Galata Investment Company AD

Annual Report • Oct 1, 2014

National Storage Mechanism | Additional information

You don't have Javascript enabled. For full functionality this page requires javascript to be enabled.

THE INVESTMENT COMPANY PLC - Annual Financial Report

PR Newswire

London, October 1

THE INVESTMENT COMPANY PLCANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2014The full Annual Report and Accounts for the year ended 30 June 2014 can befound on the Company's website: http://www.mitongroup.com/tic.DIRECTORS (all non-executive)Sir David Thomson Bt. (Chairman)S. J. CockburnP. S. AllenM. H. W. Perrin (Audit Committee Chairman)STRATEGIC REPORTSUMMARY OF RESULTS At 30 June At 30 June Change 2014 2013Equity shareholders' funds 18,693,293 16,237,484 15.1%Number of ordinary shares in issue* 4,739,549 4,739,549 0.0%Net asset value per ordinary share 394.41p 342.60p 15.1%Ordinary share price (mid) 406.00p 327.50p 24.0%Premium/(discount) to net asset 2.94% (4.41)%value At 30 June At 30 June 2014 2013Total return per ordinary share** 67.03p 71.41pReturn after taxation per ordinary 91.02p 7.91pshareDividends paid/declared per 20.72p 6.00pordinary share* Excluding shares held in treasury.** The total return per ordinary share is based on total comprehensive incomeafter taxation as detailed in the Consolidated Statement of ComprehensiveIncome and in note 7 and is shown to enable comparison with other investmenttrust companies.FINANCIAL CALENDARNovember Payment of first interim dividend for the year ending 30 June 2015.December Annual General Meeting.February Payment of second interim dividend for the year ending 30 June 2015. Announcement of Half-Yearly Financial Report.May Payment of third interim dividend for the year ending 30 June 2015.August Payment of fourth interim dividend for the year ending 30 June 2015.September/October Announcement of Annual Results.CHAIRMAN'S STATEMENTThis report covers the first full year since the reorganisation of the Companyat the end of June 2013.Over the year the net asset value ("NAV") of the Company has increased from342.6p to 394.4p, a rise of 15.1%. In addition, the Company has also paid fourinterim dividends amounting to 20.7p, which represents a 6.0% yield on the NAVat the end of June 2013. The total return in the year was therefore 19.5%.Following the reorganisation, and pursuant to the new investment policy, muchof the additional capital raised at the time of the reorganisation has beeninvested in the equity of some promising quoted companies, many with attractivedividend yields.In parallel, the portfolio still substantially comprises a range of preferenceshares, loan stocks, debentures and notes, which may also have the right toconvert into the equity of the underlying issuer. At the end of June 2013, ourlargest holdings by a substantial margin were in Lloyds Banking Group EnhancedCapital Notes ("ECNs"). An offer from Lloyds Banking Group to convert suchinstruments into a different note, gave us a good opportunity to reduce thisposition, realising substantial capital gains.The new strategy has made a good start, as reflected in the growth in NAV overthe year. There is not a single representative benchmark index of thisportfolio of investments. However, shareholders will note that the FTSEActuaries Government Securities UK Gilts All Stocks Index rose 2.3% on a totalreturn basis over the year, and the total return on the FTSE All-Share Indexwas 13.1%.Going forward we believe there will be more opportunities for this Company toinvest in convertible preference and convertible loan stocks. We believe thebest of these will be particularly attractive to investors, as they often paypremium yields, and also offer investors scope to participate in the rise ofthe underlying equity if it appreciates markedly.At the time of the reconstruction in June 2013, your Board commenced payingfour dividends through the year amounting to 6% of the NAV at the beginning ofthe year. Although this should not be taken as a firm forecast, it is theDirectors' intention, based on a NAV at 30 June 2014 of 394.4p, to pay fourdividends totalling some 23.6p in the current year.Currently the dividend payable by the Company each year is calculated as 6% ofthe NAV at the start of each year. Given that the asset value of the Companycould fluctuate significantly each year, the Directors are consideringmodifying this in future years so that the dividend payable might grow moresustainably over the longer term.Although asset prices have been boosted by the policies of central banks, thereare still opportunities for a fund such as ours to deliver attractive returns.Clearly the Company is not immune from market fluctuations, but we believe thepreference share and loan stock market in particular still offers a good mix ofpremium income along with the potential for capital gain.The