound share price annual return (with dividends reinvested) of 15.1% per annum: another excellent result.

The Company is now a member of the FTSE 250 index, with a market capitalisation of over £1 billion.  This follows strong demand for the Company’s shares since the introduction of the discount and premium control policy in 2015.

Neither the Investment Manager nor the Board are complacent. Shareholders are likely to be more interested in the future than the past. We remain intensely focused on extending the Company’s track record and meeting the ever-changing challenges that investors face. However, it is worth pausing on this fortieth anniversary to congratulate CG Asset Management and Peter Spiller on their achievements and for their consistently good service to the Company.

The past year

The Company’s year-end has been changed to 31 March, from 5 April. This month end reporting period sits better with market comparisons and quarterly performance measurement statistics.

As at 31 March 2022, the NAV per share was 5,025p, representing a NAV total return of 10.5% for the slightly foreshortened year. The share price total return over the same period was 10.0%, ending the year with a share price of 5,140p. This is a very satisfactory performance in what has been a ‘topsy turvy’ market: first very strong, and then significantly weaker as we neared our year end. Whilst the Company does not have a formal benchmark, this performance compares with the equity return from the MSCI UK Index (£) of 18.7%, and inflation, as measured by the UK Retail Price Index (RPI), of 9.0% for the same period. 

The main driver of performance over the last year has been the outperformance of both the equity and the bond portions of the portfolio. The percentage of the portfolio in inflation-related assets has increased over the last year. It not only includes government index-linked stocks, but also property and infrastructure exposure, including renewables, with inflation-linked returns.  Towards the end of last year, the Investment Manager initiated positions in power and energy plays which performed very well in the first quarter of 2022. To get exposure to some of these asset classes, the Investment Manager has invested in ETFs, alongside direct investments in companies. These investments come under the heading of risk assets, and, along with other equity investments, account for around 44% of the portfolio.

Our Investment Manager continues to believe that conventional equity assets remain overvalued in the main, and hence around 50% of the portfolio is held mainly in government index-linked stocks, with a small proportion in short-dated conventional bonds, preference shares and treasury bills – ready to deploy these funds should markets have a significant fall. There is a small percentage of the portfolio invested in gold and cash, amounting to 6%.  When the time is appropriate, these cash equivalent resources will be used to buy into equities at attractive valuations. Buying in at significantly lower valuations has historically made a difference to long term returns for the Company.

Further detail on the portfolio, individual share price movements and geographic markets are provided in the Annual Report.

Earnings and dividends

The revenue return per share, after tax and expenses, for the financial period was 56.81p.  This is the fourth year running that we have had an exceptionally strong revenue account. This year it has been driven by higher levels of equity income, in particular from infrastructure and property shares. The Company’s portfolio is not managed with any income criteria in mind, but with the payment of dividends being a consequence of meeting the income distribution tests for maintaining investment trust status.

The Board is recommending a dividend of 46p, which compares to a payment of 45p last year. The Board believes that this dividend, which is not a material part of the Company’s total return and so recommends this for shareholder approval at the Company’s forthcoming AGM.

Costs

The Board continues to monitor and control the costs of running the Company. The assets of the Company now exceed £1 billion.  As a lower investment management fee rate of 0.3% is charged on assets over £500 million, this has a beneficial impact on the overall cost ratios. 

The key measure of overall costs is the ongoing charges ratio (OCR), which can be measured in two ways. The OCR measured solely on the costs of running the Company, has declined from 0.58% last year to 0.52% this year. As disclosed in the Key Information Document (KID), when the management costs of the underlying funds in which the Company invests are also taken into account, the OCR is 0.78% as at 31 March 2022 (0.90% as at 5 April 2021). 

The Company does not have any substantial marketing or promotional costs.  Promotional service costs are largely included in the management fee. We have maintained competitive costs for all our third-party suppliers, not least to try and keep the costs of operating the Company, which does not have any gearing or complex capital structure, as low as we can.

Our secretarial and administration agreement with Juniper Partners has been reviewed in light of the Company’s changed circumstances since Juniper Partners assumed the contract in 2015. As a result, the company secretarial fee will be subject to an increase, the costs of operating the DCP will remain the same, and an ad valorem secretarial/administration fee has been introduced to reflect the substantial additional work involved in servicing the Company.  Full details of this are given in the Annual Report.  These increased fees do not materially impact on the OCR.

