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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Independent Investment Trust Plc | LSE:IIT | London | Ordinary Share | GB0000811686 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 420.50 | 411.00 | 430.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMIIT
RNS Number : 1901X
Independent Investment Trust PLC
17 February 2017
The Independent Investment Trust PLC
Annual Financial Report
A copy of the annual report and financial Statements for the year ended 30 November 2016 of The Independent Investment Trust PLC has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.
The annual report and financial Statements for the year ended 30 November 2016 including the Notice of Annual General Meeting is also available on the Independent Investment Trust's website at:
www.independentinvestmenttrust.co.uk.
The unedited full text of those parts of the annual report and financial statements for the year ended 30 November 2016 which require to be published by DTR 4.1 is set out on the following pages.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
Baillie Gifford & Co
Company Secretaries
17 February 2017
Chairman's Statement
During the year to 30 November 2016, our company produced a net asset value (NAV) total return of 5.0%(1) . Theoretical investments in the FTSE All-Share Index and the FTSE World Index would have produced total returns of 9.8%(1) and 25.6%(1) respectively. A widening of the discount(2) - from 6.9% to 11.2% - led to a share price total return of 0%(1) . This is clearly a disappointing result and one that leaves us bottom of the Association of Investment Companies' Global sector of investment trusts for the year in terms of NAV total return. Fortunately, it follows a very good year and so we are still comfortably above median for the three and five year periods ending 30 November 2016.
For us the most important development of the year was the UK vote to leave the EU in the June referendum. Primarily through the ensuing depreciation of the pound, this caused two problems for us. First, in constant currency terms the UK stockmarket (in which the vast majority of our assets were invested throughout the year) lagged behind most other stockmarkets and thus the FTSE World Index. Secondly, within the UK stockmarket domestically orientated sectors (which were disproportionately represented in our portfolio) performed less well than those with international exposure. Particularly painful for us was the poor performance of our large housebuilding stake, which had been such a positive contributor to our results in 2015. A remarkable feature of the year has been that apart from companies coming into the portfolio through their initial public offerings (IPOs), we have only made one purchase - an addition to our large holding in Redrow. Our experience with IPOs continues to be good on balance, although Motorpoint is currently a notable exception.
The general economic background has changed little over the last year: growth has remained lacklustre in most countries; interest rates have remained at abnormally low levels by historic standards; and stockmarkets have been boosted by loose global monetary conditions. Towards the end of our year, there were signs that the long awaited correction in global bond markets might be starting. Perhaps the most interesting developments were on the political front, where referendum results in Europe and the election result in the USA signalled dissatisfaction with the established economic policies of recent years. The risk of a more protectionist world appears to have increased significantly.
The only significant change in our sectoral distribution over the year was a material reduction in our exposure to technology and telecommunications as we sold out of our Chinese internet holdings and took profits in FDM and Gamma Communications, two of our more successful IPO investments of recent years. We ended our year with cash balances of just under 5% (2% at 30 November 2015). Further comments on the portfolio can be found in the Managing Director's Report below.
Despite the disappointing results in the year under review, our long term record continues to provide grounds for encouragement: for the period from inception to 30 November 2016, we produced an NAV total return of 476%(1) , equivalent to a rate of roughly 11.6% per annum, of which 2.8% per annum can be offset by RPI inflation. By comparison, the notional return available from the FTSE All-Share Index over the period amounted to 117%(1) , or 5.0% per annum.
Earnings per share for the year were 7.93p (8.3p in 2015). Having already paid an interim dividend of 5.0p, we have decided not to propose a final dividend for 2016, but instead to pay a special dividend of 2.5p (3p in 2015). This will be paid on 6 April with an ex-dividend date of 23 February. The regular dividend for the year is therefore maintained at 5p, while the total dividend for the year is reduced from 8p to 7.5p. For 2017 we plan to revert to a pattern of paying an interim and a final with any surplus income being distributed by way of special dividend.
Our ongoing charges(3) rose during the year - from 0.32% to 0.34%. Even so, we remain one of the lowest cost providers in our industry.
After a brief period of trading at a premium(2) to net asset value, our shares have reverted to trading at a discount(2) . As in the past, we stand ready to repurchase shares on terms that are fair to both departing and continuing shareholders. In the year under review we made a single purchase of 600,000 shares at a discount(2) of 4.3%.
As always, there are plenty of things to worry about in the general economic and stockmarket background. Of particular concern to us at the moment are: the uncertainties surrounding the Brexit negotiations; the high levels of debt around the world; the impact of the economic policies of the new US administration; the outlook for interest rates and bond yields; and general stockmarket valuations, which appear high by historic standards. These concerns notwithstanding, we continue to be pleased with the quality of the companies in our portfolio and optimistic about their ability both to exploit favourable developments and to cope with unfavourable ones. This is particularly the case with our housebuilding holdings, around a quarter of assets, most of which delivered exemplary trading performances in 2016 and all of which are in excellent shape to withstand even a major deterioration in trading conditions should it occur. The rest of the portfolio is invested largely in smaller companies, including several recent issues, which are seeing strongly growing demand for their products or services.
