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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Establishment Investment Trust Plc | LSE:ET. | London | Ordinary Share | GB0031336919 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 217.00 | 212.00 | 222.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMET.
RNS Number : 1904R
Establishment Inv. Trust PLC (The)
13 June 2018
THE ESTABLISHMENT INVESTMENT TRUST PLC
Announcement of Financial Results for the year ended 31 March 2018
LEI: 213800I9IT25LOQ1UW49
Objective of the Company
The investment objective of the Company is to achieve long-term capital growth from a managed international portfolio of securities. The preservation of capital is of primary importance to the investment objective.
The Company aims to achieve absolute returns and is not managed by reference to any equity or bond index or benchmark.
Investment policy
-- To invest primarily in equities issued by companies listed on regulated markets. With the prior approval of the Board, the Company may invest in unlisted securities.
-- Up to 30% of net assets may be invested in investment products managed by the Company's Investment Manager. The Company may also hold positions in investment products managed by third parties.
-- Up to a maximum of 15% of net assets (at cost at the date of investment) may be invested in any one security.
-- The Company may borrow up to a maximum of 50% of net assets.
Financial Highlights for the Year
Performance for the year ended 31 March 2018
Hot Features
Premium
At 31 March Total return
2018 (%)*
---------------------------------------------- -------------- ----------------
Share price 208.00p +8.92
Net asset value per share** 246.58p -2.53
FTSE UK Private Investor Balanced Index*** +1.78
MSCI UK Equity*** -0.24
MSCI AC World Index*** +2.64
MSCI AC Asia ex Japan Equity*** +12.44
---------------------------------------------- -------------- ----------------
* Source: Bloomberg
** This is considered to be an alternative performance measure
('APM')
*** These percentages are total returns in GBP sterling.
Dividends per share payable
31 March 31 March Change
2017 2018 (%)
-------------------------------- ------------------- ----------- ------------
Interim and final 5.70p 6.00p +5.3
Special dividend 4.30p 4.30p 0.0
-------------------------------- ------------------- ----------- ------------
Total dividends 10.0p 10.3p +3.0
-------------------------------- ------------------- ----------- ------------
Revenue highlights
31 March 31 March
2017 2018 Change
GBP'000 GBP'000 (%)
---------------------------------- --------- --------- -------
Income from investments 1,442 1,731 +20.0
Revenue return for the financial
year 1,050 1,220 +16.2
Revenue return per Ordinary
Share 5.25p 6.10p +16.2
---------------------------------- --------- --------- -------
Chairman's Statement
Performance
I am pleased to present the Annual Report and Accounts for the year ended 31 March 2018. Measured by total return, including the 10.5p of dividends paid during the year, the share price rose by 8.9%, although the net asset value (NAV) fell by 2.5%. Excluding dividends, the share price increased by 3.9% while the NAV fell by 6.3%. Since the Company listed as an investment trust in 2002, the share price total return has been 7.3% per annum while the NAV has returned 8.1% per annum.
The Company's mandate is global and the majority of assets remain invested throughout Asia. In previous years, the weakness of sterling has been something of a tailwind to performance but the recovery of sterling, which rose 11.9% against the US dollar during the year, detracted from results. Asian markets performed strongly until correcting sharply during February and March 2018. Global markets sold off on fears of resurgent inflation as a corollary of world economic recovery and on concerns that USA/China tit-for-tat tariffs would develop into a full blown trade war. A feature of Asian stock markets has been the narrow concentration of gains in predominantly technology stocks reflecting not only their growth potential but also the pursuit of index heavyweights by the large amount of money now managed by passive ETF strategies.
The Company's UK exposure has provided useful income even though the strength of sterling proved unhelpful given that our investments are predominantly in overseas concerns. The Investment Manager continues to find interesting new investment ideas although two more recent purchases have severely disappointed, as explained in the Investment Manager's report.
Outlook
While the strength of global recovery has led to encouraging corporate earnings revisions in Asia, supporting higher equity valuations, the outlook remains dominated by the actions of the US Federal Reserve in determining monetary policy and interest rates. Liquidity plays a major role in determining the level of equity markets and, if the Fed attempts to normalise policy after a decade of unprecedented monetary expansion in a way that miscalculates the strength of the recovery, this will exert inevitable pressure on asset prices. The intention appears to be to increase interest rates by three or four times during 2018 with a reduction in the Federal Reserve's balance sheet by about US$1 trillion over the next two years. If this proves excessive, we can expect a radical about turn; a sort of 'Grand Old Duke of York' policy of marching up to the top of hill and marching down again. A stronger US dollar and higher interest rates tend to unsettle Asian markets and to exacerbate the credit issues of weaker, emerging market, off shore corporates and Governments, as evidenced by recent developments in Argentina.
Against this, inter Asian trade and consumption trends appear robust, and the Chinese Government's agenda to tackle credit problems and overcapacity, while rolling out sizeable infrastructure programmes, remains on track. Geopolitically, a rapprochement with North Korea is a potentially ground breaking development. Conversely, the Middle East is a still a cauldron, which could boil over to further boost strengthening oil prices.
