Preliminary Announcement of Results
CAPITAL GEARING TRUST P.L.C. (the "Company")
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 5 APRIL 2013
FINANCIAL HIGHLIGHTS
5 April 2013 5 April 2012 % Change
----------------------------------------------------------------------------
Share price 3,425.0p 3,015.0p +13.6
Net asset value per share 3,198.9p 2,898.6p +10.4
Premium 7.1% 4.0% -
Shareholders' funds £93.5m £84.6m +10.5
Market capitalisation £100.1m £88.0m +13.8
Ongoing charges percentage* 1.26% 1.31% -
Dividend per share:
Ordinary 16.00p 15.75p +1.6
Special 0.00p 2.75p -
----------------------------------
16.0p 18.5p -13.5
* Ongoing charges calculation prepared in accordance with the recommended
methodology of the Association of Investment Companies (the "AIC").
If approved at the forthcoming annual general meeting ("AGM"), the dividend
timetable is: payment date 25 July 2013, record date 7 June 2013, ex-dividend
date 5 June 2013.
CHAIRMAN'S STATEMENT
Overview
I am very pleased to be able to report on another year of positive capital
growth. As at 5 April 2013, the Company's total net asset value ("NAV") per
share was 3,198.9p, representing an increase of 10.4% to an all-time year-end
high. Thus, the stated objective of achieving capital growth in absolute terms
has once again been met.
Despite maintaining a relatively defensive asset allocation position throughout
the year, the performance has broadly matched that of the FTSE All-Share Index
and is considerably better than the capital return on the index of UK
Government bonds over the same period.
The current asset allocation continues to reflect a policy of capital
preservation as well as achieving sustainable long-term growth. As at the year
end, fixed-interest, index-linked securities and cash represented 57.0% of
total assets (2012: 60.7%) with a further 15.6% held in zero dividend
preference shares (2012:13.9%).
Dividend
Earnings per share for the period amounted to 15.8p compared to 18.8p last
year, reflecting the composition of the Company's portfolio. Last year, a total
distribution of 18.5p was paid. This was made up of 15.75p plus a special
dividend of 2.75p. At this year's AGM, the Board will recommend a distribution
of 16.0p. There will be no special dividend this year.
Annual general meeting
This year, the AGM will be held in London at the offices of Smith & Williamson
Investment Management Limited on Friday 19 July 2013 at 11.00 a.m. The notice
convening the fiftieth AGM of the Company is set out in the Annual Report and I
and the rest of the Board look forward to meeting you then. As in previous
years, after the formal business of the meeting has concluded, our investment
manager will be making a short presentation on the outlook for markets and the
Company's investments.
Issuance and repurchase of shares
The Board continues to operate an informal discount/premium control mechanism
whereby major market supply and demand imbalances are satisfied by either the
issuance of shares at a premium to net asset value or buying back shares at a
discount. The Board believes that there should be no significant discount to
net asset value and seeks to restrain the premium to 15%. At the last AGM
shareholders approved the necessary resolutions to enable these policies to be
renewed and similar resolutions will again be put forward at this year's AGM.
During the financial year 2,000 ordinary shares were issued as follows: 2,000
shares with an aggregate nominal value of £500 were issued to Winterflood
Securities Limited at a price per share of 3,395.7p and for a total
consideration of £67,914. The market price of the shares on 26 September 2012,
which was the date on which the terms of issue were fixed, was 3,388.0p per
share, compared with the then prevailing net asset value of 2,965.0p.
The Board
This year Mr Spiller, Mr Meek, Mr Prescott and I will all retire at the AGM and
offer ourselves for re-election in accordance with the Company's articles of
association and the guidelines for good practice set out in the AIC Code of
Corporate Governance and the UK Corporate Governance Code. The skill sets of
the current individual Board members are highly complementary and with their
support and input, the Company has produced consistently positive returns
during periods of extreme volatility in financial markets. Moreover, against a
backdrop of ever rising regulatory and administrative requirements, the Board
has, to the best of its ability, controlled costs, maintained service levels
and demonstrated its willingness to change external suppliers if deemed to be
in the best interest of shareholders. In summary, we are a Board of high
integrity, absolutely committed to meeting shareholders' expectations. Further
details in respect of each director's retirement, evaluation and re-election
can be found in the Annual Report.
Continuation of the Company
As stated in previous reports, the Board remains committed to offering
shareholders the periodic opportunity to realise their investment in the
Company. This commitment was last honoured in November 2008 by way of a sale
and purchase facility and it is the Board's intention to next offer
shareholders a similar opportunity to realise their investment in 2015. The
offer price will be close to NAV and consideration will be given to rolling on
a similar commitment for a further period.
