DJ Rights and Issues Investment Trust PLC: ACS-Annual Financial Report
Rights and Issues Investment Trust PLC (RIII) Rights and Issues Investment Trust PLC: ACS-Annual Financial Report 15-Feb-2023 / 16:28 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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RIGHTS AND ISSUES INVESTMENT TRUST PLC
Annual Results for the year to 31st December 2022
The following text is extracted from the Company's financial statements for the year ended 31st December 2022. Page numbers refer to the full financial statements.
CHAIRMAN'S STATEMENT
During 2022 the UK economy suffered from a number of headwinds which impacted heavily on the performance of smaller companies.
The war in Ukraine and its resultant effect on energy and commodity prices have led to supply shortages and high inflation which, in turn, have caused central banks to ratchet up interest rates to levels not seen since before the 2008 financial crisis. Post Brexit, the UK has been particularly prone to staff shortages; COVID-19 appears to have reduced the available labour pool still further.
After a satisfactory 34.4% increase in net asset per share in 2021, 2022 saw a 24.8% reduction from 3036.6p to 2283.2p. During this period the FTSE All Share fell by 3.2%; however as noted in previous reports, the FTSE All Share is dominated by energy and commodity companies which have benefitted from soaring inflation and global supply shortages. Over 5 years the Company has underperformed the FTSE All Share by 0.3% but over 10 years it has generated a 237.3% return compared with 31.7% in the FTSE All Share.
Following Simon Knott's decision to retire as the Company's investment manager, the Board carried out a thorough review of potential replacement managers, resulting in the appointment of Jupiter Unit Trust Managers ("JUTM") with effect from 3rd October 2022. The Board is grateful to Simon for his 39 years' tenure and for the outstanding returns for shareholders generated over that period.
Lead investment manager, Dan Nickols, and co-manager, Matt Cable, are responsible for managing the Company's portfolio and are part of Jupiter's UK Small and Mid-Cap ("SMID") team. They are supported by Jupiter's wider investment platform and operational infrastructure, more details of which are provided in the Investment Manager's report.
Dan has an outstanding long term investment track record, being active in UK smaller companies since 1997; Matt has managed UK Smaller Companies portfolios since 2002, both Dan and Matt will be presenting at the forthcoming AGM which will be held at Jupiter's head office in London.
The Board expects continuity of investment style but also a reduction in the historic concentration of the portfolio with interesting new opportunities being added; we have already seen the beginnings of this process.
Jupiter will also be responsible for increasing the marketing of the Company to a wider audience of investors and potential investors including private individuals, wealth managers and professional fund managers through a variety of traditional and digital marketing activities.
In common with other smaller company investment trusts, the Company has seen an increase in the discount during the year and at year-end this stood at 17.2% despite having bought back 1.2m shares at a total cost of GBP25.9m, including GBP15.1m as part of the tender offer made to shareholders in September in connection with the change of fund managers. Share buy-backs may succeed in narrowing the discount between the Company's share price and net asset value per share or in limiting its volatility, but their influence is inevitably subject to broader stock market conditions. Irrespective of their effect on the discount, buy-backs at the margin provide an increase in liquidity for those shareholders seeking to crystallise their investment and at the same time deliver an economic uplift for those shareholders wishing to remain invested in the Company. The Company's current share buy-back programme runs until July 2023.
In order to help increase liquidity, given that the share price trades around GBP18-GBP20 per share, the Board is proposing, subject to shareholder approval, that each existing ordinary share be subdivided into 10 new ordinary shares. This subdivision will not itself affect the value of any shareholder's holding in the Company and should benefit all shareholders, particularly those who seek to invest on a regular basis or re-invest their dividends. Please see resolution 13 in the notice of AGM on page 4 and the accompanying explanation on page 7 of this Annual Report for further details.
The Directors are equally conscious of the importance of income to shareholders and are proposing a final dividend of 29.25p which, if approved at the forthcoming AGM, would result in a total payment of 40p per share to shareholders, a 15.1% increase over the prior year's dividend.
There have been changes to the Board of Directors during the year. Whilst retiring as investment manager Simon Knott continues his involvement with the Company as a non-executive director. David Bramwell retired as Chairman at the end of December after a 20-year involvement with the Company. We thank David for his significant contribution over this period. At the same time, we extend a warm welcome to Helen Vaughan who joined the Board on 1st January 2023, both as a non-executive director and Chair of the Audit, Risk and Compliance Committee.
The war in Ukraine will likely continue in an unpredictable manner for some time yet causing uncertainty in the financial markets. There are tentative signs that inflation may be peaking and that increases in base rates may not be as high as the Bank of England previously indicated. However, it is likely to be some time before this filters through to consumer confidence.
Whilst there is expected to be continued volatility in the markets, this does present a significant opportunity to buy into companies operated by high quality management teams with robust balance sheets which are fundamentally mispriced. We believe the Jupiter team has the expertise to identify these opportunities and continue the long term success of the Company.
Mr D. M. BEST
Chairman
15th February 2022
INVESTMENT MANAGER'S REPORT
Introduction
We are delighted to present our first report to the shareholders of the Company following our appointment as investment managers on 3rd October. We are conscious of the responsibility we are taking on after the remarkable and highly successful 39 year tenure of our predecessor Simon Knott. We are likewise extremely pleased that Mr Knott has agreed to remain on the Board as a non-executive director and continues to be a significant shareholder in the Company.
Given the relatively short period since we took over as managers of the Company, we do not propose to report in detail on performance for the year just ended (please see the Chairman's introduction). Instead, we would like to take this opportunity to introduce ourselves, our investment philosophy and process, and our immediate plans for the portfolio.
Your new investment managers
Following Mr Knott's decision to step down as the Company's in-house investment manager, the Board undertook a process to select a new external manager. We, Dan Nickols and Matt Cable, were appointed to manage the portfolio with effect from 3rd October 2022. With 25 and 15 years' experience in UK smaller companies investing respectively, we are both part of Jupiter's SMID investment team. In turn, our team forms part of Jupiter's wider investment department which is responsible for the management of GBP48bn of client funds across a wide range of asset classes, regions and strategies. We are further supported by Jupiter's wider investment and business infrastructure including state-of-the-art systems, well invested operational functions, risk management, data science and governance and sustainability teams.
Key people
Dan Nickols is co-head of Jupiter's SMID team, having joined the company in 2020 following Jupiter's acquisition of Merian. His career in the UK Smaller Companies sector started in 1997 at Old Mutual. Dan has a degree in Modern & Medieval Languages from Cambridge University and is an Associate of the Society of Investment Professionals.
Matt Cable joined Jupiter in 2019 as UK smaller companies fund manager after holding a similar role at M&G for almost ten years. Prior to his time at M&G, Matt worked in a variety of roles across financial services firms including Travelex, Bank of America and Capital One. He has a degree in Natural Sciences from Cambridge University and is a CFA Charterholder.
The Small and Midcap team
Jupiter's SMID team consists of eight investment professionals researching and investing in UK listed businesses outside the FTSE 100. Each member of the team has responsibility for researching specific industry sectors. The team manages GBP4bn of client funds in 11 portfolios across six investment strategies.
The team operates in a highly collaborative manner, interacting daily but formally meeting weekly to discuss individual stocks and monthly to debate macro-economic and other 'top-down' matters.
Investment philosophy and process
As a team, we are fundamental investors who look at companies and markets from both a bottom-up and top-down perspective. We aim to combine these two views, alongside careful risk management, to construct portfolios designed to deliver outperformance for our clients over the long term.
Investment philosophy
We believe that operating in the small to mid-sized part of the equity market offers the opportunity for well resourced, diligent research to generate insights that other market participants sometimes miss. We know, for example, that smaller companies are generally less well researched by both sell-side and buy-side firms. We believe that by doing a lot of our bottom-up research in-house, for example through meeting management, visiting sites and building our own financial models, we can gain an 'edge' over the wider market and exploit this to generate outperformance for our clients.
At the same time, we recognise that we will never know everything. In order to the manage the risks of individual mistakes, we therefore pay great attention to portfolio construction and risk management, ensuring that funds are appropriately diversified and balanced across a range of factors.
Investment process
The core of our investment process is the synthesis of top-down views and bottom-up stock-specific research. Top-down factors we consider include macro-economic indicators such as GDP growth, interest rates and inflation as well as secular trends that may impact investments. These may include technological, political or cultural changes (for example the way people choose to shop). We also consider the impact of major global events such as wars and natural disasters on our investment universe. The purpose of this work is not so much to predict the future in detail (which is not our area of expertise) but to ensure that we align our portfolios with thematic market leadership - i.e. the trends that tend to define the types of stocks that do well over moderate to long periods.
Our bottom-up research is detailed and granular. We regularly meet management teams from both current and prospective holdings, often combined with visits to their premises. We make regular use of expert networks and other third-party sources of information and insight. We have close relationships with sell-side analysts but also build and maintain our own financial models so that we are not relying on 'consensus' views to make decisions. Much of the value in this process is the synthesis of these various elements. Our team-based approach means that assumptions can be tested and opinions challenged in a collaborative environment in order to arrive at robust decisions that are 'owned' by the whole group.
Stock selection
Our stock selection process focused on three factors that we believe are key to generating outperformance:
Sustainable above market growth - we look for businesses that we think can generate sustained growth above that of the wider market. These may be businesses aligned to secular change, those with strong intellectual property that can take market share or those with disruptive business models.
Scope for positive surprises - we look for businesses that have the potential to deliver consistent positive surprises to the market. In practice this often means companies that are consistently under-forecast by sell-side consensus.