Board matters

Alastair Laing, who was a non-independent member on the Board, stepped down at the last AGM.  Along with Peter Spiller and Chris Clothier, we see at least one, and usually more, of the portfolio managers at our Board meetings and benefit from their insightful comments on the markets and stocks, as well as being able to discuss and question them on their investment approach and outlook for the portfolio.

Our Board remains a highly engaged group of four independent, non-executive Directors, each with the requisite skills to oversee the running of the Company on behalf of shareholders. As set out in the remuneration report, there are increases to Board remuneration to bring individual remuneration more in line with the market.

Now that the Company is a member of the FTSE 250 Index, we intend to use an external consultant to provide a Board evaluation to make sure that we measure up to our obligations under corporate governance and regulatory requirements.  Later this year, we intend to start the process of recruiting a further Director in order to refresh the Board and to help maintain Board succession and cohesion.

Annual General Meeting

The AGM will be held on Tuesday, 12 July 2022 at 11.00 a.m. The notice convening the fifty-ninth AGM of the Company is contained in the Annual Report.  Now that Covid-19 restrictions have been lifted, we look forward to welcoming shareholders back in person to the meeting.  The AGM will be held at the offices of JPMorgan at 60 Victoria Embankment, London EC4Y 0JP.  Further details on the resolutions can be found in the Annual Report.

The Board firmly believes that all the resolutions being proposed are in the best interests of the Company and its shareholders and encourages shareholders to vote by proxy in favour of the resolutions, as the Board intends to do in respect of their own shareholdings. We would encourage shareholders to return their votes by electronic proxy, including by instructing their platform providers to vote on their behalf if their shares are held through platform nominees.

Share issuance and buybacks

The DCP continues to operate effectively and protects and serves shareholders well in providing good liquidity with the shares trading consistently close to NAV, even in more volatile market conditions.

Demand for the Company’s shares continues to be strong. We have issued some 7,078,862 shares during the year, raising net proceeds of some £354.3 million – our busiest year of issuance since the DCP commenced. We have not needed to buy back any shares in the last year.

At 31 March 2022, there were 20,891,975 shares in issue and net assets were £1,049.8 million.  The Company incurs modest costs for operating the DCP and for renewing shareholder authority from time to time (which has involved publishing a prospectus and convening two general meetings in the last year). Issuance at a premium and buying back at a discount under the DCP more than compensates for costs and is consistently accretive to NAV. The Board estimates that the issuance under the DCP added 0.9% to shareholder total returns over the last financial year. 

The Board continues to monitor the growth of the Company and is satisfied that the significant increase in size has had no adverse impact on the investment strategy or the NAV returns.  It is also reassured by the Investment Manager that the growth in assets under their management can be accommodated for some time to come. 

Whilst all recent DCP activity has been on issuance, in the event that shareholders were looking to sell stock, we would have no hesitation in operating an equally robust buy-back policy. The successful operation of the DCP has provided greater trading liquidity, a significant reduction in the ongoing charges ratio and NAV enhancement stemming from issuance which has more than covered costs of the DCP’s operation over the last six or more years.

Outlook

The Company was formed in 1982 when interest rates were high, and potential returns looked very attractive as stockmarket valuations were low and interest rates were falling.  It should come as no surprise to investors to realise that the reverse is now true, with historically low interest rates on the rise, and current stock market valuations making future returns distinctly less attractive. 

As our Investment Manager put it in a recent article “prospective returns look lousy for practically everything”.  Investors are facing rising interest rates, substantially higher inflation, overvalued stocks, along with Central Banks “turning off the taps” which have helped keep asset prices up and economies from going into recession. 

That said, stockmarket concerns are overshadowed by the atrocities being perpetrated in Ukraine.  Apart from the consequences of attacks on freedom, the economic impacts of the war are being felt throughout the world, with disruption to energy and agricultural supplies and the heightened impact on inflation.

That may sound a very gloomy outlook, but there are always interesting investment ideas and opportunities out there that fit with the Company’s investment strategy.  The Company holds a lot of near-cash investments, like Treasury Bills, which can be deployed if, and when, markets fall to more attractive levels.  Until then, there are inflation-linked assets which will continue to be held to help protect the Company against the worst ravages of inflation. The Company goes into the current year with its risk assets focused on a range of potentially rewarding areas, such as rented accommodation; renewable infrastructure; and energy and materials and commodities plays.

