Preliminary Announcement of Results
CAPITAL GEARING TRUST P.L.C (the `Company')
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 5 APRIL 2012
FINANCIAL HIGHLIGHTS
5 April 2012 5 April 2011 % Change
-------------------------------------------------------------------------------
Share Price 3,015.0p 3,115.0p -3.2
Net Asset Value per Share 2,898.6p 2,652.8p +9.3
Premium 4.0% 17.4% -
Shareholders' Funds £84.6m £75.6m +11.9
Market Capitalisation £88.0m £88.7m -0.8
*Ongoing Charges Percentage 1.31% 1.34% -
#Dividend per Share:
Ordinary 15.75p 15.5p +1.6
Special 2.75p 3.0p -8.0
----------------------------------
18.5p 18.5p -
* Ongoing charges calculation prepared in accordance with the AIC's recommended
methodology
# If approved at the Annual General Meeting, the following timetable will be
followed: payment date: 19 July 2012, record date: 8 June 2012, ex-dividend
date: 6 June 2012
CHAIRMAN'S STATEMENT
Overview
In the year to 5 April 2012 the net asset value per share increased by 9.3% to
2,898.6p. In what has been a difficult year for many investors, I am pleased to
report that the stated investment objective of achieving capital growth in
absolute terms has once again been met. This performance has been achieved
during a period when the FTSE Equity Investment Instruments Index and the FTSE
All-Share Index fell by 4.8% and 4.5% respectively. Reflecting investors'
general aversion to risk, low prevailing interest rates and the impact of the
Bank of England's quantitative easing policy, Gilts performed well over the
year with the FTSE Government All stocks Index rising 10.8%.
Earnings per share for the period amounted to 18.8p compared to 19.8p last
year. This again reflects the reduced income in the continuing lower interest
rate environment, with income generation remaining of lesser importance for the
trust than the principle objective of capital preservation and growth.
Asset allocation continues to reflect a defensive stance aimed at preserving
the capital value in real terms and by doing so, generating a positive absolute
return for shareholders. As at the year end, fixed interest, index linked
securities and cash represented 60.7% of total assets (2011: 59.9%) with a
further 13.9% held in zero dividend preference shares (2011: 13.3%).
Dividend
Last year, a total distribution of 18.5p was paid. This was made up of 15.5p
plus a special dividend of 3.0p. At this year's Annual General Meeting (`AGM'),
and subject to shareholder approval, the Board will recommend a total
distribution of 18.5p made up of 15.75p plus a special dividend of 2.75p. The
special dividend continues to reflect the relatively high exposure to bonds
that might at some stage be switched into lower yielding growth investments.
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 current intention to next offer
shareholders a similar opportunity to realise their investment in 2015.
Annual General Meeting
This year, the AGM will be held in London at the offices of Smith & Williamson
Investment Management Limited on Friday, 13 July 2012 at 11.00 a.m. The Notice
convening the forty ninth AGM of the Company is set out at the end of this
document 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. 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.
As reported in our Half-Year Financial Report, 47,000 Ordinary Shares were
issued at a price of £31.385 on 10 June 2011 and a further 25,000 Ordinary
shares were issued at a price of £31.37 on 20 June 2011 (both prices
representing a 15% premium to the prevailing net asset value).
The Board
This year Mr R P A Spiller and I will retire at the AGM and offer ourselves for
re-election in accordance with the guidelines for good practice set out in the
AIC Code of Corporate Governance and the UK Corporate Governance Code. Further
details in respect of each Director's retirement, evaluation and re-election
can be found in the Annual Report.
Regulatory Changes
The principal piece of legislation on the horizon with the greatest potential
impact on the Company remains the Alternative Investment Fund Managers'
(`AIFM') Directive. As referenced in last year's report, the Directive came
into force in 2011 and the work of transposing the rules into UK legislation
continues. Under the current timetable the Directive must be implemented into
national legislation by July 2013 and companies would then have until July 2014
to obtain the relevant authorisations.
The potential impact on the Company will depend on a number factors, including
whether it is able to take advantage of the lighter touch regime for smaller
investment companies and also whether the Company chooses itself or the
investment manager to act as the `manager' for the purposes of the Directive.
The Company continues to monitor, with the assistance of the AIC, developments
on this and will seek to comply with the final regulations, but do so in a way
that is the most cost effective in the interests of all shareholders.
On a positive note, the Retail Distribution Review (`RDR') will come into
effect on 31 December 2012. The possible beneficial impact of RDR for the
Company includes raising awareness of the investment companies sector and
potential increased demand for investment trust shares from financial advisors.