Potential for re-rating - we look for businesses that appear to be fundamentally undervalued by the market and therefore have the scope to deliver returns ahead of their own growth.
In practice, our best ideas often display aspects of all three of these elements. A business with strong fundamentals that is growing fast will often exceed anchored market expectations and earn a re-rating in the process.
Plans for your Company and progress to date
The Company has delivered exceptionally strong returns for investors over the last 39 years under the management of Mr Knott. Our overall approach for the future therefore seeks to retain the best of the Company's established philosophy, combined with the significantly greater resources available to it under the management of Jupiter's SMID team.
What will stay the same
The portfolio will remain a concentrated, long-term investor in UK small and mid-sized companies. The portfolio consisted of 24 holdings when we took over management and we expect to hold a broadly similar number in the future. We will always make decisions based on our view of likely performance and valuation, but our working assumption on making an investment is that we will be holders for the medium to long term. We will continue to be responsible and engaged owners of businesses. We will meet management regularly, always vote our shares and carefully consider governance matters relating to companies we invest in on your behalf, such as remuneration, succession and Board independence.
What we plan to change
Although we expect to hold a broadly similar number of stocks in the portfolio, we do anticipate reducing the degree of concentration among the very largest positions. We believe that the highly active and differentiated nature of the Company can be retained while mitigating the risk of having very large position sizes. We therefore expect to reduce the size of some of the Trust's very large positions in the portfolio while adding additional holdings at similar weights. Over time this will make it less likely that the Trust will invest in very small (in market capitalisation terms) stocks as it is not practical to hold them at meaningful position sizes.
Given access to the Jupiter SMID team's wider research coverage we are likely to add holdings from a broader range of industries and sectors. Over time we would expect the portfolio to be more balanced in this regard and closer to the weights of different industries in the market and economy. We will also aim to hold stocks that are clearly small/mid in size to ensure that we capture the higher growth rates we believe are available in this part of the market.
Progress to date
In our discussions with the board, we have been very clear that we have responsibility for performance of the portfolio from day one of our management. There is no concept of a 'transition period' so every decision we have made from the start has been made with shareholders' interests in mind. This will continue to be our guiding philosophy and will always be more important than making changes over an arbitrary timescale.
With that said, and as detailed above, we do plan to make some changes to the portfolio over time. We have made a start on these over our first few months as managers. In particular we have sold some smaller holdings that are not part of our longer term plans and reduced the size of our units in some larger companies in order to release capital for new holdings.
Between taking over management of the Company and the end of the year, we made three new investments:
Gamma Communications is a provider of internet telephony and related services to corporates of all sizes. It has a strong long term track record of growth driven by multi-year transition from fixed-line to internet-based infrastructure. Close to 90% recurring revenue and inherent operational gearing drive attractive and predictable earnings growth.
Trading as Utility Warehouse, Telecom Plus is a multiservice provider of energy, telecoms and insurance services to UK customers. Growth is delivered by a unique network of c.50k 'partners' and competitive pricing is assured by long-term wholesale supply agreements and discounts for taking multiple services. Following the demise of the unsustainable 'challenger' energy providers, Utility Warehouse now has an unrivalled customer proposition in terms of breadth and value. With only c.2% market share and a plan to double customer numbers over 4-5 years, this should drive attractive earnings growth.
Alpha Group International (formerly Alpha FX) is a founder led provider of FX, banking and payment solutions to corporates and investment funds. It takes an innovative approach focused on providing long-term 'sticky' services based on a highly scalable technology platform. The model drives long term visible growth as new clients are 'layered' onto a recurring base. A well invested platform facilitates operational gearing and cash generation which can be reinvested to drive further growth.
In addition, from the start of 2023 to the time of writing we have started further positions in technology business Spirent Communications and specialist lender OSB Group. We look forward to discussing these in more detail in future reports.
Conclusion
We are delighted to have been appointed as your Company's new investment managers and excited about the opportunities ahead of us. While you should expect to see further carefully considered changes over the coming months, this will only ever happen with your best interests as shareholders in mind.
Dan Nickols
Lead Manager
Matt Cable
Fund Manager
15th February 2023
SHARE SPLIT
The price of the Company's existing ordinary shares of 25p each ("Existing Ordinary Shares") has increased substantially over recent years and as at 13th February 2023 (being the latest practicable date prior to publication of this document), the closing share price was GBP20.80. To assist monthly savers and those who reinvest their dividends or are looking to invest smaller amounts the Directors believe that it is appropriate to propose the sub-division of each Existing Ordinary Share into 10 new ordinary shares of 2.5p each ("New Ordinary Shares"). The Directors believe that the sub-division (the "Share Split") may also improve the liquidity in and marketability of the Company's shares which would benefit all shareholders. Following the Share Split, each shareholder will hold 10 New Ordinary Shares for each Existing Ordinary Share that they held immediately prior to the Share Split. Whilst the Share Split will increase the number of ordinary shares the Company has in issue, upon the Share Split becoming effective the net asset value, share price and dividend per share can be expected to become one-tenth of their respective values immediately preceding the Share Split.
A holding of New Ordinary Shares following the Share Split will represent the same proportion of the issued ordinary share capital of the Company as the corresponding holding of Existing Ordinary Shares immediately prior to the Share Split. The Share Split will not affect, therefore, the overall value of a shareholder's holding in the Company. By way of example, taking the net asset value (including current year revenue) and share price as at 13th February 2023 of GBP24.51 and GBP20.80 respectively per Existing Ordinary Share, if the Share Split had become effective as at that date, each holder of one Existing Ordinary Share would receive 10 New Ordinary Shares each with an aggregate net asset value and share price of GBP2.45 and GBP2.08 respectively immediately following the Share Split. The New Ordinary Shares will rank pari passu with each other and will carry the same rights and be subject to the same restrictions as the Existing Ordinary Shares, including the same rights to participate in dividends paid by the Company.
The ex-dividend date for the final dividend in respect of the year ended 31st December 2022 is before the date of the Share Split and so dividends payable in March 2023 will not be affected. In future years, dividends per share will be one-tenth of the level that they would otherwise have been but a shareholder who neither buys nor sells shares will continue to receive the same amount in dividends as they would otherwise have received. Communication preferences and mandates and other instructions for the payment of dividends via CREST or in paper form will, unless and until revised, continue to apply to the New Ordinary Shares.
The Share Split will not itself give rise to any liability to UK income tax (or corporation tax on income) for shareholders. For the purposes of UK capital gains tax and corporation tax on chargeable gains, the receipt of the New Ordinary Shares will be treated as the same asset as the shareholder's holding of Existing Ordinary Shares and as having been acquired at the same time, and for the same consideration, as the shareholder's holding of Existing Ordinary Shares.
The Share Split requires the approval of shareholders and, accordingly, Resolution 13 at this year's Annual General Meeting seeks such approval. The Share Split is conditional on the New Ordinary Shares being admitted to the Official List of the Financial Conduct Authority and to trading on the London Stock Exchange's main market for listed securities. Application for such admissions will be made and, if they are accepted, it is proposed that the last day of dealings in the Existing Ordinary Shares will be 23rd March 2023 (with the record date for the Share Split being 6.00pm on that date) and that dealings in the New Ordinary Shares will commence on 24th March 2023. If Resolution 13 is passed, the Share Split will become effective on admission of the New Ordinary shares to the Official List, which is expected to be at 8.00am on 24th March 2023. The aggregate nominal value of the Company's issued share capital as at 13th February 2023 comprised 6,088,670 ordinary shares of 25p each. If the Share Split is applied to the issued share capital as at 13th February 2023, the total aggregate nominal value of the share capital will remain at GBP1,522,167.5 but will comprise 60,886,700 ordinary shares of 2.5p each in issue.
The New Ordinary Shares may be held in uncertificated or certificated form. Following the Share Split becoming effective, share certificates in respect of the Existing Ordinary shares will cease to be valid and will be cancelled. New certificates in respect of the New Ordinary Shares will be issued to those shareholders who hold their Existing Ordinary Shares in certificated form and are expected to be dispatched not later than 24th 2023. No temporary documents of title will be issued. Transfers of New Ordinary Shares between 24th 2023 and the dispatch of new certificates will be certified against the Company's register of members held by the Company's Registrars. It is expected that the ISIN (GB0007392078) of the Existing Ordinary Shares will be disabled in CREST at the close of business on 23rd March 2023 and the New Ordinary Shares will be credited to CREST accounts on 24th March 2023.