Regulatory changes
Regulations governing investment trusts changed in 2012. One change of
particular relevance to the Company is the previous requirement for a trust's
articles of association to contain a prohibition on distributing capital
profits by way of a dividend. The Company's current articles reflect the
previous regime and contain a prohibition on capital distributions. The
directors have no present intention of distributing capital profits, but
recommend the alignment of the Company's constitution with the new regulations.
Accordingly a special resolution will be put to shareholders at the forthcoming
AGM to amend the articles to remove this prohibition, and further details can
be found in the Annual Report.
The Alternative Investment Fund Managers Directive (the "AIFMD") is due to be
transposed into UK law on 22 July 2013. Investment companies such as ours which
are already responsible for the management of an alternative investment fund
will have until 22 July 2014 to be AIFMD-compliant. In particular, this will
involve analysis of the structuring and marketing implications for the business
and tackling the regulatory obligations in the most cost-efficient manner
possible for shareholders. We are awaiting the outcome of the latest HM
Treasury and Financial Conduct Authority consultations and the final text of
the rules that will apply as a result of the implementation of AIFMD. The
Financial Conduct Authority's proposals on the regulation of smaller AIFs are
clearly of great interest and we are looking forward to settlement of the final
rules.
The Retail Distribution Review presents a long-term opportunity for the
investment company industry. Since the start of this year, commissions to
financial advisors are in most cases no longer allowed, putting trusts such as
ours on more equal terms with open-ended funds. An AIC study has found that
nearly three quarters of advisers plan to increase their clients' allocation to
investment companies over the next three years. The investment community is
becoming increasingly appreciative of investment trusts' low-cost active
management and proven performance record. To support greater understanding of
the Company, our full portfolio holdings are disclosed in the Annual Report.
Outlook
In the developed economies, the easy monetary policies being adopted by central
banks have resulted in extraordinarily low levels of interest rates being
maintained for far longer than in previous economic cycles. Negative real
returns and for the most part negligible income yields available on cash
deposits and government bonds have forced both savers and investors alike to
increase their risk tolerance in the search for better returns. It is therefore
no surprise that equity markets have responded positively to an increase in
investor demand. However as alluded to in the Investment Manager's Report,
following strong rises equity valuations are now looking far less attractive
and longer-dated government bonds overpriced.
Against the current background, we believe that our aim to deliver a consistent
absolute return for shareholders will best be met by continuing to hold a broad
mix of complementary assets and special situations.
Mr T R Pattison
Chairman
28 May 2013
INVESTMENT MANAGER'S REPORT
Review
Over the year the Company's net asset value increased by 10.4% to a new high,
consistent with the absolute return objective. In comparison, the FTSE
All-Share Index increased by 10.6% and the index of UK Government bonds
increased by 2.8%.
The European Central Bank President, Mario Draghi, made a speech in July 2012
when he pledged to "do whatever it takes" to preserve the Euro. This turned out
to be a catalyst for a strong rally in risk assets as concerns over a financial
crisis associated with a Euro split melted away. A wall of printed money from
every major central bank ensured all assets markets rose in tandem. That an
equity market rally occurred against a backdrop of unrelenting bad economic
news from the Eurozone, moderate growth in the US and signs of cooling in
China, demonstrates how far printed money has dislocated capital markets from
the underlying economic fundamentals.
Against this volatile backdrop the Company remains broadly spread and
defensively positioned. The largest weighting within the portfolio is to
index-linked bonds (44% of the portfolio at year end). Whilst not quite keeping
up with the equity market, index-linked bonds were strong performers in the
year. The largest weighting in the portfolio is to US Treasury Inflation
Protected Securities (24% of the portfolio at year end) which benefited both
from falling real yields and the strengthening of the Dollar relative to
Sterling. Over the medium term we anticipate further gains from the
strengthening of the real Dollar exchange rate relative to Sterling. However we
have shortened the duration of the US index-linked portfolio given the limited
potential for further falls in nominal interest rates.
UK index-linked bonds (10% of the portfolio at year end) also performed
strongly, notwithstanding a weak first half of the year. The first half
weakness was due to uncertainty caused by a consultation on the future
construction of the Retail Price Index, the inflation index to which UK
index-linked bonds are attached. The Company increased its exposure to UK
index-linked bonds during the consultation period and benefited from a strong
rebound in the market after the final recommendation was for no change.
Equity prices remain elevated on fundamental value measures such as Cyclically
Adjusted PE and Tobin's Q. As a result the allocation to equities, which is
through listed investment trusts, remains relatively low (27% at the year end).
Relative to the broader equity markets the Company's equity holdings performed
well. The largest equity holding, North Atlantic Smaller Companies Investment
Trust plc had a very strong year. This specialist trust that combines activist
investing and private equity benefited from strong NAV growth and a narrowing
discount. There were corporate actions in a number of other significant
holdings which helped the strong performance. Advance Developing Markets Fund
Ltd announced a programme of tender offers, redeeming shares at a premium to
the share price. Absolute Return Trust Ltd, a hedge fund of funds, announced
its intention to liquidate which led to a material narrowing of the discount.
