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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ruffer Investment Company Ltd | LSE:RICA | London | Ordinary Share | GB00B018CS46 | RED PTG PREF SHS 0.01P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.00 | -0.37% | 272.50 | 272.00 | 273.50 | 275.50 | 271.50 | 273.50 | 615,627 | 14:57:02 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 31.73M | -34.42M | - | N/A | 0 |
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TIDMRICA
Ruffer Investment Company Limited
LEI:21380068AHZKY7MKNO47
(Classified Regulated Information, under DTR 6 Annex 1 section 2.5)
ANNUAL FINANCIAL REPORT
The Company has today, in accordance with DTR 6.3.5, released its Annual
Financial Report for the year ended 30 June 2017. The Report will shortly be
available via the Company's Investment Manager's website www.ruffer.co.uk and
will shortly be available for inspection online at www.hemscott.com/nsm.do
website.
Key Performance Indicators*
30.06.17 30.06.16
Share price total return over 12.90% (3.50%)
12 months**
Annualised NAV total return per share 8.75% (1.00%)
over 12 months
Premium/(discount) of share price to NAV 3.04% (0.94%)
Dividends per share 2.6p 3.4p
Dividend yield 1.10% 1.60%
Annualised total return per share since 8.35% 8.32%
launch
Ongoing charges ratio 1.18% 1.18%
Financial Highlights
30.06.17 30.06.16
Share price at year end 236.00p 209.00p
NAV at year end*** GBP376,116,913 GBP
331,954,470
Market capitalisation at GBP387,543,662 GBP
year end 325,702,289
Number of shares in issue at 164,213,416 155,838,416
year end
NAV per share at year end as reported to the 229.04p 213.01p
LSE****
NAV per share at year end as calculated on an IFRS 228.73p 212.70p
basis
Company Information
Incorporation Date 01.06.04
Launch Date 08.07.04
Launch Price 100p per share
Initial Net Asset 98p per share
Value
Accounting dates Interim Final
31 December 30 June
(Unaudited) (Audited)
? The price an investor would have paid at the close of trading in the
market (London Stock Exchange ("LSE")).
* Figures use NAV per share at mid-market prices as reported to the LSE.
** Assumes reinvestment of dividends.
*** This is the NAV as released on the London Stock Exchange ("LSE") on 30
June each year.
**** This is the Net Asset Value ("NAV") per share using International
Financial Reporting Standards. The NAV is calculated weekly and at month end.
Refer to note 14 for the NAV reconciliation.
Company Performance
Price Change in
at 30.06.17 Bid Price
Bid Offer From From
Price Price Launch 30.06.16
% %
Redeemable participating 235.00p 237.00p + 135.00 + 12.44
preference shares
Prices are published in the Financial Times in the "Investment Companies"
section, and in the Daily Telegraph's "Share Prices & Market Capitalisations"
section under "Investment Trusts".
Fund Size
Accounting Net Asset Net Asset Number of
Period to: Value Value per Shares In Issue
Share
30.06.17 GBP 228.73p * 164,213,416
375,601,706
30.06.16 GBP 212.71p 155,838,416
331,484,744
30.06.15 GBP 218.39p 154,413,416
337,222,401
30.06.14 GBP 206.50p 154,013,416
318,040,568
30.06.13 GBP 213.90p 149,188,416
319,114,093
30.06.12 GBP 191.45p 141,488,416
270,884,661
* Net Asset Value per share reported to the London Stock Exchange was GBP2.290
using mid market values. Bid prices are presented as fair value in the
Financial Statements.
Share Price Range
Accounting Highest Lowest
Period to: Offer Price Bid Price
30.06.17 241.00p 211.00p
30.06.16 225.00p 195.00p
30.06.15 226.00p 194.30p
30.06.14 229.00p 200.50p
30.06.13 231.00p 191.50p
30.06.12 207.00p 190.00p
Net Asset Value Range
Accounting Highest Lowest
Period to: NAV NAV
30.06.17 233.40p 213.00p
30.06.16 219.90p 196.20p
30.06.15 224.30p 204.10p
30.06.14 220.60p 203.40p
30.06.13 220.80p 190.30p
30.06.12 199.10p 187.10p
Past performance is not a guide to the future. The value of the shares and the
income from them can go down as well as up and you may not get back the amount
originally invested.
Chairman's Review
If you are experiencing a sense of deja vu it is because, for the first time in
this Company's thirteen year history, we released an abbreviated, unaudited set
of Accounts for the year to 30 June 2017 on 21 July 2017. The Directors wanted
to do this so as to give the Company's shareholders a more timely look at the
highlights for the year rather than waiting almost another eight weeks for the
fully audited Accounts. As it happens there have been no material changes to
the figures released on 21 July.
Performance
In the twelve months from 1 July 2016 to 30 June 2017, the net asset value
(NAV) per share of the Company rose from 213.01p* to 229.04p*. Adding dividends
of 2.6p paid during the period, this equates to a NAV total return of 8.75%.
The target return being twice the Bank of England base rate, was 0.5% over the
period and, by way of context, the FTSE All-Share Total Return Index rose by
18.1%. We regard this as a satisfactory result given the defensive positioning
of the Company in the last 12 months and it is in line with the average annual
rate of total return since launch on 8 July 2004 (8.4%).
The start of your Company's financial year came just 6 days after the
unexpected Brexit referendum result. The performance over the first six months
until 31 December 2016 was very impressive given the choppy state of
post-Brexit markets, further agitated by the announcement of President Trump's
election on 9 November 2016. The NAV rose from 213.01p to 228.98p and
relatively little of this appreciation came from currency translation effects.
From 1 January 2017 until 30 June 2017 progress was much more pedestrian with a
NAV total return of 0.4%.
Since launch, the NAV of the Company has risen by 183.5% including dividends,
compared with a rise of 68% in the target return and 190.1% in the FTSE
All-Share Total Return index.
*This is the NAV as released on the London Stock Exchange ("LSE") on 30 June
each year.
Earnings and Dividends
Earnings for the year were 2.23p per share on the revenue account and 15.91p
per share on the capital account. Earnings from the revenue account remain
depressed owing to the heavy weighting in index-linked securities, illiquid
strategy funds, gold and gold equities, most of which yield next to nothing. As
forewarned in the Chairman's Review of 30 June 2016, the Company's investment
portfolio was generating less income than it had been distributing and the
Directors had, until February 2017, called upon income reserves to help meet
dividend payments. Given that the Company's primary objective is one of
capital preservation, the Board decided on 28 February not to make a
distribution from capital profit, but instead to reduce the dividend to a more
sustainable level. This has allowed the Investment Manager to maintain full
flexibility to pursue our absolute return strategy without having to worry
about the yields of the selected assets. The new policy re-emphasises that
income is a by-product of Ruffer's total return investment philosophy, which
does not put capital at excessive risk in the pursuit of income. The Directors
consequently cut the interim dividend from 1.7p to 0.9p per share on 28
February 2017. It is hoped that a total annual dividend of 1.8p will be
sustainable, but the Directors will not hesitate to reduce the dividend again should this prove necessary to preserve capital. As far as setting the dividend is concerned the directors consider their responsibility to be allowing the Investment Manager maximum flexibility to follow whichever course will lead to the best results for our shareholders. Strategy The Company's objective remains primarily one of capital preservation and, in terms of a benchmark, we remain committed to achieving a positive total annual return, after all expenses, of at least twice the Bank of England base rate. Naturally, given that the base rate stands at a multi-century low of 0.25%, your Directors have debated adjusting the benchmark. Given that this company presents itself to investors as 'a slice of Ruffer' that would necessarily mean Ruffer changing its benchmark. Although your directors are wholly independent, they are realistic enough to acknowledge that this tail will not wag the Ruffer dog, not that the tail necessarily sees any great benefit to adjusting its target! Ruffer's primary objective has always been one of capital preservation and this remains the case. The Directors accept that, as Jonathan Ruffer has regularly pointed out in his excellent quarterly reports, the next crisis will be very difficult to navigate and losses may have to be borne before the protective assets, primarily in the form of our heavy weightings in index-linked securities, steady the ship and move it in a positive direction. In addressing the options a government has for reducing a debt burden Messrs Reinhart and Sbrancia elegantly outlined in their 2011 publication 'The Liquidation of Government Debt' five paths: 1) Real Growth - in spite of countless stimulative efforts this has proved elusive at best 2) Fiscal adjustment or austerity - we believe that the recent UK election result has ruled this out as an option (and arguably it was off the agenda even before the election) 3) Restructuring or default - why risk alienating your country for a generation from prime credit markets when the printing press provides an alternative way to service your debt 4) A sudden burst of inflation - quite possible and 5) A long period of financial repression, with interest rates held persistently below inflation - already evident in the UK and other developed markets. History argues strongly in favour of the latter two options - in the study it was concluded that 30 out of 36 post-war episodes of debt crisis were 'resolved' through one of these scenarios. The Company remains firmly in the defensive camp with 60% of its assets in what we hope will prove to be protective investments, whilst the other 40% are in the risk basket with almost half of these assets in Japanese equities. The Japanese equity market remains the stand out market globally in terms of value and also offers an attractive way to benefit from global economic growth should our fears not come to pass. The Directors believe that long dated index-linked Gilts are the real treasure in the portfolio and have yet to be properly tested. They were initially issued in March 1981, long after the inflation horse had bolted the stable and were a way for the UK to regain credibility in controlling inflation. However, they are a volatile asset; over the final two months, to 30 June 2017, of the Company's financial year the long linkers took a 20% pounding, but the effect on the portfolio was offset by our option positions. In short, your Directors retain faith in the Investment Manager's ability to weather what will be very difficult times ahead and to come through the coming crisis, whenever that may strike, with credit. Premium and discount management At the start of our financial year, the Company had the ability to issue 11,556,342 shares under a block listing facility. A buy recommendation for the Company in the Daily Telegraph's Questor column on 26 October 2016 struck a chord with investors and the Company's share price returned, once again, to a premium to its NAV. Your Directors will not issue shares in a 'tap' issue unless it is accretive to existing shareholders. On 1 November we announced that we had issued 700,000 shares at 233.2p, the first such tap issue since 5 January 2016 and from then until 30 June a further 7,675,000 shares were issued. In spite of flat performance in the first six calendar months of this year the shares broadly retained a low single digit premium to NAV which enabled share issuance to continue unabated. By 30 June a total of 8,375,000 shares had been tapped out. Cenkos, our brokers, calculate that the total accretion to the NAV from the issue of these shares was GBP252,719 (or 0.16p per share based on the number of shares in issue at the start of the financial year). Share issuance continues and, as at 15 September, a further 3,200,000 shares have been issued. As well as being NAV accretive, the advantage to existing shareholders of this issuance is that it improves liquidity and our fixed costs are spread over a greater number of shares which helps reduce the Ongoing Charges Ratio (OCR). Your Directors are rightly proud that this Company has an OCR of 1.18% broadly similar to the Ruffer Total Return Fund, a veritable behemoth rather over eight times our size in terms of market capitalisation. We have worked hard to improve efficiencies and reduce fixed costs. It is our intention to increase the market capitalisation of the Company to over GBP500m over the coming years, at which point liquidity should be good enough that even the largest wealth managers should continue to be able to acquire our shares. We do of course retain the ability, granted to us at successive AGMs, to buy back shares. It must be said that since 2006 they have never stood at a discount of more than 5% for long enough for us to enact this particular power. In that year the Company exercised its redemption facility allowing shareholders to exit at NAV which immediately cleared the discount with some 13% of shares being tendered. It is of note that only seven years ago Ruffer LLP was the largest holder of the Company's stock, owning some 15% - their holding is now exactly 5%* and they have been relegated to third position *. I take great comfort from this knowing that Ruffer ought to be a natural buyer of the Company's shares should they move to a discount. *Data is taken from the latest available Share Register Analysis produced by Richard Davies Investor Relations Limited, dated 15 June 2017. Board composition There has been a good deal of activity in your Company's boardroom since my report last year. On 20 July 2016 we bade farewell to Wayne Bulpitt, a Guernsey based financial services expert and an inaugural non-executive director of this Company who incidentally was appointed CBE in the 2017 Birthday Honours for his services to the Scout Association. Sarah Evans was appointed to the board on the same day to understudy Chris Spencer, another of the Company's well respected non-executive directors who had served as Chairman of the Audit Committee since the Company's launch in July 2004. Chris retired on 2 March 2017, on which date Sarah Evans took over the role of Audit Chair. Jan Etherden, a UK-based highly regarded former equity fund manager, and another of the Company's original non-executive directors, resigned her position on 30 November. Her role as an acknowledged investment expert was filled by Christopher Russell, who was appointed to the board on 1 December 2016. On 17 March, Jill May was appointed to the board as a non-executive director. I am personally very grateful to all three directors who have retired over the past year and also to Peter Luthy, another of the inaugural non-executive directors who resigned from the Company on 19 November 2015. They steered the Company through some tumultuous times with great skill, commendable attention to an ever-increasing slew of regulations and no little success. All three of the non-executive director positions were advertised through a non-executive recruitment specialist and 96 names were scrutinised. I am confident that the Company has a fine slate of non-executive directors with the necessary skills to steer it through the years ahead and the move from 6 directors to 5 should help reduce costs without compromising the board's ability to represent shareholders' interests. Regulatory developments Over the past year there has been a good deal of debate over the categorisation of investment trusts as either complex or non-complex financial instruments under the forthcoming MiFID II regulations, whose provisions come into effect in the UK on 3 January 2018. Happily, the Association of Investment Companies (AIC), of which body this Company is a member, came out with clear guidance on 7 July 2017 stating that investment company securities are not automatically complex. Following the guidance from the AIC and our broker, the Directors have no reason to believe that the Company should be considered a complex financial instrument. Annual General Meeting The AGM of the Company will be held at 12 noon on 1 December 2017 at the Company's registered offices at Trafalgar Court, Les Banques, St Peter Port, Guernsey. Share Buyback Authority I have already touched upon this power, which has not been invoked over the period of this report. Nevertheless the Board has resolved to seek, at the AGM on 1 December 2017, a renewal of its authority to buy back shares at a discount to NAV under the terms to be stated in a Special Resolution. Share Redemption Facility The Company has a Redemption Facility operable in November each year. Given that the Company has been trading above or close to its NAV for most of the year under report, and the fact that it is currently trading at a 2% to 3% premium to NAV the Board is not intending to offer this facility in November 2017. Related Party Share Purchases When the Company was standing at a discount to its NAV, Jonathan Ruffer added
to his existing holding in the Company with a purchase of 100,000 shares on 2
August 2016 at a price of 214.25p. He and his immediate family now own
1,039,335 shares.
Ruffer Culture
Whilst attending an induction programme in Ruffer's offices on 11 July, it was
remarked by all three of the new non-executive directors that, in their
experience, the culture at Ruffer was unique. Put simply, the fact that the
firm is a partnership, with Jonathan Ruffer, one of the great latter-day unsung
Christian philanthropists, as the controlling shareholder of the Investment
Manager, enables it to pursue its aim of putting their clients first in
preserving their capital without the interference of having to hit short term
financial targets, which often prove disruptive to long term investment goals.
There can be few companies operating anywhere in the world where the current
chief executive has two of her predecessors actively involved in managing the
business. The first Chief Executive of Ruffer LLP, Jonathan Ruffer, as I have
pointed out in these reports before, is far from being a distant figurehead -
as Executive Chairman he is front and centre of the firm's strategic direction
and at the heart of the asset allocation process. Henry Maxey, who took over
from Jonathan as Chief Executive in 2012, handed over to Clemmie Vaughan on 1
April to focus on his key role as Chief Investment Officer and works closely
with Jonathan and Clemmie. The firm appears wonderfully harmonious but it is
clearly imbued with a great deal of creative, moral and entrepreneurial energy
that Clemmie is focussed on protecting. In short, I am proud to lead a Company
which represents a 'slice of Ruffer'.
Ashe Windham
15 September 2017
Business Model and Strategy
Ruffer Investment Company Limited (the "Company") carries on business as a
closed-ended investment company. Its shares are traded on the Main Market of
the London Stock Exchange (the "LSE"). The Company is externally managed by
Ruffer AIFM Limited, a UK investment manager authorised and regulated in the
conduct of Investment business in the United Kingdom by the Financial Conduct
authority ("FCA"). Ruffer AIFM Limited is also the Alternative Investment Fund
Manager ("AIFM") of the Company.
Board
The Board of Directors is responsible for the overall stewardship of the
Company, including general management, structure, finance, corporate
governance, marketing, risk management, compliance, asset allocation and
gearing, contracts and performance. Biographical details of the Directors, all
of whom are non-executive, are listed in the Directors section and on the
Management and Administration summary. The Company has no executive directors
or employees.
The Board has contractually delegated to external parties various functions as
disclosed in the Corporate Governance Statement.
Investment Objective
The principal objective of the Company is to achieve a positive total annual
return, after all expenses, of at least twice the Bank of England base rate
(the Bank of England base rate was 0.25% for the year ended 30 June 2017).
The Company predominantly invests in internationally listed or quoted equities
or equity related securities (including convertibles) or bonds which are issued
by corporate issuers, supra-nationals or government organisations.
