DJ Rights and Issues Investment Trust PLC: Annual Report
Rights and Issues Investment Trust PLC (RIII)
Rights and Issues Investment Trust PLC: Annual Report
24-Feb-2020 / 15:59 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
RIGHTS AND ISSUES INVESTMENT TRUST PLC
Annual Report & Accounts for the full year to 31 December 2019
A copy of the Company's Annual Report for the year ended 31st December 2019
will shortly be available to view and download from the Company's website
www.rightsandissues.co.uk.
Printed copies of the Annual Report will be sent to shareholders shortly.
Additional copies may be obtained from the Corporate Secretary - Maitland
Administration Services Limited, Hamilton Centre, Rodney Way, Chelmsford,
Essex CM1 3BY.
The Annual General Meeting of the Company will be held at The Gridiron
Building, 8th Floor, Number One Pancras Square, Pancras Road, King's Cross,
London N1C 4AG on 1st April 2020 at 12 noon.
The Directors have proposed the payment of a final dividend of 21.5p per
Ordinary share which, if approved by shareholders at the forthcoming Annual
General Meeting, will be payable on 4th April 2020 to shareholders whose
names appear on the register at the close of business on 13th March 2020
(ex-dividend 12th March 2018).
The following text is copied from the Annual Report & Accounts.
INVESTMENT OBJECTIVE & POLICY
The Board's objective is to exceed the benchmark index over the long term
whilst managing risk.
The Company invests in equities with an emphasis on smaller companies. UK
smaller companies will normally constitute at least 80% of the investment
portfolio. UK smaller companies include both listed securities and those
quoted on the Alternative Investment Market ("AIM").
The investment portfolio will normally lie in the range of 80% to 100% of
shareholders' funds and therefore gearing will normally be between -20% and
0%. As a result of the Alternative Investment Fund Managers Regulations 2013
it has been decided that the Company will not use gearing
CAPITAL STRUCTURE
ISSUED SHARE CAPITAL (at 31st December 2019)
7,540,321 Ordinary shares of 25p each.
INCOME ENTITLEMENT
Equal entitlement to dividends and other distributions.
CAPITAL ENTITLEMENT
Equal entitlement to the surplus assets.
VOTING
One vote per share.
PRICE (mid-market) (at 31st December 2019)
2,225.00p.
DIVIDEND YIELD
1.42%.
DISCOUNT MANAGEMENT POLICY
On 7th December 2016, the Company implemented share buy-back arrangements to
encourage the level of discount to be not more than 10%.
SHARE BUY BACKS
During the year to 31st December 2019, the Company has bought back for
cancellation a total of 465,858 Ordinary shares for a total consideration of
GBP9m, representing 5.8% of the share capital of the Company as at 7th
December 2016, when the ability to buy back shares was introduced.
DISCOUNT
(at 31st December 2019)
2.21%.
RIGHTS AND ISSUES INVESTMENT TRUST PLC ('THE TRUST" or 'THE COMPANY") MAY BE
LIQUIDATED AT ANY TIME, BUT THE BOARD OF DIRECTORS HAS INDICATED THAT IT IS
NOT ITS PRESENT INTENTION TO DO SO PRIOR TO 25TH JULY 2021.
Note: The above is a summary of rights. For full information shareholders
should refer to the Articles of Association.
HISTORIC RECORD
Year to Net asset Net asset Net FTSE All FTSE All
value per value per Share Share
share share Index
(Rebased
31st dividend
December per share Index
(Index
1984 = 1984 =
100) 100)
1984 29.0p 100 3.80p 592.94 100
1990 75.4p 260 7.50p 1032.60 174
1995 175.0p 602 10.50p 1802.56 304
2000 473.9p 1631 25.50p 2983.81 503
2005 732.0p 2520 40.50p 2847.00 480
2010 776.4p 2673 25.50p 3094.41 522
2011 751.2p 2586 25.50p 2857.88 482
2012 962.0p 3312 26.75p 3093.41 522
2013 1382.5p 4759 40.00p* 3609.63 609
2014 1297.1p 4465 36.00p 3532.74 596
2015??? 1595.6p 5492 36.00p 3444.26 581
2016 2002.2p 6892 52.50p* 3873.22 653
2017 2372.3p 8166 30.75p 4221.82 712
2018 2118.1p 7291 31.50p 3675.27 620
2019 2275.2p 7832 32.25p 4196.47 709
* Includes Special Dividend
??? From 2015 onwards the historic record is for the Company only and not the
Group.