It may not be possible to counteract the current levels of inflation through equity returns in the near term, but I know that CGAM and its team will do its best and will look to beat inflation over a three-to-five-year time horizon. It is certain to be a very challenging year but so too have other years in the past 40 where the Company has weathered well.

Jean Matterson

Chairman

Investment Manager’s Report

Review

During a year that included a notable inflation shock, the Company benefited from its extensive exposure to inflation-linked equities and bonds. Many of the best performing assets were purchased in the aftermath of the Covid-19 bear market of 2020. In those dark days many investors were focused on the risks of deflation and nervous that the pandemic had undermined the prospects for all assets, particularly property. This opened up a buying opportunity in alternative property companies, those in the logistics and residential subsectors (“beds and sheds”). Holdings like Secure Income REIT plc, GCP Student Living plc and Tritax Big Box REIT plc delivered in excess of 30%. That these “tech like” returns were available on such low-risk assets was truly extraordinary.

At its peak, during the first half of the year, our property holdings represented more than 22% of the total portfolio, although by year end, this level was reduced to 16%. Many of our holdings had moved from significant discounts to net asset values onto premia, so most positions were trimmed. Three holdings were exited completely when acquired by other companies. The proceeds of these sales were invested into infrastructure assets, with a particular focus on renewable energy. Unlike property companies, infrastructure had not recovered strongly after the pandemic, many renewable energy companies had derated by as much as 30% from their late 2019 highs. This derating fortuitously coincided with a surge in power prices so provided an attractive entry point. Our infrastructure portfolio, which now represents 7% of our portfolio, delivered 20% returns over the year and still enjoys a strong tailwind. We also increased our broader energy and commodities holdings via sector exchange traded funds which have delivered strong returns since purchase.

Only one meaningful risk asset allocation delivered double digit negative returns: German residential property. There are some crumbs of comfort: this sector has been a fantastic long-term performer for the Company and our one major overweight position, Phoenix Spree Deutschland, returned 16%. Today, German residential stocks collectively offer a beacon of value in a stock market otherwise characterised by elevated valuations.

The most notable area of relative outperformance came from our bond portfolio and again the inflation-linking was key. The wider bond market endured a poor year, with an inflation shock causing a sell off in nominal bonds. The sterling aggregate bond index delivered -6% and the global aggregate bond index delivered -2% (all returns reported in sterling). Our bond portfolio delivered 8% with the stand out performers being our 21% holding in US Treasury Inflation Protected Securities (“TIPS”) which returned 11%. We believe that inflation is likely to remain more sticky than the market is currently forecasting in the year ahead. If so TIPS, and our other inflation-linked bond holdings, are well placed to significantly outperform conventional bonds for another year.

It is pleasing that both the bond and equity portfolios delivered strong absolute and relative outperformance. Looking forward the prospects for broader equity and bond markets remain poor but recent weakness is opening up a range of discount opportunities and the potential for further rotation into areas of value over the next 12 months.

Outlook

As the Company celebrates its fortieth year, it appears that the world economy may be undergoing a major transition. It seems that we are moving from an era of deflationary bias to one with a more inflationary character. The deflationary period started in 1982 when Paul Volcker put in place central banking policies that suppressed the persistent high inflation that had characterised the 1970s. Certainly there was a recession, but companies and households were robust enough for it to be comparatively mild. Disinflation was given a major boost as the number of workers in the capitalist world doubled, due to China’s accession to the WTO and the fall of the Berlin Wall. Demographics helped too, with the growing working age population in the West boosted by the increasing participation and improving opportunity for women. Technology, always at the heart of productivity gains, made a particular contribution in easing price discovery through the internet.

The result was that trend bond yields fell throughout the 40-year period, a fabulous background for above normal returns in pretty well all assets. The deflationary impact of globalisation was so powerful that Central Banks could operate with a policy stance so stimulative that many nominal bond yields even went negative without any problematic inflation resulting. Equity valuations, rising on the same waves of stimulus, have reached extraordinary levels.

