Annual Financial Report

RNS Number : 4699G

Investors Capital Trust PLC

12 May 2011

 



To:                    RNS

From:                Investors Capital Trust plc

Date:                12 May 2011

Results for the year ended 31 March 2011

·      Total distributions for the year to 31 March 2011 of 4.28p per share

·      Distribution yield of 5.2 and 4.7 per cent on A and B shares respectively at 31 March 2011, compared to the yield on the FTSE All-Share Capped 5% Index of 2.9 per cent

·      Net asset value total return per share for the year was 8.9 per cent, compared to the FTSE All-Share Capped 5% Index total return of 9.6 per cent

·      Net asset value total return is ahead of benchmark index since launch in March 2007

Chairman's Statement as follows:

Investment Objective and Policy

The Company's investment objective is to provide an attractive return to shareholders in the form of dividends and/or capital distributions, together with prospects for capital growth.

The Company's investment portfolio is managed in two parts. The first part comprises investments in UK equities and equity related securities (the Equities Portfolio) and the second part investments in fixed interest and other higher yielding securities (the Higher Yield Portfolio). At 31 March 2011, 72.5 per cent. of total assets was allocated to the Equities Portfolio and 22.1 per cent. to the Higher Yield Portfolio. The remaining 5.4 per cent. was held as cash and cash equivalents.

Capital Structure

The Company has two classes of shares: A shares and B shares. The net asset value attributable to the A shares and to the B shares is the same. The rights of each class are identical, save that only the A shares are entitled to receive dividends, while the B shares instead receive a capital distribution at the same time as, and in an equal amount to, each dividend. For certain shareholders there will be tax and other advantages in receiving a capital distribution rather than a dividend. Shares may be held and traded within units, each unit comprising three A shares and one B share.  The 'Capital Structure' section on page 13 of the Annual Report provides further information on the A and B shares. 

The Company has a £33.5m loan facility for a term to 28 September 2012 at an effective rate of interest of 5.86 per cent. per annum.

Investment Performance

Over the course of the past year the global economy has emerged from one of the sharpest downturns in post-war history. Despite the unprecedented level of monetary and fiscal stimulus the ongoing economic recovery remains fragile. Following the financial crisis developed Western economies have been left burdened by high levels of indebtedness and record fiscal deficits while in contrast the emerging market economies, most notably in Asia, have continued to enjoy robust growth. The shift of economic and political power has continued to move from West to East.

Returns from financial markets during the last year have been more muted than the previous year when risk assets rebounded sharply from their lows in anticipation of the turn in the economic cycle. Nevertheless it is encouraging to report that both equity and credit markets made further progress over the course of the year. There was a marked divergence in performance between higher yielding and lower yielding shares during the year. As confidence in the economic recovery grew, lower yielding, more growth orientated shares outperformed their higher yielding counterparts. The Company has a bias towards higher yielding companies which have strong balance sheets, visibility of earnings and good dividend cover. The Company's Equities Portfolio produced a total return of 8.8 per cent. during the year to 31 March 2011, while the Higher Yield Portfolio returned 6.0 per cent.

Returns from the Equities Portfolio and the Higher Yield Portfolio, combined with the effect of gearing, resulted in a net asset value total return for the A and B shares of 8.9 per cent.  This return is behind the 9.6 per cent. total return for the FTSE All-Share Capped 5% Index, the Company's benchmark. Since the Company's launch in 2007 both the net asset value total return and the Equities Portfolio total return remain ahead of the benchmark index.

Earnings

The Company achieved total revenue income of £6.5m for the year. The yield on the Equities Portfolio was 3.7 per cent. as at 31 March 2011, compared to the yield on the FTSE All-Share Capped 5% Index of 2.9 per cent.

The Company's revenue for the year was broadly the same as that earned during the previous financial year. The Equities Portfolio delivered an increased level of dividend income, enhanced by special dividends, which offset a reduction in the level of income from the Higher Yield Portfolio. The change in the mix of revenue was largely a result of the decision to allocate assets from the Higher Yield Portfolio to the Equities Portfolio. The lower level of deposit interest was a function of less cash held on deposit and continued low rates of interest.