Investors in Global Real Estate Ltd announced a new discount control policy
which caused a marked rise in the share price.
The Company's holdings in zero dividend preference shares and convertible debt
(16% of the portfolio at year end) delivered solid returns, albeit at lower
rates than the investment trust equities. There are pockets of this specialist
market that offer compelling risk adjusted returns with low correlation to
other asset classes.
Outlook
Financial repression is in full swing. Real yields on conventional and
index-linked bonds are negative in all the high quality government bond markets
and that poor prospective rate of return is reflected in the valuation of all
financial assets. Nominal returns may be somewhat better, because the outlook
for inflation is deteriorating. Central banks continue their steady move
towards ever greater monetary accommodation, with the latest moves by Japan
reasonably characterised as desperate. It is likely that central banks will
achieve the higher rates of price increases than is their revealed preference,
but they might find that containing inflation at the desired levels is more
difficult, especially in the UK or the US.
That is because, although a number of difficult strategies have been developed
over the years including the Taylor rule and money supply targeting adopted by
Paul Volcker in the US, all involve raising short-term interest rates above the
level of inflation at the time. With debt in households and commercial property
at current ratios to income and assets, that would devastate the residential
and commercial real estate markets and threaten the integrity of the banking
system. The price for controlling inflation would be too high and would remain
too high until a sustained period of inflation had increased the nominal
denominator by enough to reduce debt ratios. Only when balance sheets are much
stronger can inflation be attacked with vigour.
Of course, in one sense the knowledge that short-term interest rates will
remain low is helpful to the valuation of equities. Certainly the absence of
any meaningful return on cash has encouraged asset allocation to move cash into
equities over the last nine months. However, the outlook for long interest
rates is not nearly so sanguine. In theory, central banks will be selling the
bonds that they have bought back to the private sector. This is to avoid the
explosive inflation that is otherwise implied by their current balance sheets
as velocity returns to normal. In practice this, too, will be difficult to
achieve. The mere suspension of QE will lead to steepening pressures on the
yield curve as the private sector resumes the burden of financing high fiscal
deficits. The effect of adding sales by the central bank of a further, say,
5-10% of GDP would be dramatically greater. In the US in particular, that
matters because so much of the mortgage market is matched to 30-year rates, but
it would matter in every financial market because of its impact on the discount
rate in the valuation of everything from property, through corporate bonds, to
equity. One way to think about equities is as an asset class that is sustainable
at levels well above fundamental value, as suggested by the cyclically adjusted
p/e and ratio to book values, so long as the current interest rate structure
prevails. When interest rates normalise, then valuations will normalise too.
The timing, of course, remains elusive. Earnings momentum, however, seems to be
slowing rapidly - any progress in stock markets from here may have to rely
exclusively on higher valuations.
Faced with such a challenging set of investment opportunities, the target in
the short term is to preserve the real value of capital after inflation and
tax; better opportunities will eventually offer themselves. A broad spread of
assets still seems appropriate. Fortunately the special situations that have
allowed the equity and other risk asset investments of the Company to generally
outperform equity markets are still presenting themselves.
Mr R P A Spiller
28 May 2013
BUSINESS REVIEW AND PRINCIPAL RISKS
The Business Review has been prepared in accordance with the requirements of
section 417 of the Companies Act 2006. A review of the business of the Company,
recent events and outlook, the year's activities and an indication of future
developments in the future of the Company are given in the Chairman's Statement
and Investment Manager's Report. The principal risks and uncertainties facing
the Company are detailed below and in the notes to the financial statements.
The very nature of forward-looking statements involves uncertainty, since
events beyond the control of the Company may affect actual results. Performance
and results may therefore differ from the plans and objectives of the Company;
neither the directors nor the Company take responsibility for matters beyond
their control.
Investment objective
The investment objective and policy are monitored to ensure continued investor
interest and for consideration of continuation of the Company in its present
form. Investment performance is monitored and the investment manager presents a
report to each Board meeting for consideration and discussion.
Premium/Discount level
The Board regularly reviews the level of premium/discount and, in the event of
prolonged trading at a discount, consideration is given to enhancement
strategies for the share price. The Board operates an informal discount control
mechanism and will buy in shares as and when necessary to manage the discount
at an appropriate level.
Stock price
Uncertainty of future stock prices presents a risk in relation to potential
losses on market positions held. The Board, with the investment manager,
consider asset allocation on a regular basis to minimise potential risks where
possible.
Register of members
The Board reviews all large transactions and periodically considers a full
shareholder analysis. In the event of activist shareholders being attracted
onto the register, the Board would be able to consider quickly whether any
action was required.
