THE INVESTMENT COMPANY PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2014
The full Annual Report and Accounts for the year ended 30 June 2014 can be
found on the Company's website: http://www.mitongroup.com/tic.
DIRECTORS (all non-executive)
Sir David Thomson Bt. (Chairman)
S. J. Cockburn
P. S. Allen
M. H. W. Perrin (Audit Committee Chairman)
STRATEGIC REPORT
SUMMARY OF RESULTS
At 30 June At 30 June Change
2014 2013
Equity shareholders' funds 18,693,293 16,237,484 15.1%
Number of ordinary shares in issue* 4,739,549 4,739,549 0.0%
Net asset value per ordinary share 394.41p 342.60p 15.1%
Ordinary share price (mid) 406.00p 327.50p 24.0%
Premium/(discount) to net asset 2.94% (4.41)%
value
At 30 June At 30 June
2014 2013
Total return per ordinary share** 67.03p 71.41p
Return after taxation per ordinary 91.02p 7.91p
share
Dividends paid/declared per 20.72p 6.00p
ordinary share
* Excluding shares held in treasury.
** The total return per ordinary share is based on total comprehensive income
after taxation as detailed in the Consolidated Statement of Comprehensive
Income and in note 7 and is shown to enable comparison with other investment
trust companies.
FINANCIAL CALENDAR
November Payment of first interim dividend for the year ending
30 June 2015.
December Annual General Meeting.
February Payment of second interim dividend for the year ending
30 June 2015.
Announcement of Half-Yearly Financial Report.
May Payment of third interim dividend for the year ending
30 June 2015.
August Payment of fourth interim dividend for the year ending
30 June 2015.
September/October Announcement of Annual Results.
CHAIRMAN'S STATEMENT
This report covers the first full year since the reorganisation of the Company
at the end of June 2013.
Over the year the net asset value ("NAV") of the Company has increased from
342.6p to 394.4p, a rise of 15.1%. In addition, the Company has also paid four
interim dividends amounting to 20.7p, which represents a 6.0% yield on the NAV
at the end of June 2013. The total return in the year was therefore 19.5%.
Following the reorganisation, and pursuant to the new investment policy, much
of the additional capital raised at the time of the reorganisation has been
invested in the equity of some promising quoted companies, many with attractive
dividend yields.
In parallel, the portfolio still substantially comprises a range of preference
shares, loan stocks, debentures and notes, which may also have the right to
convert into the equity of the underlying issuer. At the end of June 2013, our
largest holdings by a substantial margin were in Lloyds Banking Group Enhanced
Capital Notes ("ECNs"). An offer from Lloyds Banking Group to convert such
instruments into a different note, gave us a good opportunity to reduce this
position, realising substantial capital gains.
The new strategy has made a good start, as reflected in the growth in NAV over
the year. There is not a single representative benchmark index of this
portfolio of investments. However, shareholders will note that the FTSE
Actuaries Government Securities UK Gilts All Stocks Index rose 2.3% on a total
return basis over the year, and the total return on the FTSE All-Share Index
was 13.1%.
Going forward we believe there will be more opportunities for this Company to
invest in convertible preference and convertible loan stocks. We believe the
best of these will be particularly attractive to investors, as they often pay
premium yields, and also offer investors scope to participate in the rise of
the underlying equity if it appreciates markedly.
At the time of the reconstruction in June 2013, your Board commenced paying
four dividends through the year amounting to 6% of the NAV at the beginning of
the year. Although this should not be taken as a firm forecast, it is the
Directors' intention, based on a NAV at 30 June 2014 of 394.4p, to pay four
dividends totalling some 23.6p in the current year.
Currently the dividend payable by the Company each year is calculated as 6% of
the NAV at the start of each year. Given that the asset value of the Company
could fluctuate significantly each year, the Directors are considering
modifying this in future years so that the dividend payable might grow more
sustainably over the longer term.
Although asset prices have been boosted by the policies of central banks, there
are still opportunities for a fund such as ours to deliver attractive returns.
Clearly the Company is not immune from market fluctuations, but we believe the
preference share and loan stock market in particular still offers a good mix of
premium income along with the potential for capital gain.
The rise in UK equities and increase in investor confidence has meant that the
cost of market insurance has declined to levels similar to those of the
mid-2000s. After the year end, on 5 September 2014, the Company invested around
1.2% of the portfolio, at that date, to purchase some downside protection,
covering approximately one-third of the portfolio, extending through to March
2016.
Sir David Thomson
Chairman
1 October 2014
MANAGER'S REPORT
Markets
Over the twelve months to 30 June 2014, the UK equity market has appreciated
despite a continued slowdown in world growth. Over the year, the total return
on the FTSE All-Share Index was 13.1%. In contrast, bond prices tended to
remain generally flat, and the FTSE Actuaries Government Securities UK Gilts
All Stocks Index rose 2.3% on a total return basis.
Smaller company share prices have tended to outperform over the year. Although
many will equate this with the UK economy enjoying a period of accelerating
growth, there are other factors too. In particular, the growth potential of
smaller companies becomes more distinctive at times when world growth is slow.
Smaller companies have the potential to sustain growth even at times of
economic stagnation. Given slowing world growth, it is perhaps less surprising
to note that the FTSE Small Cap Index (excluding investment companies) Index
rose 22.5%, and the AIM All-Share Index rose 13.6%.
Portfolio
The portfolio reflects the historic range of holdings in preference shares,
loan stocks, debentures and notes, and the new holdings in the equity
securities of UK quoted companies.
There were two major changes to the portfolio in the year.
At the beginning of the year, around a third of the portfolio was invested in
Lloyds Banking Group ECNs, which had enjoyed strong performance as market
confidence recovered after the 2008 crisis. Although these notes do pay a high
level of income, their prices can be volatile at times of economic setbacks.
Lloyds Banking Group sought to buy in some of its ECNs in exchange for other
securities. The terms of the transaction were set to be attractive in the
current market environment so the price of the Lloyds Banking Group ECNs
increased during this period. We used the market liquidity and attractive
pricing to reduce this holding down to rather less than 7% of the overall
portfolio.
The £4.3m of new equity raised at the time of the reconstruction has been
invested principally in a number of higher yielding equities, with the
potential for growth. Many of these are smaller companies which we believe have
attractive risk/reward ratios. In addition, one new company has been funded via
an 8% loan note along with warrants over the equity. William Sinclair is a
horticultural peat and soil substitute supplier. In the retail sector it
operates under the J Arthur Bowers brand. It needed additional capital to fund
the relocation of two of its operations into a new site which will increase its
production and efficiency. We are hopeful that we will identify further such
opportunities in the coming year.
Performance in the portfolio has principally been driven by the movements in
the share prices of the equities. In particular, four newly issued companies
were brought into the portfolio. Safestyle is one of the three largest
manufacturers of double-glazed windows for the refurbishment market. DX Group
is a logistics business that transports challenging items from small pallets to
British Passports where they need to prove they have delivered it to the right
address. Shoe Zone has around 550 shops around the UK selling keenly priced,
but well-made shoes. Finally Plus500 is one of the leading providers for those
wishing to trade shares via the internet, using the contracts for difference
structure. All have traded well since issue, although Plus500 has seen much
greater upgrades and this propelled the share price up fivefold. For that
reason the stock has been subsequently sold.
There have been some stocks where their share prices have fallen back over the
year. Lancashire Holdings, an insurance underwriting business, and Bagir, a
supplier of jackets and suits to UK retailers, have both fallen back on tougher
trading statements. However, overall the equity portfolio has performed well in
the period.
The criteria used for selecting portfolio stocks
There are five criteria that the managers use to determine the scope for the
business to deliver good and growing dividends.
The prospect of turnover growth
If a business is to sustain and grow its
dividend, then the portfolio needs to invest in companies that will generate
more cash in the coming years. Without decent turnover growth this is
near-impossible to achieve over time.
Sustained or improving margins
A business needs to deliver significant value to
its customer base if it is to sustain decent margins. Unexpected cost increases
cannot be charged on to customers if they are anything less than delighted with
their suppliers. Turnover growth will not lead to improved cash generation if
declining margins offset it.
A forward-looking management team
Businesses often need to make commercial
decisions on incomplete information. A thoughtful and forward-looking team has
a better chance of making better decisions.
Robust balance sheet
There are disproportionate advantages to having the
independence of a strong balance sheet in a period of elevated economic and
political risks. Conversely, corporates with imprudent borrowings can risk the
total loss of shareholders' capital.