The overall level of dividends paid by the UK market has come under significant pressure in recent years. The economic downturn which began in 2008 was one of the sharpest on record and resulted in a flurry of dividend cuts, most notably from the banking sector. This was followed by the cancellation of BP's dividend in the wake of the Deepwater Horizon oil spill. At that time the BP dividend on its own accounted for in excess of 10 per cent. of UK market dividend income and, although it was reinstated in January this year, this was at half the previous level. While recognising the importance of dividends for shareholders, against this background in July 2010 the Board felt it prudent to revise the Company's dividend to a more sustainable level for the year to 31 March 2011 and to build revenue reserves for the future.

The ongoing recovery in corporate profits during the year has been reflected in an improvement in the rate of dividend growth from the UK market. The initial caution shown by company management in assessing the sustainability of the recovery appears to be slowly dissipating. While the overall level of UK market dividends remains below that of last year, strong corporate sector profitability together with healthy balance sheets lends support to continued growth in dividends in the year ahead.

The US dollar exchange rate has a significant bearing on the level of the UK market dividends as approximately one-third of dividends paid by UK-listed companies are paid in US dollars. In this context the strengthening of Sterling against the US dollar since May 2010 has been unhelpful, although over the course of the year the average rate was broadly similar to that of the prior year. The Company also invests in corporate bonds which are both US dollar and Euro denominated.

Income from the Higher Yield Portfolio, which comprised predominantly investment grade corporate bonds, was below the level earned in the previous period. As a result of the decline in gross redemption yields over the last two years the re-investment of maturing corporate bonds lowers the overall yield on the Higher Yield Portfolio. However, the majority of the reduction in income was accounted for by the allocation of assets from the Higher Yield Portfolio to the Equities Portfolio, as noted above.

After providing for the fourth quarter dividend, the Company had revenue reserves of £1.4m at 31 March 2011. 

Dividends and Capital Returns

Dividends to A shareholders and capital distributions to B shareholders are paid quarterly in August, November, February and May each year. In respect of the distributions for the Company's first three quarters, the dividends paid on the A shares and capital distributions on the B shares were 1.06p per share for each quarter. A fourth quarter dividend of 1.1p per share was paid to A shareholders and a capital distribution of the same amount to B shareholders on 6 May 2011. This results in a dividend/capital distribution of 4.28p per share in respect of the year to 31 March 2011. This represents a reduction over the previous year. The reasons for this were set out in the interim report to shareholders in November 2010 and are covered again in the Earnings section of this statement. The Board expects to pay an unchanged distribution in the year ahead. This represents a distribution yield for A shareholders of 5.2 per cent. and for B shareholders of 4.7 per cent., based on the A share price of 82.0 pence and the B share price of 91.5 pence as at 31 March 2011. These yields compare favourably with the yield on the FTSE All-Share Capped 5% Index of 2.9 per cent at that date.  For shareholders that hold units, the estimated distribution yield was 5.2 per cent. based on a unit price of 328.0 pence as at 31 March 2011.

The Company operates a distribution reinvestment scheme, details of which are available from the Company's Registrars, to enable B shareholders to reinvest their capital distributions in further B shares if they wish.

Discount and buy backs

The Company's A share price was at a discount to net asset value of 4.2 per cent. at 31 March 2011. The Company's B shares were at a premium to net asset value of 6.9 per cent at the same date. Over the year, the price of the Company's A shares traded at an average discount to net asset value per share of 0.3 per cent. and the Company's B shares traded at an average premium of 5.4 per cent. The Company has a stated buy back policy and, in accordance with this policy, the Company bought back 400,000 A shares during the year at an average discount of 5 per cent. to net asset value, thereby adding value for existing shareholders. 