PORTFOLIO STATEMENT
Details of the investments held within the portfolio as at 31st December 2022 are given below by market value:
31st December 2022 31st December 2021
Holdings
Market Value % of Net Assets Holdings Market Value % of Net Assets
UK Investments
Macfarlane 17,250,000 17,509 12.44 17,250,000 22,425 10.02
Vp 2,450,000 16,170 11.49 1,800,000 16,236 7.26
Hill & Smith 1,246,286 14,606 10.37 1,434,230 25,673 11.48
Treatt 2,012,000 12,535 8.90 2,500,000 32,125 14.36
Spirax-Sarco Engineering 94,415 10,022 7.12 120,714 19,368 8.66
Colefax 1,606,500 9,639 6.85 2,050,000 12,505 5.59
RS 838,870 7,512 5.34 1,300,000 15,678 7.01
Gamma Communications 640,919 6,935 4.93 - - -
Renold 30,000,000 6,240 4.43 30,000,000 9,000 4.02
Telecom Plus 263,070 5,774 4.10 - - -
Carr's 4,750,000 5,629 4.00 3,300,000 5,280 2.36
Videndum 500,000 5,370 3.81 500,000 7,100 3.17
Morgan Advanced Materials 1,500,000 4,718 3.35 1,500,000 5,370 2.40
IMI 292,263 3,764 2.67 400,000 6,944 3.10
Eleco 4,520,781 3,029 2.15 4,520,781 4,069 1.82
Alpha Group International 98,611 1,824 1.30 - - -
Castings 400,000 1,384 0.98 400,000 1,400 0.63
Titon 1,265,000 886 0.63 1,265,000 1,391 0.62
Santander UK 10.375%
Non Cumulative Preferred 400,000 540 0.38 400,000 700 0.31
Coral Products 2,000,000 320 0.23 2,000,000 290 0.13
Dyson 1,000,000 41 0.03 1,000,000 2 -
Costain 41 - - 41 - -
Bellway* - - - 130,000 4,337 1.94
Menzies (John)* - - - 882,142 2,708 1.21
National Grid* - - - 137,500 1,457 0.65
GlaxoSmithKline* - - - 70,000 1,125 0.50
Dialight* - - - 238,095 738 0.33
LPA* - - - 650,000 403 0.18
Chamberlin* - - - 1,000,000 73 0.03
Discretionary Unit Fund Managers** - - - 2 - -
Total Investments 134,447 95.50 196,397 87.78
Net current assets 6,336 4.50 27,335 12.22
Net Assets 140,783 100.00 223,732 100.00
Unless otherwise specified, the actual holdings are, in each case, of ordinary shares or stock units and of the nominal value for which listing has been granted.
*Sold during the year to 31st December 2022.
**Discretionary Unit Fund Managers Limited was dissolved on 26th April 2022.
STRATEGIC REPORT
The Strategic Report is designed to provide information primarily about the Company's business and results for the year ended 31st December 2022 and should be read in conjunction with the Chairman's Statement and the Investment Manager's Report.
PERFORMANCE STATISTICS 31-Dec-22 31-Dec-21 % change NAV per Ordinary Share 2,283.2p 3,036.6p -24.8% Discount to NAV -17.2% -9.6% -7.6% Closing mid-market price per Ordinary Share 1,890.0p 2,745.0p -31.1% Dividends per Ordinary Share 40.00p 34.75p Dividend yield* 2.1% 1.3% Ongoing Charges* 0.5% 0.3% Earnings per Ordinary Share - basic Revenue 38.9p 38.8p Capital -818.2p 766.0p NAV return* -24.8% 34.4% FTSE All-Share Index -3.2% 14.5%
*These are Alternative Performance Measures.
EXPLANATION OF ALTERNATIVE PERFORMANCE MEASURES ("APMS")
An alternative performance measure is a financial measure of historical or future financial performance, financial position or cash flow that is not prescribed by the relevant accounting standards. The APMs are the dividend yield, ongoing charges and NAV return as defined below.
Dividend Yield
The dividend yield is a financial ratio which indicates how much the Company pays out in dividends each year relative to its share price. The figure is calculated by dividing the aggregate value of dividends per share in a given year by the closing share price and is represented as a percentage.
The dividend yield was calculated as follows:
2022 2021
Total dividends per ordinary share (a) 40.00p 34.75p
Closing mid-market price per Ordinary Share (b) 1,890.0p 2,745.0p
Dividend Yield (a) / (b) *100 2.1% 1.3%
Ongoing Charges
Ongoing charges are expenses charged to revenue or capital that relate to the operation of the Company as an investment trust and are deemed likely to recur in the foreseeable future. They do not include the costs of acquisition or disposal of investments, financing costs and gains or losses arising on investments. Ongoing charges are calculated on the basis of the annualised ongoing charge as a percentage of the average net asset value in the period.
The calculation methodology for ongoing charges is set out by the Association of Investment Companies ("AIC") and was calculated as follows:
2022 2021
Investment management fee? GBP'000 GBP'000
175 -
Other expenses 767 724
Total Expenses (a) 942 724
Average NAV (b) 174,479 207,111
Ongoing Charge (a) / (b) 0.5% 0.3%
?Following the appointment of Jupiter Unit Trust Managers as Investment Manager on 3rd October 2022, a management fee is payable quarterly to the Investment Manager.
NAV Return
NAV return is the percentage change in closing NAV per share compared with opening NAV per share. NAV return was calculated as follows:
NAV per Ordinary Share 31st December 2022 (a) 2,283.2p NAV per Ordinary Share 31st December 2021 (b) 3,036.6p NAV return (a/b-1)*100 -24.8%
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 is an "alternative investment fund" ("AIF") for the purposes of the EU Alternative Investment Fund Managers ("AIFM") Directive, as adopted in the UK. 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 Company's objective is to exceed the benchmark index over the long term whilst managing risk.
To achieve this objective, the Board appointed Jupiter Unit Trust Managers Limited ("JUTM" or "Jupiter") on 3rd October 2022 to continue the Company's long-term strategy of seeking out undervalued investments. This is supported by the five-yearly review that addresses the above objective. The latest review was conducted in January 2021, at which the Board concluded that the continuation of the Company for the period until July 2026 was in the best interests of shareholders.
The Company fulfils its investment objective and policy by operating as an investment company. The Board delegates operational matters to specialist third-party service providers. The closed-ended nature of the Company allows a longer-term view on investments because liquidity issues as a result of redemptions are less likely to arise. The Board has closely monitored performance in 2022 to ensure the Company's strategic objectives are continuing to be met.
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 pages 21 and 22.
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.
The Investment Manager plans to balance risk and improve performance by reducing the Company's largest holdings and investing in additional holdings at similar weights. The Investment Manager also plans to invest in companies from a broader range of industries and sectors over time.
The investment portfolio is 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.
Full details of the Company's portfolio are set out on page 13 and further information is set out in Notes 9 to 12 inclusive.
SUSTAINABILITY OF BUSINESS MODEL AND PROMOTING THE SUCCESS OF THE COMPANY
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 Manager 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, in 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 Manager, 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. Further related information can be found on pages 18 to 21.
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 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
Mr S. J. B. Knott ceased to be CEO and Investment Director of the Company on 3rd October 2022, at which time he became a non-executive Director. Dr D. M. Bramwell retired as a Director of the Company on 31st December 2022 and Ms M. H. Vaughan was appointed as a non-executive Director and Chair of the Audit, Risk and Compliance Committee on 1st January 2023. As a result of these changes, the Company's affairs are overseen by a Board comprising five non-executive Directors, one of whom is female, four of whom are male and none of whom are from an ethnic minority background. The FCA Listing Rules board diversity targets are as follows: at least 40% of board members are women, at least one board member is from an ethnic minority background and at least one of the senior positions on the board is held by a woman. The role of Audit, Risk and Compliance Committee Chair is held by a woman, however, the first two of these targets are currently not met by the Company. In terms of progress in achieving diversity, the Board 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. Improving the Board's gender and ethnic diversity was a key focus of the recent process to recruit the new Chair of the Audit, Risk and Compliance Committee and will continue to be so when the Board goes through its next recruitment process. The Directors engaged a recruitment consultant to aid in the process of finding and recruiting the Chair of the Audit, Risk and Compliance Committee to ensure access to a diverse pool of candidates.
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 the importance 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 Manager for monitoring the corporate governance of investee companies. The Board has delegated to the Investment Manager 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 Manager 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 Manager 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 Investment Manager would not normally vote against investee company management but would seek, through engagement, to achieve its aim. The Investment Manager would, however, vote against resolutions it considers would damage the Company's shareholder rights or economic interests.
The Company has a procedure in place such that where the Investment Manager, 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 to formally 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 2022 (2021: same). The Directors receive and use electronic meeting packs only. The Company provides electronic copies of the annual and half-yearly reports and other shareholder information on its website. All printed material, wherever possible, is on recycled material. The Investment Manager 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.
ENVIRONMENTAL, SOCIAL & GOVERNANCE ("ESG") REPORTING
Overview
As a high-conviction active asset manager, the Investment Manager recognises that it has an important role to play in the allocation of capital, both as active owners and long-term stewards of the assets in which it invests on behalf of clients. The investment team has a defined investment process, and consideration of material ESG issues is integrated into both investment analysis and decision-making, influencing asset allocation, portfolio construction, security selection, position sizing, stewardship, engagement and subsequent decisions on whether to remain invested or exit.
The Investment Manager's Responsible Investment Policy, available on its website, describes how it approaches these issues as an active investor, setting out its sustainability governance and oversight, its approach to ESG integration and materiality and core material ESG issues. The Investment Manager supports the Company's integration of environmental, social and governance (ESG) responsibilities in the following ways:
-- The presence of a dedicated ESG Investment Director within the investment team
-- The support provided by Jupiter's Stewardship and Data Science Teams
-- The oversight provided by the Investment Manager's Sustainability and Responsible InvestmentGovernance Structures
ESG in a UK small and mid-cap context
The Company's investment universe comprises small and mid-size companies which may be exposed to important sustainability risks and opportunities that can have material impacts on value. As an active investment manager, the Investment Manager believes that effective ESG integration cannot be outsourced to third parties, but must be incorporated into the fundamental analysis conducted by the investment team.
In particular, smaller companies remain under-researched by ESG rating agencies relative to their larger listed peers. Where they are covered at all, smaller companies are often penalised by rating agencies, either due to their corporate governance arrangements or a relative lack of detailed corporate disclosure about ESG issues. These factors presents challenges but also, in the Investment Manager's view, opportunities to identify ESG risks or opportunities affecting companies which are not priced efficiently by financial markets.