Low expectation valuation
Many of the most exciting stocks enjoy higher stock
market valuations but almost none can consistently beat the high expectations
baked into their share prices. Those with low expectations tend to be less
vulnerable to disappointment, but conversely can enjoy excellent share price
rises if they surprise on the upside.
Companies that best meet these criteria on a prospective basis are believed to
be best positioned to deliver attractive returns to shareholders, as well as
offering moderated risk.
These criteria, used in reverse, can also be useful in determining the timing
of portfolio stocks that should be considered for divestment. So, a business in
danger of suffering a period of turnover declines, for example, would naturally
be expected to generate less cash flow in future years and thereby struggle to
sustain its current dividend over time, let alone grow it.
Performance
Although equity markets were relatively strong in the period between June and
December, subsequently they have fluctuated without making much progress. The
appreciation of the portfolio was mainly generated in the first half of the
year under review, although the portfolio has been resilient through the more
testing markets thereafter. This is despite the fact that the smaller companies
indices peaked out during this period.
Over the year the NAV of the Company appreciated 15.1% and the Company also
declared four interim dividends that amounted to 6% of the NAV at the end of
June 2013.
Prospects
The scope for the Company to identify attractive investment opportunities in
convertible loan stocks or convertible preference shares appear to be
improving. With smaller companies shares peaking out over the last five months,
it has become rather more difficult to place new equity. That has been
especially evident amongst smaller company new issues, where there has been a
degree of indigestion. At times like this, there is perhaps greater interest in
an existing quoted company issuing a new preference share, or loan stock, with
an attractive yield. The dividend income tends to attract capital even at times
when the market is unsteady. However, we find this structure attractive because
the preference shares or loan stock come with the right to convert into
ordinary shares at maybe a 10% or 15% premium to the current share price. If
the Company does make a good investment, and the share price does appreciate
over the coming 3 to 5 years, then the Company participates in a useful
proportion of the capital gain on the share price rise.
Gervais Williams and Martin Turner
Miton Asset Management Limited
1 October 2014
TWENTY LARGEST INVESTMENTS
At 30 June 2014
Market or % of
Directors' total
Stock Number Issue Book cost valuation portfolio
% £ £
1. Lloyds Banking Group
7.625% Perpetual (LBG 478,000 0.16 204,360 508,210
Capital)
7.875% Perpetual (LBG 362,000 0.05 245,997 395,413
Capital)
7.5884% ECN 12/05/20 300,000 0.04 136,323 320,760
(LBG Capital)
7.281% Perpetual (Bank 400,000 0.27 315,330 461,240
of Scotland)
902,010 1,685,623 9.64
2. Phoenix Life
7.25% perp notes 1,060,000 0.53 811,923 1,110,350 6.35
3. Royal Bank of Scotland
Group
9% series 'A' non-cum
pref
(NatWest) 500,000 0.36 362,920 660,000
Sponsored ADR each rep
Pref C
(NatWest) 20,000 0.20 55,473 307,044
418,393 967,044 5.53
4. Safestyle UK
Ordinary 1p§ 369,000 0.47 369,000 677,576 3.87
5. Manx Telecom
Ordinary 0.2p§ 340,321 0.30 507,782 578,546 3.31
6. Randall & Quilter
Investment Holdings
Ordinary 2p§ 387,000 0.54 502,731 572,760 3.28
7. Juridica Investments
Ordinary NPV§ 410,000 0.39 544,190 565,800 3.24
8. Friends Life Group
Ordinary NPV§ 173,069 0.01 565,438 545,687 3.12
9. Conygar Investment Co
mpany
Ordinary 5p§ 320,478 0.37 406,493 538,403 3.08
10. Brit
Ordinary 1p§ 219,167 0.01 526,001 536,959 3.07
11. Esure Group
Ordinary 0.08333p§ 201,217 0.05 545,776 536,243 3.07
12. Charles Taylor
Ordinary 1p§ 230,000 0.54 419,215 529,000 3.03
13. DX (Group)
Ordinary 1p§ 420,000 0.21 484,204 525,000 3.00
14. Gable Holdings
Ordinary 2.5p§ 617,063 0.46 339,385 512,162 2.93
15. Fishguard & Rosslare
3.5% GTD Preference 790,999 63.91 441,810 490,419 2.80
Stock
16. Lancashire Holdings
Common stock§ 73,000 0.04 552,086 477,420 2.73
17. Royal Mail
Ordinary 1p§ 90,200 0.01 465,823 450,098 2.57
18. Newcastle Building
Society
6.25% sub notes 23/12/ 600,000 2.40 405,438 419,460 2.40
19
19. REA Holdings
9.5% GTD Notes 31/12/ 300,000 2.00 298,254 313,500
17
7.5% Dollar Notes 30/ 150,000 0.44 76,740 87,727
06/17
374,994 401,227 2.29
20. Fairpoint Group
Ordinary 1p§ 300,000 0.68 307,992 393,000 2.25
9,890,684 12,512,777 71.56
§ Issues with unrestricted voting rights
The Group has a total of 71 portfolio investment holdings in 57 companies.
CORPORATE SUMMARY
Investment Objective
The Company's investment objective is to provide shareholders with an
attractive level of dividends coupled with capital growth over the long-term,
through investment in a portfolio of equities, preference shares, loan stocks,
debentures and convertibles.
Investment Policy
The Company will invest primarily in the equity securities of quoted UK
companies with a wide range of market capitalisations many of which are, or are
expected to be, dividend paying, with anticipated dividend growth in the long
term. The Company may also invest in large capitalisation companies, including
FTSE 100 constituents, where this may increase the yield of the portfolio and
where it is believed that this may increase shareholder value.
The Company will also make investments in preference shares, loan stocks,
debentures, convertibles and related instruments of quoted UK companies. Any
use of derivatives for investment purposes will be made on the basis of the
same principles of risk spreading and diversification that apply to the
Company's direct investments, as described below. The Company will not enter
into uncovered short positions.
Risk diversification
Portfolio risk will be mitigated by investing in a diversified spread of
investments. Investments in any one company shall not, at the time of
acquisition, exceed 15% of the value of the Company's investment portfolio. In
the long term, it is expected that the Company's investments will be a
portfolio of between 40 and 60 securities, most of which will represent
individually no more than 3% of the value of the Company's total investment
portfolio, as at the time of acquisition.
The Company will not invest more than 10% of its gross assets, at the time of
acquisition, in other listed closed-ended investment funds, whether managed by
the Manager or not, except that this restriction shall not apply to investments
in listed closed-ended investment funds which themselves have stated investment
policies to invest no more than 15% of their gross assets in other listed
closed-ended investment funds.
Unquoted investments
The Company may invest in unquoted companies from time to time subject to prior
Board approval.
Investments in unquoted companies in aggregate will not exceed 5% of the value
of the Company's investment portfolio as at the time of investment.
Borrowing and gearing policy
The Company may use gearing, including bank borrowings and the use of
derivative instruments such as contracts for differences. The Company may
borrow (through bank facilities and derivative instruments) up to 15% of NAV
(calculated at the time of borrowing).
Investment Strategy
The Manager intends to use a bottom-up investment approach for the portfolio,
with a diversified portfolio of securities of various market capitalisation
sizes. There will be a bias towards dividend paying smaller companies, but the
portfolio will also include preference shares, loan stocks, debentures and
convertibles with attractive yields.
The investment approach can be described as active and universal, as the
Company will not seek to replicate any benchmark and will target a significant
proportion of smaller company equities within an overall diversified portfolio.
Potential investments are assessed against the key criteria including, inter
alia, their yield, growth prospects, market positions, calibre of management
and risk and cash resources.
Dividend Policy
The Company will seek to maintain an annualised dividend yield of 6% of NAV
(based on the opening NAV at the start of each financial year). It is intended
that dividends of roughly equal size will be paid quarterly. This income will
be paid out of revenue and/or capital, as available.
Currently the dividend payable by the Company each year is calculated as 6% of
the NAV at the start of each year. Given that the asset value of the Company
could fluctuate significantly each year, the Directors are considering
modifying this in future years so that the dividend payable might be grow more
sustainably over the longer term.
Capital Structure
As at 30 June 2014 and the date of this report, the Group's share capital
consists of 4,772,049 ordinary shares of 50p each, of which 32,500 shares are
held in Treasury and 4,739,549 shares are in circulation. In addition there are
1,717,565 fixed rate preference shares of 50p in issue, all of which are held
by a wholly owned subsidiary of the Company.