Directors

I was appointed as Chairman of the Board and Nomination Committee from 1 January 2011, following the retirement of Martin Haldane. I would like to pay tribute to Martin for the dedicated service and wise counsel he provided as both a Director and Chairman of the Company and the predecessor company. The Board has appointed Mrs Julia Le Blan as a  Director with effect from 1 January 2011. She is a chartered accountant and until her retirement was a tax partner at Deloitte. I am pleased to welcome her to the Board and believe her experience, in particular in financial matters, will contribute significantly to the Board's deliberations. On her appointment, Mrs Le Blan became chairman of the Audit Committee.

Outlook

The outlook for the global economy has improved steadily over the last year although significant headwinds remain. The unwinding of high levels of personal and national debt in developed economies is likely to take many years and constrain the rate of economic growth in the future. There are still risks within European sovereign debt markets and the recent tragic events in Japan are likely to further dampen economic prospects this year. It is reassuring that the UK corporate sector is in good health and that equity valuations remain undemanding particularly when compared against government bonds and cash.

For further information, please contact:

Rodger McNair                                                                           Tel:        [phone]

Fund Manager to Investors Capital Trust plc

Michael Campbell

Company Secretary to Investors Capital Trust plc             Tel:        [phone]

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2011
		£'000	£'000
	Note	Revenue	Capital	£'000
		Return	Return	Total
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	4,195	4,195
Exchange differences		-	358	358
Revenue
Investment Income		6,498	-	6,498
Total income		6,498	4,553	11,051
Expenditure
Investment management fee		(234)	(545)	(779)
Other expenses		(461)	-	(461)
Total expenditure		(695)	(545)	(1,240)
Profit before finance costs and tax		5,803	4,008	9,811
Net finance costs
Interest on bank loan and interest rate swap		(592)	(1,380)	(1,972)
Total finance costs		(592)	(1,380)	(1,972)
Profit before tax		5,211	2,628	7,839
Tax		(305)	284	(21)
Profit for the year		4,906	2,912	7,818
Other comprehensive income
Gain on cashflow hedge		-	1,141	1,141
Total comprehensive income for the year		4,906	4,053	8,959
Earnings per share	2	3.85p	2.28p	6.13p

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2010
		£'000	£'000
	Note	Revenue	Capital	£'000
		Return	Return	Total
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	31,187	31,187
Exchange differences		-	752	752
Revenue
Investment Income		6,460	-	6,460
Total income		6,460	31,939	38,399
Expenditure
Investment management fee		(217)	(506)	(723)
Other expenses		(414)	-	(414)
Total expenditure		(631)	(506)	(1,137)
Profit before finance costs and tax		5,829	31,433	37,262
Net finance costs
Interest on bank loan and interest rate swap		(593)	(1,385)	(1,978)
Total finance costs		(593)	(1,385)	(1,978)
Profit before tax		5,236	30,048	35,284
Tax		(425)	406	(19)
Profit for the year		4,811	30,454	35,265
Other comprehensive income
Gain on cashflow hedge		-	252	252
Total comprehensive income for the year		4,811	30,706	35,517
Earnings per share	2	3.79p	23.97p	27.76p

Balance Sheets (audited)

as at 31 March 2011

		2011		2010
		Company	Group	Company	Group
	Note	£'000	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		136,774	136,524	132,349	132,099
Current assets
Other receivables		1,422	1,422	2,430	2,430
Cash and cash equivalents		8,306	8,306	9,278	9,278
		9,728	9,728	11,708	11,708
Total assets		146,502	146,252	144,057	143,807
Current liabilities
Other payables		(2,133)	(1,883)	(1,372)	(1,122)
Non-current liabilities
Bank loan		(33,490)	(33,490)	(33,482)	(33,482)
Interest rate swap		(2,019)	(2,019)	(3,160)	(3,160)
		(35,509)	(35,509)	(36,642)	(36,642)
Total liabilities		(37,642)	(37,392)	(38,014)	(37,764)
Net assets		108,860	108,860	106,043	106,043
Share capital	5	134	134	134	134
Share premium		22	22	22	22
Capital redemption reserve	5	5	5	5	5
Buy back reserve	5	90,662	90,662	90,990	90,990
Special capital reserve		28,054	28,054	29,514	29,514
Capital reserves		(12,497)	(12,497)	(16,550)	(16,550)
Revenue reserve		2,480	2,480	1,928	1,928
Equity shareholders' funds		108,860	108,860	106,043	106,043
Net asset value per A share	6	85.56p	85.56p	83.09p	83.09p
Net asset value per B share	6	85.56p	85.56p	83.09p	83.09p