Investment Strategy
The Company's strategy is to create a balanced portfolio of offsetting assets
which in aggregate are intended to provide positive performance in excess of
twice the Bank of England base rate each year while protecting capital value.
Investment Policies
In selecting investments, the Company adopts a stock picking approach and does
not adopt any investment weightings by reference to any benchmark. Both the
Board and the Investment Manager believe that the adoption of any index related
investment style would inhibit the ability of the Company to deliver its
objectives.
The Company invests across a broad range of assets, geographies and sectors in
order to achieve its objective. This allocation will change over time to
reflect the risks and opportunities identified by the Investment Manager across
global financial markets, with an underlying focus on capital preservation. The
allocation of the portfolio between different asset classes will vary from time
to time so as to enable the Company to achieve its objective. There are no
restrictions on the geographical or sectoral exposure of the portfolio (except
those restrictions noted below).
The universe of equity, equity related securities or bonds in which the Company
may invest is wide and may include companies domiciled in, and bonds issued by
entities based in, non-European countries, including countries that are classed
as emerging or developing. This may result in a significant exposure to
currencies other than Pound Sterling. Where appropriate, the Manager will also
use in-house funds to gain exposure to certain asset classes.
The Company may use derivatives, including (but not limited to) futures,
options, swap agreements, structured products, warrants and forward currency
contracts, for efficient portfolio management purposes only.
Investment Restrictions and Guidelines
It is not intended for the Company to have any structural gearing. The Company
has the ability to borrow up to 30 per cent. of the NAV at any time for short
term or temporary purposes, as may be necessary for settlement of transactions,
to facilitate share redemption or to meet ongoing expenses.
The proportion of the portfolio invested into companies based in emerging or
developing countries will be limited, at the time of any investment, to below
15 per cent. of the Company's gross assets.
The Directors have determined that the Company will not engage in currency
hedging except where the Investment Manager considers such hedging to be in the
interests of efficient portfolio management.
The Directors have determined that not more than 10 per cent., in aggregate, of
the value of the gross assets of the Company at the time of the acquisition may
be invested in other UK listed investment companies (including UK listed
investment trusts) except that this restriction does not apply to investments
in such entities which themselves have stated investment policies to invest no
more than 15 per cent. of their gross assets in other UK listed investment
companies (including listed investment trusts). Regardless of the above
restriction, the Directors have further determined that no more than 15 per
cent. in aggregate of the Company's gross assets will be invested in listed
investment companies (including listed investment trusts).
General
In accordance with the requirements of the United Kingdom Financial Conduct
Authority (the "FCA"), any material changes in the Investment Policy of the
Company may only be made with the approval of shareholders.
Investment of Assets
At each quarterly Board meeting, the Board receives a detailed presentation
from the Company's Investment Manager which includes a review of investment
performance, recent portfolio activity and a market outlook. It also considers
compliance with the investment policy and other investment restrictions during
the reporting period.
Environmental Policy
LSE listing rules require most companies to disclose their Environmental
Policy. However, due to the nature of its operations, the Company is exempt
from this obligation. Ruffer AIFM Limited's Environmental, Social and
Governance Policy is available upon request from the Investment Manager.
Shareholder Value
The Board reviews on an ongoing basis the performance of the Investment Manager
and considers whether the investment strategy utilised is likely to achieve the
Company's investment objective of realising a positive total annual portfolio
return, after all expenses, of at least twice the return of the Bank of England
base rate. Having considered the portfolio performance and investment strategy,
the Board has unanimously agreed that the interests of the shareholders as a
whole are best served by the continuing appointment of the Investment Manager
on the terms agreed.
Principal Risks and Uncertainties and their Management
The Board has undertaken a robust assessment of the principal risks facing the
Company and has undertaken a detailed review of the effectiveness of the risk
management and internal control systems. As stated within the Report of the
Audit Committee, the Board, with the assistance of the Administrator and the
Investment Manager, has drawn up a risk assessment matrix, which identifies the
key risks to the Company. The principal risks and uncertainties faced by the
Company, which are unchanged from the previous year, and the mitigating factors
adopted by the Company are summarised below.
* Investment Risks: The Company is exposed to the risk that its
portfolio fails to perform in line with the Company's objectives. The Board
reviews reports from the Investment Manager at each quarterly Board meeting,
paying particular attention to the diversification of the portfolio and to the
performance and volatility of underlying investments;
* Operational Risks: The Company is exposed to the risks arising from
any failure of systems and controls in the operations of the Investment Manager
or the Administrator. The Board receives reports annually from the Investment
Manager and Administrator on their internal controls and reviews pricing
reports covering the valuations of underlying investments at each quarterly
Board meeting;
* Accounting, Legal and Regulatory Risks: The Company is exposed to risk
if it fails to comply with the regulations of the UK Listing Authority or the
Guernsey Financial Services Commission or if it fails to maintain accurate
accounting records. The Administrator provides the Board with regular reports
on changes in regulations and accounting requirements; and
* Financial Risks: The financial risks faced by the Company include
market, credit and liquidity risk. These risks and the controls in place to
mitigate them are reviewed at each quarterly Board meeting. Further details on
financial risks are discussed in note 19 of the Financial Statements.
The Board seeks to mitigate and manage these risks through continual review,
policy-setting and enforcement of contractual obligations. It also regularly
monitors the investment environment and the management of the Company's
portfolio.
Long Term Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, (the
"Code"), the Directors have assessed the prospects of the Company over a longer
period than the 12 months minimum required by the 'Going Concern' provision.
For the purposes of this statement having regard to the economic planning cycle
and the Company's strategy review period, the Board has adopted a three year
viability period.
In its assessment of the Company's viability over the three year period the
Board has considered each of the Company's principal risks detailed in note 19
and in particular the impact of a significant fall in the value of the
Company's investment portfolio.
The Directors consider that a 30% fall in the value in the Company's portfolio
would be significant but would have little impact on the Company's ability to
continue in operation over the next three years. In reaching this conclusion,
the Directors considered the Company's expenditure projections, the fact that
the Company currently has no borrowing, but has the ability to borrow up to 30%
of its NAV and that the Company's investments comprise readily realisable
securities which can be expected to be sold to meet funding requirements if
necessary, assuming market liquidity continues.
Also, the Board has assumed that the regulatory and fiscal regimes under which
the Company operates will continue in broadly the same form during the
viability period. The Board speaks with its broker and legal advisers on a
regular basis to understand issues impacting on the Company's regulatory and
fiscal structure. The Administrator also monitors changes to regulations and
advises the Board as necessary. The Board also has access to the
Administrator's compliance resources as well as visiting the compliance
department of the AIFM regularly.
Based on the Company's processes for monitoring operating costs, share
discount, internal controls, the Investment Manager's compliance with the
investment objective, asset allocation, the portfolio risk profile, liquidity
risk and the robust assessment of the principal risks and uncertainties facing
the Company, the Board has concluded that there is a reasonable expectation
that the Company will be able to continue in operation and meet its liabilities
as they fall due over the three year period.
Key Performance Indicators
The Board uses a number of performance measures to assess the Company's success
in meeting its objectives. The key performance indicators are disclosed in
detail in the Key Performance Indicators section.
Investment Manager's Report
Performance
The Chairman's Review has already provided the headline numbers. It will come
as no surprise to hear that equities were the Company's best performing asset
class and the large weighting to Japan made this the largest positive
contributor to performance (608 bps adjusting for currency hedging). Whilst
there is an interesting macro story in Japan, focussing on Abe's ability to
slay the dragon of deflation, our investments there also provide exposure to
economic growth outside Japan and by extension, strong global equity markets.
Throughout the equity book, a focus on cyclical and value stocks proved
effective in the second half of 2016 as a reflation trade set in putting
pressure on bonds and bond-proxies in the equity market. Index-linked bonds
were not immune from this move, but the blow was cushioned in the UK holdings
(where most of our duration lies) through rising breakevens and in the
performance of rate sensitive global equities (life assurers and banks in Japan
performed particularly strongly in the final months of the year). Over the full
period, index-linked bonds made a small positive contribution (226 bps). At the
bottom end of the ledger, the Company's protective assets held us back - such
is the nature of an insurance policy. Gold cost 43 bps and options (equity and
interest rate protection) cost 145 bps.
Portfolio changes
Our macro position has remained consistent through the year (see outlook
statement below) and so most of the portfolio changes have been a result of
incorporating new ideas or keeping a lid on overall equity exposure (40% at 30
June 2017). Useful contributions were made by The Boeing Company (+52%) and
Barratt Developments (+83%). In the bond portfolio duration was reduced in US
TIPS in October 2016, and further in January 2017, on the basis that the Fed's
interest rate moves and Trump's reflation push might put upward pressure on
bond yields. On the currency side, the Company had a large sterling position
throughout the year (76% at 30 June 2017). With the benefit of hindsight this
was the wrong thing to do. Our fear was that a sharp rally in sterling, induced
by short covering or recognition of a policy error by the Bank of England in
the so-called 'emergency measures', would see an outright capital loss if the
Company was heavily exposed to overseas currencies. The low risk position
(which we will always adopt when we do not have strong conviction in a
currency) is to hedge out the risk. In summary, we missed out on a tailwind but
ran a lower risk portfolio as a result. In the option book equity protection
has continued to be held via VIX call options and interest rate protection
(held through payer swaptions) was increased over the year allowing us to hold
onto the cherished long dated index-linked Gilts through what might prove to be
a volatile short term if there is a belief that pro-growth policies might be
successful.
Outlook
The monthly commentaries for the Company focus on short term developments; the
annual report is an opportunity to step back and look at the direction of
travel. To many the financial crisis is a distant memory and is viewed in the
past tense. To us, the sequence of events leading up to the crisis and those
that have happened since 2008 have only managed to defer the day of reckoning -
the seeds of the next crisis (or is it part of the same crisis?) are sown and
are well past the germination stage. 2008 was a rap on the knuckles of the
western world. For too long we had eaten tomorrow's cake today using debt to
bridge the gap. The belief of the world's central banks was that sharply lower
interest rates would buy the time needed to get the house back in order. But
far from using this window of opportunity to tighten belts and deleverage the
opposite has happened. Cheap borrowing costs have allowed debt growth to
continue unabated. On its own this might not be problematic if it was
accompanied by strong economic growth, but this has not been the case.
Once again, we have eaten tomorrow's cake today but this time at a moment when
we were still trying to atone for yesterday's binge. At this crucial juncture
the stakes are now higher and the options more limited. On top of this (and to
some extent because of it) there has been another important development in the
last 12 months; the political winds have changed. Austerity is a vote loser and
is off the table and the have-nots are voting for change. This means more
spending to try to boost growth and more borrowing to fund that spending. The
inflationary risks were already high and they are about to get higher.
What this boils down to is a transfer of wealth from the world's savers to the
world's borrowers and now the political wind is firmly behind this movement.
The mechanism for this change is financial repression; keep interest rates
below the rate of inflation. This has been happening for some time in the UK,
US and Europe and is likely to become more extreme. Our job is to protect our
investors (the savers) and unlike the last crisis this one will not be optional
and the hiding places will be few and far between. As we have explained before,
index-linked bonds will play a critical role but the path to this denouement is
unlikely to be a smooth one.
The question we are frequently asked is 'When?' and our answer, depending on
how facetious we are feeling, ranges from 'Don't know' to 'Don't care'. Think
back to 2006 - it did not matter whether you identified that it would be
Lehmans rather than Bear Stearns that would bring down the banking system, the
useful insight was to spot that at some point a systemically important bank
would fail - the house of cards was already teetering and the signs were there.
The situation is similar today; the catalyst is less interesting than the
outcome. However, the question of 'When?' is important. If we are talking about
an event 10 years hence (highly unlikely) then that is too long to ask our
investors to wait, unless we can make them a steady return in the interim. If
looked at through that prism then the last year has been a satisfactory one; a
respectable return has been achieved in absolute terms and it has been achieved
with a portfolio heavily skewed in a defensive direction. There will be tougher
times ahead that will challenge our ability to preserve capital, but if we
remain focussed on protecting investors' capital and manage to repeat the
performance of the last 12 months in making a steady positive return, then the
Company should have a useful role to play for its investors.
Ruffer AIFM Limited
15 September 2017
Top Ten Holdings
Fair % of
Holding at Value Total Net
Investments Currency 30.06.17 GBP Assets
UK Index-Linked Gilt 1.875% 22/11/2022 GBP 14,500,000 23,694,378 6.30
UK Index-Linked Gilt 0.375% 22/03/2062 GBP 8,400,000 21,620,945 5.76
UK Index-Linked Gilt 0.125% 22/03/2068 GBP 7,500,000 18,987,263 5.06
US Treasury Inflation Indexed Bond 0.625% USD 19,350,000 16,564,237 4.41
15/07/2021
CF Ruffer Gold Fund** GBP 9,994,002 15,300,817 4.07
US Treasury Inflation Indexed Bond 0.125% USD 17,500,000 14,142,454 3.77
15/01/2023
US Treasury Inflation Indexed Bond 0.375% USD 17,000,000 13,840,772 3.68
15/07/2023
Ruffer Illiquid Multi Strategies Fund GBP 16,945,510 13,061,599 3.48
2015*
UK Index-Linked Gilt 0.125% 22/03/2024 GBP 10,250,000 13,251,631 3.53
US Treasury Inflation Indexed Bond 1.125% USD 13,500,000 12,064,178 3.21
15/01/2021
* Ruffer Illiquid Multi Strategies Fund 2015 Ltd is classed as a related
party as it shares the same Investment Manager as the Company.
** CF Ruffer Gold Fund is classed as a related party because its investment
manager, Ruffer LLP, is the parent company of the Company's Investment Manager.
Directors
At the date of this report, the Company has five non-executive Directors, all
of whom are independent.
Ashe Windham, CVO, aged 60 and a resident of the United Kingdom. He joined
Barclays de Zoete Wedd ("BZW") in 1987 as an institutional equities salesman
and was appointed a Director of BZW's Equities Division in 1991. He joined
Credit Suisse First Boston in 1997 when they acquired BZW's equities business.
In 2004 he joined Man Investments as Head of Internal Communications and in
2007 became Man Group's Global Head of Internal Communications. In June 2009 he
resigned from Man Group plc to set up a private family office. He is a
non-executive Director of EFG Asset Management (UK) Ltd and a non-executive
Director of Miton UK MicroCap Trust Plc. Mr Windham was appointed to the Board
on 24 February 2009.
John V Baldwin, aged 67 and a resident of Italy. After taking a Master's Degree
in Asian Studies at Yale University, he joined Robert Fleming & Co. in 1983 as
an investment analyst trainee. In 1984 he was seconded to the Tokyo Branch of
Jardine Fleming as an investment analyst, where he continued in various roles
for 16 years, the final five as a Director of Jardine Fleming Securities (Asia)
and Tokyo Branch Manager. The first foreigner appointed Member Governor of the
Tokyo Stock Exchange, he also served on various committees of the Japan
Securities Dealers Association. In 2001 he retired from successor firm JPMorgan
Chase after serving as Head of Japanese Cash Equities. Mr Baldwin was appointed
to the Board on 24 February 2011.
Sarah Evans, aged 62 and a resident of Guernsey, is an Oxford graduate, a
Chartered Accountant and a non-executive director of several other listed
investment funds. She sits on the board of the UK Investment Companies' trade
body, the AIC. She spent over six years with the Barclays Bank plc group from
1994 to 2001. During that time she was a treasury director and for two years
was Finance Director of Barclays Mercantile. Previously, Sarah ran her own
consultancy business advising financial institutions on all aspects of
securitisation. From 1982 to 1988 she was with Kleinwort Benson, latterly as
head of group finance. Sarah is currently a non-executive Director of Apax
Global Alpha Limited, NB Distressed Debt Investment Fund Limited, Real Estate
Credit Investments Limited and Crystal Amber Fund. Ms. Evans was appointed to
the Board on 20 July 2016.
Christopher Russell, aged 68 and a resident of Guernsey, is a non-executive
director of investment and financial companies in the UK, Hong Kong and
Guernsey. These include being chairman of London main board listed companies
such as F&C Commercial Property Trust Limited and Macau Property Opportunities
Fund Limited and a director of HICL Infrastructure Company Ltd. Chris was
formerly a director of Gartmore Investment Management plc, where he was Head of
Gartmore's businesses in the US and Japan. Before that he was a holding board
director of the Jardine Fleming Group in Asia (Hong Kong and Japan). Prior to
joining Flemings in London, he was with Phillips & Drew Asset Management. He is
a Fellow of the UK Society of Investment Professionals and a Fellow of the
Institute of Chartered Accountants in England and Wales. He was commissioned by
John Wiley to publish in 2006 'Trustee Investment Strategy for Endowments and
Foundations'. Mr. Russell was appointed to the Board on 1 December 2016.
Jill May, aged 56 and a resident of the United Kingdom, has 25 years'
experience in investment banking, 13 years in M&A with S.G. Warburg & Co. Ltd.
and 12 years as a Managing Director at UBS, focused on group strategy and
organisational change. She sits on the board of the Institute of Chartered
Accountants in England and Wales ("ICAEW"). She has broad knowledge of
investment banking, asset management and private banking in the UK and EMEA.