Other risks
Risks associated with the Company's financial instruments include market price,
interest rate, foreign currency and credit; information relating to such risks
is given in note 11. Other risks are identified and managed by the Company's
internal control and risk management system, which is summarised in the Annual
Report.
Social, community and environmental matters
The Company does not have any employees and has limited direct impact on the
environment. The Company invests primarily in closed-ended and other collective
investment vehicles with the objective of achieving capital growth. The sectors
chosen do not generally raise ethical issues. The Board monitors and is
satisfied with the underlying investee companies' policies to act with due
regard to community, welfare and environmental factors. The Company aims to
conduct itself responsibly, ethically and fairly and has sought to ensure that
CG Asset Management Limited's management of the portfolio of investments takes
account of social, environmental and ethical factors where appropriate.
Political and charitable contributions
No contributions were made during the year for political or charitable purposes
(2012: nil).
Key performance indicators ("KPIs")
The Board monitors numerous KPI indices and ratios for the purpose of assessing
and reporting investment performance. The chairman, in his statement, summarises
performance of the Company's NAV per share for the year to 5 April 2013 and
compares this year's capital growth (in absolute terms) against the FTSE All-Share
Index. He also describes the earnings per share and dividends paid for the year.
The directors intend to benchmark the Company's performance against its peer group
using AIC statistics in place of FTSE in future financial statements.
Graphs showing the Company's NAV per share compared with the FTSE Equity
Investment Instruments Index over one, three, five and ten years and over the
period from 1982 are shown in the Annual Report. A comparison of the Company's
share price total return over the last six years with the FTSE Equity Investment
Instruments Index, which reflects the performance of similar companies, is also
shown in the Annual Report.
In addition, the Board monitors the following KPIs:
* Share price premium/discount to NAV, an important measure of demand for the
Company's shares and a key indicator of the need for shares to be bought
back (if discount to NAV is high) or issued (if share price is at a premium
to NAV). At the start of the year under review the premium to NAV was 4.0%
compared with 7.1% at the year end.
* Ongoing charges percentage, calculated using the methodology recommended by
the AIC which enables the Board to measure the control of costs and help in
meeting the dividend payment objective. This percentage was 1.26% for the
year to 5 April 2013 (2012: 1.31%).
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law). Under
company law, the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the net return of the Company for that period. In
preparing these financial statements, the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements respectively; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The financial statements are published on the Company's website,
www.capitalgearingtrust.com, which is a website maintained by TMF Corporate
Secretarial Services Limited. The directors are responsible for the maintenance
and integrity of the Company's website and financial information included
within the website. The work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for changes that may have occurred to the financial statements
since they were initially presented on the website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed in the Annual Report,
confirms that, to the best of their knowledge:
* the financial statements, which have been prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), give a true and fair view of the
assets, liabilities, financial position and net return of the Company; and
* the Report of the Directors 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.
For and on behalf of the Board
Mr T R Pattison
Chairman
28 May 2013
PORTFOLIO ANALYSIS
Distribution of investment funds of £93,481,000 (2012: £84,510,000)
North 2013 2012
UK America Europe Elsewhere Total Total
% % % % % %
-------------------------------------------------------------------------------
Investment trust assets:
Ordinary shares 9.4 4.3 3.3 10.4 27.4 25.4
Zero dividend preference 15.6 - - - 15.6 13.9
shares
Other assets:
Index-linked 9.5 24.1 8.7 1.6 43.9 46.9
Fixed interest 4.9 - 5.1 - 10.0 11.3
Cash 2.8 0.1 0.2 - 3.1 2.5
-------------------------------------------------------------------------------
42.2 28.5 17.3 12.0 100 100
===============================================================================
INCOME STATEMENT
for the year ended 5 April 2013
2013 2012
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Net gains on - 7,994 7,994 - 7,206 7,206
investments
Exchange gains/ - 1,323 1,323 - (7) (7)
(losses)
Investment income 2 1,064 - 1,064 1,325 - 1,325
-------------------------------------------------------------------------------
Gross return 1,064 9,317 10,381 1,325 7,199 8,524
Investment management 3 (302) (453) (755) (282) (422) (704)
fee
Transaction costs - (54) (54) - (53) (53)
Other expenses (367) - (367) (371) - (371)
-------------------------------------------------------------------------------
Net return on ordinary 395 8,810 9,205 672 6,724 7,396
activities before tax
Tax credit/(charge) on 5 67 32 99 (125) 84 (41)
net return on ordinary
activities
-------------------------------------------------------------------------------
Net return 462 8,842 9,304 547 6,808 7,355
attributable to equity
shareholders
===============================================================================
Return per Ordinary 7 15.82p 302.71p 318.53p 18.82p 234.24p 253.06p
share
===============================================================================
The total column of this statement is 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 AIC.