There are no restrictions concerning the transfer of securities in the Company
or on voting rights; no special rights with regard to control attached to
securities; no agreements between holders of securities regarding their
transfer known to the Company; and no agreements which the Company is party to
that might affect its control following a successful takeover bid.
Total Assets and Net Asset Value
The Group had total assets of £19.4 million and a NAV of 394.41p per ordinary
share at 30 June 2014.
Business Model
The principal activity of the Company is investment in equity securities of
quoted UK companies with a wide range of market capitalisations, preference
shares and prior charge securities with a view to achieving a high rate of
income and capital growth over the medium term. During the year, the Company
was granted approval from HM Revenue & Customs ("HMRC") as an investment trust
under s1158/1159 of the Corporation Tax Act 2010 ("s1158/1159") for the
accounting period commencing 1 July 2013, and for each subsequent accounting
period, subject to there being no serious breaches of the conditions for
approval.
The principal conditions that must be met for approval by HMRC as an investment
trust for any given accounting period are that the Company's business should
consist of "investing in shares, land or other assets with the aim of spreading
investment risk and giving members of the company the benefit of the results"
and the Company must distribute a minimum of 85% of all its income as dividend
payments. The Company must also not be a close company. The Directors are of
the opinion that the Company has conducted its affairs for the year ended 30
June 2014 so as to be able to continue to qualify as an investment trust.
The Company's status as an investment trust allows it to obtain an exemption
from paying taxes on the profits made from the sale of its investments and all
other net capital gains. Investment trusts offer a number of advantages for
investors, including access to investment opportunities that might not be open
to private investors and to professional stock selection skills at lower cost.
The Company owns Abport Limited, an investment dealing company, and New
Centurion Trust Limited, a dormant investment company.
Principal Risks and Uncertainties
The management of the business and the execution of the Group's strategy are
subject to a number of risks. The key business risks affecting the Group are:
(i) Investment decisions: the performance of the Group's portfolio is dependent
on a number of factors including, but not limited to the quality of initial
investment decisions and the strategy and timing of sales;
(ii) Investment valuations: the valuation of the Group's portfolio and
opportunities for realisations depend to some extent on stock market conditions
and interest rates; and
(iii) Macroeconomic environment for preference shares and prior charge
securities: the environment for issuing of new preference shares and prior
charge securities determines whether new issues become available, thus
affecting the choice and scope of investment opportunities for the Group.
Risk Management
Specific policies for managing risks are summarised below and have been applied
throughout the period:
1. Market price risk
The Manager monitors the prices of financial instruments held by the Group on a
regular basis. In addition, it is the Board's policy to hold an appropriate
spread of investments in the portfolio in order to reduce risks arising from
investment decisions and investment valuations. The Manager actively monitors
market prices throughout the year and report to the Board, which meets
regularly in order to review investment strategy. Most of the equity
investments held by the Company are listed on the London Stock Exchange.
2. Interest rate risk
In addition to the impact of the general investment climate, interest rate
movements may specifically affect the fair value of investments in fixed
interest securities.
3. Liquidity risk
The Group's assets mainly comprise readily realisable quoted securities that
can be sold to meet funding commitments if necessary. Short term flexibility is
achieved through the use of overdraft facilities.
Additional Risks and Uncertainties Include:
Credit risk: the failure of a counterparty to a transaction to discharge its
obligations under that transaction that could result in the Company suffering a
loss. Normal delivery versus payment practice and review of counterparties and
custodians by the Manager mean that this is not a significant risk.
Discount volatility: The Company's shares may trade at a price which represents
a discount to its underlying NAV.
Regulatory risk: The Company operates in an evolving regulatory environment and
faces a number of regulatory risks. A breach of s1158/1159 would result in the
Company being subject to capital gains tax on portfolio investments. Breaches
of other regulations, including the Companies Act 2006, the UKLA Listing Rules,
the UKLA Disclosure and Transparency Rules, or the Alternative Investment Fund
Managers Directive could lead to a detrimental outcome. Breaches of controls by
service providers to the Company could also lead to reputational damage or
loss. The Board monitors compliance with regulations, with reports from the
Manager and the Administrator.
Protection of assets: The Company's assets are protected by the use of an
independent custodian, BNY Mellon. In addition, the Company operates clear
internal controls to safeguard all assets.
These and other risks facing the Company are reviewed regularly by the Board.
Key Performance Indicators ("KPIs")
The Board reviews performance by reference to a number of KPIs and considers
that the most relevant KPIs are those that communicate the financial
performance and strength of the Company as a whole. The Board and Manager
monitor the following KPIs:
NAV performance relative to the FTSE All-Share Index (total return)
The NAV per ordinary share at 30 June 2014 was 394.4p per share (2013: 342.6p).
The total return of the NAV after adding back dividends paid was 19.5%. This
compares favourably with a total return on the FTSE All-Share Index of 13.1%.
Premium/(discount) of share price in relation to NAV
Over the year to 30 June 2014 the Company's share price moved from trading at a
discount of 4.4% to a premium of 2.9%.
Ongoing Charges Ratio
The Ongoing Charges Ratio for the year to 30 June 2014 amounted to 2.5%. The
management fee for the year was reduced by £65,747 in order to achieve the
maximum Ongoing Charges Ratio permitted under the Management Agreement as
explained below.
Management
The Company's investments are managed by Miton Asset Management Limited.
What Miton brings to the Company
Miton is distinctive
• Miton is an independent fund management company quoted on the AIM market with
an extensive shareholder base of major institutions and a particularly robust
balance sheet.
• Miton is distinctive from most other fund managers in that many of its funds
do not use traditional benchmarks since they can bring unintentional risks that
can impede the day-to-day managers' ability to maximise absolute return in
unsettled markets.
• Through anticipating post credit boom trends, Miton proposes investment
strategies that are set up with the forthcoming trends in mind, rather than
slavishly following the consensus.
• Many of Miton's funds have greater scope to manage volatility more closely
than others, with an aim to better sustain its clients' assets through market
cycles.
Miton asks more of its managers
Miton believes that able fund managers are better placed to deliver for clients
if they have wide ranging flexibility. Limiting the investment universe to a
short list of benchmark stocks can be demotivating since the risk/reward ratio
of the portfolio could be constrained above the optimal level unnecessarily.
The best managers can take advantage of this wider flexibility to better
moderate portfolio risk, as well as enhancing their clients' returns through
selecting the best from a wider range of potential investments.
In addition, Miton also places great emphasis on its fund managers doing their
own analysis since it believes this ensures that they have greater conviction
in subsequent investment decisions, and are less vulnerable to becoming panicky
sellers when a share price moves adversely.
Details of the Manager
Miton has a team of six fund managers researching the full universe of quoted
UK stocks. These included George Godber and Georgina Hamilton who principally
seek stocks which are intrinsically cheap with regard to their tangible assets
or where the scale of the underlying cashflow is underappreciated. Bill Mott
and Eric Moore principally concentrate on identifying mid and larger companies
which have the best opportunities to grow their dividends over time.
The day-to-day management of the portfolio is carried out by Gervais Williams
and Martin Turner, who research all quoted companies, but have a particular
focus on many of the smaller quoted stocks.
Gervais Williams
Gervais joined Miton in March 2011 as Managing Director of the Group. He has
been an equity portfolio manager since 1985, including 17 years as Head of UK
Smaller Companies and Irish Equities at Gartmore. He won the Grant Thornton
Investor of the Year Award in 2009 and 2010, and was recently awarded Fund
Manager of the Year 2014 by What Investment?
Martin Turner
Martin joined Miton in May 2011. Martin and Gervais have had a close working
relationship since 2004, and their complementary expertise and skills led to a
series of successful companies being backed. Martin qualified as a Chartered
Accountant with Arthur Andersen, and also has extensive experience at Rothschild,
Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities his
role covered their research, sales and trading activities.
Management Arrangements
During the year, the Company's investments were managed by Miton Asset
Management Limited under an agreement dated 31 May 2013. On 1 January 2014, the
agreement was novated from Miton Capital Partners Limited to Miton Asset
Management Limited.
Subsequent to the year end on 22 July 2014, the Company appointed PSigma Unit
Trust Managers Limited ("PUTM"), a Miton Group company, as the Company's
Alternative Investment Fund Manager ("AIFM") on the terms of, and subject to
the conditions of a new investment management agreement (the "Management
Agreement") between the Company and PUTM. PUTM has been approved as an AIFM by
the UK's Financial Conduct Authority.