She is a Panel Member of the Competition and Markets Authority ("CMA") and was
a Non-Executive Director of the CMA from its inception in 2013 until October
2016. She is a Non-Executive Director of JP Morgan Claverhouse, a UK listed
investment trust. Ms. May was appointed to the Board on 17 March 2017.
Report of the Directors
The Directors of the Company present their Annual Financial Report (the
"Financial Statements") for the year ended 30 June 2017 which have been
prepared in accordance with the Companies (Guernsey) Law, 2008 (the "Company
Law").
Registration
The Company was incorporated with limited liability in Guernsey on 1 June 2004
as a company limited by shares and as an authorised closed-ended investment
company. As an existing closed-ended fund the Company is deemed to be granted
an authorised declaration in accordance with section 8 of the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended and rule 6.02 of the
Authorised Closed-ended Investment Schemes Rules 2008.
Principal Activity and Investment Objective
The Company is a Guernsey authorised closed-ended investment company with a
premium listing on the LSE. The principal objective of the Company is detailed
in the Business Model and Strategy section.
Going Concern
The Directors believe that it is appropriate to continue to adopt the going
concern basis in preparing the Financial Statements since the assets of the
Company consist mainly of securities which are readily realisable and,
accordingly, the Company has adequate financial resources to continue in
operational existence for the foreseeable future. Factors regarding the going
concern basis are also discussed in the Long Term Viability Statement and note
2(c).
Blocklisting Facility
The blocklisting facility is set out in note 13.
Purchase of Own Shares by the Company
The Company operates a share buy back facility whereby it may purchase, subject
to various terms as set out in its Articles and in accordance with the
Companies (Guernsey) Law, 2008, up to 14.99 per cent. of the Company's shares
in issue following the admission of shares trading on the LSE's market for
listed securities. For additional information refer to note 20.
The Company did not buy back any shares during the year (30 June 2016: Nil).
The Board also has the discretion to operate the Redemption Facility, offering
shareholders the possibility of redeeming all or part of their shareholding for
cash at the NAV, if it appears appropriate to do so.
Results and Dividends
The results for the year are set out in the Statement of Comprehensive Income.
Details of dividends paid and proposed are set out in note 5.
Subsequent Events
Events occurring after the balance sheet date are disclosed in note 21.
Shareholder Information
The Company announces its unaudited NAV on a weekly basis and at the month end.
A monthly report on investment performance is published by the Company's
Investment Manager, on the Investment Manager's website, www.ruffer.co.uk.
Investment Management
The key terms of the Investment Management Agreement and specifically the fee
charged by the Investment Manager are set out in notes 8 and 16 of the
Financial Statements. The Board believes that the investment management fee is
competitive with other investment companies with similar investment mandates.
The Board reviews on an ongoing basis the performance of the Investment Manager
and considers whether the investment strategy utilised is likely to achieve the
Company's investment objective of realising a positive total annual portfolio
return, after all expenses, of at least twice the return of the Bank of England
base rate.
In accordance with Listing Rule 15.6.2 (2) R and having formally appraised the
performance, investment strategy and resources of the Investment Manager, the
Board has unanimously agreed that the interests of the shareholders as a whole
are best served by the continuing appointment of the Investment Manager on the
terms agreed.
The Investment Management Agreement will continue in force until terminated by
the Investment Manager or the Company giving to the other party thereto not
less than 12 months' notice in writing.
Directors
The details of the Directors of the Company during the year and at the date of
this Report are set out in the Directors section and on the Management and
Administration summary.
Directors' Interests
The details of the number of redeemable participating preference shares held
beneficially by the Directors who held office at 30 June 2017 and up to the
date of this Report are set out on in note 16.
Substantial Share Interests
As at 15 June 2017*, the Company has received notifications in accordance with
the FCA's Disclosure and Transparency Rule 5.1.2 R of the following interests
in 3% or more of the voting rights attaching to the Company's issued shares.
Investor Shares % of issued
held share
capital
Brewin Dolphin, stockbrokers 12,527,695 7.66
Alliance Trust Savings 10,615,926 6.49
Ruffer 8,176,042 5.00
Tilney 7,389,891 4.52
Charles Stanley 6,600,429 4.04
Hargreaves Lansdown, stockbrokers (EO) 6,500,899 3.98
Rathbones 6,025,308 3.69
Cazenove Capital Management 5,898,802 3.61
Investec Asset Management 5,150,000 3.15
Smith & Williamson 4,954,705 3.03
*Data is taken from the latest available Share Register Analysis produced by
Richard Davies Investor Relations Limited, dated 15 June 2017.
International Tax Reporting
For purposes of the US Foreign Accounts Tax Compliance Act, the Company
registered with the US Internal Revenue Service ("IRS") as a Guernsey reporting
Foreign Financial Institution ("FFI") in June 2014, received a Global
Intermediary Identification Number (99DLPF.99999.SL.831), and can be found on
the IRS FFI list.
The Common Reporting Standard ("CRS") is a standard developed by the
Organisation for Economic Co-operation and Development ("OECD") and is a global
approach to the automatic exchange of tax information. Guernsey has now adopted
the CRS which came into effect on 1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve tax
compliance that had previously applied in respect of 2014 and 2015.
The Board will take the necessary actions to ensure that the Company is
compliant with Guernsey regulations and guidance in this regard.
Disclosure of Information to the Independent Auditor
Each of the persons who is a Director at the date of approval of the Financial
Statements confirms that:
(1) so far as each Director is aware, there is no relevant audit information of
which the Company's auditor is unaware; and
(2) each Director has taken all steps he ought to have taken as a Director to
make himself aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the
provisions of Section 249 of the Company Law.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable Guernsey law and regulations.
Guernsey Company law requires the Directors to prepare Financial Statements for
each financial year. Under that law the Directors are required to prepare the
Company's Financial Statements in accordance with International Financial
Reporting Standards ("IFRSs") as adopted by the European Union and applicable
law.
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, International Accounting Standard 1
requires that directors:
* properly select and apply accounting policies;
* 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 in IFRS is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the entity's
financial position and financial performance; and
* make an assessment of the Company's ability to continue as a going
concern.
The Directors are responsible for keeping proper 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 Company Law.
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.
The Directors are responsible for the oversight of the maintenance and
integrity of the corporate and financial information included on the Company's
webpage. Legislation in Guernsey governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Responsibility Statement
We confirm that to the best of our knowledge:
* the Financial Statements have been prepared in conformity with IFRS as
adopted by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company as required
by DTR 4.1.12;
* the Annual Financial Report, taken as a whole, is fair, balanced and
understandable and provide the information necessary for the shareholders to
assess the Company's performance, business model and strategy; and
* the Annual Financial Report including information detailed in the
Chairman's Review, the Report of the Directors, the Investment Manager's
Review, the Depositary Statement and the notes to the Financial Statements,
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, as required by:
(a) DTR 4.1.8 of the Disclosure and Transparency Rules, being a fair review of
the Company business and a description of the principal risks and uncertainties
facing the Company; and
(b) DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of
important events that have occurred since the end of the financial year and the
likely future development of the Company.
On behalf of the Board
Ashe Windham
Chairman
Sarah Evans
Director
15 September 2017
Corporate Governance Statement
Corporate Governance
On 1 January 2016, the Company became a member of the Association of Investment
Companies (the "AIC") and complies with the AIC Code of Corporate Governance
(the "AIC Code"). By complying with the AIC Code, the Company is deemed to
comply with both the UK and GFSC corporate governance codes.
To ensure ongoing compliance with these principles the Board receives a report
from the Company Secretary, at each quarterly meeting, identifying how the
Company is in compliance and identifying any changes that might be necessary.
The AIC Code is available in the AIC's website, www.theaic.co.uk.
The Board, having reviewed the AIC Code, considers that it has maintained
procedures during the year ended 30 June 2017 and up to the date of this report
to ensure that it complies with the AIC Code except as explained elsewhere in
the Corporate Governance Statement.
Guernsey Regulatory Environment
The Guernsey Financial Services Commission's (the "Commission") Finance Sector
GFSC Code comprises Principles and Guidance, and provides a formal expression
of good corporate practice against which Shareholders, boards and the
Commission can better assess the governance exercised over companies in
Guernsey's finance sector. The Commission recognises that the different nature,
scale and complexity of business will lead to differing approaches to meeting
the GFSC Code.
Role of the Board
The Board is the Company's governing body and has overall responsibility for
maximising the Company's success by directing and supervising the affairs of
the business and meeting the appropriate interests of Shareholders and relevant
stakeholders, while enhancing the value of the Company and also ensuring
protection of investors. A summary of the Board's responsibilities is as
follows:
· statutory obligations and public disclosure;
· strategic matters and financial reporting;
· risk assessment and management including reporting compliance,
governance, monitoring and control; and
· other matters having a material effect on the Company.
The Board's responsibilities for the Annual Report are set out in the Statement
of Directors' Responsibilities.
The Board has contractually delegated responsibility for the management of its
investment portfolio, the arrangement of custodial and depositary services and
the provision of accounting and company secretarial services.
The Board needs to ensure that the Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model and strategy.
In seeking to achieve this, the Directors have set out the Company's investment
objective and policy and have explained how the Board and its delegated
Committees operate and how the Directors review the risk environment within
which the Company operates and set appropriate risk controls. Furthermore,
throughout the Financial Statements the Board has sought to provide further
information to enable Shareholders to have a fair, balanced and understandable
view.
Composition and Independence of the Board
The Board currently comprises five non-executive Directors. The Directors of
the Company are listed in the Directors section and on the Management and
Administration summary.
None of the Directors has a contract of service with the Company.
The Chairman is Ashe Windham. The Chairman of the Board must be independent for
the purposes of Chapter 15 of the Listing Rules. Ashe Windham is considered
independent because he:
· has no current or historical employment with the Investment Manager; and
· has no current directorships in any other investment funds managed by the
Investment Manager.
The Board does not consider it appropriate to appoint a Senior Independent
Director because the Board is deemed to be independent of the Company. The
Company has no employees and therefore there is no requirement for a chief
executive. The Board believes it has a good balance of skills and experience to
ensure it operates effectively. The Chairman, Ashe Windham, is responsible for
leadership of the Board and ensuring its effectiveness. Sarah Evans was
appointed as Director on 20 July 2016, Christopher Russell was appointed as
Director on 1 December 2016 and Jill May was appointed as Director on 17 March
2017.
The Board has engaged external companies to undertake the investment
management, administrative and custodial activities of the Company. Documented
contractual arrangements are in place with these companies which define the
areas where the Board has delegated responsibility to them. For additional
information refer to the Corporate Governance Statement.
The Company holds a minimum of four Board meetings per year to discuss
strategy, general management, structure, finance, corporate governance,
marketing, risk management, compliance, asset allocation and gearing, contracts
and performance. The quarterly Board meetings are the principal source of
regular information for the Board, enabling it to determine policy and to
monitor performance, compliance and controls but these meetings are
supplemented by communication and discussions throughout the year.
A representative of the Investment Manager, Administrator and Company Secretary
attends each Board meeting either in person or by telephone thus enabling the
Board to fully discuss and review the Company's operations and performance. In
addition, representatives from the Company's Broker attend at least two Board
meetings a year. Each Director has direct access to the Investment Manager and
Company Secretary and may at the expense of the Company seek independent
professional advice on any matter.
Attendance at the Board and other Committee meetings during the year was as
follows:
Board Meetings Audit Committee Annual General
Meetings Meeting
Scheduled* Attended Scheduled* Attended Scheduled* Attended
Wayne Bulpitt (resigned N/A N/A N/A N/A N/A N/A
20.07.16)
Jeannette Etherden (resigned 2 2 1 1 1 1
30.11.16)
Christopher Spencer (resigned 3 3 2 1 1 1
02.03.17)
Ashe Windham 3 3 2 2 1 1
John V Baldwin 3 3 2 2 1 1
Sarah Evans (appointed 3 3 2 2 1 1
20.07.16)
Christopher Russell (appointed 2 2 1 1 N/A N/A
01.12.16)
Jill May (appointed 17.03.17) N/A N/A N/A N/A N/A N/A
*Relates to all meetings scheduled during each Director's term of office.
All Directors attended all scheduled Board Meetings during their term of
office. The fourth quarterly Board Meeting was held on 17 July, after the year
end, to accommodate the diaries of all Board members.
In addition to the above meetings, a number of ad-hoc meetings were held
throughout the year.
Directors' Indemnity
Directors' and Officers' liability insurance cover is maintained by the Company
on behalf of the Directors.
Re-election
At each AGM, all of the Directors shall retire from office and may offer
themselves for re-election.
On 30 November 2016 at the 11th AGM of the Company, Ashe Windham, John V
Baldwin and Christopher Spencer retired as Directors of the Company and being
eligible had offered themselves for re-election and were re-elected as
Directors of the Company by the Shareholders. Sarah Evans who was appointed on
20 July 2016, stood for election and was elected as a Director of the Company
by the Shareholders. Christopher Spencer retired as a director in March 2017.
The Directors may at any time appoint any person to be a Director either to
fill a casual vacancy or as an addition to the existing Directors. Any Director
so appointed shall hold office only until, and shall be eligible for
re-election at, the next general meeting following their appointment but shall
not be taken into account in determining the Directors or the number of
Directors who are to retire by rotation at that meeting if it is an AGM.
Board Evaluation and Succession Planning
The Directors consider how the Board functions as a whole taking balance of
skills, experience and length of service into consideration and also reviews
the individual performance of its members on an annual basis.
To enable this evaluation to take place, the Company Secretary circulates a
detailed questionnaire plus a separate questionnaire for the evaluation of the
Chairman. The questionnaires, once completed, are returned to the Company
Secretary who collates responses, prepares a summary and discusses the Board
evaluation with the Chairman prior to circulation to the remaining Board
members. The performance of the Chairman is evaluated by the other Directors.
On occasions, the Board may seek to employ an independent third party to
conduct a review of the Board.
The Board considers it has a breadth of experience relevant to the Company, and
the Directors believe that any changes to the Board's composition can be
managed without undue disruption. An induction programme is in place for all
Director appointments and was attended by the three new directors and the
existing directors over a whole day at Ruffer LLP's offices on 11 July 2017.
The Board is continually considering succession planning as evidenced by the
changes to the Board over the last 18 months.
The Board has also given careful consideration to the recommendations of the
Davies Report on women on boards and as recommended in that report has reviewed
its composition and believes that it has available an appropriate range of
skills and experience. In order to extend its diversity, the Board is committed
to implementing the recommendations of the Davies Report, if possible within
the timescales proposed in the Davies Report, and to that end will ensure that
women candidates are considered when appointments to the Board are under
consideration - as indeed has always been its practice.
Committees of the Board
The Board has established Audit and Management Engagement Committees and
approved their terms of reference, copies of which can be obtained from the
Company Secretary upon request.
Audit Committee
The Company has established an Audit Committee, with formally delegated duties
and responsibilities within written terms of reference. The Company's Audit
Committee is comprised of the entire Board. The Audit Committee is chaired by
Sarah Evans. The Audit Committee meets formally at least twice a year and each
meeting is attended by the independent external auditor and Administrator.
The table above sets out the number of Audit Committee Meetings held during the
year ended 30 June 2017 and the number of such meetings attended by each Audit
Committee member.
A report of the Audit Committee detailing responsibilities and activities is
presented in the Audit Committee Report.
Management Engagement Committee
The Company has established a Management Engagement Committee, with formally
delegated duties and responsibilities within written terms of reference. The
Management Engagement Committee is comprised of the entire Board, with John V
Baldwin appointed as Chairman. The Management Engagement Committee meets
formally once a year.
The principal duties of the Management Engagement Committee are to review the
performance of and contractual arrangements with the Investment Manager and all
other service providers to the Company (other than the external auditor).
During the year the Management Engagement Committee has reviewed the services
provided by the Investment Manager as well as the other service providers and
have recommended to the Board that their continuing appointments is in the best
interests of the Shareholders. The last meeting was held on 12 July 2017.
Nomination Committee
The Board does not have a separate Nomination Committee. The Board as a whole
fulfils the function of a Nomination Committee. Any proposals for a new
Director are discussed and approved by the Board. The Board will determine
whether in future an external search consultancy or open advertising is used in
the appointments of non-executive Directors.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that
it is not appropriate to have a Remuneration Committee as anticipated by the UK
Code because this function is carried out as part of the regular Board
business. A Remuneration Report prepared by the Board is in the Directors'
Remuneration Report.
Internal Control
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board.
The Board is responsible for establishing and maintaining the Company's system
of internal controls and for maintaining and reviewing its effectiveness. The
system of internal controls is designed to manage rather than to eliminate the
risk of failure to achieve business objectives and as such can only provide
reasonable, but not absolute, assurance against material misstatement or loss.
These controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for publication
is reliable. The Board uses a formal risk assessment matrix to identify and
monitor business risks.
The Board has contractually delegated to external parties various functions as
listed below. The duties of investment management, administration and custody
are segregated. Each of the contracts entered into with the parties was entered
into after full and proper consideration by the Board of the quality and cost
of services offered, including the control systems in operation as far as they
relate to the affairs of the Company.