Note: Until 2016 net asset value per share is based on the Capital shares
adjusted for the reconstruction (four Ordinary shares for each Capital
share). Thereafter, performance is based on the Ordinary shares, formerly
named the Income shares (the only remaining share class).
DIRECTORS AND ADVISERS
DIRECTORS
Dr D. M. BRAMWELL (Chairman)
D. M. BEST
Dr A. J. HOSTY
S. J. B. KNOTT
J. B. ROPER
REGISTERED OFFICE
Hamilton Centre
Rodney Way
Chelmsford CM1 3BY
WEBSITE
www.maitlandgroup.com/investment-trusts/
[1]rights-and-issues-investment-trust-plc
ADMINISTRATOR/SECRETARY
MAITLAND ADMINISTRATION SERVICES LTD
Hamilton Centre
Rodney Way
Chelmsford CM1 3BY
SOLICITORS
EVERSHEDS SUTHERLAND
One Wood Street
London EC2V 7WS
AUDITOR
BEGBIES
9 Bonhill Street
London EC2A 4DJ
REGISTRARS
LINK MARKET SERVICES LTD
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
BROKERS
SHORE CAPITAL
Cassini House
57 St James's Street
London SW1A 1LD
BANKERS/CUSTODIAN
NORTHERN TRUST COMPANY
50 Bank Street
Canary Wharf
London E14 5NT
REGISTRATION DETAILS
Company Registration Number: 00736898 (Registered in England)
SEDOL number :0739207
ISIN number: GB0007392078
London Stock Exchange (EPIC) Code: RIII
Global Intermediary Identification Number (GIIN): I2ZVNY.99999.SL.826
Legal Entity Identifier (LEI): 2138002AWAM93Z6BP574
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the fifty-seventh Annual General Meeting of the
members of Rights and Issues Investment Trust Public Limited Company will be
held in the Gridiron Building, 8th Floor, Number One Pancras Square, Pancras
Road, King's Cross, London N1C 4AG, on 1st April 2020, at 12 noon, for the
following purposes:
ORDINARY BUSINESS
1) To receive the audited financial statements and Reports of the
Directors and Auditor for the year ended 31st December 2019.
2) To approve the Annual Report on Directors' Remuneration, set out on
pages 24 to 29 (excluding the Remuneration Policy on pages 27 and 28), for
the financial year ended 31st December 2019.
3) To approve the payment of a final dividend of 21.5 pence per Ordinary
share for the financial year ended 31st December 2019.
4) To re-elect Dr D. M. Bramwell as a Director.
5) To re-elect D. M. Best as a Director.
6) To re-elect Dr A. J. Hosty as a Director.
7) To re-elect S. J. B. Knott as a Director.
8) To re-elect J. B. Roper as a Director.
9) To reappoint Begbies as Auditor and authorise the Directors to
determine the Auditor's remuneration.
SPECIAL BUSINESS
To consider and, if thought fit, pass resolution 10 as an Ordinary
Resolution and resolution 11 as a Special
Resolution:
10. To approve the Directors' Remuneration Policy set out on pages 27 and 28
of the Directors' Remuneration Report, which takes effect immediately after
the end of the Annual General Meeting.