Once again, we should like to encourage you to come to the AGM, which is to be held in the Baillie Gifford offices at Calton Square at 4.30pm on 23 March 2017. It will help our planning if we know how many shareholders are likely to attend, and I shall be grateful if you will mark the proxy form accordingly and return it to the Company's registrars. I look forward to seeing as many of you as possible there.
(1.) Total returns include the reinvestment of dividends on the date the shares are quoted ex-dividend. Source: Baillie Gifford/Thomson Reuters Datastream.
(2.) The premium/discount is the positive/negative difference between the Company's quoted share price and its underlying NAV per share expressed as a percentage of the NAV per share.
(3.) Ongoing charges represents administrative expenses as a percentage of average shareholders' funds.
Douglas McDougall
30 January 2017
Managing Director's Report
Our performance over the year has been covered in the Chairman's Statement.
One of the hazards confronting the long-term investor in housebuilding shares is the difficulty of forecasting the industry's short-term outlook. As battle-hardened industry enthusiasts we accept with stoicism the pain this characteristic sometimes inflicts upon us, but we do consider ourselves a little unlucky when housebuilding share prices fall dramatically in anticipation of developments that do not materialize, which is what happened to us in the middle of 2016. In the immediate aftermath of the referendum on British membership of the EU, a number of industry experts, many of them in the employment of large London investment banks owned overseas, reached the conclusion - apparently independently - that the decision to leave would have devastating short-term implications for housing volumes and house prices. The resulting stockmarket panic was impressive, even by the industry's exalted standards: most of our holdings experienced price declines of the order of 40% during the fortnight beginning 24 June. To date and with the sole exception of McCarthy and Stone, none of them has experienced any significant adverse effects from the vote, but many of the experts are clinging to the hope that this is disaster deferred rather than disaster averted, a hope that is still generously reflected in valuations. Our principal worries are more to do with government policy and the outlook for interest rates. The government has shown signs of wanting to interfere with the industry on the grounds, which we consider spurious, that it is deliberately hoarding land that could be used for building; and it can be argued that mortgage rates have already begun to rise. We do not believe that either issue has the capacity to undermine the long-term argument for investing in housebuilders - which is built on a chronic shortage of supply and high barriers to entry - but each clearly has the potential to hurt sentiment, already fragile, towards the sector. This is one of those occasions when we think it right to concentrate on the long-term picture and to ignore the shocks delivered by an increasingly febrile stockmarket.
The scale of our existing position in the industry made us slow to capitalize on the eye-catching values thrown up by the panic, but we did eventually add GBP3.4m to our Redrow holding. This had a mitigating influence on a most disappointing overall performance: despite the addition, the value of our stake declined from GBP56.5m at 30 November 2015 to GBP51.0m at 30 November 2016.
Fortunately, we fared better with our large commitment to technology and telecommunications: a stake worth GBP62.3m at 30 November 2015 had fallen in value to GBP44.6m by 30 November 2016, but this was after net sales of GBP23.2m. We made profitable disposals of our two Chinese internet companies, Alibaba and Baidu, and took further profits in FDM and Gamma Communications. Kainos, the software consultancy, had a disappointing year as profits were hit by investment in new markets, but our longstanding holding in Herald made good progress despite the persistence of a discount that gives no credit for the fund's excellent long term performance. Finally, we made a small investment in Blue Prism, a leading player in the emerging field of software process automation. To date, this investment has been surprisingly profitable as the company's revenues have exceeded all expectations by a considerable margin. The company, by contrast, has yet to make a profit.
The feature of our stake in the travel and leisure industries has been the strong performance of On the Beach, which we bought at IPO in September 2015. Despite difficult conditions in the package holiday market, it produced sparkling results and appears set to make further progress in the years ahead. Gym Group had a disappointing share price performance, but this may have been more to do with its high valuation at the start of our year than with its trading performance, which appears to be in line with expectations. Finally, a new holding in Hollywood Bowl, an operator of ten pin bowling centres, made a satisfactory debut. Overall, a stake worth GBP15.3m at 30 November 2015 had risen in value to GBP24.7m by 30 November 2016 after net purchases amounting to GBP6.1m.
It has been an excellent year for our industrial holdings. Our old favourite Ashtead has traded well and has been singled out by investors as a beneficiary of the US infrastructure spending promised by Donald Trump. A new holding in Luceco, bought in October, has got off to a good start. Luceco is a manufacturer of electrical equipment and LED lighting products with its own factory in China. Prospects for its LED lighting products appear particularly good. Overall, a stake worth GBP15.3m at 30 November 2015 had grown in value to GBP21.4m by 30 November 2016 after net sales of GBP0.2m.