Corporate Governance
To grow successfully, the leadership of smaller companies must not only execute strategically, they must also lay the foundations for future growth by creating appropriate corporate governance structures. The Investment Manager would argue that as corporate culture is set at an early stage, the relationships formed with key stakeholders such as customers, the workforce and suppliers at this point in a company's development can be fundamental to long-term success. The Investment Manager fully endorses the principles of the UK Corporate Governance Code, and while it acknowledges the need for pragmatism with smaller companies, it still expects high standards of governance at investee companies to support their growth in a sustainable manner.
The Investment Manager assesses company governance on a range of issues. These issues may include but are not limited to:
-- Boards and executive leadership: The Investment Manager builds an understanding of thequality of leadership teams and boards through assessment of i) board and committee composition and independence,ii) board and executive tenure and succession planning, iii) Diversity, Equity and Inclusion ("DE&I") oversight andactions at board level and throughout an enterprise, iv) oversight and management of corporate culture.
-- Remuneration: Management incentivisation structures should be aligned with shareholderinterests. The Investment Manager considers KPIs governing short and long-term incentivisation, as well as theoverall quantum, when assessing remuneration packages. It seeks to understand how remuneration structures encouragecorrect behaviours and how management compensation decisions are linked to the wider employee and sustainabilityagenda.
-- Protection of minority rights and related party transactions: The Investment Manager willescalate engagement where it believes that minority rights have been compromised.
-- Systemic risks: The environment in which companies operate continues to change rapidly andthe Investment Manager considers where businesses are exposed to wider systemic risks, including through theassessment of global standards, such as the UN Global Compact.
-- Conduct, litigation and relations with policy makers and regulators: Poor relations withregulators can severely hamper corporate success and result in value destruction for investors. The InvestmentManager seeks to understand board oversight of regulatory matters and how a company guards against malpractice.
-- Corporate culture: The Investment Manager may engage with boards to understand how corporateculture is being led, developed, and monitored and to highlight strengths and areas for development. Whererelevant, it seeks to understand how management is advancing culture and where and how culture challenges emerge.
-- Audit and control environment: The Investment Manager considers quality and independence ofauditors. It may escalate engagement with Audit Committee chairs where it believes that audit standards are not inline with its expectations.
Environmental
Climate
Limiting global temperature rises to 1.5 degrees above preindustrial levels, in line with the Paris Agreement, is an urgent challenge facing the global economy. The Investment Manager uses its influence as an investor through stewardship and active ownership to encourage companies to identify, manage and mitigate climate change risks or opportunities. It believes that the scale of climate change will impact all sectors, industries, and asset classes and it acknowledges the positive role that investors can play in tackling it through its investment decisions and capital allocation.
The Investment Manager's approach is centred on net zero asset alignment, which prioritises the transition to a low carbon economy through active stewardship. This approach creates a greater understanding of a company's readiness to implement climate-related changes, track progress against goals, and demonstrate impact over time. At a strategy level, the investment team considers asset alignment based on the Net Zero Investment Framework. The Investment Manager supports the Task Force on Climate Related Financial Disclosures (TCFD) and encourages companies to provide accurate and timely disclosure in line with the four thematic pillars of the TCFD framework.
Biodiversity
The Investment Manager considers biodiversity impacts in its ESG analysis of companies, in line with its approach and commitments. It engages with investee companies where it believes their practices are unsustainable, with the goal of achieving change, reversing biodiversity loss, while preserving and enhancing the value of its clients' assets.
Social
Human Rights
Companies with poor management of human rights can face a range of issues including fines, workforce issues and supply chain challenges which may affect their licence to operate. The Investment Manager monitors and assesses human rights policies and procedures for its investee companies to ensure that they are promoting good governance and management of human rights issues. It expects companies to comply with internationally-recognised human rights codes and standards.
Human Capital
Good human capital management supports both value creation and business resilience, and the Investment Manager believes that investing in human capital correlates with longer term business success. Human capital management can both upskill and educate a workforce, increase abilities and retain and motivate employees which has a direct impact both on an individual company and on wider society.
Promoting DE&I enables companies to attract talent from a wider talent pool. It also contributes to better decision-making, performance, innovation and employee satisfaction and retention. The Investment Manager understands that approaches to human capital management, including DE&I will differ, and as an active owner it seeks to understand an investee company's operating model and engages to advise on best practice and potential improvements.
Health and safety
Occupational health and safety is a useful metric to outline good workforce practices and a strong operational culture. Where a company fails to meet health and safety standards, the Investment Manager will engage and encourage the company to improve its practices and to disclose health and safety indicators. Good health and safety should be embedded in a business and the Investment Manager promotes a zero-harm ethos.
Engagement
Engagement is central to the Investment Manager's active ownership approach. It advances its responsible investment goals, builds lasting relationships with companies and provides its investment teams with greater investment insights. The investment team maintains a dialogue with companies to inform its investment decisions and carry out strategic engagement, based on ESG materiality. To be effective, engagement must be focused and have well-defined targets, objectives, and outcomes. The Investment Manager does not believe that volume of engagement is a reliable indicator of successful active ownership.
The Investment Manager regularly engages with companies to monitor material ESG issues that will impact the long term success of an investment. Engagement should be proactive as reactive engagement may not achieve positive outcomes for investors. Many material ESG issues are complex and interconnected, and outcomes take time. The Investment Manager is committed to long term engagement goals. However to protect client interests it reserves the right to exit an investment if it concludes that progress is insufficient or does not meet its strategic objectives.
The Investment Manager's primary tool is direct engagement with companies. It also engages in collective engagement where such action aligns with its objectives.
Proxy Voting
Exercising its shareholder voice through active proxy voting is central to the Investment Manager's stewardship approach to represent client interests, hold boards to account and support investee companies. It seeks to vote all eligible proxies, taking account of local market practice such as powers of attorney or share blocking. Its investment managers are accountable for the exercise of their shareholder votes supported by the Stewardship team, which is responsible for proxy voting operations, the monitoring of meeting ballots and providing an initial assessment of each meeting's agenda, including an assessment of independent proxy advisory research.
Data Science and third-party data resource
The Investment Manager's in-house data science team has built a proprietary desktop tool, known as ESG Hub, which allows the investment teams to apply multi-factor ESG screening to their investment universe and to build custom reports. It uses third-party data sources as an input into ESG Hub. It continues to evolve and develop ESG Hub as the quality, consistency, and accuracy of ESG data and analysis improves.
The data science team also works with third-party ESG data providers to challenge and provide constructive feedback to enhance the quality and integrity of the ESG data sets it uses.
Screening
The Investment Manager does not exclude, except i) where required by law, ii) in line with the specifications of a particular client mandate, or iii) if a company is involved in banned activities under the following international conventions:
-- The 1997 Ottawa Convention (Anti-Personnel Mine Ban Treaty)
-- The 2008 Convention on Cluster Munitions (CCM)
It uses third party vendors to screen for involvement in controversial and banned weaponry.
STREAMLINED ENERGY AND CARBON REPORTING
The Company is categorised as a lower energy user under the HMRC Environmental Reporting Guidelines March 2019 and is therefore not required to make the detailed disclosures of energy and carbon information set out within the guidelines. The Company's energy and carbon information is therefore not disclosed in this Report.
REVIEW OF THE BUSINESS
A review of the year and commentary on the future outlook is provided in the Chairman's Statement on pages 8 and 9.
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 decreased from GBP223.7m to GBP140.8m, largely as a result of the tender offer which was completed in September 2022, the ongoing share buyback programme and the fall in the value of investments. At 31st December 2022 the net asset value per Ordinary share was 2283.2p.
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'sbenchmark index).
-- Dividends per Ordinary share.
-- Ongoing Charges ratio (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 decreased by 24.8% compared to a decrease of 3.2% in the FTSE All-Share Index. Over the five years ended 31st December 2022 shareholders' funds decreased by 3.8% compared with a decrease of 3.5% in the FTSE All-Share Index.
Dividends per Ordinary share
The total dividend per Ordinary share paid and proposed is 40.0p (2021: 34.75p).
Ongoing Charges
Ongoing charges are expenses charged to revenue or capital that relate to the operation of the Company as an investment trust and are deemed likely to recur in the foreseeable future. They do not include the costs of acquisition or disposal of investments, financing costs and gains or losses arising on investments. Ongoing charges are calculated on the basis of the annualised ongoing charges as a percentage of the average net asset value in the period. The Ongoing Charges for the year ended 31st December 2022 were 0.5% (2021: 0.3%).
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 during the year 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's portfolio is diversified. 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 19 to the financial statements on pages 62 and 63.
Additional key risks identified by the Company, together with the Board's approach to 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 Manager 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 analyses. The Board has a clearly defined investment philosophy which requires the Investment Manager to operate a diversified portfolio.
Share price discount - Investment trust shares often trade at a discount to their underlying net asset values. A disproportionate widening of the discount comparative to peers could lead to a decrease in value for shareholders. The Board continually monitors the level of the discount and discusses its discount management policy with the Investment Manager. On 7th December 2016, the Company implemented share buy-back arrangements to mitigate the risk of the discount increasing. In August 2022, the Board announced an extension to the share buy-back programme. The Board has authorised the repurchase of shares up to a rolling GBP1 million per month until July 2023 (subject to the renewal of the buy-back authority at the forthcoming AGM).