11. THAT the Company be and is hereby generally and unconditionally
authorised in accordance with section 701 of the Companies Act 2006 to make
market purchases (within the meaning of section 693 of the Companies Act
2006) of Ordinary shares, provided that:
11.1 the maximum aggregate number of Ordinary shares hereby authorised to be
purchased shall be 1,130,294 (representing approximately 14.99% of the
Ordinary shares in issue on 21st February 2020);
11.2 the minimum price (exclusive of expenses) which may be paid for an
Ordinary share is 25 pence;
11.3 the maximum price (exclusive of expenses) which may be paid for an
Ordinary share is not more than the higher of (i) an amount equal to 105% of
the average market value of the Ordinary shares for the five business days
immediately preceding the day on which the Ordinary share is purchased; and
(ii) the higher of the last independent bid and the highest current
independent bid on the London Stock Exchange when the purchase is carried
out, or such other amount as may be specified by the FCA from time to time;
11.4 the authority hereby conferred will expire at the conclusion of the
next Annual General Meeting of the Company unless such authority is renewed
prior to such time; and
11.5 the Company may make a contract to purchase Ordinary shares under the
authority hereby conferred prior to the expiry of such authority which will
or may be executed wholly or partly after the expiration of such authority
and may make a purchase of Ordinary shares pursuant to any such contract;
provided that all Ordinary shares purchased pursuant to this authority shall
be cancelled or transferred into treasury immediately upon completion of the
purchases.
By Order of the Board,
MAITLAND ADMINISTRATION SERVICES LTD
Secretary, 21st February 2020
Notes:
1) Any shareholder entitled to attend and vote at the above meeting is
entitled to appoint one or more proxies (who need not be a shareholder of
the Company) to attend and to vote instead of the shareholder. To appoint
more than one proxy, additional proxy forms may be obtained by contacting
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the Company's registrars. Please also indicate by ticking the box provided
if the proxy instructions are one of multiple instructions being given.
All forms must be signed and should be returned together in the same
envelope. Completion and return of a form of proxy will not preclude a
shareholder from attending and voting at the meeting in person, should he
subsequently decide to do so.
2) The right to appoint a proxy does not apply to persons whose Ordinary
shares in the Company (the "Shares") are held on their behalf by another
person and who have been nominated to receive communications from the
Company in accordance with section 146 of the Companies Act 2006
("nominated persons"). Nominated persons may have a right under an
agreement with the registered shareholder who holds the Shares on their
behalf to be appointed (or to have someone else appointed) as a proxy.
Alternatively, if nominated persons do not have such a right, or do not
wish to exercise it, they may have a right under such an agreement to give
instructions to the person holding the Shares as to the exercise of voting
rights.
3) In order to be valid, a form of proxy, which is provided with this
notice, and a power of attorney or other authority under which it is
signed, or certified by a notary or office copy of such power or
authority, must reach the Company's registrars, Link Asset Services, PXS,
34 Beckenham Road, Beckenham BR3 4TU not less than 48 hours (excluding any
part of a day which is a non-working day) before the time of the meeting
or of any adjournment of the meeting. A form of proxy is enclosed with
this notice.
4) CREST members who wish to appoint a proxy or proxies by utilising the
CREST electronic proxy appointment service may do so by utilising the
procedures described in the CREST manual. CREST personal members or other
CREST sponsored members, and those CREST members who have appointed a
voting service provider(s), should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate action on
their behalf.
5) In order for a proxy appointment made by means of CREST to be valid,
the appropriate CREST message must be transmitted so as to be received by
the Company's agent, Link Market Services (whose CREST ID is RA10) by the
specified latest time(s) for receipt of proxy appointments. For this
purpose, the time of receipt will be taken to be the time (as determined
by the timestamp applied to the message by the CREST applications host)
from which the Company's agent is able to retrieve the message by enquiry
to CREST in the manner prescribed.