Also, the eventual introduction of investment companies onto the major adviser
platforms will make it easier for financial advisers to access the sector. As
both an investment company in its own right and an investor in other closed
ended investment companies, the Company welcomes these developments.
Outlook
With the prospect of low, slow growth in the developed economies and rising
inflationary pressures, the investment background remains difficult. Markets
are accordingly likely to remain unsettled and therefore quite volatile for
some while. On a risk reward basis, maintaining a defensive investment stance
still appears to be an appropriate investment strategy, at least until
valuations of risk assets become more compelling.
Producing a consistent absolute return for shareholders is our ongoing aim and
a record of positive returns over the last 27 years is testimony to the
effectiveness of past investment strategies. We will continue to focus our
efforts on meeting this objective in this and future years.
Mr T R Pattison
28 May 2012
INVESTMENT MANAGER'S REPORT
Review
Over the year the net asset value increased by 9.3%, close to its all time
high, consistent with the absolute return objective. The FTSE All-Share
decreased by 4.5% in capital terms; however, the relatively modest decline hid
marked volatility within the period. During the first half, risk assets fell
sharply as the sovereign debt crisis in Europe escalated at the same time as
the debate around the extension of the US public debt ceiling revealed the
political paralysis regarding the fiscal deficit. It was only after the
elevation of Mario Draghi to the Presidency of the European Central Bank
(`ECB') and the massive liquidity injections associated with the Long Term
Repurchase Operation (`LTRO') that risk markets reversed and rallied strongly
into the fiscal year end.
The Company's portfolio was broadly spread and defensively positioned over the
period; as a result its performance displayed a low correlation to the equity
markets. The largest weighting within the portfolio was to index linked bonds.
These performed strongly in most jurisdictions as real yields fell in the face
of financial repression programmes. Whilst inflation was not excessive, it
remained stubbornly above central bank targets and almost universally above
short term interest rates, whilst quantitative easing programmes drove down
nominal yields at the long end of the curve. The gains on US Treasury Index
Linked Securities, the largest holding in the portfolio, benefited from a 2.5%
strengthening of the Dollar. Over the medium term we anticipate further gains
from the strengthening of the real Dollar exchange rate relative to Sterling.
The German and Swiss nominal bonds performed exceptionally strongly in the
first half of the year. This led to profit taking in the German Bund position,
moving the weighting from c.10% of the portfolio at the start of the year to
c.1% at the end. Whilst there could still be currency gains for Bund holders
from the likely change of membership of the Euro, this must be balanced against
the near term risk of increased money printing by the ECB or German credit
quality being undermined by last ditch efforts to save the Euro, e.g the
issuance of a Eurobond. As yields fell sharply during the year so did the risk
return balance of owning Bunds. The proceeds were largely reinvested in US and
Swedish index linked bonds and well covered zero dividend preference shares
(`ZDP').
The Company's investment trust holdings performed satisfactorily relative to
the weak equity markets, although in absolute terms delivered meagre returns.
Selective additions were made in Japanese investment trusts, where underlying
equity valuations look attractive. Other additions were largely specialist in
nature, normally combining material discounts with high likelihood or certainty
of liquidation, including Shape Capital and Private Equity Investor. Profits
were taken in trusts which had been re-rated including Strategic Equity Capital
and Montanaro European Smaller Companies Investment Trust and realisations were
received on partial liquidation of Active Capital Trust and Alternative
Investment Trust at satisfactory uplifts to initial investment levels. The
announcement of the liquidation of one of our larger holdings, SR European
Investment Trust, was made just prior to the year end and led to a material
narrowing of the discount. ZDP and convertible debt holdings increased, through
a combination of strong organic performance and subscriptions to new issues,
including JP Morgan Private Equity ZDP and City Natural Resources Convertible.
Outlook
Equity markets have rallied as liquidity has flowed liberally from central
banks; however, the underlying imbalances remain severe and unaddressed. Some
debt has been paid down and more written off, but debt ratios in the
Anglo-Saxon countries are still far above sustainable levels. Real interest
rates are negligible everywhere as financial repression takes hold. Total
assets managed by hedge funds have risen to record levels; their growing
popularity despite modest recent returns and unattractive fee structures speaks
of investor desperation, even of despair.