Loss of key personnel - The Investment Manager is crucial to performance and the loss of key personnel could adversely affect performance in the medium term. The Board reviews its strategy for this risk annually. The Board has decreased the risk of having no key personnel available by appointing JUTM as Investment Manager, in place of a sole Investment Director. Jupiter provides two dedicated fund managers to the Company as part of the Investment Management Agreement. Jupiter also regularly considers its remuneration packages in order to retain staff and routinely reviews succession planning.
Regulatory risk - The Company must comply with the requirements of 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 reviews a schedule of regulatory risk items at its Board meetings and takes 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. The Board monitors the custodian to ensure assets remain protected. The Company operates internal controls to safeguard assets held by the custodian, for example, through the Administrator which reconciles the Company's cash and stock positions to the custodian's records on a daily basis.
Political risk - Changes in the political landscape could substantially affect the Company's prospects and the value of its investment portfolio. Political risks are discussed at Board meetings. The risk to market stability and the impact of imposed sanctions following the conflict between Russia and Ukraine were discussed between the Investment Manager and the Board. The Company has no exposure to Russian stocks within its portfolio and therefore there was no need to amend the Company's investment approach.
Climate change risk - Climate change will bring fundamental shifts to economic activity and human behaviour across the planet. The Board and Investment Manager regularly consider how climate change could affect the Company's investment portfolio and shareholder returns.
Pandemic Risk - The COVID-19 pandemic highlighted the speed at and extent to which a pandemic or health emergency can exert strain on both global and localised economies and infrastructure. The structural changes that have been accelerated by the pandemic continue to present risks and opportunities for different sectors and their products, markets and supply chains. The Investment Manager mitigates exposure to these risks by carefully monitoring performance and adaptability of portfolio companies, diversifying investments and seeking to learn lessons from the COVID-19 pandemic which may be of use in future pandemics or health crises.
Economic conditions - Changes in economic conditions including, but not limited to, interest rates, rates of inflation, competition and tax legislation, could have a significant effect on the Company's prospects and the value of its investment portfolio. The Board reviews the investment strategy and the portfolio at each Board meeting, taking into account economic conditions in the market sectors in which the Company invests. The Board continually considers economic conditions whilst seeking to meet the Company's investment objective.
These and other risks facing the Company are reviewed regularly by the Audit, Risk 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. In doing so it gives 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. As at 31st December 2022, the Company had no employees.
Stakeholder Engagement in the year and their material issues
Group
Shareholders play an important role in monitoring and safeguarding the governance of the Company. They
have access to the Board via the Company Secretary throughout the year. The Board welcomes the
opportunity to engage with shareholders at its
Annual General Meeting. The Company continues to communicate with shareholders via the Company Secretary,
its website and the publication of its financial reports throughout the year.
Investors
The Board encourages shareholders to ask questions of the Chairman of the Board and all other Directors
via the Company Secretary and to ask questions of the
Investment Manager. Shareholders may submit questions to cosec@maitlandgroup.com or
investmentcompanies@jupiteram.com. Communication with shareholders enables the Board to make informed
decisions when considering how to promote the success of the Company over the long term.
The Board relies on a number of advisors for support in the successful operation of the Company and in
meeting its obligations. The Board therefore considers the Investment Manager, Secretary/Administrator,
Broker, Registrar, Custodian and Depository to be stakeholders.
Suppliers Key suppliers are required to report to the Board on a regular basis and, as detailed on page 16, there
is a robust framework in place to evaluate their performance annually. The Company employs a
collaborative approach and looks to build long term partnerships based on open terms of business and fair
payment terms.
The Secretary engages with key suppliers to ensure that services provided are satisfactory.
The Board recognises the benefits of good communication with and stewardship of investee companies and
Investee the importance of such in meeting the Company's investment objective.
Companies
The Investment Manager meets with the management of companies in which the Company has a significant
interest and reports on findings to the Board regularly.
As a company listed on the London Stock Exchange, the Board ensures compliance with the necessary rules
Regulators and regulations relevant to the Company in order to build trust and maintain its reputation in the
market.
As discussed in more detail on pages 22 and 23 and throughout this report, in pursuing the Company's
Community and objectives, various factors that may impact on performance are considered. These may include
environment environmental, social and governance ('ESG') issues. The Board believes that poor practices can have an
impact on the value of investments and potential investments and consideration of ESG factors as part of
the investment process is therefore key.
Factoring Stakeholders into Principal Decisions
The Board defines principal decisions as not only 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 as between the members of the Company.
Change of Investment Manager and AIFM
Following Mr S. J. B. Knott's decision to retire as CEO and Investment Director the Board engaged a
Principal third-party consultant to produce a shortlist of and to assist in a thorough evaluation of a number of
Decision 1 potential investment managers prior to taking the decision to appoint JUTM as Investment Manager and
AIFM. JUTM's appointment became effective on 3rd October 2022. JUTM is authorised and regulated by the
FCA as a "full scope UK AIFM" for the purposes of the AIFM
Directive.
Refocusing the Investment Portfolio
Principal Following a detailed review, the Board agreed that the Investment Manager should continue to gradually
Decision 2 rebalance and refocus the investment portfolio in order to mitigate risk, improve performance and
reinvest a proportion of the
Company's significant cash reserves in line with the Investment Objectives.
Change of Directorate
The Board recognises the importance of diversity of Directors in relation to their experience,
Principal background, gender and ethnicity, whilst also ensuring continuity. As announced on 8th December 2022, Dr
Decision 3 D. M. Bramwell retired from the Board on 31st December 2022. Following Dr D. M. Bramwell's retirement Mr
D. M. Best was appointed Chairman of the Company. The Board engaged a third-party recruitment consultant
in its search for an additional director. This search resulted in the appointment of Ms M. H. Vaughan as
a non-executive Director and Chair of the Audit, Risk and Compliance Committee on 1st January 2023.
Tender Offer
Principal As part of the change of Investment Manager the Board provided shareholders with an opportunity to tender
Decision 4 their shares and launched a tender offer on 2nd September 2022 for 10% of the issued share capital. The
tender offer was fully subscribed with 706,904 Ordinary shares being bought back by the Company. The
tender offer was conducted in addition to the ongoing share buyback programme. This was a discretionary
tender offer and was not made in accordance with any provision of the Articles of Association.
Change of Broker
Principal In conjunction with the tender offer process the Board evaluated a number of potential firms to provide
Decision 5 broking and advisory services to the Company. Having decided to engage finnCap Limited to conduct the
tender offer, the Board concluded that using the same broker for the share buy-back programme could
provide synergies and cost efficiencies. As a result, finnCap was appointed as the Company's broker on
1st August 2022.
Share buy-back programme
Principal
Decision 6 In August 2022 the Company announced an extension of the share buy-back programme for a further twelve
months. The Board has authorised repurchases of shares up to a rolling GBP1 million per month until July
2023. The continuation of the programme is designed to address the share price discount.
Dividend Policy
Principal The Board continues to operate a progressive dividend policy. Despite continuing uncertainty as a result
Decision 7 of the pandemic and the political and economic outlook, the Board has increased the annual dividend,
having paid and recommended dividends totalling 40.0p per share to shareholders for the financial year
ended 31st December 2022.
Remuneration
During the year the Nominations and Remuneration Committee undertook a review of the level of
non-executive Directors' fees. The Committee considered the level of fees relative to the Company's peer
group, together with the Company's performance and the need to attract and retain directors of a high
calibre. The Committee concluded that the fees for each non-executive director should be increased by
GBP3,000 per annum, with an additional fee of GBP4,000 for the Chair of the Audit, Risk and Compliance
Principal Committee and an additional fee of GBP9,000 for the Chairman with effect from 1st January 2023 and that the
Decision 8 fees should continue to be reviewed annually to ensure that the levels of remuneration remain attractive
to current and prospective directors. On the recommendation of the Nominations and Remuneration Committee
the Board considered and approved the proposed increase in Directors' fees. As a result of the increase
in the number of non-executive directors and the increase in fees, the aggregate annual fees for the year
ending 31st December 2023 will be GBP148,000, within the current total of GBP150,000 permitted by the
Articles of Association. Subject to approval at the 2023 AGM, the Board proposes that the aggregate level
of Directors' fees that can be paid during each financial year be increased from GBP150,000 to GBP250,000 to
allow for potential future increases in fees or the recruitment of additional directors.
Management Engagement Committee
The Board monitors the Investment Manager's performance against the
Principal Company's investment objective at each Board meeting. In addition, the Board took the decision to
Decision 9 establish a Management Engagement Committee in early
2023. The terms of reference of the Committee are yet to be determined but as a minimum the Committee
will meet annually to review the contractual terms and conditions and performance of the Investment
Manager.
Senior Independent Director
Principal
Decision 10 The Board agreed that it would be appropriate to nominate a non-executive director to take on the role of
Senior Independent Director ("SID"). Following his nomination, Mr J. B. Roper agreed to be appointed as
SID with effect from 19th January 2023.
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 Manager and a continuing programme of risk monitoring 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's portfolio comprises marketable smaller UK-listed and AIM traded securities andhas short term cash on deposit.
-- The Company does not use gearing.
-- The expenses of the Company were covered three times by investment income in 2022.
In order to maintain viability, the Company has a robust risk control framework for the identification and mitigation of risk which is reviewed regularly by Board. Consideration was also given to the principal risks and uncertainties faced by the Company, as detailed on pages 22 and 23. The Directors seek assurances from suppliers that their operations are well managed and that they are taking appropriate action to monitor and mitigate risk. The Board also considered the implications of the pandemic and resultant political and economic uncertainty in relation to the Company's investment positions, its future income streams and its ability to continue trading.