rise in UK equities and increase in investor confidence has meant that thecost of market insurance has declined to levels similar to those of themid-2000s. After the year end, on 5 September 2014, the Company invested around1.2% of the portfolio, at that date, to purchase some downside protection,covering approximately one-third of the portfolio, extending through to March2016.Sir David ThomsonChairman1 October 2014MANAGER'S REPORTMarketsOver the twelve months to 30 June 2014, the UK equity market has appreciateddespite a continued slowdown in world growth. Over the year, the total returnon the FTSE All-Share Index was 13.1%. In contrast, bond prices tended toremain generally flat, and the FTSE Actuaries Government Securities UK GiltsAll Stocks Index rose 2.3% on a total return basis.Smaller company share prices have tended to outperform over the year. Althoughmany will equate this with the UK economy enjoying a period of acceleratinggrowth, there are other factors too. In particular, the growth potential ofsmaller companies becomes more distinctive at times when world growth is slow.Smaller companies have the potential to sustain growth even at times ofeconomic stagnation. Given slowing world growth, it is perhaps less surprisingto note that the FTSE Small Cap Index (excluding investment companies) Indexrose 22.5%, and the AIM All-Share Index rose 13.6%.PortfolioThe portfolio reflects the historic range of holdings in preference shares,loan stocks, debentures and notes, and the new holdings in the equitysecurities of UK quoted companies.There were two major changes to the portfolio in the year.At the beginning of the year, around a third of the portfolio was invested inLloyds Banking Group ECNs, which had enjoyed strong performance as marketconfidence recovered after the 2008 crisis. Although these notes do pay a highlevel of income, their prices can be volatile at times of economic setbacks.Lloyds Banking Group sought to buy in some of its ECNs in exchange for othersecurities. The terms of the transaction were set to be attractive in thecurrent market environment so the price of the Lloyds Banking Group ECNsincreased during this period. We used the market liquidity and attractivepricing to reduce this holding down to rather less than 7% of the overallportfolio.The £4.3m of new equity raised at the time of the reconstruction has beeninvested principally in a number of higher yielding equities, with thepotential for growth. Many of these are smaller companies which we believe haveattractive risk/reward ratios. In addition, one new company has been funded viaan 8% loan note along with warrants over the equity. William Sinclair is ahorticultural peat and soil substitute supplier. In the retail sector itoperates under the J Arthur Bowers brand. It needed additional capital to fundthe relocation of two of its operations into a new site which will increase itsproduction and efficiency. We are hopeful that we will identify further suchopportunities in the coming year.Performance in the portfolio has principally been driven by the movements inthe share prices of the equities. In particular, four newly issued companieswere brought into the portfolio. Safestyle is one of the three largestmanufacturers of double-glazed windows for the refurbishment market. DX Groupis a logistics business that transports challenging items from small pallets toBritish Passports where they need to prove they have delivered it to the rightaddress. Shoe Zone has around 550 shops around the UK selling keenly priced,but well-made shoes. Finally Plus500 is one of the leading providers for thosewishing to trade shares via the internet, using the contracts for differencestructure. All have traded well since issue, although Plus500 has seen muchgreater upgrades and this propelled the share price up fivefold. For thatreason the stock has been subsequently sold.There have been some stocks where their share prices have fallen back over theyear. Lancashire Holdings, an insurance underwriting business, and Bagir, asupplier of jackets and suits to UK retailers, have both fallen back on toughertrading statements. However, overall the equity portfolio has performed well inthe period.The criteria used for selecting portfolio stocksThere are five criteria that the managers use to determine the scope for thebusiness to deliver good and growing dividends.The prospect of turnover growthIf a business is to sustain and grow itsdividend, then the portfolio needs to invest in companies that will generatemore cash in the coming years. Without decent turnover growth this isnear-impossible to achieve over time.Sustained or improving marginsA business needs to deliver significant value toits customer base if it is to sustain decent margins. Unexpected cost increasescannot be charged on to customers if they are anything less than delighted