The existing investment management agreement between the Company and Miton
Asset Management Limited, which is not authorised as an AIFM, has been
terminated. Miton Asset Management Limited has been appointed by PUTM as
investment manager to the Company pursuant to a delegation agreement, so there
will be no change to the day-to-day investment management arrangements.
Under the terms of the Management Agreement, the Manager has discretion to buy,
sell, retain, exchange or otherwise deal in investment assets for the account
of the Company.
The Manager is entitled to receive from the Company or any member of its group
in respect of its services provided under the Management Agreement, a
management fee payable monthly in arrears calculated at the rate of one-twelfth
of 1% per calendar month of the NAV for its services under the Management
Agreement, save that its management fee will be reduced by such amount (being
not more than the fees payable to the Manager in respect of any year (exclusive
of VAT)) so as to seek to ensure that the Ongoing Charges Ratio of the Company
does not exceed 2.5% per annum.
The Management Agreement is terminable by either the Manager or the Company
giving to the other not less than six months' written notice, such notice not
to expire earlier than the second anniversary of commencement. The Management
Agreement may be terminated earlier by the Company with immediate effect on the
occurrence of certain events, including the liquidation of the Manager or
appointment of a receiver or administrative receiver over the whole or any
substantial part of the assets or undertaking of the Manager or a material
breach by the Manager of the Management Agreement which is not remedied. The
Company may also terminate the Management Agreement should Gervais Williams
cease to be an employee of the Manager's group and, within three months of his
departure is not replaced by a person whom the Company considers to be of equal
or satisfactory standing. The Company may also terminate the Management
Agreement if a continuation vote is not passed.
Environmental, Human Rights, Employee, Social and Community Issues
The Board consists entirely of non-executive Directors. Day-to-day management
of the business is delegated to the Manager. As an investment trust, the
Company has no direct impact on the community or the environment, and as such
has no environmental, human rights, social or community policies. In carrying
out its investment activities and in relationships with suppliers, the Company
aims to conduct itself responsibly, ethically and fairly. In relation to gender
diversity considerations, whilst there are currently no female Directors of the
Company, members of the Board are appointed on merit, against an objective
criteria set by the Board acting as the Nomination Committee.
On behalf of the Board
Sir David Thomson
Chairman
1 October 2014
Going Concern
The Company's Articles of Association require a continuation vote to be
proposed at the 2016 Annual General Meeting for the Company to be wound up on a
voluntary basis.
The Directors believe that it is appropriate to adopt the going concern basis
in preparing the financial statements as the assets of the Group consist mainly
of securities which are readily realisable. The Directors are of the opinion
that the Group has adequate resources to continue in operational existence for
the foreseeable future. In arriving at this conclusion the Directors have
considered the liquidity of the portfolio and the Company's ability to meet
obligations as they fall due for a period of at least 12 months from the date
that these financial statements were approved.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing this report and the financial
statements in accordance with applicable United Kingdom law and regulations and
those International Financial Reporting Standards ("IFRS") adopted by the
European Union. Company law requires the Directors to prepare financial
statements for each financial period which present fairly the financial
position of the Company and of the Group and the financial performance and cash
flows of the Company and of the Group for that period.
In preparing those 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;
• present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and Company will continue in business;
and
• provide additional disclosures when compliance with the specific requirements
in IFRSs is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Company's financial position
and financial performance.
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 Group and enable
them to ensure that the Group financial statements comply with the Companies
Act 2006 and Article 4 of the International Accounting Standards ("IAS")
Regulation. They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that comply with that law and those
regulations, and for ensuring that the Annual Report includes information
required by the Listing Rules of the Financial Conduct Authority.
The financial statements are published on the Company's website,
www.mitongroup.com/tic, which is maintained on behalf of the Company by the
Manager. Under the Management Agreement, the Manager has agreed to maintain,
host, manage and operate the Company's website and to ensure that it is
accurate and up-to-date and operated in accordance with applicable law. The
work carried out by the Auditor does not involve consideration of the
maintenance and integrity of this website and accordingly, the Auditor accepts
no responsibility for any changes that have occurred to the financial
statements since they were initially presented on the website. Visitors to the
website need to be aware that legislation in the United Kingdom covering the
preparation and dissemination of the financial statements may differ from
legislation in their jurisdiction.
We confirm that to the best of our knowledge:
• the Group financial statements, prepared in accordance with IFRS as adopted
by the European Union, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;
• this Annual Report includes a fair review of the development and performance
of the business and the position of the Group together with a description of
the principal risks and uncertainties that it faces; and
• the Annual Report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and strategy.
On behalf of the Board
Sir David Thomson
Chairman
1 October 2014
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 30 June 2014 or 30 June 2013 but is
derived from those accounts. Statutory accounts for the year ended 30 June 2013
have been delivered to the Registrar of Companies and statutory accounts for
the year ended 30 June 2014 will be delivered to the Registrar of Companies in
due course. The Auditor has reported on those accounts; their reports were
(i) unqualified, (ii) did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditor's reports can be found in the Company's full
Annual Report and Accounts at www.mitongroup.com/tic.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2014
Year to 30 June 2014 15 months to 30 June 2013
Notes Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Realised gains on 12 - 2,456,691 2,456,691 - 220,111 220,111
investments
Unrealised gains 12 - 522,123 522,123 - - -
on investments
held at fair
value through
profit or loss
Movement in - 791,998 791,998 - 48,876 48,876
impairment
provision on
investments held
as available for
sale
Exchange losses - (221) (221) - - -
on capital items
Investment income 2 1,045,888 - 1,045,888 1,134,994 - 1,134,994
Investment 3 (116,251) - (116,251) - - -
management fee
Other 4 (348,198) - (348,198) (707,351) - (707,351)
administrative
expenses
Return before 581,439 3,770,591 4,352,030 427,643 268,987 696,630
finance costs and
taxation
Finance costs
Other finance 5 - - - (432,550) - (432,550)
costs
Loan note (30,759) - (30,759) (62,700) - (62,700)
interest
Other interest - - - (2,195) - (2,195)
payable
Return before 550,680 3,770,591 4,321,271 (69,802) 268,987 199,185
taxation
Taxation 6 (7,299) - (7,299) - - -
Return after 543,381 3,770,591 4,313,972 (69,802) 268,987 199,185
taxation
Other comprehensive
income
Movement in
unrealised
appreciation on
investments held
as available for
sale
Recognised in - 798,908 798,908 - 1,357,358 1,357,358
equity
Recognised in - (1,935,599) (1,935,599) - (159,534) (159,534)
return after
taxation
Other - 1,136,691 1,136,691 - 1,197,824 1,197,824
comprehensive
income after
taxation
Total 543,381 2,633,900 3,177,281 (69,802) 1,466,811 1,397,009
comprehensive
income after
taxation
Return after
taxation per 50p
ordinary share
Basic and diluted 7 11.46p 79.56p 91.02p (6.35)p 14.26p 7.91p
Return on total
comprehensive
income after
taxation per 50p
ordinary share
Basic and diluted 7 11.46p 55.57p 67.03p (6.35)p 77.76p 71.41p
The total column of this statement is the Consolidated Statement of
Comprehensive Income of the Group prepared in accordance with IFRS. The
supplementary revenue and capital columns are prepared in accordance with the
Statement of Recommended Practice issued by the Association of Investment
Companies ("AIC SORP").
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period.
The notes below form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2014
Capital
Issued Share Own redemption Revaluation Capital Revenue
capital premium shares held reserve reserve reserve* account* Total
£ £ £ £ £ £ £ £
Balance at 1 July 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,484
2013
Total comprehensive
income
Net return for the - - - - - 3,770,591 543,381 4,313,972
period
Movement in
unrealised
appreciation on
investments held as
available for sale:
- Recognised in - - - - 798,908 - - 798,908
equity
- Recognised in - - - - (1,935,599) - - (1,935,599)
return after taxation
Transactions with
shareholders recorded
directly to equity
Ordinary dividends - - - - - - (710,932) (710,932)
paid
Costs of issue - (10,540) - - - - - (10,540)
Balance at 30 June 2,386,025 4,453,903 - 2,408,820 2,374,878 6,784,563 285,104 18,693,293
2014
Balance at 1 April 1,808,728 1,019,246 (2,919,861) 685,250 2,313,745 4,806,064 684,449 8,397,621
2012
Total comprehensive
income
Net return for the - - - - - 268,987 (69,802) 199,185
period
Movement in
unrealised
appreciation on
investments held as
available for sale:
- Recognised in - - - - 1,357,358 - - 1,357,358
equity
- Recognised in - - - - (159,534) - - (159,534)
return after taxation
Transactions with
shareholders recorded
directly to equity
Ordinary dividends - - - - - - (112,044) (112,044)
paid
Participating element - - - - - - (49,948) (49,948)
of preference
dividends paid
Conversion of (858,782) - 2,919,861 - - (2,061,079) - -
non-voting ordinary
shares into fixed
rate preference
shares
Conversion of 773,833 - - 1,723,570 - - - 2,497,403
preference shares
into ordinary shares
Issue of new ordinary 662,246 3,682,753 - - - - - 4,344,999
shares
Costs of issue - (237,556) - - - - - (237,556)
Balance at 30 June 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,484
2013
* Reserves that are distributable by way of a dividend.