Our retail holdings have had a disappointing year: a stake worth GBP11.1m at 30 November 2015 had only grown in value to GBP15.2m by 30 November 2016 despite net purchases of GBP9.6m. A new holding, the nearly new car retailer Motorpoint, saw trading badly affected by consumer uncertainty around the time of the referendum. Our old friend Dunelm had a quiet year in trading terms and suffered a derating in consequence, and we realized a small loss on our sale of SCS. On a happier note, the clothing retailer Joules, also a new holding, made a satisfactory debut.
Our consumer services holdings also had a difficult time with the Gama Aviation share price being hit particularly hard by soft trading conditions in Europe and NAHL being affected by proposed changes to the system for personal injury litigation. The AA had a dull year as earnings were affected by a major investment programme and we made a poor decision to sell our holding in BCA Marketplace. Overall, a stake worth GBP22.2m at 30 November 2015 had fallen in value to GBP10.7m by 30 November 2016 after net sales of GBP6.7m.
Our holding in the soft drinks company, Fever-Tree, has once again done enough to merit a paragraph to itself with the share price almost doubling over the twelve months. Despite a further reduction early in the year (we have now realized the full value of our original investment in the company), this led to it becoming our biggest holding at 30 November 2016. The valuation is a source of concern, but the scale of the opportunity facing the company and the lack of obvious competitive threats persuade us that it is worth running our position.
Elsewhere in the portfolio, Telecom Plus saw a modest recovery in its share price as energy prices started to rise, but the value of our SThree holding fell significantly as trading conditions in the recruitment market remained tough. The distributor of audio visual equipment, Midwich, staged a rather disappointing debut despite producing better results than we were expecting. Polar Capital Insurance Fund had an excellent year, extending its fine long-term record while Bluefield Solar Income delivered a good yield and a relatively stable share price. Finally, our small holding in the Canadian oil company, Bankers Petroleum, was sold after the announcement of a Chinese bid for the company.
Max Ward
30 January 2017
A detailed analysis of the Company's investment portfolio is set out below and in the Managing Director's Report.
List of Investments as at 30 November 2016
Hot Features
Premium
Value Gains/ Value
2015 Net transactions (losses) 2016
Sector Name GBP'000 GBP'000 GBP'000 GBP'000 %
----------------------- ------------------------ --------- ----------------- ---------- --------- ------
Housing Bellway 5,230 - (348) 4,882 2.2
Berkeley Group 6,414 - (1,462) 4,952 2.2
Crest Nicholson 16,065 - (2,952) 13,113 5.9
McCarthy and Stone 11,287 - (2,972) 8,315 3.8
Persimmon 3,830 - (432) 3,398 1.5
Redrow 13,626 3,426 (708) 16,344 7.4
--------- ----------------- ---------- --------- ------
56,452 3,426 (8,874) 51,004 23.0
--------- ----------------- ---------- --------- ------
Industrials Ashtead Group 15,302 (5,302) 5,640 15,640 7.1
Luceco - 5,080 664 5,744 2.6
--------- ----------------- ---------- --------- ------
15,302 (222) 6,304 21,384 9.7
--------- ----------------- ---------- --------- ------
Retailing Dunelm Group 9,760 (1,896) (1,956) 5,908 2.7
Joules Group - 3,458 202 3,660 1.7
Land of Leather* - - - - -
Motorpoint - 9,312 (3,642) 5,670 2.6
SCS Group 1,356 (1,279) (77) - -
--------- ----------------- ---------- --------- ------
11,116 9,595 (5,473) 15,238 7.0
--------- ----------------- ---------- --------- ------
Consumer Services AA 5,388 - (80) 5,308 2.4
BCA Marketplace 6,920 (6,728) (192) - -
Gama Aviation 5,400 - (3,040) 2,360 1.1
NAHL Group 4,496 - (1,440) 3,056 1.4
--------- ----------------- ---------- --------- ------
22,204 (6,728) (4,752) 10,724 4.9
--------- ----------------- ---------- --------- ------
Travel and Leisure Hollywood Bowl Group - 6,444 236 6,680 3.0
On the Beach Group 9,116 (375) 4,519 13,260 6.0
The Gym Group 6,150 - (1,380) 4,770 2.2
--------- ----------------- ---------- --------- ------
15,266 6,069 3,375 24,710 11.2
--------- ----------------- ---------- --------- ------
Business Services Midwich - 5,002 (57) 4,945 2.2
SThree 4,909 - (784) 4,125 1.9
--------- ----------------- ---------- --------- ------
4,909 5,002 (841) 9,070 4.1
--------- ----------------- ---------- --------- ------
Technology and Alibaba Group - China 2,791 (4,187) 1,396 - -
Telecommunications Baidu - China 10,135 (7,795) (2,340) - -
Blue Prism - 1,482 4,298 5,780 2.6
FDM Group 20,800 (8,535) 860 13,125 5.9
Gamma Communications 9,180 (4,117) (328) 4,735 2.1
Herald Investment Trust 14,720 - 1,780 16,500 7.5
Kainos Group 4,690 - (235) 4,455 2.0
--------- ----------------- ---------- --------- ------
62,316 (23,152) 5,431 44,595 20.1
--------- ----------------- ---------- --------- ------
Bankers Petroleum -
Oil and Gas Producers Canada 309 (408) 99 - -
--------- ----------------- ---------- --------- ------
Beverages Fever-Tree Drinks 11,500 (1,256) 8,998 19,242 8.7
--------- ----------------- ---------- --------- ------
Utilities Telecom Plus 6,774 (2,226) 452 5,000 2.3
--------- ----------------- ---------- --------- ------
Polar Capital Global
Insurance Fund -
Non Life Insurance Ireland 3,469 - 939 4,408 2.0
--------- ----------------- ---------- --------- ------
Renewable Energy Bluefield Solar Income