The portfolio remains largely invested in companies which offer strong sustainable, as opposed to cyclical, growth. This strategy should continue to deliver solid total returns over time, potentially with less market volatility. Indeed, market sell-offs usually throw up opportunities to buy into attractive businesses.
Regulation
The MiFID II and PRIIPS regulations came into force in January 2018. The Company entered into a Research Purchasing Agreement with the Investment Manager to underwrite the cost of procuring third party sell side research under the MiFID II rules which was considered appropriate in relation to our Investment Manager's overall scale of operations. Agreements have been revised with service providers and the IMA has been amended to come into line with the General Data Protection Regulations ("GDPR") which came into force on 25 May 2018. A privacy notice has been posted on the Investment Manager's website. The Board spends an increasing amount of time ensuring that the Company meets onerous, complex regulatory and compliance requirements while trying to control costs.
Dividend
The Board is keen to improve the profile of the Company and the discount to NAV should be attractive to investors looking for long term capital growth. Without the power to buy back shares, the Board believes that a progressive dividend policy is an appropriate way to improve the share price discount to net asset value, which has narrowed from 23.9% to 15.6% during the financial year.
The Board proposes a final dividend of 3.0p, which, taking into account the increase in the interim dividend from 2.5p to 3.0p, will lift the total dividend to 6.0p for the financial year. The Board also proposes an unchanged special dividend of 4.3p per share funded from capital reserves. This will lift the total distribution for the year to 10.3p, an increase of 3% over last year.
Harry Wells
Chairman
12 June 2018
Investment Manager's Report
For the financial year to 31 March 2018 the share price rose 3.9% while the net asset value declined by 6.3%. Including dividends totalling 10.5p paid during the year, the total returns of the share price and the net asset value were +8.9% and -2.5% respectively. For comparative purposes the MSCI AC Asia ex Japan Index rose 12.4%, the MSCI AC World Index gained 2.6% and the FTSE UK Private Investor Balanced Index advanced 1.8%.The share price Discount to NAV stood at 15.6% at year end.
During the second half of the financial year the share price declined by 3.6% whilst the net asset value slipped 5.7%. Including the interim dividend of 3.0p paid to shareholders during the period, the total return of the share price and the net asset value were -2.3% and -4.5% respectively. This compares to the 0.1% decline in the FTSE UK Private Investor Balanced Index in sterling terms.
Longer term performance is shown graphically in the Annual Report, which tracks the net asset value and share price against the FTSE UK Private Investor Balanced Index since the formation of the Company.
United Kingdom portfolio
In the fourth quarter of 2014, we took the decision to sell the gold bullion position and reallocate some 20% of the Company's assets in a small number of UK listed blue chips. The investment objectives were twofold; firstly, to place the income generating ability of the Company on a stronger footing and secondly, to reduce somewhat the beta, or risk, of the overall portfolio.
This strategy has been working reasonably well but, during the last financial year, not only did the UK equity market substantially underperform Asian equities, but also our UK holdings underperformed the UK broader market by some margin. These holdings are principally large, consumer orientated multinational companies and your Investment Manager believes the recent underperformance is due to two factors; the increased strength of sterling, which has pressured revenues and profitability and the rise in longer term Government bond yields since the summer of 2016, which has led to selling pressure on so called 'bond proxies'.
Bond proxies or not, the Company's UK portfolio yields circa 5.5% and we reiterate the comment in the interim report; "we remain more suspicious of sterling's outlook than the longer term future of these companies". Three of the holdings have increased their annual dividend by over 35% over the last four years while the other two have maintained dividend levels and paid special dividends to shareholders on top. The yield premium on the FTSE over 10 year Gilts is at the highest level since the Second World War reflecting the current level of uncertainty in the UK.
Monetary policy and global growth
The recently appointed Chairman of the Federal Reserve, Jerome Powell, appears keen to dispel any notion that he is just another dove. While the US Dollar has drifted lower over the past year there are justifiable fears that overzealous monetary tightening by the Federal Reserve may derail growth in the United States and elsewhere. Multiple interest rate rises by the Federal Reserve would place pressure on the weaker currencies in the Asian region, especially within ASEAN and in India. This may - in turn - explain why holdings such as Astra International, IJM Group and ITC have suffered something of a derating of late. Philippine equities in particular have been sold off aggressively with the Central Bank perceived - correctly in our view - to be some way behind the curve as domestic demand booms, the trade deficit rises and inflation ticks higher.
The Trump administration has finally turned its guns toward trade imbalances and, unsurprisingly, the opening salvos have focused on China, which continues to have a substantial trade surplus with the United States. All commentators acknowledge that there are no winners in any trade war and one hopes that both sides will work towards an agreement. However, markets tend to shoot first and ask questions later, so the share prices of portfolio holdings such as Minth Group and Johnson Electric, both of which are suppliers to the global auto industry, have had an uncomfortable ride in 2018. The ongoing elevation of President Xi and the abandonment of the two term leadership limit may have disheartened many, but a key shorter term positive is the increased certainty, or visibility, of China's economic policy. The shadow banking sector will continue to be squeezed, supply side reform is ongoing and the promotion of domestic consumption continues. Importantly the cautious, but progressive, opening of previously protected domestic sectors can only help defuse the current trade tensions.