The notes below form part of these financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2014
Capital
Issued Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve* Account* Total
£ £ £ £ £ £ £
Balance at 1 July 2013 2,386,025 4,464,443 2,408,820 3,536,373 443,750 2,962,669 16,202,080
Total comprehensive
income
Net return for the - - - - 3,788,678 554,107 4,342,785
period
Movement in unrealised
appreciation on
investments held as
available for sale:
- Recognised in equity - - - 780,821 - - 780,821
- Recognised in return - - - (1,935,599) - - (1,935,599)
after taxation
Transactions with
shareholders recorded
directly to equity
Ordinary dividends - - - - - (710,932) (710,932)
paid
Preference share - - - - - (172) (172)
dividends paid
Costs of issue - (10,540) - - - - (10,540)
Balance at 30 June 2,386,025 4,453,903 2,408,820 2,381,595 4,232,428 2,805,672 18,668,443
2014
Balance at 1 April 1,808,728 1,019,246 685,250 2,343,247 4,717,960 791,006 11,365,437
2012
Total comprehensive
income
Net return for the - - - - 273,686 2,333,655 2,607,341
period
Provision for - - - - (4,547,896) - (4,547,896)
diminution in value of
investment in
subsidiary
Movement in unrealised
appreciation on
investments held as
available for sale:
- Recognised in equity - - - 1,352,660 - - 1,357,358
- Recognised in return - - - (159,534) - - (159,534)
after taxation
Transactions with
shareholders recorded
directly to equity
Ordinary dividends - - - - - (112,044) (112,044)
paid
Participating element - - - - - (49,948) (49,948)
of preference
dividends paid
Conversion of (858,782) - - - - - (858,782)
non-voting ordinary
shares into fixed rate
preference shares
Conversion of 773,833 - 1,723,570 - - - 2,497,403
preference shares into
ordinary shares
Issue of new ordinary 662,246 3,682,753 - - - - 4,344,999
shares
Costs of issue - (237,556) - - - - (237,556)
Balance at 30 June 2,386,025 4,464,443 2,408,820 3,536,373 443,750 2,962,669 16,202,080
2013
*Reserves that are distributable by way of a dividend.
The notes below form part of these financial statements
CONSOLIDATED AND COMPANY BALANCE SHEETS
As at 30 June 2014
Group Group Company Company
2014 2013 2014 2013
Note £ £ £ £
Non-current assets
Investments 12 17,486,703 12,798,594 17,486,703 12,798,594
Investment in 13 - - 862,656 862,656
subsidiaries
17,486,703 12,798,594 18,349,359 13,661,250
Current assets
Trade and other 15 161,071 1,393,916 171,703 1,476,220
receivables
Investments held for 1,564 122,860 - -
trading
Cash and bank 1,754,315 3,138,062 1,711,321 3,135,055
balances
1,916,950 4,654,838 1,883,024 4,611,275
Current liabilities
Preference dividends 5 - 82,914 - 82,914
payable
Trade and other 16 344,660 401,634 339,457 397,348
payables
5% loan notes 10 365,700 365,700 365,700 365,700
maturing 2015
710,360 850,248 705,157 845,962
Net current assets 1,206,590 3,804,590 1,177,867 3,765,313
Non-current
liabilities
5% loan notes 10 - (365,700) - (365,700)
maturing 2015
Fixed rate 10 - - (858,783) (858,783)
preference shares
Net assets 18,693,293 16,237,484 18,668,443 16,202,080
Capital and reserves
Issued capital 9 2,386,025 2,386,025 2,386,025 2,386,025
Share premium 4,453,903 4,464,443 4,453,903 4,464,443
Capital redemption 2,408,820 2,408,820 2,408,820 2,408,820
reserve
Revaluation reserve 2,374,878 3,511,569 2,381,595 3,536,373
Capital reserve 6,784,563 3,013,972 4,232,428 443,750
Revenue reserve 285,104 452,655 2,805,672 2,962,669
Shareholders' funds 11 18,693,293 16,237,484 18,668,443 16,202,080
Net asset value per 50p 394.41p 342.60p
ordinary share
These financial statements were approved by the Board of The Investment Company
PLC on 1 October 2014 and were signed on its behalf by:
Sir David Thomson
Chairman
Company Number: 4205
The notes below form part of these financial statements.
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
For the year ended 30 June 2014
Group Company
Year to 15 months to Year to 15 months to
30 June 2014 30 June 2013 30 June 2014 30 June 2013
£ £ £ £
Cash flows from operating
activities
Cash received from 1,204,193 406,454 1,087,064 402,933
investments
Interest received 1,684 722,332 1,678 722,332
Sundry income - 468 - 468
Cash paid to and on behalf (34,337) (250,687) (34,337) (250,687)
of employees
Other cash payments (483,705) (377,647) (478,229) (373,640)
Withholding tax paid (7,299) - (7,299) -
Net cash inflow from 680,536 500,920 568,877 501,406
operating activities
Cash flows from financing
activities
Bank interest paid - (2,195) - (2,195)
Loan note interest paid (35,317) (53,583) (35,317) (53,583)
Loan notes redeemed (365,700) (365,700) (365,700) (365,700)
Fixed element of dividends (82,914) (524,455) (82,914) (524,455)
paid on preference shares
Participating element of - (49,948) - (49,948)
dividends paid on
preference shares
Dividends paid on ordinary (710,932) (104,195) (710,932) (104,195)
shares
Share capital 1,184,789 2,998,176 1,184,789 2,998,176
subscriptions received
Net cash (outflow)/inflow (10,074) 1,898,100 (10,074) 1,898,100
from financing
Cash flows from investing
activities
Purchase of investments (9,076,089) (274,005) (9,076,089) (211,189)
Amounts received from - - 71,672 (9,315)
subsidiaries
Sale of investments 7,022,181 1,228,530 7,022,181 1,174,574
Net cash (outflow)/inflow (2,053,908) 954,525 (1,982,236) 954,070
from investing activities
Net (decrease)/increase in (1,383,466) 3,353,545 (1,423,466) 3,353,576
cash and cash equivalents
Reconciliation of net cash
flow to movement in net
cash
(Decrease)/increase in (1,383,466) 3,353,545 (1,423,433) 3,353,576
cash
Exchange rate movements (301) - (301) -
Loan notes redeemed 365,700 365,700 365,700 365,700
(Decrease)/increase in net (1,018,047) 3,719,245 (1,058,034) 3,719,276
cash
Net cash/(debt) at start 2,406,662 (1,312,583) 2,403,655 (1,315,621)
of period
Net cash at end of period 1,388,615 2,406,662 1,345,621 2,403,655
Analysis of net cash
Cash and bank balances 1,754,315 3,138,062 1,711,321 3,135,055
5% loan notes due within (365,700) (365,700) (365,700) (365,700)
one year
5% loan notes due in more - (365,700) - (365,700)
than one year
1,388,615 2,406,662 1,345,621 2,403,655
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
At 30 June 2014
1. Accounting policies
(a) Basis of preparation
The Investment Company plc is a public limited company incorporated and
registered in England and Wales.
The consolidated financial statements for the year ended 30 June 2014 have been
prepared in conformity with IFRS as adopted by the European Union, which
comprise standards and interpretations approved by the International Accounting
Standards Board ("IASB"), and as applied in accordance with the provisions of
the Companies Act 2006.
During the period, the Company applied for, and was granted, approval from HM
Revenue & Customs as an investment trust under s1158/1159 of the Corporation
Tax Act 2010 for the year ending 30 June 2014. As a result the consolidated
financial statements have also been prepared in accordance with the AIC SORP
issued in January 2009 for the financial statements of investment trust
companies and venture capital trusts, except to any extent where it is not
consistent with the requirements of IFRS.