Funds - Channel Islands 5,125 - 62 5,187 2.3
--------- ----------------- ---------- --------- ------
Total Investments 214,742 (9,900) 5,720 210,562 95.3
Net Liquid Assets 4,229 5,940 139 10,308 4.7
------------------------------------------------- --------- ----------------- ---------- --------- ------
Shareholders'
Funds 218,971 (3,960) 5,859 220,870 100.0
------------------------------------------------- --------- ----------------- ---------- --------- ------
All holdings are in equities domiciled in the UK unless otherwise stated.
* Suspended Security.
Key Performance Indicators
The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:
-- the movement in net asset value per ordinary share on a total return basis;
-- the discount or premium to net asset value; and
-- the ongoing charges.
The Long Term Record on page 7 of the annual report and financial statements provides detailed performance information since inception. The net asset value total return for the year is contained in the Chairman's Statement along with information on the discount and ongoing charges.
Future Developments of the Company
The outlook for the Company is dependent to a significant degree on economic events and the financial markets. Further comments on the outlook for the Company are included in the Chairman's Statement above.
Market Purchases of Own Shares
During the year to 30 November 2016 the Company bought back 600,000 ordinary shares (nominal value GBP150,000, representing 1.1% of the called up share capital at 30 November 2015) on the London Stock Exchange for cancellation. The total consideration for these shares was GBP2,206,000. Between 1 December 2016 and 26 January 2017, the latest practicable date prior to publication of this report, the Company bought back a further 600,000 ordinary shares (nominal value GBP15,000) for a total consideration of GBP238,000.
The principal reasons for share buybacks are to address any imbalance between the supply and demand for the Company's shares and to increase the net asset value per remaining share. The Company may either cancel bought-back shares immediately or hold them 'in treasury' and then:
(i) sell such shares (or any of them) for cash (or its equivalent under the Companies Act 2006); or
(ii) cancel the shares (or any of them).
Shares will only be resold from treasury at a price at or above net asset value per share. No shares were held in treasury as at 26 January 2017, and no such holdings are planned.
Related Party Transactions
The directors' fees for the year are detailed in the Directors' Remuneration Report on page 23 of the annual report and financial statements. With the exception of Max Ward, the managing director, no director has a contract of service with the Company. Details of Mr Ward's contract for services are set out on page 22 of the annual report and financial statements. During the year no director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.
Principal Risks
As explained on pages 18 and 19 of the annual report and financial statements there is a process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The directors 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. A description of these risks and how they are being managed or mitigated is set out below:
Financial risk
The Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in the Financial Instruments section below. To mitigate this risk, at each board meeting the composition and diversification of the portfolio by geographical and industrial sectors are considered along with sales and purchases of investments. Individual investments are discussed with the managing director together with his general views on the various investment markets and sectors.
Regulatory risk
Failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trusts, the UKLA Listing Rules, the Companies Act and the Alternative Investment Fund Managers Regulations 2013 could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or to the Company being subject to tax on capital gains. To mitigate this risk, the practical measures to ensure compliance with regulations and with company law, and to provide effective and efficient operations as they relate to secretarial and administrative matters, have been delegated to Baillie Gifford & Co. Baillie Gifford's Internal Audit and Compliance departments provide regular reports to the audit committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company or threaten the viability of the investment trust structure. In such circumstances representation would be made to defend the special circumstances of investment trusts. Shareholder documents and announcements, including the Company's published interim and annual report and financial statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive with reference to inside information.
Custody risk
Safe custody of the Company's assets may be compromised through control failures by the Company's custodian. To mitigate this risk, cash and portfolio holdings are regularly reconciled to the custodian's records by Baillie Gifford & Co. In addition, the existence of assets is subject to annual external audit. The audit committee reviewed Baillie Gifford's Report on Internal Controls which details the controls in place regarding the recording and reconciliation of cash and portfolio holdings to third party data. The custodian's Internal Controls Reports are reviewed by Baillie Gifford & Co's Internal Audit department and a summary of the key points is provided to the audit committee.