The longer term Asian story - that of rising consumption and a region increasingly driven by domestic demand - remains intact and the Company's portfolio continues to reflect your Investment Manager's confidence in this development. Asia remains in rude health and after a year of admittedly indifferent returns, your Investment Manager is optimistic of making good progress in the year ahead.
Portfolio performance
We had a few successes during the year. JNBY, a Chinese clothing designer, rose nearly 50% after our purchase last November while longer term holdings such as Tencent, Alibaba, ICBC and TSMC also performed strongly. At the other end of the spectrum, the UK holdings and the performance of some ASEAN and Indian positions detracted from performance.
More unhelpful were Silver Heritage and Finetex. Silver Heritage fell 38% in sterling terms. We supported their rights issue last summer and the Tiger Palace Resort opened for business earlier this year. It will take some time for this unique complex to breakeven but recently released monthly revenue numbers are encouraging. Much less encouraging was the news from recent purchase Finetex, a Korean manufacturer of nanofibres. We purchased the holding in December 2017 after a very upbeat meeting with management on a European road show and, initially at least, the stock performed strongly. Unfortunately the year-end audit threw up a number of irregularities and a qualified audit opinion. The KOSDAQ stock exchange suspended the stock in March and the investment was written off in two stages, in late March and when further information became available in early April. While we have some hope that the situation is retrievable, it is best to plan for the worst. Accounting irregularities rarely end well.
Financial results
The portfolio generated gross income of GBP1,731,000 during the year, a 20% increase from the GBP1,442,000 generated in the preceding year thanks in part to the receipt of underwriting commission which should be considered one off in nature. Excluding fees payable to the Investment Manager, expenses amounted to GBP321,000, an increase of 13.8% relative to the previous year. The total fees payable to the Investment Manager rose 19.8% to GBP362,000 (of which 80% are charged to capital). In consequence, the Company recorded revenue on ordinary activities after tax of GBP1,220,000, a 16.2% increase compared to the previous financial year.
Blackfriars Asset Management Limited
Investment Manager
12 June 2018
Other Information
Results and dividend
The revenue return for the financial year ended 31 March 2018 after taxation amounted to GBP1,220,000 (2017: GBP1,050,000). The Company made a capital loss after tax for the financial year ended 31 March 2018 of GBP2,437,000 (2017: capital gain of GBP10,711,000). Therefore the net loss after tax for the Company for the financial year ended 31 March 2018 was GBP1,217,000 (2017: profit of GBP11,761,000).
An interim dividend of 3.0p per Ordinary Share was paid on 22 December 2017 to shareholders on the register at the close of business on 1 December 2017.
The Board proposes the following dividends in respect of the year ended 31 March 2018:
(i) A final dividend of 3.0p (2017: 3.2p) per Ordinary Share.
(ii) A special dividend of 4.3p (2017: 4.3p) per Ordinary Share.
Subject to approval by shareholders, the above dividends will be paid on 13 August 2018 to shareholders whose names appear on the register at the close of business on 20 July 2018.
Risks and uncertainties
The review of the year and commentary on the future outlook are presented in the Chairman's Statement, the Investment Manager's Report and the financial instruments disclosures set out in note 8 to the Financial Statements, which, together with the information below, provide details of the principal risks and uncertainties facing the Company.
Investment risk
The Company is predominantly a vehicle for overseas equity investment with the attendant risks applicable to any international or regional equity portfolio relating to strategy, country, industrial sector and stock selection.
The prime risk of investing in the Company is a fall in equity prices and adverse movements in foreign currency exchange rates as currency movements can have a significant impact on capital values. Whilst foreign currency exposures against sterling are reviewed on a regular basis, these are inherent in investing in overseas securities and at present the Company has no currency hedging contracts in place nor plans to arrange them. The Investment Manager will take into account the possibility of currency gain or loss when evaluating investments for the Company.
Risk Management
Equity markets are subject to fluctuation and as such investment in equities has inherent risk. The Investment Manager is experienced and employs its expertise in selecting the stocks in which the Company invests. The Investment Manager spreads the investment risk over a wide portfolio of investments.
Regulatory risk
Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange. Breaches of the Companies Act 2006, The Financial Services and Markets Act, Accounting Standards, The Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules could result in financial penalties or legal proceedings against the Company or its Directors. Failure of the Investment Manager to meet its regulatory obligations could have adverse consequences on the Company.
Risk Management
The Company has contracted out relevant services to appropriately qualified third party professionals. The Investment Manager reports on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.
Counterparty risk
The Company bears the risk of settlement default by clearing houses and exchanges and the risk of delayed repossession or disputed title of the Company's assets in the event of failure of the Custodian, together with operational and regulatory risks, and the risk of errors and omissions.
Risk Management
The Investment Manager undertakes transactions only with brokers pre-approved by the Investment Manager and on the basis of delivery against payment.
Additional risks are set out in note 8 to the Financial Statements, which covers interest rate risk, equity price risk, liquidity risk and credit risk.
Role of the Board
The Board monitors the critical risks and uncertainties faced by the Company through regular review of a matrix of risks, key controls and mitigating factors.