All revenue and capital items in the above statement derive from continuing
operations.
There is no material difference between the net return on ordinary activities
before tax and the net return attributable to equity shareholders stated above
and their historical cost equivalents.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 5 April 2013
2013 2012
£'000 £'000
------------------------------------------------------------------------------
Net return attributable to equity shareholders 9,304 7,355
------------------------------------------------------------------------------
Total gains and losses recognised for the year 9,304 7,355
==============================================================================
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 5 April 2013
Capital Capital Revenue Total
Called-up Share Capital reserve reserve reserve
share premium redemption arising on arising on
capital account reserve investments investments
held sold
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
--------------------------------------------------------------------------------------------
Balance at 6 April 712 9,621 16 10,686 52,820 1,695 75,550
2011
Share issues 8 18 2,241 - - - - 2,259
during the year
Exchange gains/ - - - 12 (19) - (7)
(losses) on
investments
Net gains on - - - - 8,386 - 8,386
realisation of
investments
Net decrease in - - - (1,180) - - (1,180)
unrealised
appreciation
Transfer on - - - (2,037) 2,037 - -
disposal of
investments
Transaction costs - - - (39) (14) - (53)
Costs charged to 3 - - - - (422) - (422)
capital
Tax on costs 5 - - - - 84 - 84
charged to capital
Net revenue for - - - - - 547 547
the year
--------------------------------------------------------------------------------------------
Total 730 11,862 16 7,442 62,872 2,242 85,164
--------------------------------------------------------------------------------------------
Dividends paid 6 - - - - - (527) (527)
--------------------------------------------------------------------------------------------
Balance at 5 April 730 11,862 16 7,442 62,872 1,715 84,637
2012
============================================================================================
Balance at 6 April 730 11,862 16 7,442 62,872 1,715 84,637
2012
Share issues 8 - 68 - - - - 68
during the year
Exchange gains/ - - - 1,020 303 - 1,323
(losses) on
investments
Net gains on - - - - 7,589 - 7,589
realisation of
investments
Net increase in - - - 405 - - 405
unrealised
appreciation
Transfer on - - - 2,653 (2,653) - -
disposal of
investments
Transaction costs - - - (46) (8) - (54)
Costs charged to 3 - - - - (453) - (453)
capital
Tax on costs 5 - - - - 32 - 32
charged to capital
Net revenue for - - - - - 462 462
the year
--------------------------------------------------------------------------------------------
Total 730 11,930 16 11,474 67,682 2,177 94,009
--------------------------------------------------------------------------------------------
Dividends paid 6 - - - - - (540) (540)
--------------------------------------------------------------------------------------------
Balance at 5 April 730 11,930 16 11,474 67,682 1,637 93,469
2013
============================================================================================
BALANCE SHEET
at 5 April 2013
Note 2013 2012
£'000 £'000
-------------------------------------------------------------------------------
Fixed assets
Investments:
Listed investments 90,551 82,418
-------------------------------------------------------------------------------
Current assets
Debtors 3,225 2,426
Cash at bank and in hand 21 27
-------------------------------------------------------------------------------
3,246 2,453
Creditors: amounts falling due within one year (328) (234)
-------------------------------------------------------------------------------
Net current assets 2,918 2,219
Total assets less current liabilities 93,469 84,637
-------------------------------------------------------------------------------
Capital and reserves
Called-up share capital 8 730 730
Share premium account 11,930 11,862
Capital redemption reserve 16 16
Capital reserve arising on investments held 11,474 7,442
Capital reserve arising on investments sold 67,682 62,872
Revenue reserve 1,637 1,715
-------------------------------------------------------------------------------
Total equity shareholders' funds 10 93,469 84,637
Net asset value per Ordinary share 9 3,198.9p 2,898.6p
-------------------------------------------------------------------------------
Approved by the Board on 28 May 2013
Mr T R Pattison
Chairman
CASH FLOW STATEMENT
for the year ended 5 April 2013
Note 2013 2012
£'000 £'000
-------------------------------------------------------------------------------
Net cash inflow from operating activities 117 350
-------------------------------------------------------------------------------
Taxation
Foreign tax received/(paid) on investment income 170 (41)
UK tax paid in relation to prior period adjustments (113) -
-------------------------------------------------------------------------------
57 (41)
-------------------------------------------------------------------------------
Capital expenditure and financial investment
Payments to acquire investments (22,728) (35,239)
Receipts from sale of investments 23,858 32,407
-------------------------------------------------------------------------------
1,130 (2,832)
-------------------------------------------------------------------------------
Equity dividends paid 6 (540) (527)
-------------------------------------------------------------------------------
Management of liquid resources
Change in cash held by the custodian awaiting (838) 59
investment
-------------------------------------------------------------------------------
Financing
Issue of ordinary share capital 8 68 2,259
-------------------------------------------------------------------------------
Decrease in cash (6) (732)
===============================================================================
NOTES TO THE FINANCIAL STATEMENTS
5 April 2013
1 Accounting policies
The financial statements have been prepared on a going concern basis in
accordance with the Companies Act 2006 and under the historical cost basis of
accounting, modified to include revaluation of investments at fair value.
