Final Results

RNS Number : 5015N

Investors Capital Trust PLC

18 May 2015

 



To:                    RNS

From:                Investors Capital Trust plc

Date:                18 May 2015

Results for the year ended 31 March 2015

·      Total distributions for the year to 31 March 2015 of 4.48p per share, an increase of 2.5 per cent compared to the prior year

·      Distribution yield of 4.4 per cent on A and B shares at 31 March 2015, compared to the yield on the FTSE All-Share Capped 5% Index of 3.3 per cent

·      Net asset value total return per share for the year was 5.2 per cent, compared to the FTSE All-Share Capped 5% Index total return of 6.9 per cent

·      Share price total return per share for the year was 11.2 per cent for A shares, 3.1 per cent for B shares and 12.7 per cent for units

·      Net asset value total return per share since launch on 1 March 2007 was 65.0 per cent, compared to the FTSE All-Share Capped 5% Index total return of 57.2 per cent

Chairman's Statement as follows:

The Company's investment objective is to provide an attractive return to shareholders in the form of dividends and/or capital repayments, 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 2015, 83.2 per cent. of total assets was allocated to the Equities Portfolio and 11.2 per cent. to the Higher Yield Portfolio. The remaining 5.6 per cent. was held as cash and cash equivalents.

Investment Performance

In my interim report to shareholders last year I highlighted the increasingly divergent nature of the global economic recovery, with economic growth strengthening in some regions of the world and weakening in others. Indeed over the past year the economies of the United States and United Kingdom have continued to gather momentum while, in contrast, the slowdown across many developing economies such as China, Russia and Brazil has continued. Economic activity in the Eurozone has remained subdued, with the recovery relatively weak, although more recent evidence gives some cause for optimism that the pace of growth is improving; falling energy prices have provided a boost to consumer spending while the export sector has been helped by the sharp devaluation of the Euro.

The past year has seen a marked rise in global geopolitical tensions with Russia's intervention in Ukraine together with widespread and worsening turmoil across the Middle East. One of the most notable developments of the year, particularly so in light of developments in the Middle East, has been the collapse in the price of crude oil. Demand for crude has been subdued due to a combination of weak global economic activity and increased energy efficiency measures, while at the same time a boom in less conventional oil production, especially in North America, has added significantly to global supply. While the impact of falling oil prices is, on balance, good news for consumers, particularly in developed economies, a protracted period of low prices will be damaging for countries such as Brazil and Venezuela that have a high dependency on oil exports.

While the global economy has made some modest progress over the past year the transition to a more established, stable and enduring recovery has remained elusive. As a consequence, and against a background of continued low inflation, central banks around the world have continued to adopt a highly accommodative monetary stance. Indeed in January this year the European Central Bank confirmed the landmark decision to embark on its own one trillion euro quantitative easing program in the wake of deepening concerns over deflation across the region. Against a background of plentiful global liquidity, equity and bond markets have remained well supported.

The Company's Equities Portfolio produced a total return of 6.4 per cent. during the year to 31 March 2015, while the Higher Yield Portfolio returned 4.9 per cent. Returns from the Equities Portfolio and the Higher Yield Portfolio, combined with the effect of gearing and expenses, resulted in a net asset value total return for the A and B shares of 5.2 per cent. for the year.  This return was behind the 6.9 per cent. total return for the FTSE All-Share Capped 5% Index, the Company's benchmark. Performance is covered in more detail in the Manager's Review in the Annual Report.

Since the launch of the Company on 1 March 2007 to 31 March 2015, the Company has outperformed its benchmark index. The net asset value per share total return performance of the Company has been 65.0 per cent. which compares favourably with the 57.2 per cent. return from the benchmark FTSE All-Share Capped 5% Index.

Earnings

The Company achieved total revenue income of £5.7m for the year. The yield on the Equities Portfolio was 3.6 per cent. as at 31 March 2015, compared to the yield on the FTSE All-Share Capped 5% Index of 3.3 per cent.

The Company's revenue increased by 4.7 per cent compared with the previous year. The majority of this increase came from the Equities Portfolio, due in part to the receipt of special dividends totalling £405,000 (2014: £204,000). The level of income from the Higher Yield Portfolio also increased in absolute terms. The level of assets allocated to fixed interest securities further reduced over the period however the proportion of this portfolio represented by higher yielding, non-investment grade bonds increased. The low level of deposit interest reflects the continued low level of interest rates receivable on cash balances.

The majority of investee companies continued to demonstrate good dividend growth during the year although the pace of dividend growth from the UK market as a whole has remained subdued. Over one third of the income from the Equities Portfolio comes from UK-listed companies that declare dividends in US dollars. Over the course of the year the US dollar appreciated relative to sterling enhancing the level of dividend income from the Equities Portfolio as a whole.