6) The Company may treat as invalid a CREST proxy instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001. A register showing the interests of each
Director and their connected persons, so far as they are aware, in the
Ordinary shares will be available for inspection at the offices of the
Company Secretary, Maitland Administration Services Limited, Hamilton
Centre, Rodney Way, Chelmsford, Essex CM1 3BY, during normal business
hours every weekday except Saturdays, from the above date to the day
preceding that of the general meeting. It will also be available for
inspection at the place of the meeting for 15 minutes prior to the general
meeting and during the meeting. Apart from the Investment Director, there
are no contracts of service existing between the Company and any of the
Directors.7. Any shareholder attending the general meeting is entitled,
pursuant to section 319A of the Companies Act 2006, to ask any question
relating to the business being dealt with at the meeting. The Company will
answer any such questions unless:
i) to do so would interfere unduly with the preparation for the meeting or
involve the disclosure of confidential information;
ii) the answer has already been given on a website in the form of an
answer to a question; or
iii) it is undesirable in the interests of the Company or the good order
of the meeting that the question be answered.
From the date of this notice and for the following two years the following
information will be available on the Company's website and can be accessed
at
www.maitlandgroup.com/investment-trust/rights-and-issues-investment-trust-pl
c: [2]
i) the matters set out in this notice of general meeting;
ii) the total numbers of Shares in respect of which shareholders are
entitled to exercise voting rights at the meeting; and
iii) the totals of the voting rights that shareholders are entitled to
exercise at the meeting in respect of the Shares.
8. Any shareholders' statements, shareholders' resolutions and shareholders'
matters of business received by the Company after the date of this notice
will be added to the information already available on the website as soon as
reasonably practicable and will also be made available for the following two
years.
9. Where a poll is taken at the general meeting, from the date of this
notice and for the following two years the following information will be
available on the Company's website and can be accessed at
www.maitlandgroup.com/investment-trust/rights-and-issues-investment-trust-pl
c: [2]
i) the date of the general meeting;
ii) the text of the resolution or, as the case may be, a description of
the subject matter of the poll;
iii) the number of votes validly cast;
iv) the proportion of the Company's issued share capital represented by
those votes;
v) the number of votes cast in favour;
vi) the number of votes cast against; and
vii) the number of abstentions (if counted).
10. In order to attend and vote at this meeting you must comply with the
procedures set out in notes 1 to 3 by the time specified in note 3.
11. The right of shareholders to vote at the meeting is determined by
reference to the register of shareholders. As permitted by section 360B(3)
of the Companies Act 2006 and Regulation 41 of the Uncertificated Securities
Regulations 2001, shareholders (including those who hold Shares in
uncertificated form) must be entered on the Company's share register at
close of business on 30th March 2020 in order to be entitled to attend and
vote at the meeting. Such shareholders may only cast votes in respect of
Shares held at such time. Changes to entries on the relevant register after
that time shall be disregarded in determining the rights of any person to
attend or vote at the meeting.
12. The total number of Ordinary shares of 25p in issue as at 21st February
2020, the last practicable day before printing this document, was 7,540,321
Shares and the total level of voting rights was 7,540,321.
CHAIRMAN'S STATEMENT
The resolution of Brexit in December's General Election has finally provided
clarity. The removal of uncertainty allowed the FTSE All-Share Index to
increase by 14.2% in 2019.
The UK smaller company market enjoyed a strong finish for the year with FTSE
All Small Index progressing by 13.2%.
Your Company's portfolio had a more mixed year with the net asset value
rising by 7.4% to 2275.2p. The final dividend proposed is 21.5p making
32.25p for the year, a 2.4% increase.
The share buy-back programme purchased GBP9.0m of shares in 2019. During the
year, the average discount to net asset value was 7.6%. The programme will
again be extended for a further twelve months to February 2021.
Economic growth looks to be subdued in the forthcoming year. Even before the
emergence of coronavirus in China, prospects for the UK and Europe were
anaemic. The corporate environment appears to be becoming tougher. Still,
good companies prosper in tougher conditions and that, as always, is where
the focus will be.
Dr D. M. BRAMWELL
Chairman
21st February 2020
STRATEGIC REPORT
The Strategic Report is designed to provide information primarily about the
Company's business and results for the year ended 31st December 2019 and
should be read in conjunction with the Chairman's Statement on page 7.
STATUS
The Company is a self-managed investment trust. The Company is registered as
an investment company as defined in section 833 of the Companies Act 2006
and operates as such. The Company is not a close company within the meaning
of the provisions of the Corporation Tax Act 2010.