Operational risk
Risk of loss resulting from inadequate or failed internal controls, processes and systems, or from external events. To mitigate this risk, Baillie Gifford's Internal Audit and Compliance departments provide regular reports to the audit committee. The board also reviews Baillie Gifford's Report on Internal Controls and the reports by other key service providers are reviewed by Baillie Gifford on behalf of the board. In addition, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operations of the business in the event of a service disruption or major disaster.
Discount/premium volatility
The discount/premium at which the Company's shares trade can widen. To mitigate this risk, the board monitors the level of discount/premium and the Company has authority to buy back and issue its own shares.
Political risk
The board is of the view that political change in areas in which the Company invests or may invest may increasingly have practical consequences for the Company. To mitigate this risk, developments are closely monitored and considered by the board.
Resource risk
As the Company is self managed and has only two employees (the managing director and full-time portfolio manager of the portfolio, Max Ward, and an office manager) the loss of personnel may adversely impact investment performance. To mitigate this risk, contingency plans are in place to deal with any loss of personnel. Secretarial and accounting functions are contracted out to Baillie Gifford & Co and are not subject to resource risk.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, the directors have assessed the prospects of the Company over a three year period. The directors believe this period to be appropriate as it is reflective of the Company's investment and planning timeframe and, in the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, is a period over which they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. The directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period.
In making this assessment the directors have taken into account the Company's current position and its self-managed status and have conducted a robust assessment of the Company's principal risks and uncertainties detailed above. Although the Company has the authority to buy back up to 14.99% of its issued share capital, which is renewed annually, there is no stated discount control mechanism in place. The directors have also considered the Company's investment objective and policy, its dividend policy, the nature of its assets, its liabilities and projected income and expenditure. The Company is not permitted to employ gearing whilst it continues to be registered as a small UK AIFM, its ongoing charges are a very small percentage of its assets (2016 - 0.34%; 2015 - 0.32%) and the vast majority of the Company's investments are readily realizable and can be sold to meet liabilities as they fall due. Contingency plans are in place to deal with any loss of key personnel. In the event of the departure of the managing director, which is not foreseen within the indicated timespan, the board would endeavour to present shareholders with an option to realize their investment at around liquidating value or to convert to another investment trust.
Based on this assessment, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.
Going Concern
Having assessed the principal risks and other matters set out in the Viability Statement above, the directors consider it appropriate to adopt the going concern basis of accounting in preparing these financial statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue to do so over a period of at least twelve months from the date of approval of these financial statements.
Financial Instruments
As an investment trust, the Company invests in equities and makes other investments so as to achieve its investment objective of providing good absolute returns over long periods by investing the great majority of its assets in quoted securities and, if appropriate, index futures. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.
These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise short term volatility. Risk provides the potential for both losses and gains. In assessing risk, the board encourages the managing director to exploit the opportunities that risk affords.
The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.
Market Risk
The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The board of directors reviews and agrees policies for managing these risks and the Company's managing director both assesses the exposure to market risk when making individual investment decisions and monitors the overall level of market risk across the investment portfolio.
Details of the Company's investment portfolio are shown above. There were no derivative financial instrument holdings during the year.
Currency Risk
Some of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.
The managing director monitors the Company's exposure to foreign currencies and reports to the board on a regular basis. He assesses the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The effect of movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than that arising from a simple translation of the currency in which the company is quoted.
Foreign currency borrowings and forward currency contracts may be used to limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. At 30 November 2016 the Company had no such borrowings or contracts.
Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.
Cash and cash Other debtors
Investments equivalents and creditors* Net exposure
At 30 November 2016 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------------- -------------- ---------------- ---------------
US dollar - 4,344 - 4,344
----------------------- -------------- -------------- ---------------- ---------------
Total exposure to
currency risk - 4,344 - 4,344
Sterling 210,562 5,903 61 216,526
----------------------- -------------- -------------- ---------------- ---------------
210,562 10,247 61 220,870
----------------------- -------------- -------------- ---------------- ---------------
* Includes net non-monetary assets of GBP48,000.
Cash and cash Other debtors
Investments equivalents and creditors* Net exposure
At 30 November 2015 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------------- -------------- ---------------- -------------
US dollar 12,926 - - 12,926
Canadian dollar 309 - - 309
----------------------- -------------- -------------- ---------------- -------------
Total exposure to
currency risk 13,235 - - 13,235
Sterling 201,507 3,851 378 205,736
----------------------- -------------- -------------- ---------------- -------------
214,742 3,851 378 218,971
----------------------- -------------- -------------- ---------------- -------------
* Includes net non-monetary assets of GBP39,000.