As part of the review of operational risks, the Board satisfies itself that the Investment Manager has processes in place to ensure that limits are not breached. Performance and risk controls are the focus of Boardroom discussion with the Investment Manager. The Board reviews the management of the portfolio and monitors the Investment Manager's adherence to the investment mandate. This is achieved by comparing the absolute return generated by the portfolio, the breakdown of the portfolio into equities, investment funds, bonds and cash and the level of concentration within the equity portfolio by sector and geography.
The Board seeks to assess and contain risk by understanding and monitoring the Investment Manager's investment style, investment process and long-term performance record. Stock specific risk is reduced through adequate diversification and the Investment Manager is required to ask the Board for approval prior to the purchase of any other products managed by the Investment Manager which may not exceed 30% of the portfolio.
The Board reviews the performance of certain equity indices and peer group competitors to evaluate whether the Investment Manager is generating competitive returns in differing market conditions. In assessing performance at its regular meetings, the Board requires a clear, consistent expression of strategy.
As the Company's objective is to achieve long-term capital growth whilst preserving capital, performance is not measured against any specific equity or bond index but on the absolute return achieved. The Company shows its performance against the FTSE UK Private Investor Balanced Index in the chart in the Annual Report.
The Board also discusses the extent to which the Company might gear up its portfolio with debt or increase liquidity in difficult markets. Strategic decisions, such as the level of borrowing, can have a significant impact on performance. The Company's policy is to limit gearing to a maximum of 50% of net assets, although, at present, the Company has no gearing. Ultimately, the positioning of the portfolio is decided by the Investment Manager, which operates within the investment guidelines established by the Board.
Income Statement
For the year ended
31 March
2018 2017
----------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- --------- -------- -------- -------- --------
(Losses)/gains on investments - (1,854) (1,854) - 10,358 10,358
Foreign exchange (losses)/gains - (267) (267) - 595 595
Income 1,731 - 1,731 1,442 - 1,442
Investment management
fees (72) (290) (362) (60) (242) (302)
Other expenses (321) (26) (347) (282) - (282)
---------------------------------- -------- --------- -------- -------- -------- --------
Return before tax 1,338 (2,437) (1,099) 1,100 10,711 11,811
Taxation for the year (118) - (118) (50) - (50)
---------------------------------- -------- --------- -------- -------- -------- --------
Return for the financial
year 1,220 (2,437) (1,217) 1,050 10,711 11,761
---------------------------------- -------- --------- -------- -------- -------- --------
Return per Ordinary
Share 6.10p (12.19)p (6.09)p 5.25p 53.56p 58.81p
---------------------------------- -------- --------- -------- -------- -------- --------
All revenue and capital items in the above statement derive from continuing
operations.
The total columns in this statement represent the Income Statement
of the Company. The revenue and capital columns are supplementary to
this and are prepared under the guidance published by the Association
of Investment Companies.
As all the gains and losses of the Company have been reflected in the
above statement, the return for the financial year is also the total
comprehensive income for the year.
Statement of Financial Position
At 31 March
2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- -------- ---------- --------
Fixed assets
Investments held at fair
value through profit or
loss 47,130 50,077
Current assets
Debtors 136 813
Cash at bank 2,118 3,183
------------------------------- -------- -------- ---------- --------
2,254 3,996
Payables: amounts falling
due within one year (69) (1,441)
------------------------------- -------- -------- ---------- --------
Net current assets 2,185 2,555
------------------------------- -------- -------- ---------- --------
Net assets 49,315 52,632
------------------------------- -------- -------- ---------- --------
Capital and reserves
Called up share capital 5,000 5,000
Share premium 14,701 14,701
------------------------------- -------- -------- ---------- --------
19,701 19,701
Capital reserve 28,730 32,027
Revenue reserve 884 904
------------------------------- -------- -------- ---------- --------
Equity shareholders' funds 49,315 52,632
------------------------------- -------- -------- ---------- --------
Net asset value per Ordinary
Share 246.58p 263.16p
------------------------------- -------- -------- ---------- --------
Statement of Changes in Equity
For the year ended 31 March 2018
Share Share Capital Revenue
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ---------- ---------- -------- --------
At 31 March 2017 5,000 14,701 32,027 904 52,632
Return for the financial
year - - (2,437) 1,220 (1,217)
Dividends paid - - (860) (1,240) (2,100)
---------- ----------
At 31 March 2018 5,000 14,701 28,730 884 49,315
------------------------------ ---------- ---------- ---------- -------- --------
For the year ended 31 March
2017
Share Share Capital Revenue
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ---------- ---------- -------- --------
At 31 March 2016 5,000 14,701 22,096 994 42,791
Return for the financial
year - - 10,711 1,050 11,761
Dividends paid - - (780) (1,140) (1,920)
---------- ---------- ---------- --------
At 31 March 2017 5,000 14,701 32,027 904 52,632
------------------------------ ---------- ---------- ---------- -------- --------
Statement of Cash Flows
For the year ended 31 March
2018 2017
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Cash flows from operating activities
Return for the financial year* (1,217) 11,761
Adjustments for:
Taxation 118 50
Losses/(gains) on investments held
at fair value 1,880 (10,358)
Losses/(gains) on exchange movements 267 (595)
Research costs (26) -
Decrease in trade debtors 43 36
(Decrease)/increase in trade creditors (29) 11
-------------------------------------------------- --------- ---------
Cash from operations 1,036 905
Taxation (118) (50) Net cash generated from operating activities 918 855 -------------------------------------------------- --------- --------- Cash flows from investing activities Purchase of investments (21,449) (17,263) Sale of investments 21,833 18,992 -------------------------------------------------- Net cash generated from investing activities 384 1,729 -------------------------------------------------- --------- --------- Cash flows from financing activities Equity dividends paid (2,100) (1,920) Net cash used for financing activities (2,100) (1,920) -------------------------------------------------- --------- --------- Net (decrease)/increase in cash and cash equivalents (798) 664 Foreign exchange movements (267) 595 Cash and cash equivalents at beginning of year 3,183 1,924 Cash and cash equivalents at end of year 2,118 3,183 -------------------------------------------------- --------- --------- * Cash inflow from dividends was GBP1,756,000.