The Board considers on an ongoing basis the process for identifying, evaluating
and managing any significant risks faced by the Company. The process includes
reviewing reports from the Company Secretary on risk control and compliance, in
conjunction with the Investment Manager's regular reports which cover
investment performance.
* Investment and portfolio risk management is provided by Ruffer AIFM
Limited, a company authorised by the FCA.
* Administration, accounting, registrar, and company secretarial duties
are performed by Northern Trust International Fund Administration Services
(Guernsey) Limited, a company licensed and regulated by the Guernsey Financial
Services Commission.
* CREST agency functions are performed by Computershare Investor
Services (Jersey) Limited, a company licensed and regulated by the Jersey
Financial Services Commission.
* Depositary services performed by Northern Trust (Guernsey) Limited, a
company licensed and regulated by the Guernsey Financial Services Commission.
* Custodial services are provided by Northern Trust (Guernsey) Limited,
a company licensed and regulated by the Guernsey Financial Services Commission.
* Advisory and brokering services are provided by Cenkos Securities plc,
a firm which is authorised and regulated by the FCA.
The Board reviews regularly the performance of the services provided by these
companies. The Board reviews the performance of the Investment Manager annually
by assessing the performance of the investments, and the Investment Manager's
position against its peers. The Board also conducts an annual visit to the
offices of the Investment Manager to review its internal control procedures.
The Board also receives and reviews quarterly reports from the Investment
Manager, Alternative Investment Manager and Administrator. The Board also
receives confirmation from the Administrator of its capability under its
Service Organisation Controls 1 report.
In common with most investment companies, the Company does not have an internal
audit function. All of the Company's management functions are delegated to the
Investment Manager and Administrator which has their own internal audit and
risk assessment functions. As such, an internal audit function specific to the
Company is therefore considered unnecessary, as explained in the Audit
Committee Report.
Principal Risks and Uncertainties
Principal risks and uncertainties are disclosed in the Business Model and
Strategy section above. There have been no changes to principal risks during
the year ended 30 June 2017.
Relations with Shareholders
The Board welcomes shareholders' views and places great importance on
communication with its shareholders. The Board receives regular reports on the
views of its shareholders from the Company's Corporate Broker and Investment
Manager.
The Chairman and other Directors are available to meet shareholders if required
and the AGM of the Company provides a forum for shareholders to meet and
discuss issues with the Directors of the Company.
In recent years the Board has also held a meeting in London with investors to
discuss any issues they may have.
In addition, the Investment Manager maintains a website which contains
comprehensive information, including financial reports, prospectus and monthly
reports on investment performance which contains share price information,
investment objectives, investment reports and investor contacts.
Going Concern
The going concern assumption is disclosed in the Report of Directors.
Subsequent Events
The subsequent events since the year end that the Directors consider require
adjustment to or disclosure in this Annual Financial Report or the Financial
Statements are disclosed in note 21.
Directors' Remuneration Report
Introduction
An ordinary resolution for the approval of the annual remuneration report was
put to the shareholders at the AGM held on 30 November 2016.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the Directors'
remuneration. No advice or services were provided by any external person in
respect of its consideration of the Directors' remuneration.
The Company's policy is that the fees payable to the Directors should reflect
the time spent by the Directors on the Company's affairs and the
responsibilities borne by the Directors and be sufficient to attract, retain
and motivate directors of a quality required to run the Company successfully.
The Chairs of the Board and the Audit Committee are paid a higher fee in
recognition of their additional responsibilities. The policy is to review fee
rates periodically, although such a review will not necessarily result in any
changes to the rates, and account is taken of fees paid to directors of
comparable companies.
There are no long term incentive schemes provided by the Company and no
performance fees are paid to Directors.
No Director has a service contract with the Company but each of the Directors
is appointed by a letter of appointment which sets out the main terms of their
appointment. Directors hold office until they retire by rotation or cease to be
a director in accordance with the Articles of Incorporation, by operation of
law or until they resign.
Remuneration
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine provided that the aggregate amount of such fees does
not exceed GBP200,000 (30 June 2016: GBP200,000) per annum.
Directors are remunerated in the form of fees, payable quarterly in arrears, to
the Director personally. No Directors have been paid additional remuneration
outside their normal Directors' fees and expenses. The annual fees paid to each
director are shown below:
30.06.17 30.06.16
GBP GBP
Ashe Windham 38,000 35,000
Sarah Evans (appointed 20 July 31,000 -
2016)
John Baldwin 27,000 25,000
Christopher Russell (appointed 1 December 27,000 -
2016)
Jill May (appointed 17 March 2017) 27,000 -
Christopher Spencer (resigned 2 - 28,000
March 2017)
Jeannette Etherden (resigned 30 November 2016) - 25,000
Wayne Bulpitt (resigned 20 July - 25,000
2016)
150,000 138,000
During the year ended 30 June 2017, Directors' fees of GBP140,677 (30 June 2016:
GBP146,925) were charged to the Company of which GBP38,482 (30 June 2016: GBP34,500)
remained payable at the year end.
Audit Committee Report
We present the Audit Committee's Report for the year ended 30 June 2017,
setting out the responsibilities of the Audit Committee and its key activities
for the year from 1 July 2016 to 30 June 2017. As in previous years, the
Committee has reviewed the Company's financial reporting, the independence and
effectiveness of the external auditor and the internal control and risk
management systems of service providers. In order to assist the Audit Committee
in discharging these responsibilities, regular reports are received from the
Investment Manager, Administrator and external auditor.
Members of the Audit Committee will continue to be available at each AGM to
respond to any shareholder questions on the activities of the Audit Committee.
Responsibilities
The Audit Committee reviews and recommends to the Board the Financial
Statements of the Company and is the forum through which the external auditor
reports to the Board of Directors.
The role of the Audit Committee includes:
* Monitoring and reporting to the Board on such matters as the integrity
of the Financial Statements of the Company and any formal announcements
relating to the Company's financial performance, and any significant financial
reporting judgements;
* considering the appropriateness of accounting policies and practices
including critical judgement areas;
* reviewing and considering the UK Code and FRC Guidance on Audit
Committees;
* monitoring and reviewing the quality, effectiveness and independence
of the external auditor and the effectiveness of the audit process considering
and making recommendations to the Board on the appointment, re-appointment,
replacement and remuneration to the Company's external auditor;
* reviewing the Company's procedures for prevention, detection and
reporting of fraud, bribery and corruption;
* monitoring and reviewing the internal control and risk management
systems of the service providers together with the need for an Internal Audit
function; and
* considering the need for an internal audit function.
The Audit Committee's full terms of reference are available in the Investment
Manager's website, www.ruffer.co.uk.
Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit Committee
during the year:
Financial Reporting - The Audit Committee's review of the Unaudited Half Yearly
Financial Report, Unaudited Results Announcement and Audited Annual Financial
Report focused on the significant risk relating to the valuation and ownership
of investments. The investments comprise the majority of the Company's NAV and
hence form part of the Key Performance Indicator ("KPI") NAV per share. Hence
any significant error in valuation or overstatement of holdings could
significantly impact the NAV and hence the reported NAV per share of the
Company.
Valuation of Investments - The Company's investments had a fair value of GBP
346,628,281 as at 30 June 2017 (30 June 2016: 325,496,896) and represented the
majority of the net assets of the Company. The investments are predominantly
listed except for investments in unlisted investment funds.
The valuation of investments is in accordance with the requirements of IFRS.
The Audit Committee considered the fair value of the investments held by the
Company as at 30 June 2017 to be reasonable based on information provided by
the Investment Manager and Administrator. All prices are confirmed to
independent pricing sources as at 30 June 2017 by the Administrator and are
subject to review process at the Administrator and oversight at the Investment
Manager.
Ownership of Investments - The Company's investment holdings are reconciled to
independent reports from the Custodian by the Administrator with any
discrepancies being fully investigated and reconciled by the Administrator. The
Audit Committee satisfied itself, based on reviews of information provided by
the Custodian, Depositary and Administrator, that the holdings of investments
are correctly recorded.
Risk Management - The Audit Committee considered the process for managing the
risk of the Company and its service providers. Risk management procedures for
the Company, as detailed in the Company's risk assessment matrix, were reviewed
and approved by the Audit Committee. Regular reports are received from the
Investment Manager and Administrator on the Company's risk evaluation process
and reviews. Refer to the Business Model and Strategy for details on principal
risks and uncertainties and their management. Financial risks faced by the
Company are discussed in note 19 of the Financial Statements.
The Company's AIFM, Ruffer AIFM Limited has responsibilities in law in relation
to risk management under the AIFMD.
Fraud, Bribery and Corruption - The Audit Committee continues to monitor the
fraud, bribery and corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no instances of
fraud, bribery or corruption.
The External Auditor - In March 2015 the Board entered into a competitive audit
tender process and Deloitte LLP was appointed as the Company's new auditor,
replacing Moore Stephens, who had been the external auditor from the date of
the initial listing on the LSE.
Independence, Objectivity and Fees - The independence and objectivity of the
external auditor is reviewed by the Audit Committee which also reviews the
terms under which the external auditor is appointed to perform non-audit
services. The Audit Committee has established pre-approval policies and
procedures for the engagement of Deloitte LLP to provide audit, assurance and
tax services. These are that the external auditor may not provide a service
which:
* places them in a position to audit their own work;
* creates a mutuality of interest;
* results in the external auditor developing close relationships with
service providers of the Company;
* results in the external auditor functioning as a manager or employee of
the Company; or
* puts the external auditor in the role of advocate of the Company.
As a general rule, the Company does not utilise the external auditor for
internal audit purposes, secondments or valuation advice. Services which are in
the nature of audit, such as tax compliance, tax structuring, private letter
rulings, accounting advice, quarterly reviews and disclosure advice are
normally permitted but must be pre-approved where individual fees are likely to
be above the audit fees.
The following table summarises the remuneration paid to the previous and
current auditors for audit and non-audit services during the years ended 30
June 2017 and 2016:
30.06.17 30.06.16
GBP GBP
Statutory Audit 31,500 27,500
Total Audit fees 31,500 27,500
Interim Review 8,400 8,000
Total non-audit related fees 8,400 8,000
No tax services were provided during the year.
In line with the policies and procedures above, the Audit Committee does not
consider that the provision of these non-audit services to be a threat to the
objectivity and independence of the independent auditor.
Deloitte LLP also has safeguards in place to ensure objectivity and
independence.
When considering the effectiveness and independence of the external auditor,
and the effectiveness of the audit process, the Audit Committee meets regularly
with the external auditors to discuss the audit plan and the scope of the
audit. The Audit Committee also takes account of factors such as:
* The audit plan presented to them before each audit;
* The post audit report including variations from the original plan;
* Changes in audit personnel;
* The external auditor's own internal procedures to identify threats to
independence; and
* Feedback from both the Investment Manager and Administrator evaluating
the performance of the team.
The Audit Committee has examined the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the external auditor,
with particular regard to non-audit fees, and is satisfied that an effective
audit has been completed with diligence and professional scepticism, that the
scope of the audit was appropriate and significant judgements have been
challenged robustly. It also considers Deloitte LLP, as external auditor, to be
independent of the Company.
Re-appointment of the external auditor - At the AGM held on 30 November 2016,
Deloitte LLP was re-appointed as the Company's external auditor.
Internal Control and Risk Management Systems
The Audit Committee, after consultation with the Investment Manager and
external auditor, considers the key risk of misstatement in its Financial
Statements to be the override of controls by its service providers, the
Investment Manager and Administrator.
At each quarterly Board meeting, compliance reports are provided by the
Administrator, Company Secretary and Investment Manager. The Board also
receives confirmation from the Administrator of its capability under its
Service Organisation Controls 1 report. No significant failings or weaknesses
were identified in these reports.
The Audit Committee has also reviewed the need for an internal audit function.
The Audit Committee has decided that the systems and procedures employed by the
Investment Manager and the Administrator, including their internal audit
functions, provide sufficient assurance that a sound system of internal
control, which safeguards the Company's assets, is maintained. An internal
audit function specific to the Company is therefore considered unnecessary.
For any questions on the activities of the Audit Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend each AGM
to respond to such questions.
In finalising the Financial Statements for recommendation to the Board for
approval, the Audit Committee has satisfied itself that the Financial
Statements taken as a whole are fair, balanced and understandable, and provide
the information necessary for shareholders to assess the Company's performance,
business model and strategy.
Sarah Evans
Chairman, Audit Committee
15 September 2017
Report of the Depositary to the Shareholders of Ruffer Investment Company
Limited
Northern Trust (Guernsey) Limited has been appointed as Depositary to Ruffer
Investment Company Limited (the "Company") in accordance with the requirements
of Article 36 and Articles 21(7), (8) and (9) of the Directive 2011/61/EU of
the European Parliament and of the Council of 8 June 2011 on Alternative
Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and
Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the "AIFM Directive").
We have enquired into the conduct of Ruffer AIFM Limited (the "AIFM") and the
Company for the year ended 30 June 2017, in our capacity as Depositary to the
Company.
This report including the review provided below has been prepared for and
solely for the Shareholders in the Company. We do not, in giving this report,
accept or assume responsibility for any other purpose or to any other person to
whom this report is shown.
Our obligations as Depositary are stipulated in the relevant provisions of the
AIFM Directive and the relevant sections of Commission Delegated Regulation
(EU) No 231/2013 (collectively the "AIFMD legislation") and the Authorised
Closed-ended Investment Schemes Rules 2008.
Amongst these obligations is the requirement to enquire into the conduct of the
AIFM and the Company and their delegates in each annual accounting period.
Our report shall state whether, in our view, the Company has been managed in
that period in accordance with the AIFMD legislation. It is the overall
responsibility of the AIFM and the Company to comply with these provisions. If
the AIFM, the Company or their delegates have not so complied, we as the
Depositary will state why this is the case and outline the steps which we have
taken to rectify the situation.
The Depositary and its affiliates is or may be involved in other financial and
professional activities which may on occasion cause a conflict of interest with
its roles with respect to the Company. The Depositary will take reasonable
care to ensure that the performance of its duties will not be impaired by any
such involvement and that any conflicts which may arise will be resolved fairly
and any transactions between the Depositary and its affiliates and the Company
shall be carried out as if effected on normal commercial terms negotiated at
arm's length and in the best interests of Shareholders.
Basis of Depositary Review
The Depositary conducts such reviews as it, in its reasonable discretion,
considers necessary in order to comply with its obligations and to ensure that,
in all material respects, the Company has been managed (i) in accordance with
the limitations imposed on its investment and borrowing powers by the
provisions of its constitutional documentation and the appropriate regulations
and (ii) otherwise in accordance with the constitutional documentation and the
appropriate regulations. Such reviews vary based on the type of Fund, the
assets in which a Fund invests and the processes used, or experts required, in
order to value such assets.
Review
In our view, the Company has been managed during the period, in all material
respects:
(i) in accordance with the limitations imposed on the investment and
borrowing powers of the Company by the constitutional document; and by the
AIFMD legislation; and
(ii) otherwise in accordance with the provisions of the constitutional
document; and the AIFMD legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
15 September 2017
Independent Auditor's Report
To the Shareholders of Ruffer Investment Company Limited
Opinion
In our opinion the financial statements:
· give a true and fair view of the state of the Company's affairs
as at 30 June 2017 and of its profit for the year then ended;
· have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union; and
· have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
The financial statements that we have audited comprise:
· the Statement of Financial Position;
· the Statement of Comprehensive Income;
· the Statement of Changes in Equity;
· the Statement of Cash Flows; and
· the related notes 1 to 21.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor's responsibilities for
the audit of the financial statements section of our report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in
the UK, including the FRC's Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We confirm that non-audit services
prohibited by the FRC's Ethical Standard were not provided to the Company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Summary of our audit approach
Key Audit Matters The key risks that we identified in the current year
were:
· Valuation and ownership of investments; and
· Recognition of revenue.
The key risks are similar to the prior year.
Materiality The materiality we used in the current year was GBP
7,500,000 which is approximately 2% of Net Asset Value
(NAV). This is consistent with the prior year.
Scoping The Company was audited as a single component. Balances
were scoped in for testing based on our assessment of
risk of material misstatement. As part of our risk
assessment process, we considered the impact of controls
implemented at service organisations.
Significant There has been no significant changes in our approach
changes in our from prior year.
approach
Conclusions relating to principal risks, going concern and viability
statement
We have reviewed the Directors' statement regarding We confirm that we
the appropriateness of the going concern basis of have nothing material
accounting contained within note 2(c) to the to add or draw
financial statements and the Directors' statement on attention to in
the longer-term viability of the Company contained respect of these
within the Directors' Report . matters.
We are required to state whether we have anything
material to add or draw attention to in relation to: We agreed with the
* the Directors' confirmation in the Directors' adoption of
Business Model and Strategy section that they have the going concern
carried out a robust assessment of the principal basis of accounting
risks facing the Company, including those that would and we did not
threaten its business model, future performance, identify any such
solvency or liquidity; material
* the disclosures the Business Model and uncertainties.