Based on the above, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
SHAREHOLDER COMMUNICATION
The Board is committed to maintaining open channels of communication with shareholders. It is the Chairman's role to ensure effective communication with the Company's shareholders and it is the responsibility of the Board to ensure that satisfactory dialogue takes place, based on the mutual understanding of objectives. The Board remains cognisant of the importance of clear communications with shareholders and will respond to all reasonable requests for information or meetings.
The Investment Manager maintains a regular dialogue with major shareholders and reports to the Board. In the event that shareholders wish to raise issues or concerns with the Directors, they are welcome to do so at any time via the Company Secretary at cosec@maitlandgroup.com. The Annual Report and half-year results are circulated to shareholders wishing to receive them and are available on the Company's website. These provide shareholders with a clear understanding of the Company's portfolio and financial position. This information is supplemented by the daily calculation and publication of the NAV per share. Shareholders are encouraged to ask questions either at the Annual General Meeting or via the Company Secretary.
COMPANY'S DIRECTORS AND EMPLOYEES
The number of directors and employees during the year was 5 (2021: 5).
2022 2021
Male Female Male Female
Directors (non-executive) 5* 0 4 0
Directors (executive) 0 0 1 0
Other Employees 0 0 0 0
* Mr S. J. B. Knott became a non-executive Director on 3rd October 2022.
The Directors have considered the Strategic Report and believe that taken as a whole it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance and strategy.
The Strategic Report was approved by the Board and signed on its behalf by:
Mr D. M. Best, Director 15th February 2023
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable United Kingdom law and UK adopted International Financial Reporting Standards ("IFRS").
The Directors are required to prepare the financial statements for each financial year which present fairly the financial position, the financial performance and cash flows of the Company for that period. In preparing those financial statements the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a manner that provides relevant,reliable, comparable and understandable information;
-- provide additional disclosures when compliance with the specific requirements of IFRS isinsufficient to enable users to understand the impact of particular transactions, other events and conditions onthe Company's financial position and financial performance;
-- state that the Company has complied with IFRS subject to any material departures disclosedand explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presumethat the Company will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Strategic Report and Directors' Remuneration Report that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and financial statements taken as a whole are fair, balanced and understandable and provide shareholders with the information necessary to assess the Company's position and performance, business model and strategy.
The Directors confirm that to the best of their knowledge:
-- the financial statements, prepared in accordance with applicable accounting standards, give atrue and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
-- the Strategic Report includes a fair review of the development and performance of the businessand the position of the Company, together with a description of the principal risks and uncertainties that itfaces.
Mr D. M. Best, Director 15th February 2023
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st December 2022
Year ended 31st December Year ended 31st December
2022 2021
Notes
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment income 2 3,633 - 3,633 3,640 - 3,640
Other operating income 2 19 - 19 - - -
Total income 3,652 - 3,652 3,640 - 3,640
(Losses)/gains on fair value through 10 - (56,774) (56,774) - 58,259 58,259
profit or loss assets
(Losses) on subsidiary holding 11 - - - - (758) (758)
3,652 (56,774) (53,122) 3,640 57,501 61,141
Expenses
Investment management fee 3 175 - 175 - - -
Other expenses 4 767 181 948 724 34 758
942 181 1,123 724 34 758
Profit before finance costs and 2,710 (56,955) (54,245) 2,916 57,467 60,383
taxation
Finance costs - - - - - -
Profit before tax 2,710 (56,955) (54,245) 2,916 57,467 60,383
Tax 6 - - - - - -
Profit for the year 2,710 (56,955) (54,245) 2,916 57,467 60,383
Earnings per share
Return per Ordinary share 8 38.9p (818.2)p (779.3)p 38.8p 766.0p 804.8p
The total column represents the statement of comprehensive income of the Company.
The revenue and capital columns, including the revenue and capital earnings per Ordinary Share, are supplementary information prepared under guidance published by the AIC.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income. Therefore no separate Statement of Comprehensive Income has been presented.
The accompanying notes form part of these financial statements.
BALANCE SHEET
as at 31st December 2022
Non-current assets 2022 2021
Notes
Investments - fair value through profit GBP'000 GBP'000
or loss 10 134,447 196,397
134,447 196,397
Current assets
Other receivables 13 561 641
Cash and cash equivalents 6,039 26,761
6,600 27,402
Total assets 141,047 223,799
Current liabilities
Other payables 14 264 67
Total assets less current liabilities 140,783 223,732
Net assets 140,783 223,732
Equity
Called up share capital 15 1,542 1,842
Capital redemption reserve 16 713 413
Retained reserves:
Capital reserve 16 67,191 81,410
Revaluation reserve 16 69,032 137,959
Revenue reserve 16 2,305 2,108
Total equity 140,783 223,732
Net asset value per share
Ordinary shares 17 2283.2p 3036.6p
The accompanying notes form part of these financial statements.
The financial statements were approved by the Board and authorised for issue on 15th February 2022. They were signed on its behalf by:
Mr D. M. Best, Director
STATEMENT OF CHANGES IN EQUITY
for the year ended 31st December 2022
Capital
Share Redemption Capital Revaluation Revenue Total
Balance at capital reserve reserve reserve
reserve GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
31st December 2020 1,885 370 63,842 102,833 1,399 170,329
Changes in equity for 2021
Profit for the year - - 22,341 35,126 2,916 60,383
Total recognised income and expense 1,885 370 86,183 137,959 4,315 230,712
Ordinary shares bought back and (43) 43 (4,551) - - (4,551)
cancelled
Dividends 7 - - (222) - (2,207) (2,429)
As at 31st December 2021 1,842 413 81,410 137,959 2,108 223,732
Capital
Share Redemption Capital Revaluation Revenue Total
Balance at capital reserve reserve reserve
reserve GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
31st December 2021 1,842 413 81,410 137,959 2,108 223,732
Changes in equity for 2022
Profit/(losses) for the year - - 11,972 (68,927) 2,710 (54,245)
Total recognised income and expense 1,842 413 93,382 69,032 4,818 169,487
Ordinary shares bought back and (300) 300 (10,838) - - (10,838)
cancelled
Tender offer - - (15,111) - - (15,111)
Tender offer costs - - (242) - - (242)
Dividends 7 - - - - (2,513) (2,513)
As at 31st December 2022 1,542 713 67,191 69,032 2,305 140,783
The accompanying notes form part of these financial statements.
STATEMENT OF CASH FLOWS
for the year ended 31st December 2022
2021 2020
Cashflows from operating activities Notes
GBP'000 GBP'000
(Loss)/profit before tax (54,245) 60,383
Adjustments for:
Losses/(gains) on investments 56,774 (57,501)
Purchases of investments 10 (24,439) (9,502)
Proceeds on disposal of investments 10 29,615 28,611
Operating cash flows before movements in working capital 7,705 21,991
Decrease in receivables 80 40
Increase/(decrease) in payables 197 (6)
Decrease in amounts payable to group undertakings - (758)
Net cash from operating activities before income taxes 7,982 21,267
Income taxes received - -
Net cash from operating activities 7,982 21,267
Cashflows from financing activities
Ordinary shares bought back (10,838) (4,551)
Tender offer (15,111) -
Tender costs paid (242) -
Dividends paid 7 (2,513) (2,429)
Net cash used in financing activities (28,704) (6,980)
Net (decrease)/increase in cash and cash equivalents (20,722) 14,287
Cash and cash equivalents at beginning of year 26,761 12,474
Cash and cash equivalents at end of year 6,039 26,761
The accompanying notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31st December 2021
1. REPORTING ENTITY
Rights and Issues Investment Trust PLC is a closed-ended investment company, registered in England and Wales on 2nd October 1962 with Company number 00736898. The Company's registered office is Hamilton Centre, Rodney Way, Chelmsford CM1 3BY. Business operations commenced on 28th July 1966 when the Company's shares were admitted to trading on the London Stock Exchange. The Company invests primarily in a portfolio of equity securities 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 admitted to trading on the Alternative Investment Market ("AIM").
Details of the Directors, Investment Manager and Advisors can be found on page 3.
The financial statements of the Company are presented for the year ended 31st December 2022 and were authorised for issue by the Board on 15th February 2023.
Basis of Accounting
The financial statements have been prepared in accordance with UK-adopted international standards and the applicable legal requirements of the Companies Act 2006. On 31st December 2020, International Financial Reporting Standards ("IFRS") as adopted by the European Union at that date were brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted international accounting standards in its financial statements on 1st January 2021. There was no impact or change in accounting policies from the transition.
Under UK-adopted IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued in April 2021 has no formal status, but the Company adheres to the guidance of the SORP.
Going concern
The financial statements have been prepared on a going concern basis. In forming this opinion, the Directors have considered the general economic backdrop and the potential impact of the war in Ukraine on the going concern and viability of the Company. In making their assessment, the Directors have reviewed income and expense projections and the liquidity of the investment portfolio, and considered the mitigation measures which key service providers, including the Investment Manager, have in place to maintain operational resilience.
The Directors have a reasonable expectation that the Company has adequate operational resources to continue in operational existence for at least twelve months from the date of approval of these financial statements. Further information on the Company's going concern can be found on page 30.
Significant accounting policies a. Accounting convention
The accounts are prepared under the historical cost basis, except for the measurement of fair value of
investments. b. Adoption of new IFRS standards
In accordance with IFRS 10 (Investment Entities Amendments), the Company measured its subsidiary at fair
value through profit and loss and did not consolidate it. The subsidiary was dissolved on 26th April 2022.