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Group has the resources to continue in
business for the foreseeable future. The Directors are not aware of any
material uncertainties that may cast significant doubt upon the Group's ability
to continue as a going concern. Therefore, the consolidated financial
statements have been prepared on the going concern basis.
(b) Basis of consolidation
The consolidated financial statements, which comprise the unaudited results of
the Company and its wholly owned subsidiaries, Abport Limited and New Centurion
Trust Limited, together referred to as the "Group", for the year ended 30 June
2014, have been prepared under the historical cost basis, except for the
measurement at fair value of investments, and in accordance with International
Financial Reporting Standards, as adopted by the European Union.
As permitted by Section 408 of the Companies Act 2006, the Company has not
presented its own Income Statement. The amount of the Company's return for the
financial year dealt with in the financial statements of the Group is a profit
after tax of £4,342,785 (2013: profit after tax of £2,607,341).
(c) Segmental Reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being investment business. The Group primarily invests in
companies listed in the UK.
(d) Significant estimates and assumptions
The Group makes estimates and assumptions regarding the future. Estimates and
judgements are continually evaluated based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstance. In the future, actual experience may deviate
from these estimates and assumptions. The estimates and assumptions that have a
significant risk of causing material adjustment to carrying amounts of assets
and liabilities within the next financial year lie primarily in investments,
their fair value and any impairment review.
(e) Revenue and expenditure
Revenue includes dividends and interest from investments which, on or before
the balance sheet date, become receivable. Deposit interest receivable,
expenses and interest payable are accounted for on an accruals basis. Where,
before recognition of dividend income is due, there is any reasonable doubt
that a return will actually be received, for example as a consequence of the
investee company lacking distributable reserves, the recognition of the return
is deferred until the doubt is removed.
(f) Taxation
Deferred tax is provided on an undiscounted basis in accordance with IFRS 19 on
all timing differences that have originated but not reversed by the Balance
Sheet date, based on tax rates that are expected to apply in the period when
the liability is settled or the asset is realised. Deferred tax assets are only
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of timing differences can be deducted.
In line with the recommendations of the SORP, the allocation method used to
calculate the tax relief on expenses charged to capital is the "marginal"
basis. Under this basis, if taxable income is capable of being offset entirely
by expenses charged through the revenue account, then no tax relief is
transferred to the capital account.
No taxation liability arises on gains from sales of fixed asset investments by
the Company by virtue of its investment trust status. However, the net revenue
(excluding UK dividend income) accruing to the Company is liable to corporation
tax at the prevailing rates.
(g) Dividends
Ordinary dividends are recognised as a liability in the period in which they
are paid or approved in general meetings and are taken to the Statement of
Changes in Equity. Ordinary dividends declared and approved by the Company
after the Balance Sheet date have not been recognised as a liability of the
Company at the Balance Sheet date.
(h) Earnings per ordinary share
The Group calculates both basic and diluted earnings per ordinary share in
accordance with IAS 33 "Earnings Per Share". Under IAS 33, basic earnings per
share is computed using the weighted average number of shares outstanding
during the period. Earnings are adjusted for the participating element of
preference share dividends.
(i) Investments
Investments are recognised and derecognised on the trade date where a purchase
or sale is under a contract whose terms require delivery within the timeframe
established by the market concerned.
All investments held that have been purchased by the Company since obtaining
approval as an investment trust from 1 July 2013 are classified as at "fair
value through profit or loss". Investments are initially recognised at cost,
being the fair value of the consideration given. After initial recognition,
investments are measured at fair value, with unrealised gains and losses on
investments and impairment of investments recognised in the Consolidated Income
Statement and allocated to capital.
Investments held at 30 June 2014 which were purchased prior to 1 July 2013 are
classified as assets available for sale. These investments have not been
reclassified as "fair value through profit or loss" in accordance with IAS 39
Financial Instruments Recognition and Measurement.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to quoted market bid prices or closing prices
for SETS (London Stock Exchange's electronic trading service) stocks sourced
from the London Stock Exchange on the Balance Sheet date, without adjustment
for transaction costs necessary to realise the asset.
Unlisted stocks are reviewed and valued by the Board on a regular basis and the
fair value is determined based on estimates using present values or other
valuation techniques.
All investments for which fair value is measured or disclosed in the financial
statements are categorised within the fair value hierarchy in note 12,
described as follows, based on the lowest significant applicable input:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by
comparison with other observable current market transactions in the same
instrument or based on a valuation technique whose variables include only data
from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole
or in part using a valuation technique based on assumptions that are not
supported by prices from observable market transactions in the same instrument
and not based on available observable market data. For investments that are
recognised in the financial statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by
re-assessing the categorisation (based on the lowest significant applicable
input) at the date of the event that caused the transfer.
(j) Investments in subsidiaries
Investments in subsidiaries are stated at cost less provision for diminution in
value.
(k) Impairment review
At each balance sheet date, a review is carried out to assess whether there is
any objective evidence that the Group's available for sale financial assets
have become impaired. Where such evidence exists, the amount of any impairment
loss is recognised immediately in the Consolidated Income Statement. Any excess
of the impairment loss over the amount previously recognised in equity is
recognised in the Consolidated Statement of Comprehensive Income.
If, in a subsequent period, the fair value of available for sale financial
assets increases and the increase can be objectively related to an event
occurring after the impairment loss was recognised in profit or loss, the
impairment loss is reversed and the amount of the reversal is recognised in
profit or loss where it relates to a debt instrument.
(l) Fixed rate preference shares
The fixed rate preference shares are non-voting, are entitled to receive a
cumulative dividend of 0.01p per share per annum, and are entitled to receive
their nominal value, 50p, on a distribution of assets or a winding up.
Preference shares are disclosed as non-current liabilities in accordance with
IAS 32 (Financial Instruments: Disclosure and Presentation).
(m) IFRS standards
The following standards, amendments to existing standards and interpretations
relevant to the Group's activities have been published and are mandatory for
the Group's accounting periods beginning on or after 1 January 2014 or later
periods but the Group has not adopted them early:
International Accounting Standards (IAS/IFRSs) Effective for
periods beginning on
or after
IAS 27 Reissued as IAS 27 Consolidated and Separate 1 January 2014
Financial Statements (as amended in 2011)
IAS 28 Investments in Associates and Joint Ventures 1 January 2014
IFRS 9 Financial Instruments: Classification and 1 January 2014
Measurement
IFRS 10 Consolidated Financial Statements 1 January 2014
IFRS 11 Joint Arrangements 1 January 2014
IFRS 12 Disclosure of Interests in Other Entities 1 January 2014
The Directors anticipate that the adoption of these standards, amendments to
existing standards and interpretations in future periods will have no material
financial impact on the financial statements of the Group or the Company.
(n) Reserves
Capital reserve
The following are accounted for in this reserve:
• gains and losses on the realisation of investments;
• net movement arising from changes in the fair value of investments held and
classified as at "fair value through profit or loss" that can be readily
converted to cash without accepting adverse terms;
• net movement in the impairment provision of investments held as available for
sale; and
• net movement from changes in the fair value of derivative financial
instruments.
Revaluation reserve
The revaluation reserve represents the accumulated unrealised gains on the
Company's available-for-sale investments.
2 Income
Year ended 15 months ended
30 June 2014 30 June 2013
£ £
Income from investments:
UK dividends 356,083 378,479
Un-franked dividend income 199,504 -
UK fixed interest 494,554 745,656
1,050,141 1,124,135
Other income:
Bank deposit interest 1,684 -
Sundry income - 468
Net dealing (losses)/gains of subsidiaries (5,937) 10,391
Total income 1,045,888 1,134,994
3 Investment Management fee
Year ended 15 months ended
30 June 2014 30 June 2013
£ £
Investment Management fee 116,251 -
Under the terms of the Management Agreement, the Manager is entitled to receive
from the Company or any member of the Group in respect of its services provided
under this Agreement, a management fee payable monthly in arrears equal to
one-twelfth of 1% per calendar month of the NAV of the Company. For these
purposes, the NAV shall be calculated as at the last Business Day of each month
and is subject to the ongoing charges ratio of the Company not exceeding 2.5%
per annum in respect of any completed financial year.
At 30 June 2014 an amount of £116,251 (2013: £nil) was outstanding and due to
Miton Asset Management Limited.