Currency Risk Sensitivity
At 30 November 2016, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts.
The analysis is performed on the same basis for 2015.
2016 2015
GBP'000 GBP'000
----------------- --------- ---------
US dollar 217 646
Canadian dollar - 15
----------------- --------- ---------
217 661
----------------- --------- ---------
Interest Rate Risk
Interest rate movements may affect directly:
3/4 the fair value of any investments in fixed interest rate securities; 3/4 the level of income receivable on cash deposits; 3/4 the fair value of any fixed-rate borrowings; and 3/4 the interest payable on any variable rate borrowings.
Interest rate movements may also have an impact upon the market value of investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.
The possible effects on fair value and cashflows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering into borrowing agreements.
The board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.
The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, if any, may also affect the valuation of the Company's shares in relation to its net asset value.
Cash deposits generally comprise call or short-term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate. There have been no significant changes to the interest rate risk profile of the Company's financial assets during the year. There were no financial assets subject to interest rate risk at 30 November 2016 and 30 November 2015 other than the cash and cash equivalents shown in the credit risk exposure table below.
Interest Rate Risk Sensitivity
The weighted average interest rate on cash balances held at 30 November 2016 was 0.1% (2015 - 0.3%). An increase of 100 basis points in interest rates at 30 November 2016 would, over a full year, have increased the net return on ordinary activities after taxation by GBP102,000 (2015 - increased by GBP39,000) and would have increased the net asset value per share by 0.18p (2015 - increased by 0.07p). The calculations are based on the cash balances as at the respective Balance Sheet dates and are not representative of the year as a whole.
Other Price Risk
Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets.
The board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the managing director. The board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce any index. Investments are selected based upon the merit of individual companies and therefore performance may well diverge from comparative indices.
Other Price Risk Sensitivity
A full list of the Company's investments by broad industrial or commercial sector is shown above. In addition, an analysis of the investment portfolio is contained in the Managing Director's Report.
95% (2015 - 98%) of the Company's net assets are invested in equities. A 5% increase in quoted equity valuations at 30 November 2016 would have increased net assets and total return on ordinary activities by GBP10,528,000 (2015 - GBP10,737,000). A decrease of 5% would have had an equal but opposite effect.
Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk is not significant as the majority of the Company's investment assets are in quoted securities that are readily realizable. The board provides guidance to the managing director as to the maximum exposure to any one holding and to the maximum aggregate exposure to substantial holdings.
The Company's liabilities at 30 November 2016 are all due within 3 months.
Credit Risk
This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.
This risk is managed as follows:
3/4 where the managing director makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;
3/4 the Company's listed investments are held on its behalf by The Bank of New York Mellon SA/NV, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the exercise of the Company's rights with respect to securities held by the custodian to be delayed. The company secretaries monitor the Company's risk by reviewing the custodian's internal control reports and reporting their findings to the board;
3/4 investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the managing director. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;
3/4 cash is only held at banks that have been approved by the board as creditworthy.
Credit Risk Exposure
The exposure to credit risk at 30 November was:
2016 2015
GBP'000 GBP'000
--------------------------- --------- ---------
Cash and cash equivalents 10,247 3,851
Debtors 67 374
--------------------------- --------- ---------
10,314 4,225
--------------------------- --------- ---------
The maximum exposure in cash during the year was GBP22,531,000 (2015 - GBP25,351,000) and the minimum GBP3,849,000 (2015 - GBP468,000). None of the Company's financial assets are past due or impaired.
Capital Management
The capital of the Company is its share capital and reserves as set out in note 12 of the annual report and financial statements. The objective of the Company is to provide good absolute returns over long periods by investing the great majority of its assets in UK and international quoted securities and, if appropriate, index futures. The Company's investment policy is set out on pages 8 and 9 of the annual report and financial statements. In pursuit of the Company's objective, the board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on pages 9, 10, 11, 18 and 19 of the annual report and financial statements.
Shares may be issued and/or repurchased as explained on pages 14 and 15 of the annual report and financial statements and any changes to the share capital during the year are set out in note 12 of the annual report and financial statements. The Company does not have any externally imposed capital requirements.
Fair Value of Financial Instruments
Investments in securities as disclosed in note 8 on page 38 of the annual report and financial statements are financial assets held at fair value through profit or loss. In accordance with FRS 102, all of the Company's investments are classified as level 1 within the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value. All of the Company's investments as at 30 November 2015 were also classified as level 1. For all other financial assets and liabilities, carrying value approximates to fair value.
Fair Value Hierarchy
The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit or loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement:
Level 1 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within level 1, that are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
Statement of the Directors' Responsibilities in Respect of the Annual Report and the Financial Statements
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:
3/4 select suitable accounting policies and then apply them consistently; 3/4 make judgements and accounting estimates that are reasonable and prudent;
3/4 state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
3/4 prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and 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 laws and regulations, the directors are also responsible for preparing a Strategic Report, a Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.