Notes to the Financial Statements
1. Accounting policies
The Company is incorporated in England and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company's registered office is Mermaid House, 2 Puddle Dock, London, EC4V 3DB.
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below:
(a) Basis of accounting
The accounts are prepared on the historical cost basis of accounting, except for the measurement at fair value of investments. The Financial Statements have been prepared in accordance with applicable United Kingdom accounting practices, including Financial Reporting Standard 102 - 'The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland' ('FRS 102') and with the AIC Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014.
All of the Company's operations are of a continuing nature.
(b) Valuation of investments
When a purchase or sale is made under a contract, the terms of which require delivery within the time frame of the relevant market, the investments concerned are recognised or derecognised on the trade date.
The Company's investments are recognised on the trade date and are initially measured at fair value. Investments are measured at subsequent reporting dates at fair value, and changes in fair value are included in the Income Statement as a capital item. For listed investments, fair value is deemed to be either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.
Any investments which are suspended from trading are measured by the Directors at estimated fair value, taking into account the relevant circumstances.
Unquoted investments are valued by the Directors at fair value. The Company held no unquoted investments at the year end.
The Company held all its investments as part of the investment portfolio and measured at fair value.
(c) Reporting currency
The accounts are presented in GBP sterling, which is the functional currency of the Company. Sterling is the reference currency for this UK registered and listed company.
(d) Income
Dividends are credited to the revenue account on an ex-dividend basis or, if later, as soon as entitlement has been established. The Company owns no fixed interest investments.
Bank and deposit interest is accounted for on an accruals basis.
(e) Dividends
Dividends paid by the Company are accounted for in the Financial Statements in respect of the period in which they are paid, in the case of interim dividends, or when they are approved by shareholders for final dividends.
(f) Expenses
All expenses are accounted for on an accruals basis. Expenses are recognised through the Income Statement as revenue items except as follows:
- the investment management fee has been allocated 80% to capital reserve and 20% to the revenue account within the Income Statement reflecting the Board's expected long-term split of returns in the form of capital gains and income respectively from the investment portfolio;
- expenses which are incidental to the sale of an investment are deducted from the proceeds of the sale of that investment;
- any other expenses incurred in connection with the acquisition or disposal of an investment, including research costs, are allocated to capital reserve - through the Income Statement; and
- finance costs are accounted for on an accruals basis using the effective interest method.
(g) Taxation
Irrecoverable withholding tax on overseas dividends is recognised on an accruals basis in the Income Statement. Deferred taxation is provided on all differences, which have originated but not reversed by the Statement of Financial Position date, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, based on available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset.
Tax payable is based on the taxable profit for the period. Taxable profit may differ from net profit as reported in the Income statement because it excludes items of income or expenditure that are taxable or deductible in other periods and it further excludes items that are not taxable or deductible.
(h) Foreign currency
Transactions and investment income denominated in foreign currencies are recorded in sterling at actual exchange rates at the date of the transaction or receipt. Monetary assets and liabilities denominated in foreign currencies at the year end are recorded in sterling at the rates of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or loss in the capital or revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature respectively.
The value of investments in foreign currencies is expressed in sterling at the rates of exchange prevailing at the year end. Surpluses and deficits arising from conversion at this rate of exchange are included as an exchange gain or loss in the capital column of the Income Statement and taken to the capital reserve.
(i) Capital and revenue reserves
The following are taken to capital reserve:
Investment holding gains:
- Increase and decrease in the valuation of investments held at the year end;
Other:
- Gains and losses on the disposal of investments;
- Exchange differences of a capital nature;
- Expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.
The following are taken to revenue reserve:
- the net revenue for the year is transferred to the revenue reserve and the final dividends are funded from this reserve.
(j) Distributable reserves
Distributable reserves comprise revenue and the capital reserves attributable to realised profits.
(k) Going concern
The Financial Statements have been prepared on a going concern basis. The majority of the net assets of the Company are securities which are traded on recognised stock exchanges. After considering the Company's current financial resources, the Directors are satisfied that its resources are adequate for continuing in business for the foreseeable future.