Our situation today is the mirror image of the last 40 years. Globalisation is being rolled back both for reasons of security of supply and the geopolitical risks associated with Russia and China. The just-in-time worldwide model of manufacturing is fading. Furthermore, there are no realistic candidates for any equivalent increases in the workforce of the capitalist economy from elsewhere. Manufacturing closer to home will be more secure, but also more expensive. The consequence will be wider than just goods; the bargaining power of labour is being at least partially restored.

The scale of investment required to achieve net zero is also likely to maintain inflationary pressures. Not least through higher commodity prices as demand for natural resources for infrastructure renewal meets the constrained supply of metals and minerals due to low levels of capital expenditure in recent years.

The greatest imbalance that has developed over the last 40 years has been the extraordinary increase in debt that has been encouraged by abnormally low interest rates. History suggests that the only way to reduce the burden of excessive debt that does not risk a depression is to engage in financial repression; elevated inflation with moderate nominal rates. An extended period of financial repression is likely to cause some shocks but in time will bring debt into better balance.

Our main objective is to keep shareholders’ capital whole during this period of repression, which with luck will end with an environment similar to 1982. That is to say, inflation and interest rates high but falling, p/e ratios low and rising and debt no longer alarming. That would be a great environment from which to deliver the types of returns that shareholders of Capital Gearing Trust have enjoyed over the last 40 years.

Peter Spiller  Alastair Laing  Christopher Clothier

Principal Risks and Risk Management

The world has been subject to the most extraordinary challenges, largely as a result of the Covid-19 virus which has affected most parts of the world bringing medical, social, economic and financial crises. It is impossible to quantify the extent of damage that may be wrought over the longer term and the emerging risks that will be faced for the Company, not least the economic impact. The central aims remain to preserve value in the Company’s portfolio and liquidity in the Company’s shares. These aims were achieved in the last 12 months. The Directors are also trying to ensure that the Company maintains its investment strategy, has operational resilience, meets its regulatory requirements as an investment trust and navigates the financial and economic circumstances in these continuing uncertain times.

The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties facing the Company, together with the mitigating actions the Board take, are set out in the table below.

Apart from the ongoing impact of the Covid-19 pandemic, the Company also faces heightened risks of rising inflation and more recently the geopolitical risks of events such as the invasion of Ukraine.  It is difficult to assess how these exogenous risks will impact on the Company, but it does introduce both caution on returns that might be achieved in the future with inflationary impact on equity and bond returns and the risk of market shocks caused by geopolitical risk.  The Investment Manager continues to apply protective measures in constructing the portfolio but is also aware that an ‘oversold market’ can present opportunities as well and retains liquidity in the portfolio to exploit this if it can.

Risk	Mitigation
Investment strategy and performance The Board is responsible for setting the investment strategy of the Company and monitoring investment performance. Inappropriate strategy and/or poor investment performance may have an adverse effect on shareholder returns. There is increasing awareness of the challenges and emerging risks posed by climate change. The investment process considers ESG factors, as set out in the Strategic Review. Overall the specific potential effects of climate change are difficult, if not impossible, to predict and the Board and Investment Manager will continue to monitor developments in this area. Geopolitical risks have always been part of the investment process. The risk has heightened as a result of the Russian invasion of Ukraine, with the resultant effects on global trade posed by supply issues, higher levels of inflation and volatility in stockmarkets.	The Company’s strategy is formally reviewed by the Board at least annually, considering investment performance, shareholder views, developments in the marketplace and the structure of the Company. Investment performance is reviewed by the Board on a regular basis against RPI and the MSCI UK Index. The composition of the portfolio is provided at each Board meeting and allows the monitoring of the spread of investments and associated investment risks. The Investment Manager’s approach to ESG is set out in the Annual Report. Stock selection, portfolio composition and liquidity are explained in detail by the Investment Manager at each meeting. The Investment Manager is formally appraised at least annually by the Management Engagement Committee.
Premium/discount level The Company’s share price could be impacted by a range of factors causing it to be higher than (at a premium to) or lower than (at a discount to) the underlying NAV per share. Excessive demand for, or supply of, shares can create liquidity issues, restricting the ability of investors to buy and sell shares in the secondary market. Fluctuations in the share price can cause volatility which may not be reflective of the underlying investment portfolio.	The Company operates a discount/premium control policy (“DCP”), under which it will aim to purchase or issue shares to ensure, in normal market conditions, that the shares trade close to their underlying NAV per share. The DCP increases liquidity and reduces volatility by preventing the build-up of excessive demand and/or supply for the Company’s shares which, the Board believes, is in the best interests of shareholders. The DCP continues to be reviewed to ensure liquidity for issuance and buyback. The levels of issuance/buyback of shares are reported to the Board on an ongoing basis and at each Board meeting the Board considers the Investment Manager’s ability to invest new proceeds (in the case of issuance) and maintain sufficient liquidity (in the case of buybacks) to meet the demands of the DCP. The Company Secretary monitors the relevant authority levels, which are regularly reported to the Board, to maintain, as far as possible, uninterrupted operation of the DCP.