The Company has been approved by the Financial Conduct Authority to be a
Small Registered Alternative Investment Fund Manager ("AIFM").
In the opinion of the Directors, the Company has conducted its affairs
during the year under review, so as to qualify as an investment trust for
the purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010 and
continues to meet the eligibility conditions set out in section 1158 of the
Corporation Tax Act 2010.
The Board is directly accountable to its shareholders. The Company is listed
on the London Stock Exchange and is subject to the Listing Rules, Prospectus
Rules and Disclosure Guidance and Transparency Rules published by the
Financial Conduct Authority ("FCA"). The Company is governed by its articles
of association, amendments to which must be approved by shareholders by
special resolution. The Company is a member of the Association of Investment
Companies ("AIC").
The FCA rules in relation to non-mainstream pooled investments do not apply
to the Company.
STRATEGY FOR MEETING THE OBJECTIVES
The Board's objective is to exceed the benchmark index over the long term
whilst managing risk.
To achieve this objective, the Board continues with its long-term strategy
of seeking out undervalued investments that have characteristics consistent
with a matrix of criteria developed by the Investment Director. This is
supported by the five-yearly review that addresses the above objective. The
latest review was conducted in November 2015, which concluded that the
continuation of the Company for the period until July 2021 was in the best
interests of shareholders.
The Board fulfils its investment objective and policy by operating as an
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investment company, enabling it to delegate operational matters to
specialised third-party service providers. The close-ended nature of the
Company allows a longer-term view on investments and means liquidity issues
as a result of redemptions are less likely to arise.
In pursuing its strategy, close attention is also paid to the control of
costs. Further information on this is contained in the Key Performance
Indicators on page 11.
INVESTMENT SELECTION
There is a rigorous process of risk analysis at the level of the individual
investment, based on the characteristics of the investee company. This
controls the overall risk profile of the investment portfolio, allowing a
higher level of concentration in the investment portfolio.
The investment portfolio is then managed on a medium-term basis with a low
level of investment turnover. This minimises transaction costs and ensures
medium-term consistency of the investment approach.
The Company's investment activities are subject to the following limitations
and restrictions:
The policy does not envisage hedging either against price or currency
fluctuations. Whilst performance is compared against major UK indices, the
composition of indices has no influence on investment decisions or the
construction of the portfolio. As a result, it is expected that the
Company's investment portfolio and performance will deviate from the
comparator indices.
SUSTAINABILITY OF BUSINESS MODEL AND PROMOTING THE SUCCESS THE COMPANY'S
SUCCESS
The Board is responsible for the overall strategy of the Company and
decisions regarding corporate governance, asset allocation, risk and
control. The day-to-day management of the investments is delegated to the
Investment Director and the management of the operations to specialist
third-party suppliers.
The Directors are conscious of their duties under section 172 of the
Companies Act 2006 and particular the overarching duty to promote the
success of the Company for the benefit of the shareholders, with careful
attention paid to wider stakeholders' interests. The Board is aware of the
importance of ensuring that the Company has a sustainable, well-governed
business model to achieve its strategy and objectives.
As part of discharging its section 172 duties, the Company, through the
Investment Director, uses its influence, where possible, as a shareholder to
encourage the companies in which it invests to adopt best practice on
environmental, social and corporate governance ("ESG") matters. The
Investment Director, during the coming year, will also actively seek to
invest in companies that adopt good ESG practice.
The third-party service providers are a key element of ensuring the success
of the business model. The Board monitors the chosen service providers
closely to ensure that they continue to deliver the expected level of
service. The Board also receives regular reporting from them, evaluates the
control environment and governing contract in place at each service provider
and formally assesses their appointment annually.