(l) Estimates and assumptions
The preparation of the Financial Statements requires the Directors to make estimates and assumptions that affect items reported in the Statement of Financial Position and Income Statement. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, the Company's actual results may ultimately differ from those estimates, possibly significantly. The most important assumption and estimate during the year are disclosed in the Annual Report in relation to the valuation the of the Finetex EnE holding.
(m) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being the investment business. A geographical split of the portfolio can be seen in the Annual Report.
2. Income
2018 2017
GBP'000 GBP'000
-------------------------- -------- --------
Income from investments:
Overseas dividends 1,359 1,055
UK dividends 360 387
Other income 12 -
Total 1,731 1,442
-------------------------- -------- --------
3. Investment management fees
2018 2017
------------------------------- ---------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- --------- --------- --------- -----------
Investment management
fees 86 345 431 72 289 361
Less management fee
rebates (14) (55) (69) (12) (47) (59)
----------------------- --------- --------- --------- --------- --------- -----------
Total 72 290 362 60 242 302
----------------------- --------- --------- --------- --------- --------- -----------
To avoid double charging investment management fees, the Investment
Manager has agreed to rebate any periodic management fee that it
receives from the Company by the amount of fees receivable by it
from Blackfriars Asset Management Limited managed products ("Blackfriars
products") in respect of the Company's investments in those funds.
The Investment Manager has agreed that any performance fees that
it earns from Blackfriars products in respect of the Company's
investment in those funds will be rebated to the Company.
As at 31 March 2018 the Company had investments in the following
Blackfriars products:
377,500 shares in Blackfriars Oriental Focus Fund 'B' at a total
cost of GBP4,517,000 and a valuation at 31 March 2018 of GBP7,071,000.
4. Other expenses
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------- --------- ---------
Revenue expenses:
Administration and secretarial services 73 61
Directors' fees 74 68
Directors' national insurance 3 5
Auditor's remuneration 17 24
UK taxation compliance services 8 8
Overseas tax compliance services 17 17
Custodian fees 30 25
Registrar fees 21 18
Broker fees 31 11
Other expenses 47 45
Total revenue expenses 321 282
------------------------------------------------------------------- --------- ---------
Capital expenses:
Research costs 26 -
------------------------------------------------------------------- --------- ---------
Total capital expenses 26 -
------------------------------------------------------------------- --------- ---------
Total other expenses 347 282
------------------------------------------------------------------- --------- ---------
5. Dividends
(i) Paid during the financial year
2018 2017
GBP'000 GBP'000
------------------------------------------- ----------------------------------------------------------------------- --------------------------
Final dividend for the year ended
31 March 2017 of 3.2p per Ordinary
Share (2016: 3.2p) 640 640
Interim dividend for the year ended
31 March 2018 of 3.0p per Ordinary
Share (2017: 2.5p) 600 500
Special dividend for the year ended
31 March 2017 of 4.3p per Ordinary
Share (2016: 3.9p) 860 780
------------------------------------------- ----------------------------------------------------------------------- --------------------------
2,100 1,920
------------------------------------------- ----------------------------------------------------------------------- --------------------------
(ii) Payable in respect of the
financial year
The total dividends payable in respect of the financial year, which
form the basis for complying with section 1159 of the Corporation
Tax Act 2010 are set out below:
2018 2017
------------------------------------------------------ ----------------------------------------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------------- ------------------ ---------------- ------------------ ---------------------- --------------------
Interim dividend for the
year ended 31 March
2018
of 3.0p per Ordinary
Share
(2017: 2.5p) 600 - 600 500 - 500
Proposed final dividend
for the year ended 31
March
2018 of 3.0p per
Ordinary
Share (2017: 3.2p) 600 - 600 640 - 640
Proposed special
dividend
for the year ended 31
March
2018 of 4.3p per
Ordinary
Share (2017: 4.3p) - 860 860 - 860 860
---------------- ------------------ ---------------- ------------------ ---------------------- --------------------
1,200 860 2,060 1,140 860 2,000
------------------------- ---------------- ------------------ ---------------- ------------------ ---------------------- --------------------
6. Return per Ordinary Share
2018 2017
------------------------------------------ ------------------------------
Revenue Capital Total Revenue Capital Total
------------------ --------- ------------ ----------------- --- ---------- -------------- --------------
Return after
tax 1,220,000 (2,437,000) (1,217,000) GBP1,050,000 GBP10,711,000 GBP11,761,000
Weighted
average
number of
shares
in issue 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000
-------------- ------------- ------------ ------------ --- --------------- -------------- --------------
Return per
--- --- -------------- --------------
Ordinary
Share 6.10p (12.19)p (6.09)p 5.25p 53.56p 58.81p
-------------- ------------- ------------ ------------ --- --------------- -------------- --------------
7. Net asset value per share
The net asset value per Ordinary Share and the net asset value at the year end were as follows:
Net asset value per
share Net asset value
2018 2017 2018 2017
pence pence GBP'000 GBP'000
------------------- ------------- ----------- --------- ---------
246.58 263.16 49,315 52,632
------------------- ------------- ----------- --------- ---------
The movements during the year of the assets attributable to the Ordinary Shares were as follows:
The net asset value per Ordinary Share is based on net assets of GBP49,315,000 (2017: GBP52,632,000) and on 20,000,000 Ordinary Shares (2017: 20,000,000) being the number of Ordinary Shares in issue at the financial year end.