There have been minor amendments to IAS 16, 37 and 41 and IFRS 4, 7, 9, and 16 which were effective for annual periods beginning on or after 1st January 2022 and have not had any material impact on the accounts. Amendments to IAS 1 (Disclosure of Accounting Policies), IAS 8 (Definition of Accounting Estimates), IFRS 4 (Extension of IFRS 9 Deferral) and IFRS 17 (Insurance Contracts) are effective for annual periods beginning on or after 1st January 2023 and are not anticipated to have any material impact on the accounts. c. Income
Dividend income is included in the financial statements on the ex-dividend date. All other income is included
on an accruals basis. d. Expenses
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account
except as follows:
-- Expenses which are incidental to the acquisition of an investment are included within the cost of theinvestment.
-- Expenses which are incidental to the disposal of an investment are deducted from the disposal proceedsof the investment. e. Taxation
The charge for taxation is based on the net revenue for the year. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Investment trusts which have approval under section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains. f. Dividends
Dividends payable to shareholders are recognised in the financial statements when they are paid or, in the
case of final dividends, when they are approved by the shareholders. g. Cash and cash equivalents
Cash comprises cash in hand and deposits payable on demand. Cash equivalents are short-term highly liquid
investments that are readily convertible to known amounts of cash. h. Investments
Investments are classified as fair value through profit or loss as the Company's business is investing in financial
assets with a view to profiting from their total return in the form of interest, dividends or capital growth.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as "Gains or losses on investments held at fair value through profit or loss". Also included within this heading are transaction costs in relation to the purchase or sale of investments.
All investments, classified as fair value through profit or loss, are further categorised into the following fair value hierarchy:
Level 1 - Unadjusted prices quoted in active markets for identical assets and liabilities.
Level 2 - Having inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3 - Having inputs for the asset or liability that are not based on observable data.
Investments traded on active stock exchange markets are valued at their fair value, which is determined by the quoted market bid price at the close of business at the balance sheet date. Where trading in a security is suspended, the investment is valued at the Board's estimate of its fair value.
Unquoted investments are valued by the Board at fair value using the International Private Equity and Venture Capital Valuation Guidelines.
Judgments, estimates or assumptions
The Directors have reviewed matters requiring judgments, estimates or assumptions. The preparation of the financial statements require management to make judgments, estimates or assumptions that affect the amounts reported for assets and liabilities as at the year end date and the amounts reported for revenue and expenses during the year. However, the nature of the estimate means that actual outcomes could differ from those estimates.
2. INCOME
2021 2020
Income from investments
GBP'000 GBP'000
Franked investment income 3,633 2,882
Dividend from subsidiary - 758
Other operating income 3,633 3,640
Deposit interest
Total income 19 -
Income from investments 3,652 3,640
UK equity listed
AIM traded 3,408 2,800
Unlisted stock 209 82
Dividend from subsidiary 16 -
- 758
3,633 3,640
3. INVESTMENT MANAGEMENT FEE
2022 2021
GBP'000 GBP'000
Investment management fee 210 -
Operating expenses rebate (35) -
175 -
Following the appointment of Jupiter as Investment Manager on 3rd October 2022 a management fee is payable quarterly to the Investment Manager on the following basis:
0.60% per cent per annum on the Company's NAV up to and including GBP200 million. 0.50% per cent per annum on the Company's NAV in excess of GBP200 million.
An operating expenses cap (rebate) will be applied, in respect of each financial year by means of a balancing charge, which will reduce the management fee payable to the Investment Manager with respect to the quarter ending 31st March of the following financial year. The operating expenses cap will not apply to the extent that the management fee would be less than 0.50% of the Company's average daily NAV during any financial year.
4. OTHER EXPENSES
2022 2021
GBP'000 GBP'000
Staff costs (note 5) 227 293
Non-executive Directors' fees 136 94
Administration fees 122 145
Auditor's remuneration
- Audit 18 17
- Review of the half yearly report 5 4
Secretarial services 42 42
Other 217 129
767 724
Capital expenses 181 34
948 758
5. STAFF COSTS 2022 2021
GBP'000 GBP'000
Wages and salaries 191 255
Social security costs 36 38
227 293
Number Number
The average number of staff employed by the Company was 1 1
GBP'000 GBP'000
Directors' emoluments 327 349
327 349
The highest paid Director received total emoluments of GBP191,250 (2021: GBP255,000) covering the period 1st January 2022 to 3rd October 2022 until the retirement of the Investment Director. The only employee during the period was the Investment Director which ceased when JUTM was appointed as Investment Manager.
6 TAX ON ORDINARY ACTIVITIES
2022 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
UK corporation tax at 19.00% (2021: 19.00%) - - - - - -
Tax receivable - - - - - -
- - - - - -
Profit before tax 2,710 (56,955) (54,245) 2,916 57,467 60,383
Tax on profit at standard rate 515 (10,821) (10,306) 554 10,919 11,473
Factors affecting the recovery/charge for the year:
Income not taxable (690) - (690) (692) - (692)
Capital items not taxable - 10,787 10,787 - (10,925) (10,925)
Unutilised losses carried forward 175 34 209 138 6 144
- - - - - -
No provision for deferred taxation has been made in the current year or in the prior year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.
Factors that may affect future tax charges
The Company has not recognised any deferred tax asset arising as a result of having unutilised management expenses. These expenses will only be utilised if the tax treatment of the Company's income and capital gains changes or if the Company's investment profile changes.
7. DIVIDENDS
Amounts recognised as distributions to equity holders in the year:
2022 2021
GBP'000 GBP'000
Ordinary (Paid)
Final dividend for the year ended 31st December 2021 of 24.0p per share
1,752 1,621
(year ended 31st December 2020: 21.5p, split 18.56p per share from Revenue and 2.94p per share from
Capital)
Interim dividend for the year ended 31st December 2022 of 10.75p per share (year ended 31st December 2021: 761 808
10.75p)
2,513 2,429
2022 2021
GBP'000 GBP'000
Ordinary
Proposed final dividend payable for the year ended 31st December 2022 of 29.25p
1,781 1,753
per share (year ended 31st December 2021: 24.0p)
The final dividend payable is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
Set out below is the total dividend paid and payable in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered.
2022 2021
GBP'000 GBP'000
Revenue available for distribution by way of dividend for the year 2,710 2,916
Ordinary
Interim dividend for the year ended 31st December 2022 of 10.75p per share
(761) (808)
(year ended 31st December 2021: 10.75p)
Proposed final dividend for the year ended 31st December 2022 of 29.25p per share
(1,781) (1,753)
(year ended 31st December 2021: 24.0p)
168 355
8. RETURN PER SHARE
2022 2021
Income Income
GBP'000 GBP'000
Return attributable to equity shareholders
Revenue return 2,710 2,916
Capital return (56,955) 57,467
(54,245) 60,383
p p
Revenue return per share 38.9 38.8
Capital return per share (818.2) 766.0
(779.3) 804.8
Return per share is calculated using the weighted average number of Ordinary shares in issue during the year of 6,960,445 (2021: 7,502,568).
9. INVESTMENTS
Analysis of the investments
The number of companies or institutions in which equities, convertibles or fixed interest securities were held was 22 (2021: 28).
EQUITY GROUPS 2022 2021
Basic Materials
GBP'000 % GBP'000 %
Chemicals 22,882 17.02 42,775 21.78
Industrials
General Industrials 17,509 13.02 22,425 11.42
Electronic & Electrical Equipment - - 738 0.37
Industrial Engineering 35,146 26.14 60,485 30.80
Support Services 23,682 17.62 34,622 17.63
Consumer Goods
Household Goods & Home Construction - - 4,337 2.21
Healthcare
Pharmaceuticals & Biotechnology - - 1,125 0.57
Telecommunications
Telecommunication Services 5,774 4.29 - -
Utilities
Gas, Water & Multi-Utilities - - 1,457 0.74
AIM Traded Stocks 28,873 21.48 27,731 14.12
Unlisted 41 0.03 2 -
Subsidiary - - - -
FIXED INTEREST
Preference 540 0.40 700 0.36
Total UK 134,447 100.00 196,397 100.00
10. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
Investments listed on a recognised 2022 2021
investment exchange
GBP'000 GBP'000
UK equity listed investments at fair value 105,533 168,664
AIM traded stocks 28,873 27,731
Unlisted stock 41 2
134,447 196,397
Listed Total
AIM traded/ Unlisted
2022 2022
2022
GBP'000 GBP'000
GBP'000
Opening book cost 42,333 16,105 58,438
Opening unrealised appreciation 126,331 11,628 137,959
Opening valuation 168,664 27,733 196,397
Movements in the year
Purchases at cost 15,844 8,595 24,439
Sales - proceeds (25,722) (3,893) (29,615)
Sales - realised gains on sales 10,262 1,891 12,153
Decrease in unrealised appreciation (63,515) (5,412) (68,927)
Closing valuation 105,533 28,914 134,447
Closing book cost 42,717 22,698 65,415
Closing unrealised appreciation 62,816 6,216 69,032
105,533 28,914 134,447
Realised gains on sales 10,262 1,891 12,153
Decrease in unrealised appreciation (63,515) (5,412) (68,927)
Losses on investments (53,253) (3,521) (56,774)
With the exception of the subsidiary (which was dissolved on 26th April 2022) and the unlisted stock, the Company's investments are Level 1 assets under the definition of IFRS 7 and comprise equity listed and AIM traded investments classified as held at fair value through profit or loss.