The last year has seen the historically more rigorous central banks of
Switzerland, Japan and the Eurozone join their Anglo-Saxon peers in printing
money, or in the case of the ECB, quasi-printing. As a result, the balance of
probability of a deflationary versus an inflationary outcome has moved
decisively towards the latter. Of course, the volatility in commodity prices
could easily provide temporary downward pressure to consumer prices, but that
would not change the final outcome, particularly if it elicited further
quantitative easing. It seems sensible therefore to allocate a large part of
the portfolio to index linked government bonds, by far the best protection
against high inflation. On the other hand, the exposure to conventional
government bonds has been reduced drastically and at the time of writing is now
restricted to Switzerland. There is a danger of a steeper yield curve in those
countries that have been distorting the curve with monetary policy, quite apart
from the negative influence of higher inflation on nominal bonds.
With growth prospects in all the advanced countries looking moderate at best
and negative in the Eurozone, corporate profits are being sustained by growth
in China (especially through commodity prices) and by the large fiscal deficits
that still prevail in the US, UK and much of Europe. As the latter are reduced
by austerity now in Europe and presumably (hopefully) in the US in 2013, much
depends on China continuing to grow. Forecasting growth there is difficult;
numbers are unreliable. However, with export markets weak, investment at
unsustainable levels, a property bubble and now signs of slowing household
consumption, it would not be surprising if the downturn is more severe than the
consensus assumes. Against that background, the expectation of analysts that
corporate profit margins, already at record levels, will expand further seems
brave. That is not a forecast that equities will decline, merely that risk is
high.
There are still opportunities to make money from special situations in the
world of investment trusts. In addition, Sterling looks quite overvalued
against the Dollar and the Swedish Krona and arguably against the currency of
Germany if that were separated from southern Europe. It is too early to worry
about domestic political risk, but in a year the prospects for the next UK
election will be influencing the currency markets and may prove a catalyst for
weaker Sterling if the future of the coalition government looks uncertain.
More generally though, the focus over the coming year is the preservation of
the real value of capital, after tax and inflation, rather than trying to make
the dramatic returns that have been made at times in the past. Those sorts of
opportunities will return and it is important to be in a position to take
advantage of them when they do.
Mr R P A Spiller
28 May 2012
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 year's activities and an
indication of future policy 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 as 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 outside of its
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,
considers asset allocation on a regular basis to minimise potential risks where
possible.
Shareholder Register
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 system, which is summarised in the Annual Report.
Social, Community and Environmental Matters
The Company does not have any employees. The Company invests primarily in
closed ended and other collective investment vehicles with the objective of
achieving capital growth. The Board is of the opinion that the underlying
investee companies have policies to act with due regard to community, welfare
and environmental factors and do not therefore intervene in these areas.
Political and Charitable Contributions
No contributions were made during the year for political or charitable purposes
(2011: 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, has
summarised performance of the Company's net asset value (`NAV') per share for
the year to 5 April 2012 and has compared this year's capital growth (in
absolute terms) against the FTSE Equity Investment Instruments Index, the FTSE
All-Share Index and the FTSE Government All Stocks Index. He also describes the
earnings per share and dividends paid for the year.
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 five 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 additional 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 17.4%
compared with 4.0% 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 1.31% for
the year to 5 April 2012 (2011: 1.34%).