4 Other expenses
Year ended 15 months ended
30 June 2014 30 June 2013
£ £
Administration and secretarial services 104,616 138,750
Auditors' remuneration for:
- audit of the Group's financial 26,000 23,650
statements
- other services relating to taxation 4,850 5,000
- other assurance services - 32,675
Directors' remuneration (see the 62,791 134,796
Directors' Remuneration Report in the full
Annual Report and Accounts)
Salaries 14,000 40,000
Pension costs 10,829 25,189
Restructuring costs 12,932 191,466
Other expenses 119,240 115,825
348,198 707,351
5 Finance costs
Year ended 15 months ended
30 June 2014 30 June 2013
£ £
Participating Preference Shares
Fixed entitlement
- in first half year 0.0p (2013: 3.5p) - 174,818
- in second half year 0.0p (2013: 3.5p) - 174,818
- up to conversion 0.0p (2013: 1.6p) - 82,914
- 432,550
The participating preference shares were converted into ordinary shares in the
period to 30 June 2013.
6 Taxation
Year ended 15 months ended
30 June 2014 30 June 2013
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Overseas taxation 7,299 - 7,299 - - -
suffered
The current taxation charge for the year is lower than the standard rate of
corporation tax in the UK of 21%. The differences are explained below:
Year ended 15 months ended
30 June 2014 30 June 2013
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Return on ordinary 550,680 3,770,591 4,321,271 (69,802) 268,987 199,185
activities
Theoretical tax at UK 123,903 848,383 972,286 (16,753) 64,557 47,804
corporation tax rate of
22.50% (2013: 24%)
Effects of:
UK dividends that are (80,119) - (80,119) (90,835) - (90,835)
not taxable
Overseas dividends that (33,585) - (33,585) - - -
are not taxable
Realised dealing gains (19,764) - (19,764) - - -
Unrealised dealing 18,462 - 18,462 - - -
losses
Non-taxable investment - (670,183) (670,183) - (52,827) (52,827)
gains
Movement in impairment - (178,200) (178,200) - (11,730) (11,730)
provision not
deductible for tax
purposes
Overseas taxation 7,299 - 7,299 - - -
suffered
Preference dividends - - - 103,812 - 103,812
not deductible for tax
Expenses not deductible - - 2,742 - 2,742
for tax
Utilisation of tax (8,897) - (8,897) 1,034 - 1,034
losses
7,299 - 7,299 - - -
Factors that may affect future tax charges
The Company has excess management expenses of £2,134,613 (2013: £2,199,842)
that are available to offset future taxable revenue.
In addition, deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company meets (and
intends to continue for the foreseeable future to meet) the conditions for
approval as an investment trust company under HMRC rules. It is unlikely that
the Company will generate sufficient taxable income in the future to utilise
these expenses to reduce future tax charges and therefore no deferred tax
charge has been recognised.
7 Return/(loss) per ordinary
share
Year ended 15 months ended
30 June 2014 30 June 2013
Revenue Capital Total Revenue Capital Total
Return after taxation
Return attributable 543,381 3,770,591 4,313,972 (69,802) 268,987 199,185
to ordinary
shareholders (£)
Add participating - - - (49,948) - (49,948)
element of Preference
share dividend
Return attributable 543,381 3,770,591 4,313,972 (119,750) 268,987 149,237
to ordinary
shareholders (£)
Weighted average 4,739,549 1,886,328
number of ordinary
shares in issue
(excluding shares
held in treasury)
Return/(loss) per 11.46 79.56 91.02 (6.35) 14.26 7.91
ordinary share
(pence)
The return on total comprehensive income per ordinary share has been calculated
to enable comparison of the returns per share shown in the annual reports of
other investment trust companies. A reconciliation is shown below:
Year ended 15 months ended
30 June 2014 30 June 2013
Revenue Capital Total Revenue Capital Total
Return on total
comprehensive income
Return attributable 543,381 3,770,591 4,313,972 (119,750) 268,987 149,237
to ordinary
shareholders (£)
Add other - 798,908 798,908 - 1,357,358 1,357,358
comprehensive income
recognised in equity
Add other - (1,935,599) (1,935,599) - (159,534) (159,534)
comprehensive income
recognised in profit
and loss
Return attributable 543,381 2,633,900 3,177,281 (119,750) 1,466,811 1,347,061
to ordinary
shareholders (£)
Weighted average 4,739,549 1,886,328
number of ordinary
shares in issue
(excluding shares
held in treasury)
Return/(loss) per 11.46 55.57 67.03 (6.35) 77.76 71.41
ordinary share
(pence)
8 Dividends per ordinary share
Year ended 15 months ended
30 June 2014 30 June 2013
£ £
In respect of the prior period:
Final dividend 0.00p (2013: 4.00p) - 74,696
In respect of the year under review:
First interim dividend 5.00p paid on 236,978 37,348
22 November 2013 (2013: 2.00p)
Second interim dividend 5.00p paid on 236,977 -
21 February 2014
Third interim dividend 5.00p paid on 23 May 236,977 -
2014
710,932 112,044
Dividend declared in respect of the year
under review:
Fourth interim dividend 5.72p paid on 271,102 -
22 August 2014
9 Called up share capital
Group and Company Group and Company
2014 2013
Number £ Number £
Ordinary shares 50p
each:
Opening balance 4,772,049 2,386,025 1,899,891 949,946
Issued pursuant to - - 1,547,665 773,833
conversion of
Participating
Preference Shares
Issued pursuant to a - - 1,324,493 662,246
placing
4,772,049 2,386,025 4,772,049 2,386,025
In addition to the above ordinary shares, the issued capital of the Company
includes 1,717,565 fixed rate preference shares of 50p each. Details of these
preference shares in the Company are set out in note 10.
The ordinary shares entitle the holders to receive all ordinary dividends and
all remaining assets on a winding up, after the fixed rate preference shares
have been satisfied in full.
The Company holds 32,500 ordinary shares in treasury.
10 Interest bearing liabilities
Group Company
2014 2013 2014 2013
£ £ £ £
5% loan notes maturing 2015 365,700 731,400 365,700 731,400
Fixed rate preference shares - - 858,783 858,783
365,700 731,400 1,224,483 1,590,183
A bank loan facility is available to the company of up to £500,000, to be
secured by an omnibus charge over a portfolio of shares with a valuation of
£2,219,760. At 30 June 2014 no loan was outstanding.
The loan notes were issued at par on 7 March 2005 as part of the consideration
for the acquisition of New Centurion Trust Limited. The loan notes are
unsecured and unsubordinated and are being redeemed by the Company at par as to
50% of their aggregate original principal amount on the fifth anniversary of
the completion date, which was 7 March 2010, and as to a further 10% on each
anniversary thereafter up to and including the tenth anniversary.
Loan notes maturity analysis Group Company
2014 2013 2014 2013
£ £ £ £
In not more than one year 365,700 365,700 365,700 365,700
In more than one year but not more - 365,700 - 365,700
than two years
365,700 731,400 365,700 731,400
The 1,717,565 fixed rate preference shares of 50p each, all of which are held
by New Centurion Trust Limited, a wholly owned subsidiary of the Company, are
non-voting, are entitled to receive a cumulative dividend of 0.01p per share
per annum, and are entitled to receive their nominal value, 50p, on a
distribution of assets or a winding up.
The Directors do not consider the fair values of the Group's financial
instruments to be significantly different from the carrying values.
11 Net Asset Value per Ordinary Share
The net asset value per ordinary share is calculated
as follows:
2014 2013
£ £
Net assets 18,693,293 16,237,484
Ordinary shares in issue, excluding own shares held 4,739,549 4,739,549
in treasury
Net asset value per ordinary share 394.41p 342.60p
The underlying investments of New Centurion Trust Limited comprise Fixed Rate
Preference Shares in The Investment Company plc and, being effectively
eliminated on consolidation, the valuation thereof does not impact the net
asset value attributable to ordinary shareholders.