During the year transaction costs of GBP118,699 were incurred on the acquisition of investments (2021: GBP77,763). Costs relating to disposals of investments during the year amounted to GBP26,614 (2021: GBP30,894). All transaction costs have been included within the capital column of the Income Statement.
11. SUBSIDIARY UNDERTAKINGS
The Company had one wholly owned subsidiary undertaking, Discretionary Unit Fund Managers Limited, of which it held 100% of the nominal value of issued shares and voting rights. The subsidiary was dissolved on 26th April 2022.
12. SIGNIFICANT INTERESTS
The Company has a holding of 3% or more that is material in the context of the financial statements in the
following investments as at 31st December 2021:
Name %
holding
Colefax 22.20
Renold 13.31
Titon 11.28
Macfarlane 10.89
Vp 6.10
Eleco 5.44
Carr's 5.05
Treatt 3.35
13. OTHER RECEIVABLES
2022 2021
GBP'000 GBP'000
Prepayments and accrued income 561 641
561 641
14. OTHER PAYABLES
2022 2021
GBP'000 GBP'000
Accruals 264 67
264 67
15. SHARE CAPITAL
2021 2020
Allotted, Called Up and Fully Paid GBP'000 GBP'000
6,165,989 Ordinary shares of 25p each (2021: 7,367,952)
1,542 1,842
Number of
Ordinary
shares
2022
Balance at beginning of year 7,367,952
Ordinary shares bought back and cancelled (495,059)
Ordinary shares bought back and cancelled pursuant to (706,904)
the tender
Balance at end of year 6,165,989
During the year a tender offer for a total of 706,904 Ordinary shares tool place, representing 10.0% of the issued share capital, for a total consideration of GBP15,111,000. The tender offer was fully subscribed and was conducted in addition to the ongoing share buyback programme.
16. RESERVES
Capital redemption reserve Capital Revaluation reserve Revenue reserve
reserve
GBP'000 GBP'000 GBP'000
GBP'000
Beginning of year 413 81,410 137,959 2,108
Ordinary shares bought back and cancelled 300 (10,838) - -
Tender offer - (15,111) - -
Tender offer costs - (242) - -
Decrease in unrealised appreciation - - (68,927) -
Net gains on realisation of investments - 12,153 - -
Expenses - (181) - -
Profit for year - - - 2,710
Dividends - - - (2,513)
End of year 713 67,191 69,032 2,305
The capital reserve represents those realised profits and losses arising on the disposal of investments. The revaluation reserve represents unrealised profits and losses arising on the revaluation of investments held.
17. NET ASSET VALUE PER SHARE
The net asset value per Ordinary share calculated in accordance with the Articles of Association was as
follows:
Net asset value per
Net asset value attributable
Ordinary share attributable
2022 2021 2022 2021
p p GBP'000 GBP'000
Ordinary shares 2283.2 3036.6 140,783 223,732
The movements during the year were as follows:
Ordinary
shares
GBP'000
Total net assets attributable at beginning of year 223,732
Ordinary shares bought back and cancelled (10,838)
Tender offer (15,111)
Tender offer costs (242)
Total recognised gains for the year (56,955)
Transfer to reserves 197
Total net assets attributable at end of year 140,783
Number of Ordinary shares in issue 6,165,989
The Company may repurchase its own shares and then cancel them, reducing the freely traded shares ranking for dividends and enhancing returns and earnings per Ordinary Share to the remaining Shareholders. When the Company repurchases its shares, it does so at a total cost below the prevailing NAV per share.
In addition to the ongoing share buyback programme the Board provided shareholders with an opportunity to tender their shares and launched a tender offer on 2nd September 2022 for 10% of the issued share capital for a total consideration of GBP15,111,000. The tender offer was fully subscribed with 706,904 Ordinary shares being bought back by the Company. This was a discretionary tender offer and was not made in accordance with any provision of the Articles of Association.
The estimated percentage added to the NAV per share as a result of buybacks of 0.9% (2021: 0.3%) is derived from the repurchase of shares in the market at a discount to the prevailing NAV at the point of
repurchase. The shares were bought back at a weighted average discount of 12.9% (2020: 10.8%).
2022 2021 Weighted average discount of buybacks 12.9% 10.8% a Percentage of shares bought back 6.7% 2.3% b NAV accretion from buyback 0.9% 0.3% (a*b)/(100%-b)
18. RELATED PARTY TRANSACTIONS
On 26th April 2022 the Company's only subsidiary, Discretionary Unit Fund Managers, was dissolved. There
were no transactions during the year relating to the subsidiary.
2022 2021
GBP'000 GBP'000
Dividends received - 758
Amounts (due to)/owed by subsidiary undertaking - -
19. FINANCIAL ASSETS AND LIABILITIES
The Company's financial instruments comprise securities, cash balances and debtors and creditors that arise from its operations, for example, in respect of sales and purchases awaiting settlement and debtors for accrued income.
The investment policy and objectives of the Company are stated on page 1.
As an investment trust, the Company invests in securities for the long term. Accordingly it is and has been throughout the year under review, the Company's policy that no short term trading in investments or other financial instruments should be undertaken.
The main risks arising from the Company's financial instruments are market price risk, liquidity risk and credit risk. The Board's policy for managing these risks is summarised below. These policies have remained unchanged since the beginning of the year to which these financial statements relate.
Market price risk
Market price risk arises from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets at least quarterly to consider the asset allocation of the portfolio in order to minimise the risk associated with industry sectors. The Investment Manager has responsibility for monitoring the existing portfolio selected in accordance with the Company's investment objectives and seeks to ensure that individual stocks meet an acceptable risk-reward profile.
The Company's exposure to changes in market prices at 31st December 2022 on its quoted equity investments was GBP134,406,000 (2021: GBP196,395,000).
Liquidity risk
Liquidity risk is the possibility of the Company having difficulties in realising sufficient assets to meet its financial obligations. All investments are made in quoted securities, which are normally listed on the London Stock Exchange or AIM. Transactions in these securities may be subject to some short-term liquidity constraint, in common with other smaller and medium sized listed securities, but subject to that they are considered to be reasonably realisable.
Credit risk
Credit risk is the failure of the counterparty to a transaction to discharge its obligations which could result in the Company suffering a loss. At the year end the Company's maximum exposure to credit risk was as follows:
2022 2021
GBP'000 GBP'000
Trade and other receivables 561 641
Cash and cash equivalents 6,039 26,761
6,600 27,402
The risk is managed by dealing only with brokers and banks who have satisfactory credit ratings and are approved by the Audit and Compliance Committee.
Financial assets and liabilities
All assets and liabilities are included at fair value.
Valuation of financial instruments
IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 1h Investments.
The fair value hierarchy has the following levels:
Level 1 - Unadjusted prices quoted in active markets for identical assets and liabilities.
Level 2 - Having inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3 - Having inputs for the asset or liability that are not based on observable data.
31st December 2022 Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or loss GBP'000 GBP'000 GBP'000 GBP'000
UK Equity Listed 105,533 - - 105,533
AIM traded stocks 28,873 - - 28,873
Delisted stock - 41 - 41
Net fair value 134,406 41 - 134,447
31st December 2021 Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or loss GBP'000 GBP'000 GBP'000 GBP'000
UK Equity Listed 168,664 - - 168,664 168,664
AIM traded stocks 27,731 - - 27,731 27,731
Delisted stock - 2 - - 2
Net fair value 196,395 2 - 196,397 196,395
There were no transfers between Level 1 and Level 2 during the period.
A reconciliation of fair value measurements in Level 3 is set out in the following table.
2022 2020
GBP'000 GBP'000
Opening Balance - 758
Purchases - -
Sales - -
Total gains or losses included in gains on investments in the income statement:
- on assets sold - -
- on assets held at year end - (758)
Closing Balance - -
The Level 3 investment related to the Company's subsidiary, Discretionary Unit Fund Managers Limited. At 31st December 2022 there were no Level 3 investments as the subsidiary was dissolved 26th April 2022.
20. POST BALANCE SHEET EVENTS
Between the year end and 13th February 2022, the latest practicable date before the publication of the financial statements, the Company has bought back and cancelled 77,319 Ordinary shares for a cost of GBP1,525,051.
A copy of the Company's Annual Report for the year ended 31st December 2022 will shortly be available to view and download from the Company's website https://www.maitlandgroup.com/investment-trusts/ rights-and-issues-investment-trust-plc/ and www.jupiteram.com/ uk/en/individual/rights-and-issues-investment-trust-plc
Printed copies of the Annual Report will be sent to those shareholders electing to receive hard copies shortly. Additional copies may be obtained from the Company Secretary - Maitland Administration Services Limited, Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY.
The Annual General Meeting of the Company will be held in the Zig Zag Building, 70 Victoria Street, London SW1E 6SQ on 23rd March 2022, at 12 noon.
The Directors have proposed the payment of a final dividend of 29.25p per Ordinary share which, if approved by shareholders at the forthcoming Annual General Meeting, will be payable on 31st March 2022 to shareholders whose names appear on the register at the close of business on 3rd March 2022 (ex-dividend 2nd March 2022).
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ISIN: GB0007392078 Category Code: ACS TIDM: RIII LEI Code: 2138002AWAM93Z6BP574 OAM Categories: 1.1. Annual financial and audit reports Sequence No.: 223495 EQS News ID: 1560939 End of Announcement EQS News Service =------------------------------------------------------------------------------------
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(END) Dow Jones Newswires
February 15, 2023 11:28 ET (16:28 GMT)