The directors have delegated responsibility to the secretaries for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The work carried out by the auditor does not involve any consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Each of the directors, whose names and functions are listed within the board of directors section confirm that, to the best of their knowledge:
3/4 the financial statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;
3/4 the annual report and financial statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy; and
3/4 the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
By order of the board
Douglas McDougall
Chairman
30 January 2017
Income Statement
For the year ended For the year ended
30 November 2016 30 November 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
Gains on investments - 5,720 5,720 - 43,695 43,695
Currency gains - 139 139 - 268 268
Income (note 2) 5,139 - 5,139 5,382 - 5,382
Administrative expenses (719) - (719) (635) - (635)
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
Net return on ordinary activities before taxation 4,420 5,859 10,279 4,747 43,963 48,710
Tax on ordinary activities - - - (9) - (9)
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
Net return on ordinary activities after taxation 4,420 5,859 10,279 4,738 43,963 48,701
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
Net return per ordinary share: basic (note 3) 7.93p 10.51p 18.44p 8.30p 77.01p 85.31p
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
Note:
Dividends per share paid and payable in respect of the
year (note 4) 7.50p 8.00p
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.
Balance Sheet
-------------
At 30 November 2016 At 30 November 2015
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ ---------- --------- ---------- ---------
Fixed assets
Investments held at fair value through profit or loss 210,562 214,742
Current assets
Debtors 115 413
Cash and cash equivalents 10,247 3,851
------------------------------------------------------ ---------- --------- ---------- ---------
10,362 4,264
------------------------------------------------------ ---------- --------- ---------- ---------
Creditors
Amounts falling due within one year (54) (35)
------------------------------------------------------ ---------- --------- ---------- ---------
Net current assets 10,308 4,229
------------------------------------------------------ ---------- --------- ---------- ---------
Total net assets 220,870 218,971
------------------------------------------------------ ---------- --------- ---------- ---------
Capital and reserves
Called up share capital 13,882 14,032
Share premium account 15,242 15,242
Special distributable reserve 16,625 18,831
Capital redemption reserve 2,650 2,500
Capital reserve 167,982 162,123
Revenue reserve 4,489 6,243
------------------------------------------------------ ---------- --------- ---------- ---------
Shareholders' funds 220,870 218,971
------------------------------------------------------ ---------- --------- ---------- ---------
Net asset value per ordinary share (note 5) 397.7p 390.1p
------------------------------------------------------ ---------- --------- ---------- ---------
Statement of changes in equity
For the year ended 30 November 2016
Called up Special Capital
share Share premium distributable redemption Capital Revenue Shareholders'
capital account reserve reserve reserve* reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------- -------------- ------------- ------------- --------- -------------- --------------
Shareholders'
funds at 1
December 2015 14,032 15,242 18,831 2,500 162,123 6,243 218,971
Net return on
ordinary
activities
after
taxation - - - - 5,859 4,420 10,279
Shares bought
back for
cancellation
(note 5) (150) - (2,206) 150 - - (2,206)
Dividends paid
during the
year
(note 4) - - - - - (6,174) (6,174)
-------------- ------------- -------------- ------------- ------------- --------- -------------- --------------
Shareholders'
funds at 30
November 2016 13,882 15,242 16,625 2,650 167,982 4,489 220,870
-------------- ------------- -------------- ------------- ------------- --------- -------------- --------------
For the year ended 30 November 2015
Called up Special Capital
share Share premium distributable redemption Capital Revenue Shareholders'
capital account reserve reserve reserve* reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------- -------------- ------------- ------------- --------- -------------- --------------
Shareholders'
funds at 1
December 2014 14,467 15,242 24,413 2,065 118,160 5,513 179,860
Net return on
ordinary
activities
after
taxation - - - - 43,963 4,738 48,701
Shares bought
back for
cancellation (435) - (5,582) 435 - - (5,582)
Dividends paid
during the
year
(note 4) - - - - - (4,008) (4,008) -------------- ------------- -------------- ------------- ------------- --------- -------------- -------------- Shareholders' funds at 30 November 2015 14,032 15,242 18,831 2,500 162,123 6,243 218,971 -------------- ------------- -------------- ------------- ------------- --------- -------------- --------------
* The Capital Reserve balance at 30 November 2016 included an investment holding gain on fixed asset investments of GBP57,240,000 (2015 - gain of GBP64,549,000).
Notes
-----
1. The financial statements for the year to 30 November 2016 have been prepared in accordance
with The Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102')
which the Company must adopt for its financial year ending 30 November 2016. Following the
application of the new reporting standard and the AIC's issued Statement of Recommended Practice
issued in November 2014, there has been no impact on the balances at 1 December 2014 or on
the Company's Income Statement, Balance Sheet or Statement of Changes in Equity (previously
called the Reconciliation of Movements in Shareholders' Funds) for the period previously reported.