Operational The Company is reliant on third-party service providers including CGAM as Investment Manager, Juniper Partners as Company Secretary and administrator and Northern Trust as custodian and key teams at such service providers. Failure of the internal control systems of these third parties could result in inaccurate information being reported or risk to the Company’s assets.	The Audit Committee formally reviews each service provider at least annually, considering their reports on internal controls and the resources available to them. The Management Engagement Committee reviews the service levels and how the service providers have performed. The operational requirements of the Company, including from its service providers, have been subject to rigorous testing as to their application during the Covid-19 pandemic, where increased use of out of office working and online communication were required. To date the operational arrangements have proven robust. Further details of the Company’s internal control and risk management system is provided in the Annual Report.
Regulatory and governance The Company operates in a regulatory environment. Failure to comply with section 1158 of the Corporation Tax Act 2010 could result in the Company losing investment trust status and being subject to tax on capital gains. Failure to comply with other regulations could result in financial penalties or the suspension of the Company’s listing on the London Stock Exchange.	Compliance with relevant regulations is monitored on an ongoing basis by the Company Secretary and Investment Manager who report regularly to the Board. The Board also takes into account increasing governance requirements and complies with them wherever practical or explains why there is any divergence. The Board monitors changes in the regulatory environment and receives regulatory updates from the Investment Manager, Company Secretary, lawyers and auditors as relevant. The Board is appraised of corporate governance issues and changes and as far as practical the Company complies with governance guidance or explains where it does not and meets the guidance of the AIC Code.
Financial and economic The Company’s investments are impacted by financial and economic factors including market prices, interest rates, foreign exchange rates and credit which could cause losses to the investment portfolio.	The Board regularly reviews and monitors the management of market risk, interest rate risk, foreign currency risk and credit risk. These are explained in detail in note 14 to the financial statements in the Annual Report. Inflation, and geopolitical risks, are considered a component of market risk, with the impact of inflation and events in Ukraine taken into account. The ongoing economic impact of the Covid-19 pandemic is also considered. The Company has sufficient cash resources and liquidity in its portfolio to meet its operating requirements, including the operation of DCP. In common with most commercial operations, there are always exogenous risks and consequences, which are difficult to predict and plan for in advance. The Company does what it can to address these risks when they emerge, not least operationally and in trying to meet its investment objective.

Directors' Responsibilities Statement in Respect of the Annual Financial Report and the Financial Statements

Each of the Directors, whose names and functions are listed in the Governance Report, confirms that, to the best of his or her knowledge:

• the Company’s Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102, and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;
• the Board’s Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and
• the Annual Report, taken as a whole, is fair, balanced and understandable and provides information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Going Concern

The Company’s investment objective and business activities, together with the main factors likely to affect its future development and performance, are described in The Board’s Strategic Report. The financial position of the Company, including its cash flows and liquidity positions, is also described in the Strategic Report and financial statements contained in the Annual Report. The Board works closely with the Investment Manager and the Company Secretary to ensure that the Company’s operations are resilient, and its portfolio robust enough to meet challenges and opportunities. The Directors believe that the Company is well placed to manage its business risks successfully and consider that the Company currently has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence, including meeting the provisions of the DCP. For this reason, they continue to adopt the going concern basis in preparing the annual report and financial statements. The Directors do not consider that there are any material uncertainties to the Company’s ability to continue to adopt this approach over a period of twelve months from the date of approval of these financial statements.

For further information contact:

CG Asset Management Limited

Investment Manager

Tel:  [phone]

Juniper Partners Limited

Company Secretary

Tel:  [phone]

The Income Statement, Statement of Changes in Equity, Statement of Financial Position, and Cash Flow Statement follow.