8. Financial instruments and capital disclosures
Risk management policies and procedures
The investment objective of the Company is to achieve long-term capital growth from a managed international portfolio of securities. The preservation of capital is of primary importance to the investment objective. In pursuit of this objective, the Company may be exposed to various forms of risk, as described below.
The Board has policies on diversification of investment, gearing (bank borrowing), dividends and risk management, which it reviews in accordance with prevailing market conditions. Current policies are set out in the Strategic Report. The Company's assets are managed so as to diversify both the market risk (including price risk) and liquidity risk that occurs in any equity portfolio and the Board monitors this process (see Strategic Report in the Annual Report).
The Board and its Investment Manager consider and review the risks inherent in managing the Company's assets which are detailed below:
Currency exposure at 31 March
2018
US HK GB Pounds Indian Korean Taiwan Philippine Thai
Dollar Dollar Sterling Rupee Won Dollar Peso Bhat Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Debtors - - 50 3 79 - 4 - - 136
Cash at bank 1,536 - 63 - 4 506 - - 9 2,118
Creditors - - (69) - - - - - - (69)
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Foreign
currency
exposure on
net
monetary
items 1,536 - 44 3 83 506 4 - 9 2,185
Equities
held
at fair
value
through
profit
or loss 7,817 10,719 7,568 4,919 4,878 3,790 1,917 2,740 2,782 47,130
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Total net
foreign
currency
exposure 9,353 10,719 7,612 4,922 4,961 4,296 1,921 2,740 2,791 49,315
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Currency exposure at 31
March 2017
US HK GB Pounds Indian Korean Taiwan Philippine Thai
Dollar Dollar Sterling Rupee Won Dollar Peso Bhat Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Debtors - - 813 - - - - - - 813
Cash at bank 2,386 - 87 - - 710 - - - 3,183
Creditors - - (1,441) - - - - - - (1,441)
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Foreign
currency
exposure on
net
monetary
items 2,386 - (541) - - 710 - - - 2,555
Equities
held
at fair
value
through
profit
or loss 9,101 9,596 9,633 5,796 5,036 3,848 2,412 2,303 2,352 50,077
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Total net
foreign
currency
exposure 11,487 9,596 9,092 5,796 5,036 4,558 2,412 2,303 2,352 52,632
------------- -------- -------- ---------- -------- -------- -------- ----------- -------- -------- --------
Over the year GBP sterling strengthened against the US dollar by 11.90% (2017: weakened 12.60%), strengthened against the Hong Kong dollar by 13.02% (2017: strengthened 12.46%) and strengthened against the Thai baht by 1.65% (2017: strengthened 14.56%).
A 5% rise or decline of GBP sterling against foreign currency denominated (i.e. non-GBP sterling) assets held at the year end would have decreased/increased the net asset value by GBP 2,085,000 or 4.23% of net asset value (2017: GBP2,177,000 or 4.14% of net asset value). It is not practical to estimate the impact on the income statement since the profit and loss is the net result of all the transactions in the portfolio throughout the year.
Interest rate risk
The Company is exposed to a very low level of interest rate risk through its cash deposits with The Northern Trust Company. The Company had no borrowings at the year end (2017: nil) and therefore sensitivity analysis to changes in LIBOR are not applicable.
Equity price risk
If the fair value of the Company's investments at the year end increased/decreased by 10% then it would have the effect of GBP4,713,000 or 23.57 pence per Ordinary Share (2017: GBP5,008,000 or 25.04 pence per Ordinary Share) on the capital return.
Liquidity risk
Liquidity risk is generally not significant in normal market conditions as the majority of the Company's investments are listed on recognised stock exchanges and for the most part consists of readily realisable securities which can be sold easily to meet funding commitments if necessary. Short-term flexibility may be achieved by the use of bank overdrafts.
Credit risk
Credit risk is mitigated by diversifying the counterparties through whom the Investment Manager conducts investment transactions. The credit standing of all counterparties are reviewed periodically with limits set on amounts due from any one broker.
Cash is only held at banks and in money market funds that have been identified by the Board as reputable and of high credit quality. The Northern Trust Company has a short-term deposit rating of P-1 with Moody's and A-1+ with S&P. No cash was held in money market funds during the years ended 31 March 2018 and 31 March 2017.
Substantially all of the assets of the Company at the year end were held by the Custodian or its sub-custodians. Bankruptcy or insolvency of the Custodian or its sub-custodians may cause the Company's rights with respect to securities held by the Custodian to be delayed or limited. The Custodian segregates the Company's assets from its own assets and only uses sub-custodians on its approved list of sub-custodians. At the year end, the Custodian held GBP47,130,000 in respect of quoted investments. The total credit exposure (representing current assets) of the Company at the year end as shown on the Statement of Financial Position was GBP2,254,000 (2017: GBP3,996,000).