The financial statements have been prepared in accordance with applicable
accounting standards in the UK and with the Statement of Recommended Practice
("SORP") issued by the AIC in January 2009. All the Company's operations are of
a continuing nature.
2 Investment income
2013 2012
£'000 £'000
------------------------------------------------------------------------------
Income from investments:
Income from UK bonds 272 208
Income from UK equity and non-equity investments 236 277
Interest from overseas bonds 555 838
------------------------------------------------------------------------------
1,063 1,323
Deposit interest 1 2
------------------------------------------------------------------------------
Total income 1,064 1,325
==============================================================================
2013 2012
£'000 £'000
------------------------------------------------------------------------------
Total income comprises:
Dividends 236 277
Interest 828 1,048
------------------------------------------------------------------------------
1,064 1,325
==============================================================================
2013 2012
£'000 £'000
------------------------------------------------------------------------------
Income from investments comprises:
Listed in the UK 508 485
Listed overseas 555 838
------------------------------------------------------------------------------
1,063 1,323
==============================================================================
3 Investment management fee
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Investment management fee 302 453 755 282 422 704
===============================================================================
The Company's investment manager CG Asset Management Limited ("CGAM") received
an annual management fee equal to 0.85% of the gross assets of the Company. At
5 April 2013 £198,624 (2012: £179,516) was payable.
4 Directors' fees
The fees payable to the directors were as follows:
2013 2012
Total Total
£'000 £'000
-------------------------------------------------------------------------------
Mr T R Pattison 25 23
Mr G A Prescott 20 18
Mr R P A Spiller 18 16
Mr E G Meek 18 16
-------------------------------------------------------------------------------
81 73
===============================================================================
Mr R P A Spiller's fees are paid directly to his employer. The Company made no
pension contributions (2012: £nil) in respect of directors and no pension
benefits are accruing to any director (2012: £nil).
Mr R P A Spiller received remuneration totalling £73,250 (2012: £91,000) from
CGAM in respect of its services to the Company. Details of transactions with
CGAM, of which Mr R P A Spiller is a director, are disclosed in notes 3 and 12.
There were no other transactions with directors during the year.
5 Tax credit/(charge) on ordinary activities
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Current tax:
Corporation tax (32) 32 - (84) 84 -
Foreign tax - - - (41) - (41)
-------------------------------------------------------------------------------
Adjustment in respect
of prior year:
Foreign tax 212 - 212 - - -
Double tax relief (113) - (113) - - -
-------------------------------------------------------------------------------
Total current tax 67 32 99 (125) 84 (41)
===============================================================================
The tax assessed for the year is lower (2012: lower) than the standard rate of
corporation tax in the UK of 20% (2012: 20%). The differences are explained
below:
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Return on ordinary 395 8,810 9,205 672 6,724 7,396
activities before
taxation
Return on ordinary 79 1,762 1,841 134 1,345 1,479
activities at the
standard rate of UK
corporation tax
UK franked dividends* (47) - (47) (55) - (55)
Capital returns* - (1,852) (1,852) - (1,429) (1,429)
Unrelieved loss for the - 58 58 5 - 5
year
Foreign tax (212) - (212) 41 - 41
Double tax relief 113 - 113 - - -
-------------------------------------------------------------------------------
Underprovision in prior - - - - - -
year
-------------------------------------------------------------------------------
Current tax (credit)/ (67) (32) (99) 125 (84) 41
charge for the year
===============================================================================
* these items are not subject to corporation tax within an investment trust
company.
No deferred tax liability has been recognised on unrealised gains on investments
as it is anticipated that the Company will retain investment company status in
the foreseeable future.
Potential deferred tax assets in respect of unrelieved management charges of
£63,000 at 5 April 2013 (£5,000 at 5 April 2012) have not been recognised as the
prospect for their recovery against future taxation liabilities is uncertain.
During the year withholding tax refunds of £212,000 in relation to prior
periods were received from the Swiss tax authorities. These refunds have been
credited to the income statement. Double tax relief claims made in prior years
in relation to Swiss withholding tax totalling £113,000 have been repaid to
HMRC during the year. These repayments have been charged to the income
statement.