Income Statement

for the period ended 31 March 2022

	Period ended 31 March 2022			Year ended 5 April 2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000
Net gains on investments	-	57,875	57,875	-	57,452	57,452
Net currency gains/(losses)	-	530	530	-	(116)	(116)
Investment income	14,677	-	14,677	9,942	-	9,942
Gross return	14,677	58,405	73,082	9,942	57,336	67,278
Investment management fee	(3,627)	-	(3,627)	(2,604)	-	(2,604)
Other expenses	(727)	-	(727)	(612)	-	(612)
Net return before tax	10,323	58,405	68,728	6,726	57,336	64,062
Tax charge on net return	(510)	-	(510)	(396)	-	(396)
Net return attributable to equity shareholders	9,813	58,405	68,218	6,330	57,336	63,666
Net return per Ordinary share	56.81p	338.14p	394.95p	51.04p	462.35p	513.39p

The total column of this statement represents the income statement of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance issued by the Association of Investment Companies.

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

There are no gains or losses other than those recognised in the income statement and therefore no statement of comprehensive income has been presented.

The following notes form an integral part of these financial statements.

Statement of Changes in Equity

for the period ended 31 March 2022

	Called-up share capital £000	Share premium account £000	Capital redemption reserve £000	Capital reserve* £000	Revenue reserve £000	Total equity shareholders’ funds £000
Opening balance at 6 April 2020	2,903	362,726	16	97,081	7,333	470,059
Net return attributable to equity shareholders and total comprehensive income for the year	-	-	-	57,336	6,330	63,666
Shares issued from treasury	-	389	-	3,961	-	4,350
New shares issued	550	100,322	-	-	-	100,872
Dividends paid	-	-	-	-	(4,901)	(4,901)
Total transactions with owners recognised directly in equity	550	100,711	-	3,961	(4,901)	100,321
Closing balance at 5 April 2021	3,453	463,437	16	158,378	8,762	634,046
Opening balance at 6 April 2021	3,453	463,437	16	158,378	8,762	634,046
Net return attributable to equity shareholders and total comprehensive income for the period	-	-	-	58,405	9,813	68,218
New shares issued	1,770	352,572	-	-	-	354,342
Dividends paid	-	-	-	-	(6,771)	(6,771)
Total transactions with owners recognised directly in equity	1,770	352,572	-	-	(6,771)	347,571
Closing balance at 31 March 2022	5,223	816,009	16	216,783	11,804	1,049,835

*As at 31 March 2022 £159,561,000 (at 5 April 2021: £120,241,000) of the capital reserve together with the revenue reserve are regarded as being available for distribution. Unrealised capital gains are not available for distribution.

Statement of Financial Position

as at 31 March 2022

	31 March 2022 £000	5 April   2021 £000
Fixed assets
Investments held at fair value through profit or loss	991,893	594,230
Current assets
Debtors	15,386	3,895
Cash at bank and in hand	50,611	37,242
	65,997	41,137
Creditors: amounts falling due within one year	(8,055)	(1,321)
Net current assets	57,942	39,816
Total assets less current liabilities	1,049,835	634,046
Capital and reserves
Called-up share capital	5,223	3,453
Share premium account	816,009	463,437
Capital redemption reserve	16	16
Capital reserve	216,783	158,378
Revenue reserve	11,804	8,762
Total equity shareholders’ funds	1,049,835	634,046
Net asset value per Ordinary share	5,025.1p	4,590.2p

The financial statements were approved by the Board on 27 May 2022 and signed on its behalf by:

Jean Matterson

Chairman

Cash Flow Statement

for the period ended 31 March 2022

	Period ended 31 March 2022 £000	Year ended  5 April   2021 £000
Net cash inflow from operating activities	9,759	7,256
Payments to acquire investments Receipts from sale of investments	(833,682) 496,426	(372,428) 269,854
Net cash outflow from investing activities	(337,256)	(102,574)
Equity dividends paid	(6,771)	(4,901)
Proceeds from the issue of Ordinary shares	348,313	103,954
Cost of share issues	(676)	(134)
Net cash inflow from financing activities	340,866	98,919
Increase in cash and cash equivalents	13,369	3,601
Cash and cash equivalents at start of period	37,242	33,641
Cash and cash equivalents at end of period	50,611	37,242

Notes:

1.  Capital Gearing Trust P.l.c. is a public company limited by shares, incorporated and domiciled in Northern Ireland, and carries on business as an investment trust.  Details of the Company’s registered office can be found in the Annual Report.