Consolidated and Company Cash Flow Statement (audited)

for the year to 31 March 2011

	Year to 31 March 2011	Year to 31 March 2010
	£'000	£'000
Cash flows from operating activities
Profit before tax	7,839	35,284
Adjustments for:
Gains on investments held at fair value through profit or loss	(4,195)	(31,187)
Exchange differences	(358)	(752)
Decrease/(increase) in receivables	169	(121)
(Decrease)/increase in payables	(7)	80
Purchases of investments	(18,640)	(37,988)
Sales of investments	19,550	25,024
Net finance costs	1,972	1,978
	6,330	(7,682)
Tax recovered/(paid)	13	(105)
Net cash inflow/(outflow) from operating activities	6,343	(7,787)
Cash flows from financing activities
Dividends paid on A shares	(4,354)	(5,117)
Capital returns paid on B shares	(1,460)	(1,675)
Interest on bank loan and interest rate swap	(1,964)	(2,456)
Issue of shares from treasury	-	1,426
Shares purchased for treasury	(328)	(194)
Net cash outflow from financing activities	(8,106)	(8,016)
Net decrease in cash and cash equivalents	(1,763)	(15,803)
Currency gains	791	678
Opening cash and cash equivalents	9,278	24,403
Closing cash and cash equivalents	8,306	9,278

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2011

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2010	134	22	5	90,990	29,514	(18,096)	1,546	1,928	106,043
(Loss)/profit for the year	-	-	-	-	-	(256)	3,168	4,906	7,818
Gain on revaluation of interest rate swap	-	-	-	-	-	-	1,141	-	1,141
Shares bought back for treasury	-	-	-	(328)	-	-	-	-	(328)
Dividends paid on A shares	-	-	-	-	-	-	-	(4,354)	(4,354)
Capital returns paid on B shares	-	-	-	-	(1,460)	-	-	-	(1,460)
At 31 March 2011	134	22	5	90,662	28,054	(18,352)	5,855	2,480	108,860

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2010

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2009	134	22	5	89,227	31,189	(15,749)	(30,976)	2,234	76,086
(Loss)/profit for the year	-	-	-	-	-	(1,816)	32,270	4,811	35,265
Gain on revaluation of interest rate swap	-	-	-	-	-	-	252	-	252
Shares issued from treasury	-	-	-	1,957	-	(531)	-	-	1,426
Shares bought back for treasury	-	-	-	(194)	-	-	-	-	(194)
Dividends paid on A shares	-	-	-	-	-	-	-	(5,117)	(5,117)
Capital returns paid on B shares	-	-	-	-	(1,675)	-	-	-	(1,675)
At 31 March 2010	134	22	5	90,990	29,514	(18,096)	1,546	1,928	106,043

Investors Capital Trust plc

Principal Risks and Risk Management

The Company's assets consist mainly of listed equity and fixed interest securities and its principal risks are therefore market-related. More detailed explanations of these risks and the way in which they are managed are contained in the notes to the accounts.

Other risks faced by the Company include the following:

·      External - events such as terrorism, protectionism, inflation or deflation, economic recessions and movements in interest rates and exchange rates could affect share prices in particular markets.

·      Investment and strategic - incorrect strategy, asset allocation, stock selection and the use of gearing could all lead to poor returns for shareholders.

·      Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

·      Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.

·      Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. Breaching loan covenants could lead to a loss of shareholders' confidence and financial loss for shareholders.