CULTURE & VALUES
All the Directors seek to discharge their responsibilities and meet
shareholder expectations in an open and transparent manner. The Board seeks
to recruit Directors who have diverse working experience including managing
the types of companies in which the Company invests. The industry experience
on the Board ensures there is detailed knowledge and constructive challenge
in the decision-making process. This helps the Company achieve its
overarching aim of enhancing shareholder value. The Directors are mindful of
costs and seek to ensure that the best value money is achieved in managing
the Company.
The Company's values of skill, knowledge and integrity are aligned to the
delivery of its investment objective and are monitored closely by the Board.
The Board seeks to employ third-party providers who share the Company's
culture and importantly will work with the Directors openly and
transparently to achieve the Company's aims. As detailed in the Business
Ethics section below, the Board expects and seeks assurance that the
companies with which it works adopt working practices that are of a very
high standard.
The Responsibilities as an Institutional Shareholder section below describes
the Company's approach to managing its investments, including ESG matters.
BUSINESS ETHICS
The Company maintains a zero-tolerance policy towards the provision of
illegal services, bribery and corruption in its business activities,
including the facilitation of tax evasion. As the Company has no employees
other than the Investment Director and the Company's operations are
delegated to third-party service providers, the Board seeks assurances, at
least annually, from its suppliers that they comply with the provisions of
the Modern Slavery Act 2015 and maintain adequate safeguards in keeping with
the provisions of the Bribery Act 2010 and Criminal Finances Act 2017.
As an investment vehicle the Company does not provide goods or services in
the normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not within the scope of the Modern
Slavery Act 2015.
BOARD DIVERSITY
The Company's affairs are overseen by a Board currently comprising four
non-executive Directors and one executive Director - all of whom are male.
In terms of progress in achieving diversity, the Company is committed to
ensuring that vacancies arising are filled by the best qualified candidates
and recognises the value of diversity in the composition of the Board. When
the Board goes through its next recruitment process, improving the Board's
gender diversity will be an important criterion.
The Directors have broad experience, bringing knowledge of investment
markets, business, financial services, accounting and regulatory expertise
to discussions on the Company's business. The Directors regularly consider
the leadership needs and specific skills required to achieve the Company's
investment objective. Whilst appointments are based on skills and
experience, the Board is conscious of diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths and experience. All
appointments are based on objective criteria and merit, and are made
following a formal, rigorous and transparent process.
RESPONSIBILITIES AS AN INSTITUTIONAL SHAREHOLDER
The Board has delegated authority to the Investment Director for monitoring
the corporate governance of investee companies. The Board has delegated to
the Investment Director responsibility for selecting the portfolio of
investments within investment guidelines established by the Board and for
monitoring the performance and activities of investee companies. On behalf
of the Company the Investment Director carries out detailed research on
investee companies and possible future investee companies through internally
generated research. The research includes an evaluation of fundamental
details such as financial strength, quality of management, market position
and product differentiation. Other aspects of research include an appraisal
of social, ethical and environmentally responsible investment policies.
The Board has delegated authority to the Investment Director to vote on
behalf of the Company in accordance with the Company's best interests. The
primary aim of the use of voting rights is to address any issues which might
impinge on the creation of a satisfactory return from investments. The
Company's policy is, where appropriate, to enter into engagement with an
investee company in order to communicate its views and allow the investee
company an opportunity to respond.
In such circumstances the Company would not normally vote against investee
company management but would seek, through engagement, to achieve its aim.
The Company would vote, however, against resolutions it considers would
damage its shareholder rights or economic interests.
The Company has a procedure in place that where the Investment Director, on
behalf of the Company, has voted against an investee company resolution, it
is reported to the Board.
The Board considers that it is not appropriate for the Company, as a small
self-managed investment trust, formally to adopt the UK Stewardship Code.
However, many of the UK Stewardship Code's principles on good practice on
engagement with investee companies are used by the Company, as described
above.
CORPORATE AND SOCIAL RESPONSIBILITY
When investments are made, the primary objective is to achieve the best
investment return while allowing for an acceptable degree of risk. In
pursuing this objective, various factors that may impact on the performance
are considered and these may include socially responsible investment issues.