After deducting the fourth quarter dividend, the Company had revenue reserves of £3.9m at 31 March 2015.

Dividends and Capital Repayments

Dividends to A shareholders and capital repayments 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 repayments on the B shares were 1.11p per share for each quarter. A fourth quarter dividend of 1.15p per share was paid to A shareholders, and a capital repayment of the same amount to B shareholders, on 1 May 2015. This results in a dividend/capital repayment of 4.48p per share in respect of the year to 31 March 2015. This represents an increase of 2.5 per cent. compared to the distribution for the previous year and a distribution yield for both A and B shareholders of 4.4 per cent. based on the share price for both share classes of 100.75 pence as at 31 March 2015. These yields compare favourably with the yield on the FTSE All-Share Capped 5% Index of 3.3 per cent at that date.  For shareholders that hold units, the distribution yield was 4.5 per cent. based on a unit price of 402.5 pence as at 31 March 2015.

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 repayment at the same time as, and in an equal amount to, each dividend. The 'Capital Structure' section of the Annual Report provides further information on the A and B shares. 

The Company has a £18m loan facility for a term to 28 September 2017 at a fixed rate of interest of 3.15 per cent. per annum.

Discount and buy backs

The price of the Company's A shares and B shares were each at a discount to net asset value of 2.7 per cent. at 31 March 2015. Over the year, the price of the Company's A shares traded at an average discount to net asset value per share of 8.0 per cent. and the Company's B shares traded at an average discount of 6.5 per cent. The Company bought back 1,000,000 A shares during the year, representing 0.8 per cent of the opening shares in issue. The shares were bought back in line with the Company's stated policy, which is to repurchase shares of either class, at the Directors' discretion, when there are willing sellers and the market price stands at a discount to net asset value of 5 per cent or more. Of the shares bought back, 500,000 followed the disposal by a significant shareholder of their entire holding of A Shares in November 2014, with the Company taking advantage of the opportunity this presented to buy back any shares remaining after market demand had been fulfilled. The price paid for these A shares represented a discount of approximately 14 per cent to the prevailing net asset value at the time of purchase, significantly wider than the discount at which the Company has historically repurchased shares, thereby adding additional value for continuing shareholders.

Alternative Investment Fund Managers (AIFM) Directive

As highlighted in the Company's interim report, the AIFM Directive is European legislation which creates a European-wide framework for regulating managers of alternative investment funds. The Board entered into arrangements with the Manager, F&C Investment Business Limited, to act as the Company's Alternative Investment Fund Manager, at no additional cost to the Company. As required under the Directive, the Company also appointed a Depositary, JPMorgan Europe Limited, at a cost per annum of 0.01% of the Company's net assets. Both appointments commenced in July 2014.

Outlook

The post-crisis financial landscape has been characterised by a subdued global economic recovery, persistently low inflation together with a high degree of policy support from central banks around the world. Looking to the year ahead a number of challenges remain, not least the economic and political difficulties affecting the Eurozone, an uncertain growth outlook in China and the heightened level of global geopolitical risk. Against that background it is encouraging that the corporate sector remains in good financial health. With interest rates close to record low levels, the upturn in merger and acquisition activity is likely to remain supportive of equity markets.

Iain McLaren

15 May 2015

For further information, please contact:

Rodger McNair                                                                           Tel:        [phone]

Fund Manager to Investors Capital Trust plc

Donald Cameron

For F&C Investment Business Limited

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

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2015
	Note	Revenue	Capital	Total
		£'000	£'000	£'000
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	2,597	2,597
Exchange differences		-	342	342
Revenue
Investment income		5,721	-	5,721
Total income		5,721	2,939	8,660
Expenditure
Investment management fee		(283)	(660)	(943)
Other expenses		(391)	-	(391)
Total expenditure		(674)	(660)	(1,334)
Profit before finance costs and tax		5,047	2,279	7,326
Finance costs
Interest on bank loan		(177)	(414)	(591)
Total finance costs		(177)	(414)	(591)
Profit before tax		4,870	1,865	6,735
Tax		(22)	22	-
Profit for the year		4,848	1,887	6,735
Total comprehensive income for the year		4,848	1,887	6,735
Earnings per share	2	3.95p	1.54p	5.49p

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2014
	Note	Revenue	Capital	Total
		£'000	£'000	£'000
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	7,741	7,741
Exchange differences		-	227	227
Revenue
Investment income		5,466	-	5,466
Total income		5,466	7,968	13,434
Expenditure
Investment management fee		(278)	(1,232)	(1,510)
Other expenses		(386)	-	(386)
Total expenditure		(664)	(1,232)	(1,896)
Profit before finance costs and tax		4,802	6,736	11,538
Finance costs
Interest on bank loan		(178)	(415)	(593)
Total finance costs		(178)	(415)	(593)
Profit before tax		4,624	6,321	10,945
Tax		(26)	26	-
Profit for the year		4,598	6,347	10,945
Total comprehensive income for the year		4,598	6,347	10,945
Earnings per share	2	3.73p	5.14p	8.87p