The Board seeks to mitigate and manage these risks through continual review, policy setting and reliance upon contractual obligations. It also regularly monitors the investment environment and the management of the Company's investment portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

Investors Capital Trust plc

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

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year ended 31 March 2011, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      The Chairman's Statement and Manager's Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·      'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and

·      The Annual Report includes details of related party transactions, if any, that have taken place during the financial year.

On behalf of the Board

Iain McLaren

Chairman                                                           

10 May 2011

Notes (audited)

1.            The financial statements of the Group, which are the responsibility of, and were approved by the Board on 10 May 2011, have been prepared in accordance with the Companies Act 2006, International Financial Reporting Standards (''IFRS''), which comprise standards and interpretations approved by the International Accounting Standards Board (''IASB''), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (''IASC'') that remain in effect, and to the extent that they have been adopted by the European Union.

Where presentational guidance set out in the Statement of Recommended Practice (''SORP'') for investment trusts issued by the Association of Investment Companies (''AIC'') in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the results on a basis compliant with the recommendations of the SORP.

2.            The Company's earnings per share are based on the profit for the year of £7,818,000 (year to 31 March 2010: £35,265,000) and on 95,543,076 A shares (2010: 95,595,897) and 32,051,703 B shares (2010: 31,453,607), being the weighted average number of shares in issue of each share class during the year. 

The Company's revenue earnings per share are based on the revenue profit for the year of £4,906,000 (year to 31 March 2010: £4,811,000) and on the weighted average number of shares in issue as above.

The Company's capital earnings per share are based on the capital profit for the year of £2,912,000 (year to 31 March 2010: £30,454,000) and on the weighted average number of shares in issue as above.

3.            The Group results comprise those of the Company and those of Investors Securities Company Limited, a wholly owned subsidiary which deals in securities.

4.            The fourth interim dividend of 1.1p per A share, was paid on 6 May 2011 to A shareholders on the register at close of business on 8 April 2011, having an ex-dividend date of 6 April 2011. The fourth capital distribution of 1.1p per B share was paid on 6 May 2011 to B shareholders on the register on 8 April 2011.

5.            During the year the Company bought back 400,000 (2010: 240,000) A Shares to hold in treasury at a cost of £328,000 (2010: £146,000) and nil (2010: 80,000) B Shares to hold in treasury at a cost of £nil (2010: £48,000). The Company did not buy back any shares for cancellation nor resell any shares from treasury during the year (2010: 2,105,000 B Shares were re-sold from treasury, receiving net proceeds of £1,426,000).

At 31 March 2011 the Company held 6,889,000 (2010: 6,489,000) A Shares and 25,000 (2010: 25,000) B Shares in treasury.

6.            The Company's basic net asset value per share of 85.56p (2010: 83.09p) is based on the equity shareholders' funds of £108,860,000 (2010: £106,043,000) and on 127,229,847 equity shares, consisting of 95,178,144 A Shares and 32,051,703 B Shares (2010: 127,629,847 equity shares, consisting of 95,578,144 A Shares and 32,051,703 B Shares), being the number of shares in issue at the year end.

The Company's shares may also be traded as units, each unit consisting of three A Shares and one B Share. The basic net asset value per unit as at 31 March 2011 was therefore 342.24p (2010: 332.36p).

The Company's treasury net asset value per share, incorporating the 6,889,000 A shares and 25,000 B shares held in treasury at the year end, was 85.38p (2010: 82.94p). The Company's treasury net asset value per unit at the end of the year was 341.52p (2010: 331.76p). The Company's policy is to only re-sell shares held in treasury at a price representing a discount of not more than 5 per cent to net asset value at the time of sale, together with other conditions. Accordingly, for the purpose of the calculation, such treasury shares are valued at the higher of net asset value less 5 per cent and the mid market share price at each year end.

7.            Financial Instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances, receivables and payables that arise directly from its operations and borrowings which include an interest rate swap. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings to achieve enhanced returns. The downside risk of borrowings can be reduced by raising the level of cash balances held. At 31 March 2011, borrowings were exceeded in value by cash balances and fixed interest securities resulting in a net ungeared exposure to equities.