As an investment trust, the Company's own direct environmental impact is
minimal. The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other
emissions-producing sources under the Companies Act 2006 (Strategic Report
and Directors' Reports) Regulations 2013 for the year to 31st December 2019
(2018: same). All printed material, wherever possible, is on recycled
material. The Investment Director attempts to minimise the Company's carbon
footprint. The Company's indirect impact occurs through the investments it
makes.
The Company does not purchase electricity, heat, steam or cooling for its
own use nor does it have responsibility for any other emissions producing
sources.
Of more importance is the conduct of the companies in the investment
portfolio. The Company does not invest in companies which have significant
adverse effect on the global environment and encourages those companies in
which it has an investment to pursue responsible environmental policies.
The Company contributes to wider society by generating returns to
shareholders whose ownership in shares in the Company affects their savings
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and by investing in companies which provide employment and innovation. No
investments are made in tobacco or fossil fuel producing companies.
REVIEW OF THE BUSINESS
A review of the year and commentary on the future outlook is provided in the
Chairman's Statement on page 7.
During the year under review, the assets of the Company were invested in
accordance with the Company's investment policy.
During the year the Company's net assets have increased from GBP169.6m to
GBP171.6m and at 31st December 2019 the net asset value per Ordinary share was
2275.2p.
KEY PERFORMANCE INDICATORS
The Board is provided with detailed information on the Company's performance
at every Board meeting. Key Performance Indicators are:
· Shareholders' funds equity return compared to the FTSE All-Share Index
(the Company's benchmark index).
· Dividends per Ordinary share.
· Ongoing Charge (formerly titled the Total Expense Ratio).
Shareholders' funds equity return
In reviewing the performance of the Company, the Board monitors
shareholders' funds in relation to the FTSE All-Share Index. During the year
shareholders' funds increased by 1.2% compared to an increase of 14.2% by
the FTSE All-Share Index. Over the five years ended 31st December 2019
shareholders' funds increased by 47.5% compared with a rise of 18.8% by the
FTSE All-Share Index.
Dividends per Ordinary share
The total dividend per Ordinary share paid and proposed is 32.25p (2018:
31.50p).
Ongoing Charge
The Ongoing Charge shows the efficiency of control of management costs. The
Ongoing Charge for the
year ended 31st December 2019 was 0.47% (2018: 0.48%).
PRINCIPAL RISKS
The Board of Directors has a process for identifying, evaluating and
managing the key risks of the Company. This process operated during the year
and has continued to the date of this report. The Directors confirm that
they have carried out a robust assessment of the principal risks facing the
Company, including those that would threaten its business model, future
performance, solvency or liquidity. The Directors describe below those risks
and how they are being managed or mitigated.
Investment in an individual smaller company inherently carries a higher risk
than investment in an individual large company. In a diversified portfolio,
the portfolio risk of a smaller company portfolio is only slightly greater
than the portfolio risk of a large company portfolio. The Company manages a
diversified portfolio. Additionally, the Company invests overwhelmingly in
smaller UK listed and AIM traded companies and has no exposure to
derivatives. The principal risks are therefore market price risk and
liquidity risk. Further details on these risks and how they are managed may
be found in Note 18 to the financial statements on page 49.
Additional key risks identified by the Company, together with the Board's
approach in dealing with them are as follows:
Investment performance - The performance of the investment portfolio will
deviate from the performance of the benchmark index. The Board's objective
is to exceed the benchmark index over the long term whilst managing risk.
The Board ensures that the Investment Director is managing the portfolio
within the scope of the investment policy; the Board monitors the Company's
performance against the benchmark; and the Board also receives detailed
portfolio attribution analysis. The Board has a clearly defined investment
philosophy and operates a diversified portfolio.
Share price discount - Investment trust shares often trade at discounts to
their underlying net asset values. The Board monitors the level of the
discount of the Ordinary shares. On 7th December 2016, the Company
implemented share buy-back arrangements to mitigate the risk of the discount
increasing.
Loss of key personnel - The Investment Director is crucial to performance
and the loss of the Investment Director could adversely affect performance
in the medium term. The Board reviews its strategy for this risk annually.