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 elected to prepare 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 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; 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 corporate 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 are listed in the Annual Report confirm
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 2012
PORTFOLIO ANALYSIS
Distribution of Investment Funds of £84,510,000 (2011: £74,591,000)
2012 2011
UK North Europe Elsewhere Total Total
America
% % % % % %
-------------------------------------------------------------------------------
Investment Trust Assets:
Ordinary shares 12.7 2.7 3.1 6.9 25.4 26.8
Zero dividend preference 13.9 - - - 13.9 13.3
shares
Other Assets:
Index linked 7.8 24.2 12.9 2.0 46.9 33.1
Fixed interest 4.4 - 6.9 - 11.3 23.9
Cash 2.5 - - - 2.5 2.9
-------------------------------------------------------------------------------
41.3 26.9 22.9 8.9 100.0 100.0
===============================================================================
INCOME STATEMENT
for the year ended 5 April 2012
2012 2011
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Net gains on - 7,206 7,206 - 5,781 5,781
investments
Exchange losses - (7) (7) - (247) (247)
Investment income 2 1,325 - 1,325 1,249 - 1,249
-------------------------------------------------------------------------------
Gross return 1,325 7,199 8,524 1,249 5,534 6,783
Investment management 3 (282) (422) (704) (186) (434) (620)
fee
Transaction costs - (53) (53) - (53) (53)
Other expenses (371) - (371) (356) - (356)
-------------------------------------------------------------------------------
Net return on 672 6,724 7,396 707 5,047 5,754
ordinary activities
before tax
Tax on ordinary 5 (125) 84 (41) (148) 91 (57)
activities
-------------------------------------------------------------------------------
Net return 547 6,808 7,355 559 5,138 5,697
attributable to
equity shareholders
===============================================================================
Return per Ordinary 7 18.82p 234.24p 253.06p 19.81p 182.06p 201.87p
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 Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 5 April 2012
2012 2011
£'000 £'000
---------------------------------------------------------------
Net return attributable to equity 7,355 5,697
shareholders
---------------------------------------------------------------
Total gains and losses recognised for the 7,355 5,697
year
===============================================================
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 5 April 2012
Called Share Capital Capital Capital Revenue Total
up premium redemption reserve reserve reserve
share account reserve arising on arising on
capital investments investments
held sold
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
------------------------------------------------------------------------------------
Balance at 6 699 8,114 16 9,951 48,417 1,765 68,962
April 2010
Share issues 8 13 1,507 - - - - 1,520
Exchange - - - (255) 8 - (247)
(losses)/
gains on
investments
Net gains on - - - - 1,938 - 1,938
realisation
of
investments
Net increase - - - 3,843 - - 3,843
in
unrealised
appreciation
Transfer on - - - (2,810) 2,810 - -
disposal of
investments
Transaction - - - (43) (10) - (53)
costs
Costs 3 - - - - (434) - (434)
charged to
capital
Tax on costs 5 - - - - 91 - 91
charged to
capital
Net revenue - - - - - 559 559
for the year
------------------------------------------------------------------------------------
Total 712 9,621 16 10,686 52,820 2,324 76,179
------------------------------------------------------------------------------------
Dividends 6 - - - - - (629) (629)
------------------------------------------------------------------------------------
Balance at 5 712 9,621 16 10,686 52,820 1,695 75,550
April 2011
====================================================================================
Balance at 6 712 9,621 16 10,686 52,820 1,695 75,550
April 2011
Share issues 8 18 2,241 - - - - 2,259
Exchange - - - 12 (19) - (7)
gains/
(losses) on
investments
Net gains on - - - - 8,386 - 8,386
realisation
of
investments
Net decrease - - - (1,180) - - (1,180)
in
unrealised
appreciation
Transfer on - - - (2,037) 2,037 - -
disposal of
investments
Transaction - - - (39) (14) - (53)
costs
Costs 3 - - - - (422) - (422)
charged to
capital
Tax on costs 5 - - - - 84 - 84
charged to
capital
Net revenue - - - - - 547 547
for the year
------------------------------------------------------------------------------------
Total 730 11,862 16 7,442 62,872 2,242 85,164
------------------------------------------------------------------------------------
Dividends 6 - - - - - (527) (527)
------------------------------------------------------------------------------------
Balance at 5 730 11,862 16 7,442 62,872 1,715 84,637
April 2012
====================================================================================
BALANCE SHEET
at 5 April 2012
Note 2012 2011
£'000 £'000
------------------------------------------------------------------------------
Fixed assets
Investments:
Listed investments 82,418 72,440
------------------------------------------------------------------------------
Current assets
Debtors 2,426 2,571
Cash at bank 27 759
------------------------------------------------------------------------------
2,453 3,330
Creditors: amounts falling due within one (234) (220)
year
------------------------------------------------------------------------------
Net current assets 2,219 3,110
------------------------------------------------------------------------------
Net assets 84,637 75,550
==============================================================================
Capital and reserves
Called up share capital 8 730 712
Share premium account 11,862 9,621
Capital redemption reserve 16 16
Capital reserve arising on investments held 7,442 10,686
Capital reserve arising on investments sold 62,872 52,820
Revenue reserve 1,715 1,695
------------------------------------------------------------------------------
Total equity shareholders' funds 10 84,637 75,550
==============================================================================
Net asset value per Ordinary Share 9 2,898.6p 2,652.8p
==============================================================================
Approved by the Board on 28 May 2012
Mr T R Pattison
Chairman
CASH FLOW STATEMENT
for the year ended 5 April 2012
Note 2012 2011
£'000 £'000
-------------------------------------------------------------------------------
Net cash inflow from operating activities 350 323
-------------------------------------------------------------------------------
Taxation
Foreign tax paid on investment income (41) (56)
-------------------------------------------------------------------------------
Capital expenditure and financial investment
Payments to acquire investments (35,239) (21,207)
Receipts from sale of investments 32,407 17,710
(2,832) (3,497)
-------------------------------------------------------------------------------
Equity dividends paid 6 (527) (629)
-------------------------------------------------------------------------------
Management of liquid resources
Change in cash held by the custodian awaiting 59 2,696
investment
-------------------------------------------------------------------------------
Financing
Issue of ordinary share capital 8 2,259 1,520
-------------------------------------------------------------------------------
(Decrease)/increase in cash (732) 357
===============================================================================
NOTES TO THE FINANCIAL STATEMENTS
5 April 2012
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 and with the Statement of Recommended Practice (`SORP')
issued by the Association of Investment Companies in January 2009. All of the
Company's operations are of a continuing nature.