Strategy section and in note 19 that describe those However, because not
risks and explain how they are being managed or all future events or
mitigated; conditions can be
* the Directors' statement in the Report predicted, this
of the Directors to the financial statements about statement is not a
whether they considered it appropriate to adopt the guarantee as to the
going concern basis of accounting in preparing them Company's ability to
and their identification of any material continue as a going
uncertainties to the Company's ability to continue concern.
to do so over a period of at least twelve months
from the date of approval of the financial
statements;
* the Directors' explanation in the
Business Model and Strategy section as to how they
have assessed the prospects of the Company, over
what period they have done so and why they consider
that period to be appropriate, and their statement
as to whether 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, including any
related disclosures drawing attention to any
necessary qualifications or assumptions; and
* whether the Directors' statements
relating to going concern and the prospects of the
company required in accordance with Listing Rule
9.8.6R (3) are materially inconsistent with our
knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Valuation and ownership of investments
Key audit matter Included on the Company's statement of financial position
description as at 30 June 2017 are investments with a fair value of GBP
347 million (2016: GBP325 million) as disclosed in Note 10
to the Financial Statements. The Company's portfolio is
made up of listed equity investments, index linked bonds
and listed funds. Investments are the most quantitatively
significant balance and are an area of focus because they
are the main driver of the Company's performance and net
asset value (NAV). As explained in Note 2(e), the
Company's accounting policy is to measure its investments
at fair value. Refer to considerations made by the audit
committee on valuation of investments as discussed in the
Audit Committee Report.
The risk exists that:
· there might be errors or fraudulent manipulation of
valuations in order to report favourable key performance
indicators;
· inappropriate exchange rates are used to convert
foreign currency valuations to the Company's reporting
currency;
· trades made immediately before the year-end may be
excluded from the valuation or conversely, trades made
immediately after the year-end may be included in the
valuation in error; and
· the Company may not have proper legal title to the
investments held.
How the scope of To test the valuation and ownership of investments as at
our audit 30 June 2017, we performed the following procedures:
responded to the · assessing the design, implementation and operating
key audit matter effectiveness of controls around the valuation and
ownership of investments through the review of internal
controls reports for the investment manager and
administrator;
· agreed investments held as at year end to
independently obtained custodian confirmation;
· testing the reasonableness of exchange rates used
in converting investments denominated in currencies other
than the Pound Sterling (GBP) by comparing rates used to
independent sources;
· performing detailed testing on purchases and sales
made around year end to assess whether transactions had
been recorded in the correct period; and
· tracing the unit prices of all investments to
independent pricing sources.
Key observations Having performed the above stated procedures, we have no
material exceptions to report regards investments
valuation and ownership.
Recognition of revenue
Key audit matter The significant portion of the Company's income emanates
description from realised and unrealised gains/losses on financial
assets held at fair value through profit and loss (GBP31
million (2016: GBP21 million)). Refer to Note 6. Inaccurate
calculation of realised and unrealised gains/(losses)
would have a material impact on income recognition. The
risk exists that inaccurate income recognition could
result in manipulation of the Company's revenue to support
the Company's performance.
How the scope of To test revenue recognition, we performed the following
our audit procedures:
responded to the · assessing the design, implementation and operating
key audit matter effectiveness of controls around revenue recognition
through the review of internal controls report for the
administrator;
· testing the accuracy of costs capitalised to
investments by tracing a sample of purchases to custodian
and bank statements;
· for unrealised gains/losses, we obtained an
understanding of, and then tested the valuation process as
set out in the 'valuation and ownership of investments'
risk above, we recalculated the valuation movements to
test that these had been appropriately recorded and
classified; and
· for realised gains/losses, testing a sample of
disposals made during the year by agreeing the proceeds to
bank statements and custodian confirmations and
recalculated the realised gains/losses to test that these
were appropriately recorded and classified.
Key observations Having performed the above stated procedures, we have no
material exceptions to report regarding the accuracy of
fair value gains/losses as recorded in the financial
statements.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use
materiality both in planning the scope of our audit work and in evaluating
the results of our work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Materiality GBP7,500,000 (2016: GBP6,600,000)
Basis for 2% (2016: 2%) of Net Asset Value
determining
materiality
Rationale for the Our materiality is based on the net asset value of the
benchmark applied Company as comprehensive income for the Company is
significantly driven by the net asset value. We
consider the net asset value to be the most important
balance on which the shareholders would judge the
performance of the Company.
We agreed with the Audit Committee that we would report all audit
differences in excess of GBP150,000 (2016: GBP133,000), as well as differences
below the threshold the, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its
environment, including internal control, and assessing the risks of
material misstatement. Audit work to respond to the risks of material
misstatement was performed directly by the audit engagement team.
The Company is administered by a third party Guernsey regulated service
provider. As part of our audit, we assessed the design and implementation
of relevant controls established at the service provider.
Other information
The Directors are responsible for the other We have nothing to
information. The other information comprises the report in respect of
information included in the annual report Chairman's these matters.
Review, Business Model and Strategy, Investment
Manager's Report, Top Ten Holdings, Directors,
Report of the Directors, Corporate Governance
Statement, Directors' Remuneration Report, Audit
Committee Report and Report of the Depository, other
than the financial statements and our auditor's
report thereon.
Our opinion on the financial statements does not
cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the other
information and, in doing so, consider whether the
other information is materially inconsistent with
the financial statements or our knowledge obtained
in the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies or
apparent material misstatements, we are required to
determine whether there is a material misstatement
in the financial statements or a material
misstatement of the other information. If, based on
the work we have performed, we conclude that there
is a material misstatement of this other
information, we are required to report that fact.
In this context, matters that we are specifically
required to report to you as uncorrected material
misstatements of the other information include where
we conclude that:
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do
so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor's report that
includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting Council's
website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body, in
accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our
audit work has been undertaken so that we might state to the Company's
members those matters we are required to state to them in an auditor's
report. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members
as a body, for our audit work, for this report, or for the opinions we have
formed.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception
Adequacy of explanations received and accounting
records We have nothing to
Under the Companies (Guernsey) Law, 2008 we are report in respect of
required to report to you if, in our opinion: these matters.
· we have not received all the information and
explanations we require for our audit; or
· proper accounting records have not been kept
by the Company; or
· the financial statements are not in agreement
with the accounting records.
John Clacy FCA
for and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
15 September 2017
Statement of Financial Position
As at 30 June 2017
30.06.17 30.06.16
Notes GBP GBP
ASSETS
Non-current assets
Investments at fair value through profit 10 346,628,281 325,496,896
or loss
Current assets
Cash and cash equivalents 27,950,946 14,513,399
Derivative financial assets 18,19 5,593 4,071,490
Receivables 11 3,147,558 537,094
31,104,097 19,121,983
Total assets 377,732,378 344,618,879
EQUITY
Capital and reserves attributable to the
Company's shareholders
Management share capital 13 2 2
Net assets attributable to holders of
redeemable
participating preference shares 375,601,706 331,484,744
Total equity 375,601,708 331,484,746
LIABILITIES
Current liabilities
Payables 12 1,216,265 400,730
Derivative financial liabilities 18,19 914,405 12,733,403
Total liabilities 2,130,670 13,134,133
Total equity and liabilities 377,732,378 344,618,879
Net assets attributable to holders of
redeemable
participating preference shares (per 13,14 2.287 2.127
share)
The Financial Statements were approved on 15 September 2017 and signed on
behalf of the Board of Directors by:
Ashe Windham
Chairman
Sarah Evans
Director
The notes form an integral part of these Financial Statements.
Statement of Comprehensive Income
For the year ended 30 June 2017
01.07.16 to 01.07.15 to
30.06.17 30.06.16
Notes Revenue Capital Total Total
GBP GBP GBP GBP
Fixed interest income 837,590 - 837,590 925,088
Dividend income 3,961,697 - 3,961,697 3,339,639
Net changes in fair value of
financial assets
at fair value through profit or 6 - 31,261,914 31,261,914 21,005,348
loss
Other losses 7 - (2,418,460) (2,418,460) (24,242,110)
Total income 4,799,287 28,843,454 33,642,741 1,027,965
Management fees 8 - (3,368,232) (3,368,232) (3,030,471)
Expenses 9 (838,619) (241,609) (1,080,228) (994,389)
Total expenses (838,619) (3,609,841) (4,448,460) (4,024,860)
Profit/(loss) for the year 3,960,668 25,233,613 29,194,281 (2,996,895)
before tax
Withholding tax (423,504) - (423,504) (496,837)
Profit/(loss) for the year 3,537,164 25,233,613 28,770,777 (3,493,732)
after tax
Total comprehensive income/
(loss)
for the year 3,537,164 25,233,613 28,770,777 (3,493,732)
Basic and diluted earnings/ 2.23p 15.91p 18.14p (2.25p)
(loss) per share *
* Basic and diluted earnings/(loss) per share are calculated by dividing the
profit after taxation by the weighted average number of redeemable
participating preference shares. The weighted average number of shares for the
year was 158,637,322 (30 June 2016: 155,483,415).
The notes form an integral part of these Financial Statements.
Statement of Changes in Equity
For the year ended 30 June 2017
Total
Management Share Other 01.07.16 to
Notes share capital reserves 30.06.17
capital
GBP GBP GBP
Balance at 30 June 2016 2 128,816,232 202,668,512 331,484,746
Total comprehensive income for the - - 28,770,777 28,770,777
year
Transactions with
Shareholders:
Share capital issued 13 - 19,617,358 - 19,617,358
Share issue costs 13 - (182,699) - (182,699)
Distribution for the year 5 - - (4,088,474) (4,088,474)
Balance at 30 June 2017 2 148,250,891 227,350,815 375,601,708
Net Assets attributable to holders of redeemable
participating preference shares
at the end of the year 375,601,708
Total
Management Share Other 01.07.15 to
Notes share capital reserves 30.06.16
capital
GBP GBP GBP
Balance at 30 June 2 125,770,151 211,452,250 337,222,403
2015
Total comprehensive loss for the - - (3,493,732) (3,493,732)
year
Transactions with Shareholders:
Share capital issued 13 - 3,076,850 - 3,076,850
Share issue costs 13 - (30,769) - (30,769)
Distribution for the 5 - - (5,290,006) (5,290,006)
year
Balance at 30 June 2 128,816,232 202,668,512 331,484,746
2016
Net Assets attributable to holders of redeemable participating
preference shares
at the end of the year 331,484,746
Under The Companies (Guernsey) Law, 2008, the Company can distribute dividends
from capital and revenue reserves, subject to satisfying a solvency test.
The notes form an integral part of these Financial Statements.
Statement of Cash Flows
For the year ended 30 June 2017
Notes 01.07.16 to 01.07.15 to
30.06.17 30.06.16
GBP GBP
Cash flows from operating activities
Purchase of financial assets at fair value (146,776,819) (125,958,145)
through profit or loss
Proceeds from sale of financial assets 155,819,980 135,708,770
at fair value through profit or loss
(including realised gains)
Decrease/(increase) in other receivables 11 7,663 (69)
Transaction costs paid to brokers (241,609) (223,131)
Fixed interest income received 888,175 889,129
Dividends received 3,531,814 2,839,933
Operating expenses paid (4,147,546) (4,086,989)
Effect of foreign exchange rate (10,235,151) (8,161,421)
fluctuations
Cash (used in)/generated from operating (1,153,493) 1,008,077
activities
Cash flows from financing activities
Dividends paid 5 (4,088,474) (5,290,006)
Proceeds from issue of redeemable participating 18,794,509 3,076,850
preference shares
Share issue costs 12, (178,585) (30,769)
13
Net cash generated from/(used in) 14,527,450 (2,243,925)
financing activities
Net increase/(decrease) in cash and cash 13,373,957 (1,235,848)
equivalents
Cash and cash equivalents at beginning 14,513,399 16,441,960
of the year
Exchange gains/(losses) on cash and cash 63,590 (692,713)
equivalents
Cash and cash equivalents at end of the 27,950,946 14,513,399
year
The notes form an integral part of these Financial Statements.
Notes to the Financial Statements
For the year ended 30 June 2017
1. The Company
The Company was incorporated with limited liability in Guernsey on 1 June 2004
as a company limited by shares and as an authorised closed-ended investment
company. As an existing closed-ended fund the Company is deemed to be granted
an authorised declaration in accordance with section 8 of the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended and rule 6.02 of the
Authorised Closed-ended Investment Schemes Rules 2008. The Company is listed on
the Main Market of the London Stock Exchange ("LSE").
2. Significant accounting policies
a) Statement of Compliance
The Financial Statements of the Company for the year ended 30 June 2017 have
been prepared in accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union and the Listing Rules of the London
Stock Exchange in compliance with the Companies (Guernsey) Law, 2008.
b) Basis of preparation
The Financial Statements are prepared in Pound Sterling (GBP), which is the
Company's functional and presentation currency. The Financial Statements have
been prepared on a going concern basis under the historical cost convention, as
modified by the revaluation of financial assets and financial liabilities at
fair value through profit or loss.
This Annual Financial Report and Financial Statements, covering the year from 1
July 2016 to 30 June 2017, has been audited.
c) Going concern
The Directors believe that, having considered the Company's investment
objective (see Business Model and Strategy), financial risk management and
associated risks (see note 19 to the Financial Statements) and in view of the
liquidity of investments, the income deriving from those investments and its
holding in cash and cash equivalents, the Company has adequate financial
resources and suitable management arrangements in place to continue as a going
concern for at least twelve months from the date of approval of the Annual
Financial Statements.
d) Standards, amendments and interpretations that are not yet effective
The following standards and interpretations, which have not been applied in
these Financial Statements, were in issue at the reporting date but were not
yet effective:
IFRS 9 - Financial instruments: Classification and measurement (effective date
- 1 January 2018)
IFRS 15 - Revenue from Contracts with Customers (effective date - 1 January
2018)
IFRS 16 - Leases (effective date - 1 January 2019)
The Board anticipate that the adoption of these standards and interpretations
in a future period will not have a material impact on the Financial Statements
of the Company, other than IFRS 9. The Company is currently evaluating the
potential effect of this standard.
e) Financial instruments
i) Classification
Financial assets are classified into the following categories: financial assets
at fair value through profit or loss and loans and receivables.
The classification depends on the nature and purpose of the financial assets
and is determined at the time of initial recognition.
Financial liabilities are classified as either financial liabilities at fair
value through profit or loss or other financial liabilities.
ii) Recognition
Investment assets at fair value through profit or loss ("investments")
Financial assets and derivatives are recognised in the Company's Statement of
Financial Position when the Company becomes a party to the contractual
provisions of the instrument.
Purchases and sales of investments are recognised on the trade date (the date
on which the Company commits to purchase or sell the investment). Investments
purchased are initially recorded at fair value, being the consideration given
and excluding transaction or other dealing costs associated with the
investment.
Subsequent to initial recognition, investments are measured at fair value.
Gains and losses arising from changes in the fair value of investments and
gains and losses on investments that are sold are recognised through profit or
loss in the Statement of Comprehensive Income within net changes in fair value
of financial assets at fair value through profit or loss.
Derivatives
Forward foreign currency contracts are treated as derivative contracts and as
such are recognised at fair value on the date on which they are entered into
and subsequently remeasured at their fair value. Fair value is determined by
rates in active currency markets. All derivatives are carried as assets when
fair value is positive and as liabilities when fair value is negative. The gain
or loss on remeasurement to fair value is recognised immediately through profit
or loss in the Statement of Comprehensive Income within other gains in the
period in which they arise.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the Statement of Financial Position if, and only if, there is a
currently enforceable legal right to offset the recognised amounts and there is
an intention to settle on a net basis, or to realise assets and settle the
liabilities simultaneously.
iii) Measurement
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. Investments traded in active markets are valued at the
latest available bid prices ruling at midnight on the reporting date. The
Directors are of the opinion that the bid-market prices are the best estimate
of fair value. Gains and losses arising from changes in the fair value of
financial assets/(liabilities) are shown as net gains or losses on financial
assets through profit or loss in note 10 and recognised in the Statement of
Comprehensive Income in the period in which they arise.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive cash flows
from the asset have expired, (b) the Company retains the right to receive cash
flows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party under a "pass through arrangement"; or (c) the
Company has transferred substantially all the risks and rewards of the asset,
or has neither transferred nor retained substantially all the risks and rewards
of the asset, but has transferred control of the asset.
A financial liability is derecognised when the obligation under the liability
is discharged, cancelled or expired.
Realised and unrealised gains and losses
Realised gains and losses arising on disposal of investments are calculated by
reference to the proceeds received on disposal and the average cost
attributable to those investments, and are recognised in the Statement of
Comprehensive Income. Unrealised gains and losses on investments are recognised
in the Statement of Comprehensive Income.
Fair value
Investments consist of listed or quoted equities or equity related securities,
options and bonds which are issued by corporate issuers, supra-nationals or
government organisations and investment in funds.
Investments traded in active markets are valued at the latest available bid
prices ruling at midnight on the reporting date.