Balance Sheets (audited)

as at 31 March 2015

		2015		2014
		Company	Group	Company	Group
	Note	£'000	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		137,071	136,821	139,816	139,566
Current assets
Receivables		1,517	1,517	1,280	1,280
Cash and cash equivalents		7,309	7,309	5,904	5,904
		8,826	8,826	7,184	7,184
Total assets		145,897	145,647	147,000	146,750
Current liabilities
Payables		(1,011)	(761)	(2,448)	(2,198)
		(1,011)	(761)	(2,448)	(2,198)
Non-current liabilities
Bank loan		(18,000)	(18,000)	(18,000)	(18,000)
		(18,000)	(18,000)	(18,000)	(18,000)
Total liabilities		(19,011)	(18,761)	(20,448)	(20,198)
Net assets		126,886	126,886	126,552	126,552
Share capital	6	134	134	134	134
Share premium	6	153	153	153	153
Capital redemption reserve		5	5	5	5
Buy back reserve	6	86,425	86,425	87,356	87,356
Special capital reserve		22,524	22,524	23,952	23,952
Capital reserves		12,723	12,723	10,836	10,836
Revenue reserve		4,922	4,922	4,116	4,116
Equity shareholders' funds		126,886	126,886	126,552	126,552
Net asset value per A share	7	103.70p	103.70p	102.59p	102.59p
Net asset value per B share	7	103.70p	103.70p	102.59p	102.59p

Consolidated and Company Cash Flow Statement (audited)

for the year to 31 March 2015

	Year to 31 March 2015	Year to 31 March 2014
	£'000	£'000
Cash flows from operating activities
Profit before tax	6,735	10,945
Adjustments for:
Gains on investments held at fair value through profit or loss	(2,597)	(7,741)
Exchange differences	(342)	(227)
(Increase)/decrease in receivables	(72)	37
(Decrease)/increase in payables	(436)	474
Purchases of investments	(13,501)	(21,096)
Sales of investments	17,553	24,167
Finance costs	591	593
Net cash inflow from operating activities	7,931	7,152
Cash flows from financing activities
Dividends paid on A shares	(4,042)	(3,992)
Capital returns paid on B shares	(1,428)	(1,376)
Interest on bank loan	(591)	(598)
Shares purchased for treasury	(931)	(1,180)
Shares issued from treasury	133	524
Net cash outflow from financing activities	(6,859)	(6,622)
Net increase in cash and cash equivalents	1,072	530
Currency gains	333	228
Opening net cash and cash equivalents	5,904	5,146
Closing net cash and cash equivalents	7,309	5,904

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2015

	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
Balance as at 1 April 2014	134	153	5	87,356	23,952	(16,187)	27,023	4,116	126,552
Total comprehensive income for the year
Profit for the year	-	-	-	-	-	343	1,544	4,848	6,735
Total comprehensive income for the year	-	-	-	-	-	343	1,544	4,848	6,735
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury	-	-	-	(931)	-	-	-	-	(931)
Dividends paid on A shares	-	-	-	-	-	-	-	(4,042)	(4,042)
Capital returns paid on B shares	-	-	-	-	(1,428)	-	-	-	(1,428)
Balance as at 31 March 2015	134	153	5	86,425	22,524	(15,844)	28,567	4,922	126,886

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2014

	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
Balance as at 1 April 2013	134	22	5	88,010	25,328	(17,334)	21,823	3,510	121,498
Total comprehensive income for the year
Profit for the year	-	-	-	-	-	1,147	5,200	4,598	10,945
Total comprehensive income for the year	-	-	-	-	-	1,147	5,200	4,598	10,945
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury	-	-	-	(1,180)	-	-	-	-	(1,180)
Shares resold from treasury	-	131	-	526	-	-	-	-	657
Dividends paid on A shares	-	-	-	-	-	-	-	(3,992)	(3,992)
Capital returns paid on B shares	-	-	-	-	(1,376)	-	-	-	(1,376)
Balance as at 31 March 2014	134	153	5	87,356	23,952	(16,187)	27,023	4,116	126,552

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:

•     Investment and strategic - incorrect strategy, asset allocation, stock selection, inappropriate capital structure, insufficient monitoring of costs, failure to maintain an appropriate level of discount/premium and the use of gearing could all lead to poor returns for shareholders. Any loss of key individuals at the appointed investment manager could also affect the performance of the Company.

•     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. Changes to tax regulations could alter the market competitiveness of the Company's B Shares.

•     Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of an outsourced or third party service provider, could lead to an inability to provide accurate reporting and monitoring, leading to a potential breach of the Company's investment mandate or loss of shareholders' confidence. External cyber attacks could cause such failure or could lead to the loss or sabotage of data.