2 Investment income
2012 2011
£'000 £'000
--------------------------------------------------------------------
Income from investments:
Income from UK bonds 208 184
Income from UK equity and non-equity 277 193
investments
Interest from overseas bonds 838 870
--------------------------------------------------------------------
1,323 1,247
Deposit interest 2 2
--------------------------------------------------------------------
Total income 1,325 1,249
====================================================================
2012 2011
£'000 £'000
--------------------------------------------------------------------
Total income comprises:
Dividends 277 193
Interest 1,048 1,056
--------------------------------------------------------------------
1,325 1,249
====================================================================
2012 2011
£'000 £'000
--------------------------------------------------------------------
Income from investments comprises:
Listed in the UK 485 377
Listed overseas 838 870
--------------------------------------------------------------------
1,323 1,247
====================================================================
3 Investment management fee
2012 2011
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
--------------------------------------------------------------------------------
Investment management fee 282 422 704 186 434 620
================================================================================
The Company's Investment Manager CG Asset Management Limited received an annual
management fee equal to 0.85% of the gross assets of the Company. At 5 April
2012 £179,516 (2011: £158,714) was payable.
4 Directors' fees
2012 2011
Total Total
£'000 £'000
--------------------------------------------------------------
The fees payable to the Directors were as
follows:
Mr T R Pattison 23 22
Mr G A Prescott 18 17
Mr R P A Spiller 16 15
Mr E G Meek 16 15
Mr J C Morton - 9
--------------------------------------------------------------
73 78
==============================================================
Mr R P A Spiller's fees are paid directly to his employer. The Company made no
pension contributions (2011: £nil) in respect of Directors and no pension
benefits are accruing to any Director (2011: £nil).
Mr R P A Spiller received remuneration totalling £91,000 (2011: £59,000) from
CG Asset Management Limited in respect of services provided by that company to
Capital Gearing Trust p.l.c.
Details of transactions with CG Asset Management Limited, of which Mr R P A
Spiller is a director and with Mr R P A Spiller directly, are disclosed in
notes 3 and 12. There were no other transactions with Directors during the
year.
5 Tax on ordinary activities
2012 2011
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
--------------------------------------------------------------------------------
Current tax:
Corporation tax (84) 84 - (91) 91 -
Foreign tax (41) - (41) (56) - (56)
--------------------------------------------------------------------------------
Adjustment in respect of prior
year:
Foreign tax - - - (1) - (1)
--------------------------------------------------------------------------------
Total current tax (125) 84 (41) (148) 91 (57)
================================================================================
The current tax charge is reconciled to the standard rate of Corporation Tax of
20% (2011: 20.95%) by the following factors:
2012 2011
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Return on ordinary 672 6,724 7,396 707 5,047 5,754
activities before taxation
Return on ordinary 134 1,345 1,479 148 1,060 1,208
activities at the standard
rate of UK Corporation Tax
UK franked dividends* (55) - (55) (40) - (40)
Capital returns* - (1,429) (1,429) - (1,151) (1,151)
Unrelieved loss for the 5 - 5 - - -
year
Foreign tax 41 - 41 56 - 56
Double tax relief - - - (17) - (17)
-------------------------------------------------------------------------------
Under provision in prior - - - 1 - 1
year
-------------------------------------------------------------------------------
Current tax charge for the 125 (84) 41 148 (91) 57
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 the Company will retain investment company
status in the foreseeable future.
6 Dividends
2012 2011
£'000 £'000
-------------------------------------------------------------------------------
Ordinary Shares
2011 dividend paid 11 July 2011 (18.5p per share) 527 -
2010 dividend paid 12 July 2010 (22.5p per share) - 629
===============================================================================
The Directors have recommended to shareholders a final dividend of 18.5 pence
per share for the year ended 5 April 2012. If approved, this dividend will be
paid to shareholders on 19 July 2012. This dividend is subject to approval by
shareholders at the Annual General Meeting 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 £540,000.