Regulatory risk - The Company must abide by section 1158 of the Corporation
Tax Act 2010 to maintain its investment trust status. This is achieved by
the consistent investment policy and is monitored by the Board. The Board
seeks assurance from the Administrator that the investment trust status is
being maintained. The Board also reviews a schedule of regulatory risk items
at its Board meetings in order to monitor and take action to address any
regulatory changes.
Protection of assets - The Company's assets are protected by the use of an
independent custodian, Northern Trust Company, and the Board monitors the
custodian to ensure assets remain protected. In addition, the Company
operates clear internal controls to safeguard all assets.
Future trading relationships - The risk associated with the decision of a
majority of the UK electorate to leave EU membership could be considerable
for the UK and also for continental European countries. The links between
the UK and the EU are wide-ranging and the future trading relationship
remains unclear, creating conditions that could mean that markets react
unpredictably to the uncertainty created. This risk is challenging to
mitigate but the Investment Director is considering the risk of leaving the
EU for each investment in the portfolio based on its individual
circumstances.
These and other risks facing the Company are reviewed regularly by the Audit
and Compliance Committee and the Board.
SECTION 172 STATEMENT
The Board seeks to promote the success of the Company for the benefit of its
shareholders, giving consideration to the likely long term consequences of
any decision with regard to the interests of its business relationships and
the environment in which it operates. The Company has one employee, the
Investment Director.
Stakeholder Group Engagement in the year and their material
issues
Investors Shareholders play an important role in
monitoring and safeguarding the governance of
the Company and have access to the Board via
the Company Secretary throughout the year and
are encouraged to attend the Annual General
Meeting.
Suppliers Key suppliers are required to report to the
Board on a regular basis. The Company employs
a collaborative approach and looks to build
long term partnerships based on open terms of
business and fair payment terms.
Investee Companies The Investment Director meets with the
management of companies in which the Company
has a significant interest and reports on
findings to the Board on a quarterly basis.
Regulators The Board ensures compliance with the
necessary rules and regulations relevant to
the Company in order to build trust and
reputation in the market.
Factoring Stakeholders into Principal Decisions
The Board defines principal decisions as both those that are material to the
Company but also those that are significant to any of the Company's key
stakeholders as identified above. In making the following principal
decisions, the Board considered the outcome from its stakeholder engagement
as well as the need to maintain a reputation for high standards of business
conduct and the need to act fairly between the members of the Company.
Principal Decision 1 Dividend Policy
The Board continues to operate a
progressive dividend policy.
Principal Decision 2 Share buy back programme
Since the start of the programme, 16.4% of
the issued share capital has been
repurchased at a cost of approximately
GBP29.5m. The discount on the Company's
shares has reduced which supports the
Company's decision to continue the buyback
policy.
Principal Decision 3 New Investments
The Investor Director is required to report
at each board meeting on the merits of
individual investment opportunities in
accordance with the established risk
analysis.
Principal Decision 4 Remuneration
After reviewing the performance in 2019,
all Directors salaries remain unchanged and
no bonus was awarded to the Investment
Director.
VIABILITY STATEMENT
The Board reviews the performance and progress of the Company over five-year
periods and uses these assessments, regular investment performance updates
from the Investment Director and a continuing programme of monitoring risk
to assess the future viability of the Company. The Directors consider that a
period of five years is a reasonable time horizon to consider the viability
of the Company. The Company also uses this period for its strategic
planning. The following facts support the Directors' view of the viability
of the Company:
· The Company has a liquid investment portfolio invested predominantly in
readily realisable smaller UK-listed and AIM traded securities and has
some short-term cash on deposit.
· The Company does not use gearing.
· Expenses of the Company are covered almost four times by investment
income.
In order to maintain viability, the Company has a robust risk control
framework for the identification and mitigation of risk which is reviewed
(MORE TO FOLLOW) Dow Jones Newswires
February 24, 2020 11:00 ET (16:00 GMT)
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