•     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, including the valuation of the Company's investments or recognition of income, could lead to misreporting or breaches of regulations. Breaching loan covenants could lead to a loss of shareholders' confidence and financial loss for shareholders and could restrict the future availability of appropriate investment funding.

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 Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules, the Directors confirm, in respect of the Annual Report for the year ended 31 March 2015 of which this statement of results is an extract, that to the best of our knowledge:

·      The financial statements contained within the Annual Report have been prepared in accordance with applicable International Financial Reporting Standards as adopted by the European Union, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      The Strategic Report (comprising the Chairman's Statement, Business Model and Strategy, Manager's Review, Investment Managers and Investment Process, Classification of Investments, Equities Portfolio and Higher Yield Portfolio) and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that they face; 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                                                           

Notes (audited)

1.            The financial statements of the Group which are the responsibility of, and were approved by, the Board on 15 May 2015, 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 financial statements 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 £6,735,000 (year to 31 March 2014: £10,945,000) and on 90,716,500 A shares (2014: 91,679,614) and 32,076,703 B shares (2014: 31,755,730), 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 £4,848,000 (year to 31 March 2014: £4,598,000) 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 £1,887,000 (year to 31 March 2014: £6,347,000) 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 1.15p per A share, was paid on 1 May 2015 to A shareholders on the register at close of business on 7 April 2015, having an ex-dividend date of 2 April 2015. The fourth capital repayment of 1.15p per B share was paid on 1 May 2015 to B shareholders on the register on 7 April 2015.

5.            The Company has drawn down an £18 million term loan facility with a five year term to 28 September 2017. The term loan with JPMorgan Chase Bank is currently secured on the majority of the assets of the Company and carries interest at a fixed rate of 3.15 per cent per annum. Interest on the term loan is payable quarterly. An administration fee of £18,000 is payable annually in addition.

The term loan contains certain financial covenants with which the Company must comply. These include a financial covenant to the effect that the percentage of the total amounts drawn down under the term loan (together with any other borrowings) should not exceed 45 per cent of the Company's Eligible Total Secured Assets. The Company complied with the required financial covenants throughout the period since drawdown.

The fair value of the fixed rate £18m term loan, on a marked to market basis, was £18,103,000 at 31 March 2015 (2014: £17,692,000).

6.            During the year the Company bought back 1,000,000 (2014: 1,250,000) A Shares to hold in treasury at a cost of £931,000 (2014: £1,180,000) and nil (2014: nil) B Shares to hold in treasury at a cost of nil (2014: nil). During the year the Company resold nil (2014: 655,000) B shares from treasury for proceeds of nil (2014: £657,000). The Company did not buy back any shares for cancellation during the year (2014: nil).

At 31 March 2015 the Company held 11,789,000 (2014: 10,789,000) A Shares and nil (2014: nil) B Shares in treasury.

7.            The Company's basic net asset value per share of 103.70p (2014: 102.59p) is based on the equity shareholders' funds of £126,886,000 (2014: £126,552,000) and on 122,354,847 equity shares, consisting of 90,278,144 A Shares and 32,076,703 B Shares (2014: 123,354,847 equity shares, consisting of 91,278,144 A Shares and 32,076,703 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 2015 was therefore 414.80p (2014: 410.36p).

The Company's treasury net asset value per share, incorporating the 11,789,000 A Shares held in treasury at the year end, was 103.44p (2014: 102.18p). The Company's treasury net asset value per unit at the end of the year was 413.76p (2014: 408.72p). 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.

8.            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. 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 mitigated by raising the level of cash balances held.

The Company may use derivatives for efficient portfolio management from time to time. The only derivatives used in the year were forward foreign exchange currency contracts to hedge currency movements.  These were also used in the prior year. The Company may also write call options over some investments held in the Equities Portfolio.

Apart from the fair value of the fixed-rate term loan as disclosed in note 5, the fair value of the financial assets and liabilities of the Company at 31 March 2015 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 current or prior 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 A 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. Other external events such as protectionism, inflation or deflation, economic recessions and terrorism could also affect share prices in particular markets. 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 a spread of reputable banks with a credit rating of normally A 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. The Company's exposure to floating interest rates gives cashflow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.

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 2015 (2014: 0.5 per cent).

Fixed rate

Movements in the fair value of investments held in the Higher Yield Portfolio due to a movement in the market interest rate is viewed to form part of the market price risk. The Company's Equities Portfolio does not contain any fixed interest or floating rate interest assets.

The £18 million term loan carries a fixed interest rate of 3.15 per cent per annum.

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 2015, 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 either the year or the prior year nor the net asset value as at 31 March 2015 or 31 March 2014.

10.        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 2015 will be sent to shareholders in May 2015 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 2015 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 25 June 2015.

 

END

 

 

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