Shares in investment funds are not listed on an actively traded exchange and
these are valued at the latest estimate of NAV from the administrator of the
respective investment funds as the most recent price is the best estimate of
the amount for which holdings could have been disposed of at the reporting
date.
f) Income
Dividend income from equity investments is recognised through profit or loss in
the Statement of Comprehensive Income when the relevant investment is quoted
ex-dividend. Investment income is included gross of withholding tax. Interest
income is recognised through profit or loss in the Statement of Comprehensive
Income for all debt instruments using the effective interest rate method.
g) Expenses
Expenses are accounted for on an accruals basis. Expenses incurred on the
acquisition of financial assets at fair value through profit or loss and
management fees are charged to the Statement of Comprehensive Income in
capital. All other expenses are recognised through profit or loss in the
Statement of Comprehensive Income in revenue.
The Company's management fees are allocated between the capital and revenue
accounts of the Company in a ratio as decided by the Board at its sole
discretion. All other administrative expenses of the Company are charged wholly
to the revenue account. Currently 100% of the management fees are charged to
capital.
h) Cash and cash equivalents
Cash comprises cash in hand and deemed deposits. Cash equivalents are
short-term, highly liquid investments with original maturities of three months
or less and bank overdrafts.
i) Translation of foreign currency
Functional and presentation currency
The Financial Statements of the Company are presented in the currency of the
primary economic environment in which the Company operates (its 'functional
currency'). The Directors have considered the currency in which the original
capital was raised, distributions will be made and ultimately the currency in
which capital would be returned in a liquidation. On balance, the Directors
believe that Pound Sterling best represents the functional currency of the
Company. For the purpose of the Financial Statements, the results and financial
position of the Company are expressed in Pound Sterling, which is the
presentation currency of the Company.
Foreign currency transactions are translated into the functional currency using
the exchange rate prevailing at the transaction date. Foreign exchange gains
and losses resulting from the settlement of such transactions and those from
the translation at period end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement of
Comprehensive Income.
Translation differences on non-monetary items such as financial assets held at
fair value through profit or loss are reported as part of net changes in fair
value on financial assets through profit or loss in the Statement of
Comprehensive Income.
j) Share issue costs
Share issue costs are fully written off against the share capital account in
the period of the share issue.
k) Redeemable participating preference shares
As the Company's redeemable participating preference shares are redeemable at
the sole option of the Directors, they are required to be classified as equity
instruments.
l) Receivables
Receivables are amounts due in the ordinary course of business. If collection
is expected in one year or less, they are classified as current assets. If not,
they are presented as non-current assets. Receivables are recognised initially
at fair value and subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
m) Payables
Payables are obligations to pay for services that have been acquired in the
ordinary course of business. Payables are classified as current liabilities if
payment is due within one year or less. If not, they are presented as
non-current liabilities. Payables are recognised initially at fair value plus
any directly attributable incremental costs of acquisition or issue.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Financial Statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expense and the accompanying disclosures. Uncertainty about these
assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected in future
periods.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods.
Judgements
In the process of applying the Company's accounting policies, management has
made the following judgement, which has the most significant effect on the
amounts recognised in the Financial Statements:
Functional currency
As disclosed in note 2(i), the Company's functional currency is Pound Sterling.
Pound Sterling is the currency in which the original capital was raised,
distributions are made and ultimately the currency in which capital would be
returned in a liquidation.
4. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability is an annual fee of GBP1,200 (30 June 2016: GBP1,200).
The amounts disclosed as taxation in the Statement of Comprehensive Income
relates solely to withholding tax suffered at source on income. Foreign capital
gains tax charges are deducted from realised investment gains.
5. Dividends to shareholders
Dividends, if any, are declared semi-annually, usually in September and March
each year. The Company paid and declared the following dividends during the
year:
01.07.16 to 01.07.15
to
30.06.17 30.06.16
GBP GBP
2016 Second interim dividend of 1.7p 2,649,253 2,640,753
(2015: 1.7p)
2017 First interim dividend of 0.9p 1,439,221 2,649,253
(2016: 1.7p)
4,088,474 5,290,006
6. Net changes in financial assets at fair value through profit or loss
01.07.16 to 01.07.15 to
30.06.17 30.06.16
GBP GBP
Net changes in financial assets at fair value
through profit or loss
during the year
comprise:
Gains realised on investments sold 43,074,315 22,334,266
during the year
Losses realised on investments sold during (5,640,793) (13,898,697)
the year
Movement in unrealised gains arising from changes 33,740,317 49,126,905
in fair value
Movement in unrealised losses arising from changes (39,911,925) (36,557,126)
in fair value
Net changes in fair value on financial assets at
fair value
through profit or 31,261,914 21,005,348
loss
7. Other (losses)/gains
01.07.16 to 01.07.15 to
30.06.17 30.06.16
GBP GBP
Movement in unrealised gains/(losses) on spot and 7,753,101 (15,387,976)
forward foreign currency contracts
Realised losses on spot and forward foreign (10,185,257) (8,251,130)
currency contracts
Net losses on spot and forward foreign currency (2,432,156) (23,639,106)
contracts
Other realised and unrealised foreign exchange 13,696 (603,004)
gains/(losses)
(2,418,460) (24,242,110)
8. Management fees
The management fees were charged to the capital reserves of the Company.
The management fees for the year, including outstanding balances at end of the
year, are detailed below.
01.07.16 to 01.07.15 to
30.06.17 30.06.16
GBP GBP
Management fees for 3,368,232 3,030,471
the year
Payable at end of 288,681 247,113
the year
The basis for calculating the management fees is set out in the General
Information section.
9. Expenses
01.07.16 to 01.07.15 to
30.06.17 30.06.16
GBP GBP
Administration fee* 410,931 374,180
Transaction costs 241,609 223,131
Directors' fees 140,677 146,925
General expenses 188,708 153,497
Custodian and Depositary 66,803 61,156
fees*
Audit fee 23,100 27,500
Auditors' remuneration for interim 8,400 8,000
review
1,080,228 994,389
*The basis for calculating the Administration fees as well as the Custodian and
Depositary fees are set out in the General Information section.
All expenses were charged to revenue apart from transaction costs of GBP241,609
(30 June 2016: GBP223,131) which were charged to the capital reserves of the
Company.
10. Investment assets at fair value through profit or loss
30.06.17 30.06.16
GBP GBP
Cost of investments held at start of the 287,068,071 288,437,122
year
Acquisitions at cost during the year 147,526,819 125,958,145
Disposals at cost during (120,223,824) (127,327,196)
the year
Cost of investments held at end of the 314,371,066 287,068,071
year
Fair value above 32,257,215 38,428,825
cost
Investments designated at fair value through profit 346,628,281 325,496,896
or loss
11. Receivables
30.06.17 30.06.16
GBP GBP
Amounts receivable within one year:
Investment income 233,752 225,257
receivable
Fixed interest income 197,512 248,097
receivable
Amounts due on issue of redeemable participating 822,850 -
preference shares
Securities sold 1,891,362 53,995
receivable
Other receivables 2,082 9,745
3,147,558 537,094
The Directors consider that the carrying amount of receivables approximate to
their fair value.
12. Payables
30.06.17 30.06.16
GBP GBP
Amounts falling due within one year:
Purchases of investments awaiting 750,000 -
settlement
Share issue costs 4,114 -
payable
Management fees 288,681 247,113
payable
Withholding taxes 6,392 4,276
payable
Directors' fees 38,482 34,500
payable
Other payables 128,596 114,841
1,216,265 400,730
The Directors consider that the carrying amount of payables approximate to
their fair value.
13. Share capital
01.07.16 to 01.07.15 to
30.06.17 30.06.16
Authorised Share GBP GBP
Capital
100 Management Shares of GBP1.00 each 100 100
200,000,000 Unclassified Shares of 0.01p 20,000 20,000
each
75,000,000 C Shares of 75,000 75,000
0.10p each
95,100 95,100
Number of shares Share Capital
01.07.16 to 01.07.15 to 01.07.16 to 01.07.15 to
30.06.17 30.06.16 30.06.17 30.06.16
Issued Share Capital GBP GBP
Management Shares
Management Shares of GBP1.00 2 2 2 2
each
Equity Shares
Redeemable Participating
Preference
Shares of 0.01p
each:
Balance at start of 155,838,416 154,413,416 128,816,232 125,770,151
year
Issued and fully paid during 8,025,000 1,425,000 18,794,508 3,076,850
the year
Issued and awaiting 350,000 - 822,850 -
settlement
Share issue costs - - (182,699) (30,769)
Balance as at end of 164,213,416 155,838,416 148,250,891 128,816,232
year
Management shares
The Management shares, of which there are 2 in issue, were created to comply
with the Company Memorandum and Amended and Restated Articles of Association.
The management shares carry one vote each on a poll, do not carry any right to
dividends and, in a winding-up, rank only for a return of the amount of the
paid-up capital on such shares after return of capital on all other shares in
the Company. The management shares are not redeemable.
Unclassified shares
Unclassified shares can be issued as nominal shares or redeemable participating
preference shares. Nominal shares can only be issued at par to the
Administrator. The Administrator is obliged to subscribe for nominal shares for
cash at par when redeemable participating preference shares are redeemed to
ensure that funds are available to redeem the nominal amount paid up on
redeemable participating preference shares. The holder or holders of nominal
shares shall have the right to receive notice of and to attend general meetings
of the Company but shall not be entitled to vote thereat. Nominal shares shall
carry no right to dividends. In a winding-up, holders of nominal shares shall
be entitled to be repaid an amount equal to their nominal value out of the
assets of the Company.
The holders of fully paid redeemable participating preference shares carry a
preferential right to a return of capital in priority to the management shares
but have no pre-emptive right and are entitled to one vote at all meetings of
the relevant class of shareholders.
C Shares
There were no C Shares in issue at year end (30 June 2016: Nil).
Blocklisting and additional shares issued
At the start of the year, the Company had the ability to issue 12,256,342
redeemable participating shares under a blocklisting facility. Under the
blocklisting facility, 8,375,000 (30 June 2016: 1,425,000) new redeemable
participating preference shares of 0.01 pence each were allotted and issued
during the year for a total consideration of GBP19,617,358 (30 June 2016: GBP
3,076,850). These new redeemable participating preference shares rank pari
passu with the existing shares in issue.
As at 30 June 2017, the Company had the ability to issue a further 7,781,342
(30 June 2016: 12,256,342) redeemable participating preference shares under the
blocklisting facility.
Redeemable participating preference shares in issue
As at 30 June 2017, the Company had 164,213,416 (30 June 2016: 155,838,416)
redeemable participating preference shares of 0.01 (30 June 2016: 0.01) pence
each and 2 (30 June 2016: 2) Management shares of GBP1.00 (30 June 2016: GBP1.00)
each in issue. Therefore, the total voting rights in the Company at 30 June
2017 were 164,213,418 (30 June 2016: 155,838,418).
Purchase of Own Shares by the Company
The Company has the ability to operate a share buy back facility whereby it may
purchase, subject to various terms as set out in its Articles and in accordance
with the Companies (Guernsey) Law, 2008, up to 14.99 per cent. of the Company's
shares in issue following the admission of shares trading on the LSE's market
for listed securities.
During the year the Company did not purchase any of its own shares (30 June
2016: Nil). For additional information refer to note 20.
14. NAV reconciliation
The Company announces its NAV, based on mid-market value, to the LSE after each
weekly and month end valuation point. The following is a reconciliation of the
NAV per share attributable to redeemable participating preference shareholders
as presented in these Financial Statements, using International Financial
Reporting Standards, which requires the use of bid prices, to the NAV per share
reported to the LSE:
30.06.17 30.06.16
GBP GBP
NAV per share published on the LSE as at 2.290 2.130
the year end
IAS 39 valuations (MID to (0.002) (0.008)
BID)
Adjustment to valuation (0.001) 0.005
Net assets attributable to holders of
redeemable
participating preference shares (per 2.287 2.127
share)
15. Contingent liabilities
There were no contingent liabilities as at 30 June 2017 (30 June 2016: GBPNil).
16. Related party transactions
The Directors are responsible for the determination of the investment policy of
the Company and have overall responsibility for the Company's activities.
Investment Management Agreement
The Company is managed by Ruffer AIFM Ltd, a subsidiary of Ruffer LLP, a
privately owned business registered in England and Wales as a limited liability
partnership. The Company and the Investment Manager have entered into an
Investment Management Agreement under which the Investment Manager has been
given responsibility for the day-to-day discretionary management of the
Company's assets (including uninvested cash) in accordance with the Company's
investment objective and policy, subject to the overall supervision of the
Directors and in accordance with the investment restrictions in the Investment
Management Agreement and the Company's Articles of Association.
The market value of CF Ruffer Japanese Fund and CF Ruffer Gold are deducted
from the NAV of the Company before the calculation of management fees on a
monthly basis. For additional information, refer to the Portfolio Statement.
Management fees for the year and payable at the end of the year are disclosed
in note 8.
Shares held in the Company as Managing Member of Ruffer LLP
As at 30 June 2017, an immediate family member of the Chairman Ashe Windham
owned 100 (30 June 2016: 100) Shares in the Managing Member of the Ruffer LLP.
This amounts to less than 5% (30 June 2016: less than 5%) of the Company's
issued share capital.
Directors' remuneration
Directors' remuneration is set out in the Directors' Remuneration Report.
Shares held by related parties
As at 30 June 2017, Directors of the Company held the following numbers of
shares beneficially:
30.06.17 30.06.16
Directors Shares Shares
Ashe Windham* 90,000 90,000
Sarah Evans 10,000 -
Christopher Russell - -
John V Baldwin - -
Jill May - -
Jeannette Etherden** - 36,627
Wayne Bulpitt** - 20,000
Christopher Spencer** - 14,157
* Ashe Windham holds 70,000 shares whilst his wife holds 20,000 shares.
** Resigned during the year.
As at 30 June 2017, Hamish Baillie, Investment Director of the Investment
Manager owned 205,000 (30 June 2016: 174,000) shares in the Company.
As at 30 June 2017, Steve Russell, Investment Director of the Investment
Manager owned 6,450 (30 June 2016: 6,450) shares in the Company.
As at 30 June 2017, Duncan MacInnes, Investment Manager of the Investment
Manager owned 21,800 (30 June 2016: 21,800) shares in the Company.
As at 30 June 2017, Jonathan Ruffer, chairman of Ruffer LLP, owned 1,039,335
(30 June 2016: 939,335) shares in the Company.
As at 30 June 2017, the Ruffer LLP (the parent company of the Company's
Investment Manager) and other entities within the Ruffer Group held 8,176,042
(30 June 2016: 9,609,728) shares in the Company on behalf of its discretionary
clients.
Investments in related funds
As at 30 June 2017, the Company held investments in five (30 June 2016: seven)
related investment funds valued at GBP38,448,294 (30 June 2016: GBP50,338,249).
Refer to the Portfolio Statement for details.
17. Operating segment reporting
The Board of Directors makes the strategic resource allocations on behalf of
the Company. The Company has determined the operating segments based on the
reports reviewed by the Board, which are used to make strategic decisions.
The Board is responsible for the Company's entire portfolio and considers the
business to have a single operating segment. The Board's asset allocation
decisions are based on a single, integrated investment strategy, and the
Company's performance is evaluated on an overall basis.
There were no changes in the reportable segments during the year.
Revenue earned is reported separately on the face of the Condensed Statement of
Comprehensive Income as dividend income received from equities, and interest
income received from fixed interest securities and bank deposits.
The Statement of Cash Flows separately reports cash flows from operating and
financing activities.
18. Financial instruments
In accordance with its investment objectives and policies, the Company holds
financial instruments which at any one time may comprise the following:
* securities held in accordance with the investment objectives and
policies;
* cash and short-term receivables and payables arising directly from
operations;
* derivative transactions including investment in forward foreign currency
contracts; and
* borrowing used to finance investment activity up to a maximum of 30% of
the NAV of the Company.
Terms, conditions and accounting policies
The financial instruments held by the Company comprise principally
internationally listed or quoted equities or equity related securities
(including convertibles), and/or bonds which are issued by corporate issuers,
supra-nationals or government organisations.
Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis of measurement and the basis on which
income and expenses are recognised, in respect of its financial assets and
liabilities are disclosed in note 2. The following table analyses the carrying
amounts of the financial assets and liabilities by category as defined in IAS
39.
The following are the categories of financial instruments held by the Company
at the reporting date:
30.06.17 30.06.16
Fair Value Fair Value
GBP GBP
Financial assets
Listed securities 314,653,908 293,079,441
Delisted securities 893,512 -
UCITS funds 31,080,861 32,417,455
Derivative financial 5,593 4,071,490
assets
Total financial assets at fair value through profit 346,633,874 329,568,386
and loss
Other financial assets* 31,098,504 15,050,493
*Other financial assets include cash and cash equivalents and receivables.
30.06.17 30.06.16
Fair Value Fair Value
GBP GBP
Financial liabilities
Payables 1,216,265 400,730
Derivative financial 914,405 12,733,403
liabilities
2,130,670 13,134,133
19. Financial risk management and associated risks
The Company is exposed to a variety of financial risks as a result of its
activities. These risks include market risk (including price risk, foreign
currency risk and interest rate risk), credit risk and liquidity risk. These
risks, which have applied throughout the year and the Investment Manager's
policies for managing them are summarised as follows:
Market risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. The Company's
activities expose it primarily to the market risks of changes in market prices,
interest rates and foreign currency exchange rates.