Valuation of financial instruments
FRS 102 requires that the classification of financial instruments be valued by reference to the source of inputs used to derive the fair value. The fair value hierarchy classifications and their descriptions are below:
Level 1
The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
The classification of the Company's investments held at fair value is detailed in the table below:
31 March 2018 31 March 2017
--------------------------------------------------------------- ------------------------------------------------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ----------- ------------------ ----------------- ----------- ----------- ------------------ -------------- -----------
Investments 46,547 - 583 47,130 48,806 836 435 50,077
------------- ----------- ------------------ ----------------- ----------- ----------- ------------------ -------------- -----------
There was no investment classified as Level 2 at the year end (2017: holding in Singer Sri Lanka, which was held via a broker participatory note).
The investment classified as Level 3 is the holding in Finetex EnE (2017: holding in Silver Heritage), whose shares are currently suspended with the valuation based on the assessment of available market information on the security which represents a 50% provision against last traded price. Further details are disclosed in the Annual Report.
The valuation techniques used by the Company are explained in the accounting policies note 1(b).
Capital management policies and procedures
The capital managed by the Company represents only the Equity shareholders' funds of GBP49,315,000 (2017: GBP52,632,000).
The Company currently has no borrowings.
The Company's objectives, policies and procedures for managing capital are set out in the share capital section of the Directors' Report.
9. Distributable reserves
The Company's distributable reserves consist of the capital reserve attributable to realised profits and revenue reserve. Dividends may be paid from either of these reserves.
10. Post balance sheet event
Based on the announcement by Finetex EnE regarding its auditor's refusal of auditor's opinion, missing the deadline for filing an objection for the refusal and the continued suspension from trading, the Directors, on the recommendation of and in agreement with the Investment Manager's Pricing Committee, have written down the value of the holding to nil. The position is being reviewed for any further changes in valuation that may be appropriate.
The Finetex EnE holding represented 1.2% of the Company's portfolio and 1.5% of the portfolio on a look through basis as at the year end.
11. Directors' interests
Ordinary Shares of 25p each
31 March 2018 31 March 2017
------------------- -------------- --------------
Gregory Shenkman 3,415 3,415
Susan Thornton(a) 3,550,269 1,744,728
Tom Waring 3,891 -
Harry Wells(b) 30,000 30,000
Jim Ryall - -
------------------- -------------- --------------
(a) Susan Thornton has a direct interest in 1,805,541 Ordinary Shares and, in addition, has an interest in 1,744,728 Ordinary Shares, held as a Trustee of The Thornton Foundation. Susan Thornton is a trustee of RC Thornton Will Trust, which holds an interest in 1,805,542 Ordinary Shares in the Company.
(b) Held in SIPP.
Statement of Directors' Responsibilities in respect of the Annual Report, the Directors' Remuneration Report and Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Policy and Implementation Reports and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. In conformity with the law, the Directors have elected to prepare Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards 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 net return of the Company for that period. In preparing these Financial Statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements;
-- prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
-- in compliance with the Companies Act 2006, prepare a Directors' Report, a Strategic Report and a Directors' Remuneration Report
The Directors are responsible for keeping adequate accounting records, 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 the Directors to ensure that the Financial Statements and Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Financial Statements are published on www.blackfriarsam.com, which is a website maintained by the Company's Investment Manager. The Directors are responsible for the maintenance and integrity of the Company's information that is available on the website. The Directors do not take responsibility for the maintenance of the Investment Manager's website. Legislation in the United Kingdom governing the preparation and dissemination of the Financial Statements may differ from legislation in other jurisdictions.
Directors' confirmation statement
Each of the Directors, (Harry Wells (Chairman), Jim Ryall, Gregory Shenkman, Susan Thornton and Tom Waring), confirms that, to the best of the knowledge of that Director:
-- the Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company; and
-- the Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
Having taken advice from the Audit and Risk Committee, the Directors consider that the Annual Report and Financial Statements taken as a whole are fair, balanced and understandable and provide information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Financial Information
This announcement does not constitute the Company's statutory accounts. The financial information for 2018 is derived from the statutory accounts for 2018, which will be delivered to the registrar of companies following the Company's Annual General Meeting. The statutory accounts for 2017 have been delivered to the registrar of companies. The auditors have reported on the 2018 and 2017 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.
Printed copies of the Annual Report and Financial Statements for the year ended 31 March 2018 will be posted to shareholders in due course and can be requested from the Registered Office of the Company. A pdf copy can be viewed or downloaded from the Investment Manager's website www.blackfriarsam.com. Neither the contents of the Investment Manager's website nor the contents of any website accessible from hyperlinks on the Investment Manager's website (or any other website) is incorporated into or forms part of this announcement.
The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM
Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of Blackfriars Asset Management Limited, 9 Cloak Lane, London, EC4R 2RU on 12 July 2018 at 12 noon. The notice of AGM is contained in the Annual Report for the year ended 31 March 2018.
12 June 2018
Secretary and registered office:
PraxisIFM Fund Services (UK) Limited
Mermaid House,
2 Puddle Dock,
London EC4V 3DB
For further information contact:
Anthony Lee / Ciara McKillop
PraxisIFM Fund Services (UK) Limited
Tel: 020 7653 9690
Registered in England No. 4355437
END
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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