The Company has elected not to present a Statement of Cash Flows for the current year as a
Statement of Changes in Equity has been provided and substantially all of the Company's investments
are highly liquid and are carried at market value. The Company has early adopted the amendments
to section 34 of FRS 102 regarding fair value hierarchy disclosures.
-------------------------------------------------------------------------------------------------------
2. Income Year to Year to
30 November 2016 30 November 2015
GBP'000 GBP'000
--------------------------------------------- -------------------------- ----------------------------
Income from investments and interest receivable 5,120 5,356
Other income 19 26
------------------------------------------------- -------------------------- ----------------------------
5,139 5,382
------------------------------------------------- -------------------------- ----------------------------
3. Net return per Year to 30 November 2016 Year to 30 November 2015
ordinary share
Revenue Capital Total Revenue Capital Total
---------------------- --------------------- ----------------- ------- -------- --------- -------
Net return on ordinary
activities after taxation
(GBP'000) 4,420 5,859 10,279 4,738 43,963 48,701
Weighted average number of
ordinary shares in issue
during the year 55,738,196 57,087,403
-------------------------- ------------------------------------------------- ----------------------------
Net return per ordinary
share: Basic 7.93p 10.51p 18.44p 8.30p 77.01p 85.31p
-------------------------- --------------------- ----------------- ------- -------- --------- -------
Returns per ordinary share are based on the return for the financial year and on the weighted
average number of ordinary shares in issue during the year as shown above. There are no dilutive
or potentially dilutive shares in issue.
-------------------------------------------------------------------------------------------------------
4. Ordinary dividends Year to Year to
30 November 2016 30 November 2015
Pence GBP'000 Pence GBP'000
--------------------------------------------- ----------------- ------- ------------------- -------
Amounts recognized as distributions in the
year:
Previous year's second interim (2015 - final)
dividend paid 15 February 2016 3.00 1,684 3.00 1,719
Previous year's special dividend paid 15 February
2016 3.00 1,684 2.00 1,146
Interim dividend paid 31 March 2016 5.00 2,806 2.00 1,143
------------------------------------------------- ----------------- ------- ------------------- -------
11.00 6,174 7.00 4,008
------------------------------------------------- ----------------- ------- ------------------- -------
Set out below are the total dividends paid and proposed 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. The revenue available for distribution by way of dividend for the year is
GBP4,420,000 (2015 - GBP4,738,000).
Year to Year to
30 November 2016 30 November 2015
Pence GBP'000 Pence GBP'000
--------------------------------------------- ----------------- ------- ------------------- =======
Amounts paid and payable in respect of the
year:
Adjustment to previous year's final dividends re
shares bought back - - - (28)
Interim dividend paid 31 March 2016 5.00 2,806 2.00 1,143
Second interim dividend - - 3.00 1,684
Special dividend payable 6 April 2017 2.50 1,388 3.00 1,684
7.50 4,194 8.00 4,483
------------------------------------------------- ----------------- ------- ------------------- -------
The special dividend will be paid on 6 April 2017 to all shareholders on the register at the
close of business on 24 February 2017. The ex-dividend date is 23 February 2017.
-------------------------------------------------------------------------------------------------------
5. Net asset value per ordinary share At 30 November At 30 November
2016 2015
GBP000 GBP'000
--------------------------------------------- -------------------------- ----------------------------
Net asset value attributable to ordinary shares 220,870 218,971
------------------------------------------------- -------------------------- ----------------------------
Net asset value per share is based on net assets (as shown above) and on 55,530,000 shares
(2015 - 56,130,000), being the number of shares in issue at the year end. There are no dilutive
or potentially dilutive shares in issue.
During the year the Company bought back 600,000 (2015 - 1,739,000) ordinary shares with a
nominal value of GBP150,000 (2015 - GBP435,000) at a cost of GBP2,206,000 (2015 - GBP5,582,000).
At 30 November 2016 the Company had authority remaining to buy back a further 7,813,887 ordinary
shares.
Between 1 December 2016 and 26 January 2017 the company bought back a further 60,000 ordinary
shares (nominal value GBP15,000) for a total consideration of GBP238,000.
6. Transaction costs incurred on the purchase and sale of the investments are added to the purchase
cost or deducted from the sale proceeds, as appropriate. During the year, transaction costs
on purchases amounted to GBP64,000 (2015 - GBP202,000) and transaction costs on sales amounted
to GBP99,000 (2015 - GBP162,000).
7. None of the views expressed in this document should be construed as advice to buy or sell
a particular investment.
-------------------------------------------------------------------------------------------------------
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
- ends -
Legal Entity Identifier: EMMWZ68BJXG580FSQ522
Regulated Information Classification: Annual financial and audit reports
This information is provided by RNS
The company news service from the London Stock Exchange
END
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