The Company may use derivatives for efficient portfolio management from time to time. The only derivatives used in the year were the interest rate swap on the bank loan, forward foreign exchange currency contracts to hedge currency movements and the writing of call options over some investments held in the Equities Portfolio.

The fair value of the financial assets and liabilities of the Company at 31 March 2011 is not materially different from their carrying value in the financial statements.

The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, market price risk, liquidity risk, interest rate risk and foreign currency risk.

The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and have remained unchanged for the year under review.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

The Company's principal financial assets are bank balances and cash, other receivables and investments, which represent the Company's maximum exposure to credit risk in relation to financial assets. The Company did not have any exposure to any financial assets which were past due or impaired at the year end.

The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities which the Company has delivered. A list of pre-approved counterparties used in such transactions is maintained and regularly reviewed by the Manager, and transactions must be settled on a basis of delivery against payment. Broker counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable quality of the brokers used. The rate of default in the past has been insignificant.

All of the assets of the Company, other than the dealing subsidiary, are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to the securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings, normally rated AA or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

The Company has no significant concentration of credit risk with exposure spread over a number of counterparties and financial institutions.

Market price risk

The fair value of equity and other financial securities held in the Company's portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. The Group's strategy for the management of market price risk is driven by the Company's investment policy. The Board sets policies for managing this risk and meets regularly to review full, timely and relevant information on investment performance and financial results. The management of market price risk is part of the fund management process and is typical of equity and fixed interest investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Investment and portfolio performance are discussed in more detail in the Manager's Review in the Annual Report.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given the liquid nature of the portfolio of investments and the level of cash and cash equivalents ordinarily held. However, where there has been a deterioration in credit quality or an event of default the Company may not be able to liquidate quickly, at fair value, some of its investments in the Higher Yield Portfolio. Cash balances are held with reputable banks with a credit rating of normally AA or higher, usually on overnight deposit. The Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting.

In certain circumstances, the terms of the Company's bank loan entitle the lender to demand early repayment and, in such circumstances, the Company's ability to maintain dividend levels and the net asset value attributable to equity shareholders could be adversely affected. Such early repayment may be required in the event of a change of control of the Company or on the occurrence of certain events of default which are customary for facilities of this type. These include events of non payment, breach of other obligations, misrepresentations, insolvency and insolvency proceedings, illegality and a material adverse change in the financial condition of the Company.

Interest rate risk

Some of the Company's financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rate.

Floating rate

When the Company retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate, which was 0.5 per cent at 31 March 2011 (2010: 0.5 per cent).

The Company's Equities Portfolio does not contain any fixed interest or floating rate interest assets.

The £33.5 million term loan has been classified as fixed interest as the variable rate loan has been fixed by an interest rate swap, of the same nominal value and duration as the loan.

Foreign currency risk

In order to achieve a diversified portfolio of higher yielding securities the Company invests partly in overseas securities which gives rise to currency risks. In the year to 31 March 2011, the Company entered into US Dollar and Euro foreign exchange currency contracts with a view to hedging these currency risks.

Given the policy to hedge currency risk on non-sterling denominated assets by entering into forward foreign exchange currency contracts, the weakening or strengthening of Sterling against either the US Dollar or Euro would not have had a significant net impact on the total column of the Consolidated Statement of Comprehensive Income for the year or the net asset value as at 31 March 2011.

8.            These are not full statutory accounts in terms of Section 434 of the Companies Act 2006. The full audited annual report and accounts for the year ended 31 March 2011 will be sent to shareholders in May 2011 and will be available for inspection at 80 George Street, Edinburgh, the registered office of the Company.  The full annual report and accounts will be available on the website maintained on behalf of the Company at www.investorscapital.co.uk .

The audited accounts for the year to 31 March 2011 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 28 June 2011.

 

END

 

 

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