Market price risk
Market price risk arises mainly from the uncertainty about future prices of the
financial instruments held by the Company. It represents the potential loss the
Company may suffer through holding market positions in the face of price
movements.
The Company's investment portfolio is exposed to market price fluctuations
which are monitored by the Investment Manager in pursuance of the investment
objectives and policies. Adherence to investment guidelines and to investment
and borrowing powers set out in the Placing and Offer for Subscription document
mitigates the risk of excessive exposure to any particular type of security or
issuer.
Market price sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to
equity, investment funds and bond price risks at the reporting date. The 10%
reasonably possible price movement for equity related securities and investment
funds and a 100 basis point increase or a 25 basis point reduction for the
interest rate used by the Company is based on the Investment Manager's best
estimates.
A 10% (30 June 2016: 10%) increase in the market prices of equity related
investments as at 30 June 2017 would have increased the net assets attributable
to holders of redeemable participating preference shares by GBP20,004,458 (30
June 2016: GBP17,347,176) and a 10% change in the opposite direction would have
decreased the net assets attributable to holders of redeemable participating
preference shares by an equal opposite amount.
A sensitivity analysis based on the interest rates of bond related investments
as at 30 June 2017 has been considered under Interest rate risk in note 19.
Actual trading results may differ from the above sensitivity analysis and these
differences could be material.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of a foreign
currency. It represents the potential loss the Company may suffer though
holding foreign currency assets in the face of foreign exchange movements.
As a portion of the Company's investment portfolio is invested in securities
denominated in currencies other than Pound Sterling (the functional and
presentation currency of the Company), the Statement of Financial Position may
be significantly affected by movements in the exchange rates of such currencies
against Pound Sterling. The Investment Manager has the power to manage exposure
to currency movements by using options, warrants and/or forward foreign
currency contracts and details of the holdings of such instruments at the date
of these Financial Statements is set out below. In the event of a weak base
currency these contracts will expire at a loss that will be offset by a
corresponding gain in the underlying assets. The opposite would be true when
the base currency is strong.
As at 30 June 2017, the Company had five (30 June 2016: ten) open forward
foreign currency contracts.
Forward contracts as at 30 June 2017
Notional amount
of contracts Fair value
Expiry date Underlying outstanding (liabilities)
/
assets
GBP
15 September 2017 Foreign currency (Sale of EUR6,292,000 (256,820)
EUR)
18 August 2017 Foreign currency (Sale of US$112,000,000 378,616
USD)
18 August 2017 Foreign currency (Sale of ¥5,000,000,000 (299,719)
JPY)
18 August 2017 Foreign currency (Sale of ¥2,258,000,000 (736,482)
JPY)
(914,405)
15 September 2017 Foreign currency (Purchase of EUR792,000 5,593
EUR)
5,593
Forward contracts as at 30 June 2016
Notional amount
of contracts Fair value
Expiry date Underlying outstanding assets/
(liabilities)
GBP
19 August 2016 Foreign currency (Sale of EUR5,837,950 (278,575)
EUR)
15 July 2016 Foreign currency (Sale of $134,268,700 (6,142,103)
USD)
15 July 2016 Foreign currency (Sale of ¥5,436,300,000 (4,000,672)
JPY)
15 July 2016 Foreign currency (Sale of ¥496,780,000 (408,718)
JPY)
15 July 2016 Foreign currency (Sale of ¥2,260,114,000 (1,726,908)
JPY)
15 July 2016 Foreign currency (Sale of ¥906,114,000 (176,341)
JPY)
(12,733,317)
15 July 2016 Foreign currency (Purchase of ¥1,323,080,000 1,211,062
JPY)
15 July 2016 Foreign currency (Purchase of ¥501,000,000 481,199
JPY)
15 July 2016 Foreign currency (Purchase of ¥511,000,000 551,650
JPY)
15 July 2016 Foreign currency (Purchase of ¥1,857,000,000 1,827,565
JPY)
4,071,476
Spot Contracts
As at 30 June 2017, the Company had no (30 June 2016: two) open spot foreign
currency contracts.
Spot contracts as at 30 June 2016
Notional amount Fair value
of contracts assets/
Expiry date Underlying outstanding (liabilities)
GBP
1 July 2016 Foreign currency (Sale of EUR9,997 (86)
EUR)
4 July 2016 Foreign currency (Sale of EUR2,999 14
EUR)
(72)
The Investment Manager's treatment of currency transactions other than in Pound
Sterling is set out in note 2 to the Financial Statements under "Translation of
foreign currency."
As at 30 June 2017 and 2016, the Company held the following assets and
liabilities in currencies other than the functional currency:
30.06.17 30.06.17 30.06.16 30.06.16
Assets Liabilities Assets Liabilities
GBP GBP GBP GBP
Canadian Dollar 5,428,102 1,707 3,956,460 -
Euro 5,617,076 - 5,511,179 278,575
Hong Kong Dollar 1,880,981 3,326 1,476,613 4,276
Japanese Yen 56,999,414 1,036,201 44,334,467 6,312,639
Norwegian Krone 1,722,641 - 1,614,702 -
Swiss Franc 2,931,702 - 2,810,827 -
United States Dollar 88,530,292 (377,258) 119,069,985 6,142,103
Foreign currency sensitivity
As at 30 June 2017, if the foreign exchange rates had weakened 10% (30 June
2016: 10%) against Pound Sterling with all other variables held constant, net
assets attributable to holders of redeemable participating preference shares
would be GBP4,822,977 (30 June 2016: GBP3,796,693) lower net of open forward
foreign currency contracts and due mainly as a result of foreign currency
losses on translation of these financial assets and liabilities to Pound
Sterling. As at 30 June 2017, a 10% (30 June 2016: 10%) strengthening of the
foreign exchange rates against Pound Sterling would have resulted in an equal
but opposite effect on the net assets attributable to holders of redeemable
participating preference shares. Any changes in the foreign exchange rate will
directly affect the profit and loss, allocated to the capital column of the
Statement of Comprehensive Income.
Actual trading results may differ from the above sensitivity analysis and these
differences could be material.
As has been seen in previous years currencies can fluctuate by more than this
indicative amount. The Investment Manager will incorporate this variable into
risk analysis when managing the investments.
Interest rate risk
Interest rate risk represents the uncertainty of investment return due to
changes in the market rates of interest.
The Company invests in fixed and floating rate securities. The income of the
Company may be affected by changes to interest rates relevant to particular
securities or as a result of the Investment Manager being unable to secure
similar returns on the expiry of contracts or sale of securities. Interest
receivable on bank deposits or payable on the bank overdraft positions will be
affected by fluctuations in interest rates.
The Investment Manager actively manages the Company's exposure to interest rate
risk, paying heed to prevailing interest rates and economic conditions, market
expectations and their own opinions of likely movements in interest rates.
Currently the entire exposure of the Company to fixed interest securities is in
the form of index-linked bonds. The value of these investments is determined by
current and expected inflation and interest rates.
The value of fixed interest securities will be affected by general changes in
interest rates that will in turn result in increases or decreases in the market
value of those instruments. When interest rates decline, the value of the
Company's investments in fixed rate debt obligations can be expected to rise,
and when interest rates rise, the value of those investments may decline.
The investment portfolio details the security type, issuer, interest rate, and
maturity date of all of the Company's fixed and floating rate securities as at
30 June 2017.
The tables below summarise the Company's exposure to interest rate risks. It
includes the Company's financial assets and liabilities at fair values,
categorised by underlying interest rate type.
As at 30 June 2017
Floating Fixed Non-Interest Total
rate rate bearing 30.06.17
GBP GBP GBP GBP
Financial Assets
Cash and cash 27,950,946 - - 27,950,946
equivalents
Investments designated at fair
value
through profit or loss - 146,839,335 199,788,946 346,628,281
Unrealised gain on open spot
and
forward foreign currency - - 5,593 5,593
contracts
Receivables - - 3,147,558 3,147,558
27,950,946 146,839,335 202,942,097 377,732,378
Financial Liabilities
Payables - - 1,216,265 1,216,265
Unrealised loss on open spot
and
forward foreign currency - - 914,405 914,405
contracts
- - 2,130,670 2,130,670
As at 30 June 2016
Floating Fixed Non-Interest Total
rate rate bearing 30.06.16
GBP GBP GBP GBP
Financial Assets
Cash and cash 14,513,399 - - 14,513,399
equivalents
Investments designated at fair
value
through profit or loss - 152,025,136 173,471,760 325,496,896
Unrealised gain on open
forward
foreign currency - - 4,071,490 4,071,490
contracts
Receivables - - 537,094 537,094
14,513,399 152,025,136 178,080,344 344,618,879
Financial Liabilities
Payables - - 400,730 400,730
Unrealised loss on open
forward
foreign currency - - 12,733,403 12,733,403
contracts
- - 13,134,133 13,134,133
The table below summarises weighted average effective interest rates for fixed
rate financial instruments.
Weighted Weighted
average average
period period
30.06.17 for which 30.06.16 for which
rate/ rate/
% p.a. yield is % p.a. yield is
fixed fixed
Canada Government 0.6470% 24.44 years 0.2950% 25.44 years
Bonds
United Kingdom Government -1.9441% 25.83 years -1.6131% 30.78 years
Bonds
United States Government 0.2084% 4.91 years -0.0257% 11.24 years
Bonds
Interest rate sensitivity analysis
An increase of 100 basis points (30 June 2016: 100 basis points) in interest
rates as at the reporting date would have decreased the net assets attributable
to holders of redeemable participating preference shares by GBP25,150,358 (30
June 2016: GBP29,826,334) and a decrease of 25 basis points (30 June 2016: 25
basis points) in interest rates would have increased the net assets
attributable to holders of redeemable participating preference shares by GBP
6,287,589 (30 June 2016: GBP7,456,584).
Key determinants of interest rates include economic growth prospects,
inflation, governments' fiscal positions and rates on nominal bonds of similar
maturities. This sensitivity analysis assumes only a 100 basis point increase
and a 25 basis point decrease in interest rates, with all other variables
unchanged. This would be the equivalent of a 100 basis point increase and 25
basis point decreases in 'real' interest rates and as such is likely to
overstate the actual impact of such a move in nominal rates.
As all the Company's fixed rate securities are index-linked bonds, their
yields, and as a consequence their prices, are determined by market perception
as to the appropriate level of yields given the economic background.
This analysis does not allow for the impact of investments held within Ruffer
Protection Strategies which may reduce the sensitivity to changes in interest
rates. See derivatives comment below.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company.
Failure of any relevant counterparty to perform its obligations in respect of
these items may lead to a financial loss.
The Company is exposed to credit risk in respect of cash and cash equivalents
and receivables. The credit risk associated with debtors is limited to the
unrealised gains on open derivative contracts such as forward foreign currency
contracts, as detailed above and receivables. It is the opinion of the Board of
Directors that the carrying amounts of these financial assets represent the
maximum credit risk exposure as at the reporting date.
The Company will not invest in the securities of any company that is not quoted
or does not have a listing on a market specified in the Financial Services and
Markets Act 2000 (Financial Promotions) Order 2001 except for investments in
investment funds and such other financial markets as may be specifically agreed
from time to time between the Board and the Investment Manager.
All transactions in listed securities are settled/paid upon delivery using
approved brokers. The risk of default is considered minimal, as delivery of
securities sold is only made once the broker has received payment. Payment is
made on a purchase once the securities have been received by the broker. The
trade will fail if either party fails to meet their obligation.
The Placing and Offer for Subscription document allows investment in a wide
universe of equity related securities and bonds, including countries that may
be classed as emerging or developing. In adhering to investment restrictions
set out within the document, the Company mitigates the risk of any significant
concentration of credit risk.
Credit risk analysis
The Company's maximum credit exposure is limited to the carrying amount of
financial assets recognised at the reporting date, as summarised below:
30.06.17 30.06.16
GBP GBP
Cash and cash 27,950,946 14,513,399
equivalents
Unrealised gain on open spot and forward foreign 5,593 4,071,490
currency contracts
Receivables 3,147,558 537,094
Financial assets at fair value through 346,628,281 325,496,896
profit or loss
377,732,378 344,618,879
The Company is exposed to material credit risk in respect of cash and cash
equivalents. Substantially, all cash is placed with Northern Trust (Guernsey)
Limited ("NTGL").
NTGL is a wholly owned subsidiary of The Northern Trust Corporation ("TNTC").
TNTC is publicly traded and a constituent of the S&P 500. TNTC has a credit
rating of A+ (30 June 2016: A+) from Standard & Poor's and A2 (30 June 2016:
A2) from Moody's.
The Moody's and/or Standard and Poor (S&P) credit ratings of the issuers of
Bonds held by the Company as at 30 June 2017 were as follows:
30.06.17 30.06.17
S&P Moody's
Canada Government Bond Ltd 2.00% 01/12/ AAA Aaa
2041
UK Index-Linked Gilt 0.125% 22/11/2019 AA Aa1
UK Index-Linked Gilt 1.875% 22/11/2022 AA Aa1
UK Index-Linked Gilt 0.125% 22/03/2024 AA Aa1
UK Index-Linked Gilt 1.250% 22/11/2055 AA Aa1
UK Index-Linked Gilt 0.375% 22/03/2062 AA Aa1
UK Index-Linked Gilt 0.125% 22/03/2068 AA Aa1
US Treasury Inflation Indexed Bond 1.125% AA+ Aaa
15/01/2021
US Treasury Inflation Indexed Bond 0.625% AA+ Aaa
15/07/2021
US Treasury Inflation Indexed Bond 0.125% AA+ Aaa
15/01/2023
US Treasury Inflation Indexed Bond 0.375% AA+ Aaa
15/07/2023
None of the Company's financial assets are secured by collateral or other
credit enhancements.
Derivatives
The Company has gained exposure to derivative contracts (predominantly options
and forward currency contracts) as a risk management tool. The intention of
using such derivative contracts has been primarily to minimise the exposure of
the Company to the negative impact of changes to foreign exchange rates,
interest rates, market volatility and to protect the portfolio from a
correlated fall in bonds and equities. At the year end, all such instruments
(except forward foreign exchange contracts) were held within the Ruffer
Protection Strategies vehicle as detailed in the Portfolio Statement.
Fair value
IFRS 7 requires the Company to classify fair value hierarchy that reflects the
significance of the inputs used in making the measurements. IFRS 7 establishes
a fair value hierarchy that prioritises the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under IFRS 7 are as
follows:
Level 1: Quoted prices, based on bid prices, (unadjusted) in active markets for
identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly (that is, as prices) or
indirectly (that is, derived from prices); and
Level 3: Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. For
this purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable inputs
that require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgment, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant
judgment by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The following table presents the Company's financial assets and liabilities by
level within the valuation hierarchy at 30 June 2017.
30.06.17
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at fair
value
through profit or loss:
Government Index-Linked 146,839,335 - - 146,839,335
Bonds
Preference Shares 639,069 - - 639,069
Options - 6,362,095 - 6,362,095
Equities 167,267,027 - 893,512 168,160,539
Investment Funds - 24,627,243 - 24,627,243
Derivative financial - 5,593 - 5,593
assets
Total assets 314,745,431 30,994,931 893,512 346,633,874
Financial liabilities at
fair value
through profit or loss:
Derivative financial - 914,405 - 914,405
liabilities
Total liabilities - 914,405 - 914,405
The following table presents the Company's financial assets and liabilities by
level within the valuation hierarchy at 30 June 2016.
30.06.16
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at fair
value
through profit or loss:
Government Index-Linked 152,025,136 - - 152,025,136
Bonds
Preference Shares 559,769 - - 559,769
Options - 1,128,548 - 1,128,548
Equities 142,006,909 - 893,512 142,900,421
Investment Funds - 26,026,221 2,856,801 28,883,022
Derivative financial - 4,071,490 - 4,071,490
assets
Total assets 294,591,814 31,226,259 3,750,313 329,568,386
Financial liabilities at
fair value
through profit or loss:
Derivative financial - 12,733,403 - 12,733,403
liabilities
Total liabilities - 12,733,403 - 12,733,403
The Company recognises transfers between levels of fair value hierarchy as of
the end of the reporting period during which the transfer has occurred. During
the year ended 30 June 2017, no transfers were made.
In the prior year ended 30 June 2016, Ruffer Illiquid Strategies Fund of Funds
2009 Ltd was transferred from Level 2 to Level 3 as a result of voluntary
liquidation.
Movements in Level 3 investments
30.06.17 30.06.16
GBP GBP
Opening valuation 3,750,313 1,409,625
Transfer from Level - 2,856,801
2
Disposals during (2,856,801) (516,113)
the year
Closing valuation 893,512 3,750,313
Assets classified in Level 1 consist of listed or quoted equities or equity
related securities, options and bonds which are issued by corporate issuers,
supra-nationals or government organisations.
Assets classified in Level 2 are investments in funds fair-valued using the
official NAV of each fund as reported by each fund's independent administrator
at the reporting date and foreign exchange forwards fairvalued using publicly
available data. The foreign exchange forwards are shown as derivative financial
assets
and liabilities in the above table.