6 Dividends paid
2013 2012
£'000 £'000
-------------------------------------------------------------------------------
Ordinary shares
2012 dividend paid 19 July 2012 (18.5p per share) 540 -
2011 dividend paid 11 July 2011 (18.5p per share) - 527
===============================================================================
The directors have recommended to shareholders a final dividend of 16.0 pence
per share for the year ended 5 April 2013. If approved, this dividend will be
paid to shareholders on 25 July 2013. This dividend is subject to approval by
shareholders at the AGM and, therefore, in accordance with FRS 21, it has not
been included as a liability in these financial statements. The total estimated
dividend to be paid is £468,000.
2013 2012
£'000 £'000
-------------------------------------------------------------------------------
Revenue available for distribution by way of dividend for the 462 547
year
Proposed final dividend of 16.0p for the year ended 5 April 2013 (468) (540)
-------------------------------------------------------------------------------
Undistributed revenue for purposes of Chapter 4 of Part 24 of the (6) 7
Corporation Tax Act 2010*
===============================================================================
* Undistributed revenue comprises approximately 0.0% (2012: 0.5%) of income
from investments of £1,064,000 (2012: £1,325,000).
7 Return per Ordinary share
The return per Ordinary share of 318.53p (2012: 253.06p) is based on the total
net return after taxation for the financial year of £9,304,000 (2012:
£7,355,000) and on 2,920,958 (2012: 2,906,436) Ordinary shares, being the
weighted average number of Ordinary shares in issue in each year.
Revenue return per Ordinary share of 15.82p (2012: 18.82p) is based on the net
revenue return on ordinary activities after taxation of £462,000 (2012:
£547,000) and on 2,920,958 (2012: 2,906,436) Ordinary shares, being the weighted
average number of Ordinary shares in issue in each year.
Capital return per Ordinary share of 302.71p (2012: 234.24p) is based on the
net capital return for the financial year of £8,842,000 (2012: £6,808,000) and
on 2,920,958 (2012: 2,906,436) Ordinary shares, being the weighted average
number of Ordinary shares in issue in each year.
The Company does not have dilutive securities. Therefore, the basic and diluted
returns per share are the same.
8 Called-up share capital
2013 2012
£'000 £'000
-------------------------------------------------------------------------
Allotted and fully paid
At the beginning of the year: 2,919,906 Ordinary 730 712
shares (2012: 2,847,906)
Allotted during the year: 2,000 Ordinary shares - 18
(2012: 72,000)
-------------------------------------------------------------------------
At the end of the year: 2,921,906 Ordinary 730 730
shares (2012: 2,919,906)
=========================================================================
The Company allotted 2,000 Ordinary shares of 25p each in the period
(2012: 72,000) for a consideration of £68,000 (2012: £2,259,000).
9 Net asset value per share
The net asset value per share and the net asset value attributable to each
class of share at the year end, calculated in accordance with the articles
of association, were as follows:
Net asset value per share attributable to
2013 2012
--------------------------------------------------------------------------
Ordinary shares (basic) 3,198.9p 2,898.6p
==========================================================================
Net asset value attributable to
2013 2012
£'000 £'000
--------------------------------------------------------------------------
Ordinary shares (basic) 93,469 84,637
==========================================================================
The movements during the year in the assets attributable to the Ordinary
shares are detailed in note 10.
Net asset value per Ordinary share is based on the net assets, as shown
above, and on 2,921,906 (2012: 2,919,906) Ordinary shares, being the number
of Ordinary shares in issue at the year end.
10 Reconciliation of movements in shareholders' funds
2013 2012
£'000 £'000
--------------------------------------------------------------------------
Opening equity shareholders' funds 84,637 75,550
Ordinary shares issued during the year 68 2,259
Net return for the financial year 9,304 7,355
Dividends paid (note 6) (540) (527)
--------------------------------------------------------------------------
Closing equity shareholders' funds 93,469 84,637
==========================================================================
11 Financial instruments
The Company's financial instruments comprise:
* investment trust ordinary shares, investment trust capital shares,
investment trust zero dividend preference shares, commodity funds and real
estate, and fixed and index-linked securities which are held in accordance
with the Company's investment objective;
* cash and liquid resources that arise directly from the Company's
operations; and
* debtors and creditors.
The main risks arising from the Company's financial instruments are market
price risk, interest rate risk, foreign currency risk and credit risk. The
Board regularly reviews and agrees policies for managing each of these risks
and they are summarised below.
Other debtors and creditors do not carry any interest and are short term in
nature, and are accordingly stated at their nominal value.
Market price risk
Market price risk arises mainly from uncertainty about the future prices of
financial instruments held. It represents the potential loss the Company might
suffer through holding market positions in the face of price movements.
The Company invests in the shares of other investment companies. These
companies may use borrowings or other means to gear their balance sheets which
may result in returns that are more volatile than the markets in which they
invest, and the market value of investment company shares may not reflect their
underlying assets.