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards “UK GAAP”) including Financial Reporting Standard (FRS) 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” and the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“the SORP”) issued by the Association of Investment Companies in April 2021. All of the Company’s operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There are no critical accounting estimates or judgements.

The current reporting period is 6 April 2021 to 31 March 2022; the comparative information is for the year ended 5 April 2021.

2.  Investment income

	Period to 31  March 2022 £000	Year to 5 April 2021 £000
Income from investments:
Interest from UK bonds	1,584	1,329
Income from UK equity and non-equity investments	8,163	4,194
Interest from overseas bonds	2,083	1,994
Income from overseas equity and non-equity investments	2,847	2,425
Total income	14,677	9,942
	Period to 31 March 2022   £000	Year to 5  April 2021   £000
Total income comprises:
Dividends	7,868	4,919
Property Income and Interest Distributions	3,142	1,700
Interest	3,667	3,323
	14,677	9,942
	Period to 31 March 2022   £000	Year to 5  April 2021   £000
Income from investments comprises:
Listed in the UK	9,747	5,523
Listed overseas	4,930	4,419
	14,677	9,942

3.  During the period to 31 March 2022, 7,078,862 new Ordinary shares were issued by the Company for net proceeds totalling £354,342,000 (year to 5 April 2021: 2,201,550 new Ordinary Shares were issued for net proceeds totalling £100,872,000). No Ordinary shares were issued from treasury in the period to 31 March 2022 (year to 5 April 2021: 102,300 Ordinary shares were re-issued from treasury by the Company for cash proceeds totalling £4,350,000). No shares were purchased for cancellation during the current period or prior year and at the period-end no shares were held in treasury (5 April 2021: None).

4.  The Company’s assets are measured at fair value through the Income Statement. The fair value of financial instruments traded in active markets is based on quoted market prices at the Statement of Financial Position date.

A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets and liabilities are described below.

The levels are determined by the lowest (that is, the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - valued using unadjusted quoted prices in active markets for identical assets;

Level 2 - valued using observable inputs other than quoted prices included within Level 1; and

Level 3 - valued using inputs that are unobservable and are valued by the Directors using International Private Equity and Venture Capital Valuation (‘IPEV’) guidelines, such as earnings multiples, recent transactions and net assets, which equate to their fair values.

As at 31 March 2022, £988,276,000 (5 April 2021: £593,804,000) of the Company’s investments were classified as Level 1, with £2,842,000 (5 April 2021: £nil) classified as Level 2, and with £775,000 (5 April 2021: £426,000) classified as Level 3. During the period to 31 March 2022, two assets (Gabelli Value Plus Investment Trust and Weiss Korea Opportunities Fund (Realisation Shares)) were moved from Level 1 to Level 3 as they delisted. During the year to 5 April 2021 one asset (Better Capital PCC) was moved from Level 1 to Level 3 as it delisted.

The above provides an analysis of financial assets and financial liabilities based on the fair value hierarchy. Short term balances are excluded as their carrying value at the reporting date approximates to their fair value.

5. Reconciliation of net return on ordinary activities before tax to net cash inflow from operating activities

	Period to 31 March 2022 £000	Year to 5 April 2021 £000
Net return on ordinary activities before tax	68,728	64,062
Adjustments for:
Capital return before tax	(58,405)	(57,336)
(Increase)/decrease in prepayments	(32)	40
Increase in accruals and deferred income	349	114
Overseas withholding tax paid	(44)	(28)
Increase in recoverable tax	(3)	(5)
UK Corporation tax paid	(596)	(90)
(Increase)/decrease in dividend receivable	(228)	22
(Increase)/decrease in accrued interest	(540)	593
Realised gains/(losses) on foreign currency transactions	530	(116)
Net cash inflow from operating activities	9,759	7,256

6.  With the exception of the management fee (as disclosed in the Annual Report), and the Directors’ fees and shareholdings (as disclosed in the Directors Remuneration Report contained in the Annual Report), there have been no related party transactions in the period ended 31 March 2022.

7.  These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Full audited accounts for the period to 31 March 2022 will be sent to shareholders shortly.  The audited accounts for the period ended 31 March 2022 will be lodged with the Registrar of Companies.