Assets classified in Level 3 consist of liquidated or illiquid funds and are
reported using the latest available official NAV less dividends declared to
date of each fund as reported by each fund's independent administrator at the
last reporting date.
Liquidity risk
Liquidity risk is the risk that the Company will find it difficult or
impossible to realise assets or otherwise raising funds to meet financial
commitments. The Company's liquidity risk is managed by the Investment Manager
who monitors the cash positions on a regular basis. The Company's overall
liquidity risks are monitored on a regular basis by the Board of Directors and
a formal report is made by the Investment Manager to the Directors at each
Board Meeting.
As at 30 June 2017 and 2016, the Company had no significant financial
liabilities other than short-term payables arising directly from investing
activity.
20. Capital risk management
The fair value of the Company's financial assets and liabilities approximate to
their carrying amounts at the reporting date. For the purposes of this
disclosure, redeemable participating preference shares are considered to be
capital.
The Company's objectives when managing capital are to safeguard the Company's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. There are no
externally-imposed capital requirements on the Company.
The Company has the ability to borrow up to 30% of its NAV at any time for
short-term or temporary purposes as is necessary for the settlement of
transactions, to facilitate redemption (where applicable) or to meet ongoing
expenses. At the year end the Company had no borrowings. The Company does not
have, nor does it intend to adopt, any structural gearing. The gearing ratio
below is calculated as total liabilities divided by total equity.
30.06.17 30.06.16
GBP GBP
Total assets 377,732,378 344,618,879
Less: total liabilities (2,130,670) (13,134,133)
Total equity 375,601,708 331,484,746
Gearing ratio 0.57% 3.96%
The Board considers this gearing ratio to be adequate since total borrowings
above refer only to other payables and unrealised losses on open spot and
forward foreign currency contracts.
Redemption Facility
The Company has a Redemption Facility (which takes the form of a tender offer
to all holders of redeemable participating preference shares) which was made
available after 8 July 2007. This facility may operate annually, in November
each year, at the discretion of the Directors. Redemptions on any Redemption
Date may be restricted to a maximum of 25% in aggregate of the Shares then in
issue, with any tender requests from shareholders in excess of this being
scaled back pro rata.
The facility is intended to address any imbalance in the supply and demand for
the shares and to assist in maintaining a narrow discount to the NAV per Share
at which the shares may be trading. The Company, will at the sole discretion of
the Directors:
(i) purchase shares when deemed appropriate; and
(ii) allow an annual redemption of up to 25% of the issued shares at the
prevailing NAV per Share and may operate annually in November of each year.
Purchase of Own Shares by the Company
A special resolution was granted on 30 November 2016 which authorised the
Company in accordance with The Companies (Guernsey) Law, 2008 to make purchases
of its own shares as defined in that Ordinance of its redeemable participating
preference shares of 0.0lp each, provided that:
(i) the maximum number of shares the Company can purchase is no more
than 14.99% of the Company's issued share capital;
(ii) the minimum price (exclusive of expenses) which may be paid for a
share is 0.01 pence, being the nominal value per share;
(iii) the maximum price (exclusive of expenses) which may be paid for the
share is an amount equal to the higher of (i) 105% of the average of the middle
market quotations for a share taken from the London Stock Exchange Daily
Official List for the 5 business days immediately preceding the day on which
the Share is purchased and (ii) the price stipulated in Article 5(i) of the Buy
back and Stabilisation Regulation (No 2237 of 2003);
(iv) acquisitions may only be made pursuant to this authority if the
shares are (at the date of the proposed purchase) trading on the London Stock
Exchange at a discount to the lower of the undiluted or diluted NAV;
(v) the authority conferred shall expire at the conclusion of the AGM of
the Company in 2016 or, if earlier, on the expiry of 15 months from the passing
of this resolution, unless such authority is renewed prior to such time; and
(vi) the Company may make a contract to purchase shares under the
authority hereby conferred prior to the expiry of such authority which will or
may be executed wholly or partly after the expiration of such authority and may
make a purchase of Shares pursuant to any such contract.
21. Subsequent events
These Financial Statements were approved for issuance by the Board on
15 September 2017. Subsequent events have been evaluated up until this date.
As at the date of this report the Company had 167,413,416 redeemable
participating preference shares of 0.01p each and 2 Management shares of GBP1.00
each in issue. Therefore, the total voting rights in the Company at the date of
this report were 167,413,418.
On 20 July 2017, an application was made to the UK Listing Authority and the
London Stock Exchange for the blocklisting of 5,902,499 redeemable preference
shares of 0.01 pence each pursuant to the General Corporate Purposes Scheme
with an admission date of 21 July 2017. The shares have been issued and rank
pari passu with the existing shares of the Company.
Portfolio Statement as at 30 June 2017
Fair %
Holding at Value of Total
Currency 30.06.17 GBP Net
Assets
Government Index-Linked Bonds 39.09%
(30.06.16 - 45.86%)
Canada
Canada Real Return Bond 2.00% 01/12/2041 CAD 4,200,000 3,803,581 1.01
3,803,581 1.01
United Kingdom
UK Index-Linked Gilt 0.125% 22/11/2019 GBP 6,135,000 7,145,950 1.90
UK Index-Linked Gilt 1.875% 22/11/2022 GBP 14,500,000 23,694,378 6.30
UK Index-Linked Gilt 0.125% 22/03/2024 GBP 10,250,000 13,251,631 3.53
UK Index-Linked Gilt 1.250% 22/11/2055 GBP 500,000 1,723,946 0.46
UK Index-Linked Gilt 0.375% 22/03/2062 GBP 8,400,000 21,620,945 5.76
UK Index-Linked Gilt 0.125% 22/03/2068 GBP 7,500,000 18,987,263 5.06
86,424,113 23.01
United States
US Treasury Inflation Indexed Bond 1.125% USD 13,500,000 12,064,178 3.21
15/01/2021
US Treasury Inflation Indexed Bond 0.625% USD 19,350,000 16,564,237 4.41
15/07/2021
US Treasury Inflation Indexed Bond 0.125% USD 17,500,000 14,142,454 3.77
15/01/2023
US Treasury Inflation Indexed Bond 0.375% USD 17,000,000 13,840,772 3.68
15/07/2023
56,611,641 15.07
Total Government Index-Linked Bonds 146,839,335 39.09
Preference Shares 0.17%
(30.06.16 - 0.17%)
United Kingdom
Raven Russia Preference Shares GBP 466,474 639,069 0.17
639,069 0.17
Total Preference Shares 639,069 0.17
Equities 40.16%
(30.06.16 - 36.11%)
Europe
France
Vivendi EUR 150,000 2,566,995 0.68
2,566,995 0.68
Germany
Deutsche Post EUR 40,000 1,152,184 0.30
TAG Immobilien EUR 157,657 1,897,897 0.51
3,050,081 0.81
Norway
Statoil NOK 135,530 1,722,641 0.46
1,722,641 0.46
Switzerland
Novartis CHF 45,700 2,931,702 0.78
2,931,702 0.78
United Kingdom
Belvoir Lettings GBP 449,380 458,997 0.12
Better Capital (2012) GBP 3,088,700 833,949 0.22
Better Capital (2009) GBP 294,641 132,588 0.04
Booker Group GBP 1,208,665 2,248,117 0.60
Countryside Properties GBP 575,490 1,958,968 0.52
Crawshaw Group GBP 2,000,000 450,000 0.12
Games Workshop Group GBP 130,000 1,558,700 0.41
Hansteen Holdings GBP 1,500,000 1,866,000 0.50
IP Group GBP 618,386 825,545 0.22
ITV GBP 1,100,000 1,995,400 0.53
Lloyds Banking Group GBP 12,600,000 8,334,900 2.22
Oakley Capital Investments GBP 2,825,794 4,832,108 1.29
Ocado Group GBP 507,000 1,466,751 0.39
PRS Real Estate Investment Trust GBP 571,100 596,800 0.16
Raven Russia GBP 1,638,217 798,631 0.21
Renn Universal Growth Trust GBP 937,500 893,512 0.24
Ruffer SICAV UK Mid & Smaller Companies GBP 13,235 2,736,865 0.73
Fund*
Secure Trust Bank GBP 58,345 1,152,314 0.31
Sophos Group GBP 510,280 2,261,051 0.60
Tesco GBP 2,085,000 3,519,480 0.94
Vodafone Group GBP 959,522 2,088,879 0.55
41,009,555 10.92
Total European Equities 51,280,974 13.65
Canada
Imperial Oil CAD 72,000 1,612,903 0.43
Total Canadian Equities 1,612,903 0.43
United States
Alliance Data System USD 10,000 1,976,366 0.53
Apple USD 30,734 3,407,607 0.91
Check Point Software Technologies USD 30,000 2,519,035 0.67
Exxon Mobil USD 42,497 2,640,543 0.70
Lamb Weston Holdings USD 53,000 1,796,928 0.48
Leucadia National USD 120,000 2,415,797 0.64
McKesson USD 24,000 3,040,302 0.81
Oracle USD 65,000 2,509,027 0.67
Tenaris USD 153,800 3,685,896 0.98
Ultrapar Participacoes USD 100,935 1,826,846 0.49
Walt Disney USD 49,000 4,007,291 1.06
Total United States Equities 29,825,638 7.94
Asia
China
China Life Insurance HKD 459,000 1,077,317 0.29
PICC Property & Casualty HKD 600,000 770,400 0.19
1,847,717 0.48
Japan
Bandai Namco Holdings JPY 130,000 3,402,535 0.91
CF Ruffer Japanese Fund* GBP 4,090,101 9,339,745 2.49
East Japan Railway JPY 25,800 1,898,540 0.51
Fujifilm Holdings JPY 119,200 3,296,274 0.88
Hazama Ando JPY 259,000 1,254,628 0.33
Mitsubishi Electric JPY 242,000 2,676,176 0.71
Mitsubishi Heavy Industries JPY 443,000 1,395,321 0.37
Mitsubishi UFJ Financial Group JPY 1,125,400 5,816,301 1.55
Mitsui Fudosan JPY 104,000 1,909,339 0.51
Mizuho Financial Group JPY 2,028,500 2,846,432 0.76
NTT Urban Development JPY 419,000 3,109,126 0.83
Rakuten JPY 283,100 2,562,351 0.68
Resona Holdings JPY 656,000 2,775,920 0.74
Seven & I Holdings JPY 75,000 2,377,183 0.63
Softbank Group JPY 28,000 1,744,268 0.46
Sony JPY 105,900 3,109,882 0.83
Sumitomo Mitsui Financial Group JPY 229,200 6,872,073 1.83
T&D Holdings JPY 850,000 9,953,065 2.64
66,339,159 17.66
Total Asian Equities 68,186,876 18.14
Total Equities 150,906,391 40.16
Global Investment Funds 6.56%
(30.06.16 - 8.71%)
United Kingdom
Herald Worldwide Fund GBP 64,341 2,692,654 0.72
Ruffer Illiquid Multi Strategies Fund 2015 GBP 16,945,510 13,061,599 3.48
*
Ruffer SICAV Global Smaller Companies Fund GBP 45,129 6,947,990 1.85
*
Weiss Korea Opportunity Fund GBP 1,100,000 1,925,000 0.51
24,627,243 6.56
Total Global Investment Funds 24,627,243 6.56
Gold & Gold Mining Equities 4.59%
(30.06.16 - 7.00%)
United Kingdom
CF Ruffer Gold Fund** GBP 9,994,002 15,300,817 4.07
Gold Bullion Securities USD 21,559 1,953,331 0.52
17,254,148 4.59
Total Gold & Gold Mining Equities 17,254,148 4.59
Options 1.690%
(30.06.16 - 0.34%)
United Kingdom
Ruffer Protection Strategies International GBP 3,322,243 6,362,095 1.69
*
6,362,095 1.69
Total financial assets at fair value 346,628,281 92.26
through profit or loss
Other net current assets 28,973,427 7.74
Management share capital (2) -
Total Value of Company
(attributable to redeemable participating 375,601,706 100.00
preference shares)
These fair values are based on information available at the time of publication
and may differ from the fair values shown in the unaudited results
announcement. These fair values comply with International Financial Reporting
Standards ("IFRS").
* Ruffer Protection Strategies International and Ruffer Illiquid Multi
Strategies Fund 2015 Ltd are classed as related parties as they share the same
Investment Manager (Ruffer AIFM Limited) as the Company. CF Ruffer Gold Fund,
CF Ruffer Japanese Fund, Ruffer SICAV Global Smaller Companies Fund and Ruffer
SICAV UK Mid & Smaller Companies Fund are also classed as related parties as
their investment manager (Ruffer LLP) is the parent of the Company's Investment
Manager.
General Information
Ruffer Investment Company Limited was incorporated with limited liability in
Guernsey as a company limited by shares and as an authorised closed-ended
investment company on 1 June 2004. The principal objective of the Company is to
achieve a positive total annual return, after all expenses, of at least twice
the Bank of England base rate. The Company predominantly invests in
internationally listed or quoted equities or equity related securities
(including convertibles) and/or bonds which are issued by corporate issuers,
supra-nationals or government organisations.
The Company's redeemable participating preference shares are listed on the
London Stock Exchange.
The accounting date of the Company is 30 June in each year. These Annual
Financial Statements were authorised for issue on 15 September 2017 by the
Directors.
The prices of the shares in the Company are published in The Financial Times in
the "Investment Companies" section, and in the Daily Telegraph's "Share Prices
& Market Capitalisations" section under "Investment Trusts".
The Investment Manager is authorised and regulated by the United Kingdom
Financial Conduct Authority as a
full-scope Alternative Investment Fund Manager ("AIFM"). The Investment Manager
is entitled to an investment management fee payable to the AIFM monthly in
arrears at a rate of 1% of the Net Asset Value per
annum.
The Investment Manager intends to conduct the affairs of the Company so as to
ensure that it will not become resident in the United Kingdom. Accordingly, and
provided that the Company does not carry on a trade in the United Kingdom
through a branch or agency situated therein, the Company will not be subject to
United Kingdom Corporation Tax or Income Tax.
The Company intends to be operated in such a manner that its shares are not
categorised as non-mainstream pooled investments. This means that the Company
might pay dividends in respect of any income that it receives or is deemed to
receive for UK tax purposes so that it would qualify as an investment trust if
it were UK tax-resident.
Northern Trust International Fund Administration Services (Guernsey) Limited
(the "Administrator") is entitled to receive an annual fee equal to 0.15 per
cent. per annum on the first GBP100 million and 0.10 per cent. per annum
thereafter on the NAV of the Company on a mid market basis, subject to a
minimum fee of GBP60,000 per annum.
Northern Trust (Guernsey) Limited (the "Custodian") is entitled to receive from
the Company a fee of GBP2,000 per annum. The Custodian is also entitled to charge
for certain expenses incurred by it in connection with its duties.
Northern Trust (Guernsey) Limited (the "Depositary") is entitled to an annual
Depositary fee payable monthly in arrears at a rate of 0.01% of the Net Asset
Value of the Company up to GBP100 million, 0.008% on the next GBP100 million and
0.006% thereafter as at the last business day of the month subject to a minimum
fee of GBP20,000 per annum.
Management and Administration
Directors Registered Office Auditor
Ashe Windham PO Box 255 Deloitte LLP
John V Baldwin Trafalgar Court, Regency Court,
Wayne Bulpitt (resigned 20 Les Banques, Glategny Esplanade,
July 2016) St. Peter Port, St. Peter Port,
Jeannette Etherden (resigned Guernsey, Guernsey,
30 November 2016) Channel Islands, GY1 Channel Islands, GY1 3HW
Christopher Spencer 3QL
(resigned 2 March 2017)
Sarah Evans (appointed 20
July 2016)
Christopher Russell
(appointed
1 December 2016)
Jill May (appointed 17 March
2017)
Investment Manager and Solicitors to the Company
Alternative Investment Fund Sponsor and Broker as to UK law
Manager
Ruffer AIFM Limited, Cenkos Securities Plc, Gowling WLG (formerly
80 Victoria Street, 6.7.8 Tokenhouse Yard, Lawrence Graham LLP),
London, SW1E 5JL London, EC2R 7AS 4 More London Riverside,
London, SE1 2AU
Company Secretary, Advocates to the Company
Administrator and Registrar CREST Agent as to Guernsey law
Northern Trust International Computershare Investor Mourant Ozannes,
Fund Administration Services Services (Jersey) 1 Le Marchant Street,
(Guernsey) Limited, Limited, St. Peter Port,
Trafalgar Court, Queensway House, Guernsey,
Les Banques, Hilgrove Street, Channel Islands, GY1 4HP
St. Peter Port, St. Helier,
Guernsey, Jersey, JE1 1ES
Channel Islands, GY1 3QL
Custodian Depositary
Northern Trust (Guernsey) Northern Trust
Limited, (Guernsey)
Trafalgar Court, Limited,
Les Banques, Trafalgar Court,
St. Peter Port, Les Banques,
Guernsey, St. Peter
Channel Islands, GY1 3QL Port,
Guernsey,
Channel Islands, GY1
3QL
END
(END) Dow Jones Newswires
September 15, 2017 12:03 ET (16:03 GMT)
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