12 Investments
Group Company
2014 2013 2014 2013
£ £ £ £
Available for sale 8,865,845 12,798,594 8,865,845 12,798,594
At fair value through profit and 8,620,858 - 8,620,858 -
loss
Total investments designated at 17,486,703 12,798,594 17,486,703 12,798,594
fair value
Investments held as
available for sale
Group Company
2014 2013 2014 2013
£ £ £ £
Opening book cost 12,408,510 13,073,264 12,505,185 13,169,938
Opening net investment 390,084 (856,618) 293,409 (953,292)
holding gains/(losses)
Total investments 12,798,594 12,216,646 12,798,594 12,216,646
designated at fair value
Movements in the period:
Purchases at cost - 290,439 - 290,439
Sales - proceeds (4,593,355) (1,175,304) (4,593,355) (1,175,304)
- gains on sales 1,005,299 220,111 1,005,299 220,111
(Decrease)/increase in (344,693) 1,246,702 (344,693) 1,246,702
investment holding gains
Closing valuation 8,865,845 12,798,594 8,865,845 12,798,594
Closing book cost 8,820,454 12,408,510 8,917,129 12,505,185
Closing net investment 45,391 390,084 (51,284) 293,409
holding gains/(losses)
8,865,845 12,798,594 8,865,845 12,798,594
Investments
held at fair
value through
profit and loss
Group Company
2014 2013 2014 2013
£ £ £ £
Opening book - - - -
cost
Opening net - - - -
investment
holding gains
Total - - - -
investments
designated at
fair value
Movements in
the period:
Purchases at 9,076,089 - 9,076,089 -
cost
Sales
- proceeds (2,428,746) - (2,428,746) -
- gains on 1,451,392 - 1,451,392 -
sales
Increase in net 522,123 - 522,123 -
investment
holding gains
Closing 8,620,858 - 8,620,858 -
valuation
Closing book 8,098,735 - 8,098,735 -
cost
Closing net 522,123 - 522,123 -
investment
holding gains
8,620,858 - 8,620,858 -
Group & Company
Year ended
30 June 2014
£
Transaction costs
Costs on acquisitions 28,280
Costs on disposals 12,909
41,189
Group & Company Group & Company
Year ended 15 months ended
30 June 2014 30 June 2013
£ £
Analysis of capital gains
Gains on sale of investments 2,456,691 220,111
Movement in investment holding 177,430 1,246,702
gains
2,634,121 1,466,813
Fair value estimation: IFRS 7 requires disclosure of fair value measurements by
level of the following fair value measurement hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2 - Inputs other than quoted prices included within level 1 that are
observable for the asset either directly (that is, as prices) or indirectly
(that is, derived from prices).
Level 3 - Inputs for assets that are not based on observable market data (that
is, unobservable inputs).
The table below presents the Group's assets that are measured at fair value:
At 30 June 2014 Level 1 Level 2 Level 3 Total
£ £ £ £
Fixed asset investments held by 13,888,686 372,816 3,225,201 17,486,703
the Company
Current asset investments held 1,564 - - 1,564
by a trading subsidiary
13,890,250 372,816 3,225,201 17,488,267
At 30 June 2013 Level 1 Level 2 Level 3 Total
£ £ £ £
Fixed asset investments held by - 6,008,774 6,789,820 12,798,594
the Company
Current asset investments held 122,860 - - 122,860
by a trading subsidiary
122,860 6,008,774 6,789,820 12,921,454
At 30 June 2013, instruments included in Level 2 are reported at the mid bid/
offer price less 1%.
Specific valuation techniques used to value the financial instruments include:
(i) Quoted market prices
(ii) Other techniques, taking account of independent market opinion, are used
to determine the fair value for the remaining financial instruments
These assets comprise primarily London Stock Exchange equity investments and
fixed income securities classified as fixed asset and current asset investments
as appropriate.
Where significant inputs are not based on observable market data, the
instrument is included in Level 3. There were no transfers between levels
during the period ended 30 June 2013. The table below presents the movement in
Level 3 investments for the year ending 30 June 2014.
Group Company
£ £
Opening balance 6,789,920 6,789,920
Transfers to Level 1 (2,592,810) (2,592,810)
Movement in impairment provision 189,880 194,722
Movement in unrealised appreciation recognised (85,730) (90,572)
in equity
Movement in unrealised appreciation recognised (39,312) (39,312)
in return after taxation
Realised loss (209,253) (209,253)
Sales proceeds (827,394) (827,394)
Total gains for the year included in the 274,091 274,091
Statement of Comprehensive Income
Closing balance 3,225,201 3,225,201
13 Investment in Subsidiaries
Company
2014 2013
£ £
At cost 5,410,552 5,410,552
Provision for diminution in value (4,547,896) (4,547,896)
At cost 862,656 862,656
At 30 June 2014, the Company held interests in the following subsidiary
companies:
% share % share
Country of of capital of voting Nature of
Incorporation held rights business
Abport Limited England 100% 100% Investment
dealing company
New Centurion Trust England 100% 100% Investment
Limited holding company
(dormant)
14 Substantial share interests
The Company has notified interests in 3% or more of the voting rights of the
following companies:
Company % share of
voting rights
Associated British Engineering plc 4.88
15 Trade and Other Receivables
Group Company
2014 2013 2014 2013
£ £ £ £
Amount due from subsidiaries - - 10,634 82,306
Share capital subscriptions - 1,195,345 - 1,195,345
Trade and other receivables 161,071 198,571 161,069 198,569
161,071 1,393,916 171,703 1,476,220
The carrying amount of trade receivables approximates to their fair value.
Trade and other --**receivables are not past due at 30 June 2014.
16 Trade and Other Payables
Group Company
2014 2013 2014 2013
£ £ £ £
Reconstruction costs accrued - 186,656 - 186,656
Other trade payables 344,660 214,978 339,457 210,692
344,660 401,634 339,457 397,348
17 Analysis of financial assets and liabilities
Background
The investment objective of the group is to generate income and capital growth
over the medium term. The group's financial instruments comprise investments in
fixed interest securities and prior charge investments, borrowings for
investment purposes, cash balances and debtors and creditors that arise
directly from its operations.
Risks
The principal risks the group faces in its portfolio management activities are:
• Market price risk - arising from uncertainty about future prices of financial
instruments used by the group;
• Interest rate risk - arising because the group may borrow funds in order to
increase the amount of capital available for investment; and
• Liquidity risk - because the group may invest in small companies with more
limited marketability and in investments not traded on recognised or designated
investment exchanges.
Policy
The investment philosophy of the Directors is to identify areas of value and
potential capital growth in the medium term.
Specific policies for managing risks are summarised below and have been applied
throughout the period:
1.Market price risk
The Manager monitors the prices of financial instruments held by the group on a
regular basis.
2.Interest rate risk
The Company finances its operations through existing reserves and loan notes
with a fixed coupon of 5%
3.Liquidity risk
The group's assets mainly comprise readily realisable quoted and unquoted
securities that can be sold to meet funding commitments if necessary.
Short-term flexibility is achieved through the use of overdraft facilities.
Financial instruments
Non-current assets
2014 2013
£ £
Listed investments 16,777,797 11,773,385
Unlisted investments 708,906 1,025,209
17,486,703 12,798,594
Current asset investments
The group holds current asset investments with a market value of £1,564 (2013:
£122,860) at the period end. Investments are subject to fluctuation in value
due to market forces including interest rates.
Current assets and current liabilities
The Group's current assets and liabilities are denominated in sterling.
Long-term loan
The loan notes bear interest at a fixed rate of 5% per annum and are repayable
in instalments. The value of current assets, current liabilities and long-term
loans are not subject to interest rate risk.
Sensitivity
The direct impact of a 5% movement in the value of the portfolio investments
and current asset investments amounts to £874,413 (2013: £646,073), being 18p
(2013: 14p) per ordinary share. The Directors are of the opinion that the
direct impact of a movement in short-term interest rates on the value of the
investments is relatively small due to the illiquid and specialised nature of
the investments in the portfolio.
Capital structure and management
The capital structure of the Group consists of cash held on deposit, loan notes
and Ordinary Shares.
2014 2013
£ £
Cash and bank balances 1,754,315 3,138,062
Interest bearing liabilities (365,700) (731,400)
Net cash 1,388,615 2,406,662
Ordinary Shareholders' funds 18,693,293 16,237,484
Gearing (net debt/ordinary shareholders' nil nil
funds)
The type and maturity of the Group's borrowings are analysed in note 10 and the
Group's equity is analysed in note 9. Capital is managed so as to maximise the
return to shareholders while maintaining a capital base to allow The Investment
Company plc to operate effectively. Capital is managed on a consolidated basis.
The Group is not a member of anybody that imposes minimum levels of regulatory
capital. No significant external constraints in the management of capital have
been identified in the past.
18 Related party transactions
During the year the Company was charged administration fees of £52,383
(15 months to 30 June 2013: £138,750) by Ionian Investment Management which
is a division of Fiske plc. At 30 June 2014 there were no balances outstanding
(2013: £nil). Mr S. J. Cockburn is a substantial shareholder in Fiske plc.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on Thursday, 11 December 2014
at 12.30 pm at the offices of Miton Group plc, 51 Moorgate, London EC2R 6BH.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at: www.morningstar.co.uk/uk/nsm
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.THE INVESTMENT COMPANY PLC - Annual Financial Report
© 2014 PR Newswire
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