To mitigate these risks, the Board's investment strategy is to select
investments for their fundamental value. Stock selection is therefore based on
disciplined financial, market and sector analysis, with the emphasis on long-term
investments. An appropriate spread of investments is held in the portfolio
in order to reduce both the systemic risk and the risk arising from factors
specific to a country or sector. The investment manager actively monitors
market prices throughout the year and reports to the Board, which meets
regularly to consider investment strategy. A list of the investments held by
the Company is shown in the Annual Report. All investments are stated at bid
value, which in the directors' opinion is equal to fair value.
Interest rate risk
Bond and preference share yields, and as a consequence their prices, are
determined by market perception as to the appropriate level of yields given the
economic background. Key determinants include economic growth prospects,
inflation, the Government's fiscal position, short-term interest rates and
international market comparisons. The investment manager takes all these
factors into account when making any investment decisions as well as
considering the financial standing of the potential investee company.
Returns from bonds and preference shares are fixed at the time of purchase, as
the fixed coupon payments are known, as are the final redemption proceeds. This
means that if a bond is held until its redemption date, the total return
achieved is unaltered from its purchase date. However, over the life of a bond
the market price at any given time will depend on the market environment at
that time. Therefore, a bond sold before its redemption date is likely to have
a different price to its purchase level and a profit or loss may be incurred.
Foreign currency risk
The Company's investments in foreign currency securities are subject to the
risk of currency fluctuations. The investment manager monitors current and
forward exchange rate movements in order to mitigate this risk.
Liquidity risk
Liquidity risk is not considered to be significant as the Company has no bank
loans or other borrowings. All liabilities are payable within three months.
Credit risk
In addition to interest rate risk, the Company's investment in bonds, the
majority of which are government bonds, is also exposed to credit risk which
reflects the ability of a borrower to meet its obligations. Generally, the
higher the quality of the issue, the lower the interest rate at which the
issuer can borrow money. Issuers of a lower quality will tend to have to pay
more to borrow money to compensate the lender for the extra risk taken.
Investment transactions are carried out with a number of brokers whose credit
standing is reviewed periodically by the investment manager. The investment
manager assesses the risk associated with these investments by prior financial
analysis of the issuing companies as part of his normal scrutiny of existing
and prospective investments and reports regularly to the Board. Cash is held
with a reputable bank with a high-quality external credit rating.
A further credit risk is the failure of a counterparty to a transaction to
discharge its obligations under that transaction, which could result in a loss
to the Company.
Capital management policies and procedures
The Company's capital management objectives are:
* to ensure that it will be able to continue as a going concern; and
* to maximise the income and capital return to its equity.
The Company's capital at 5 April 2013 of £93,469,000 (2012: £84,637,000)
comprises its equity share capital and reserves.
The Board, with the assistance of the investment manager, monitors and reviews
the broad structure of the Company's capital on an ongoing basis. This review
includes:
* the planned level of gearing, which takes into account the investment
manager's views on the market;
* the need to buy back equity shares;
* the need for new issues of equity shares; and
* the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
The Company is subject to externally imposed capital requirements:
* as a public company, the Company must have a minimum share capital of
£50,000; and
* in order to pay dividends out of profits available for distribution, the
Company must meet the capital restriction test imposed on investment
companies by company law.
12 Related-party transactions
Related-party transactions with Mr R P A Spiller, a director of the Company,
are disclosed in notes 3 and 4. There were no other related-party transactions.
GENERAL
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 5 April 2013 or 2012. The financial
information for the year ended 5 April 2012 is derived from the statutory
accounts for that year which have been delivered to the Registrar of Companies.
The auditors reported on those accounts and their report was unqualified and
did not contain a statement either under section 498(2) or section 498(3) of
the Companies Act 2006. The financial information for the year ended 5 April
2013 has been prepared using the same accounting policies as adopted in the
Company's statutory accounts for the year ended 5 April 2012. The statutory
accounts for the year ended 5 April 2013 will be finalised on the basis of the
financial information presented by the directors in this preliminary announcement
and will be delivered to the Registrar of Companies following the Company's
forthcoming AGM.
Copies of the Company's Annual Report for the year ended 5 April 2013 will be
sent to shareholders in June 2013. The Annual Report will be also available on
the Company's website www.capitalgearingtrust.com and on request from the
company secretary:
TMF Nominees Limited
400 Capability Green
Luton
Bedfordshire
LU1 3AE
Telephone: 01582 439292
Email: company.secretary@capitalgearingtrust.com
Disclaimer: Neither the contents of the Company's website nor the contents of
any website accessible from hyperlinks on the Company's website (or any other
website) is incorporated into or forms part of this announcement.
For queries, please contact:
Tony Pattison, Chairman
Tel. 020 7776 9888
George Prescott, Chairman of the Audit Committee
Tel. 07802 263038
TMF Corporate Secretarial Services Limited
company.secretary@capitalgearingtrust.com
Tel. 01582 439292
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