2012 2011
£'000 £'000
-------------------------------------------------------------------------------
Revenue available for distribution by way of dividend for the 547 559
year
Proposed final dividend of 18.5p for the year ended 5 April 2012 (540) (527)
-------------------------------------------------------------------------------
Undistributed revenue for purposes of Chapter 4 of Part 24 of the 7 32
Corporation Tax Act 2010*
===============================================================================
* Undistributed revenue comprises approximately 0.5% (2011: 2.6%) of income
from investments of £1,323,000 (2011: £1,247,000).
7 Return per Ordinary Share
The return per Ordinary Share of 253.06p (2011: 201.87p) is based on the total
net return after taxation for the financial year of £7,355,000 (2011: £
5,697,000) and on 2,906,436 (2011: 2,822,213) Ordinary Shares, being the
weighted average number of Ordinary Shares in issue in each year.
Revenue return per Ordinary Share of 18.82p (2011: 19.81p) is based on the net
revenue return on ordinary activities after taxation of £547,000 (2011: £
559,000) and on 2,906,436 (2011: 2,822,213) Ordinary Shares, being the weighted
average number of Ordinary Shares in issue in each year.
Capital return per Ordinary Share of 234.24p (2011: 182.06p) is based on the
net capital return for the financial year of £6,808,000 (2011: £5,138,000) and
on 2,906,436 (2011: 2,822,213) 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
2012 2011
£'000 £'000
-------------------------------------------------------------------------------
Allotted and fully paid
At the beginning of the year: 2,847,906 Ordinary Shares 712 699
(2011: 2,794,906)
Allotted during the year: 72,000 Ordinary Shares (2011: 18 13
53,000)
-------------------------------------------------------------------------------
At the end of the year: 2,919,906 Ordinary Shares (2011: 730 712
2,847,906)
===============================================================================
The Company allotted 72,000 Ordinary Shares of 25p each in the year (2011:
53,000) for a consideration of £2,259,000 (2011: £1,520,000).
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
2012 2011
-----------------------------------------------------------------------
Ordinary Shares (basic) 2,898.6p 2,652.8p
=======================================================================
Net asset value attributable to
2012 2011
£'000 £'000
-----------------------------------------------------------------------
Ordinary Shares (basic) 84,637 75,550
=======================================================================
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 2,919,906 (2011: 2,847,906) Ordinary Shares, being the number of
Ordinary Shares in issue at the year end.
10 Reconciliation of movements in shareholders' funds
2012 2011
£'000 £'000
-------------------------------------------------------------------------------
Opening equity shareholders' funds 75,550 68,962
Issued share capital 2,259 1,520
Total recognised gains for the year 7,355 5,697
Dividends (note 6) (527) (629)
-------------------------------------------------------------------------------
Closing equity shareholders' funds 84,637 75,550
===============================================================================
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 that 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 (excluding prepayments and deferred income).
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 accordingly are 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 in order to consider investment strategy. A list of the main
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 3 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 2012 of £84,637,000 (2011: £75,550,000)
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 several externally imposed capital requirements:
* as a public company, the Company must have a minimum share capital of £
50,000; and
* in order to be able to pay dividends out of profits available for
distribution by way of dividends, the Company has to be able to meet one
of the two capital restriction tests imposed on investment companies by
company law. These requirements are unchanged since last year, and the
Company has complied with them.
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. In addition, Mr R P A Spiller purchased
investments at market value from the Company for £243,000 and the Company's
Investment Manager, CG Asset Management Limited, of which Mr R P A Spiller is a
director, purchased investments at market value from the Company for £349,000.
Both transactions took place with the prior approval of the Chairman.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 5 April 2012 or 2011. The financial
information for the year ended 5 April 2011 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
2012 has been prepared using the same accounting policies as adopted in the
Company's statutory accounts for the year ended 5 April 2011. The statutory
accounts for the year ended 5 April 2012 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 Annual General Meeting.
Copies of the Company's Annual Report for the year ended 5 April 2012 will be
sent to shareholders in June 2012 and will be available on the Company's
website www.capitalgearingtrust.com and on request from the Company Secretary -
TMF Nominees Limited, 400 Capability Green, Luton LU1 3AE, Telephone: 01582
439200; E-mail: 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 439276
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