withtheir suppliers. Turnover growth will not lead to improved cash generation ifdeclining margins offset it.A forward-looking management teamBusinesses often need to make commercialdecisions on incomplete information. A thoughtful and forward-looking team hasa better chance of making better decisions.Robust balance sheetThere are disproportionate advantages to having theindependence of a strong balance sheet in a period of elevated economic andpolitical risks. Conversely, corporates with imprudent borrowings can risk thetotal loss of shareholders' capital.Low expectation valuationMany of the most exciting stocks enjoy higher stockmarket valuations but almost none can consistently beat the high expectationsbaked into their share prices. Those with low expectations tend to be lessvulnerable to disappointment, but conversely can enjoy excellent share pricerises if they surprise on the upside.Companies that best meet these criteria on a prospective basis are believed tobe best positioned to deliver attractive returns to shareholders, as well asoffering moderated risk.These criteria, used in reverse, can also be useful in determining the timingof portfolio stocks that should be considered for divestment. So, a business indanger of suffering a period of turnover declines, for example, would naturallybe expected to generate less cash flow in future years and thereby struggle tosustain its current dividend over time, let alone grow it.PerformanceAlthough equity markets were relatively strong in the period between June andDecember, subsequently they have fluctuated without making much progress. Theappreciation of the portfolio was mainly generated in the first half of theyear under review, although the portfolio has been resilient through the moretesting markets thereafter. This is despite the fact that the smaller companiesindices peaked out during this period.Over the year the NAV of the Company appreciated 15.1% and the Company alsodeclared four interim dividends that amounted to 6% of the NAV at the end ofJune 2013.ProspectsThe scope for the Company to identify attractive investment opportunities inconvertible loan stocks or convertible preference shares appear to beimproving. With smaller companies shares peaking out over the last five months,it has become rather more difficult to place new equity. That has beenespecially evident amongst smaller company new issues, where there has been adegree of indigestion. At times like this, there is perhaps greater interest inan existing quoted company issuing a new preference share, or loan stock, withan attractive yield. The dividend income tends to attract capital even at timeswhen the market is unsteady. However, we find this structure attractive becausethe preference shares or loan stock come with the right to convert intoordinary shares at maybe a 10% or 15% premium to the current share price. Ifthe Company does make a good investment, and the share price does appreciateover the coming 3 to 5 years, then the Company participates in a usefulproportion of the capital gain on the share price rise.Gervais Williams and Martin TurnerMiton Asset Management Limited1 October 2014TWENTY LARGEST INVESTMENTSAt 30 June 2014 Market or % of Directors' total Stock Number Issue Book cost valuation portfolio % £ £1. Lloyds Banking Group 7.625% Perpetual (LBG 478,000 0.16 204,360 508,210 Capital) 7.875% Perpetual (LBG 362,000 0.05 245,997 395,413 Capital) 7.5884% ECN 12/05/20 300,000 0.04 136,323 320,760 (LBG Capital) 7.281% Perpetual (Bank 400,000 0.27 315,330 461,240 of Scotland) 902,010 1,685,623 9.642. Phoenix Life 7.25% perp notes 1,060,000 0.53 811,923 1,110,350 6.353. Royal Bank of Scotland Group 9% series 'A' non-cum pref (NatWest) 500,000 0.36 362,920 660,000 Sponsored ADR each rep Pref C (NatWest) 20,000 0.20 55,473 307,044 418,393 967,044 5.534. Safestyle UK Ordinary 1p§ 369,000 0.47 369,000 677,576 3.875. Manx Telecom Ordinary 0.2p§ 340,321 0.30 507,782 578,546 3.316. Randall & Quilter Investment Holdings Ordinary 2p§ 387,000 0.54 502,731 572,760 3.287. Juridica Investments Ordinary NPV§ 410,000 0.39 544,190 565,800 3.248. Friends Life Group Ordinary NPV§ 173,069 0.01 565,438 545,687 3.129. Conygar Investment Co mpany Ordinary 5p§ 320,478 0.37 406,493 538,403 3.0810. Brit Ordinary 1p§ 219,167 0.01 526,001 536,959 3.0711. Esure Group Ordinary 0.08333p§ 201,217 0.05 545,776 536,243 3.0712. Charles Taylor Ordinary 1p§ 230,000 0.54 419,215 529,000 3.0313. DX (Group) Ordinary 1p§ 420,000 0.21 484,204 525,000 3.0014. Gable Holdings Ordinary 2.5p§ 617,063 0.46 339,385 512,162 2.9315. Fishguard & Rosslare 3.5% GTD Preference 790,999 63.91 441,810 490,419 2.80 Stock16. Lancashire Holdings Common stock§ 73,000 0.04 552,086 477,420 2.7317. Royal Mail Ordinary 1p§ 90,200 0.01 465,823 450,098 2.5718. Newcastle Building Society 6.25% sub notes 23/12/ 600,000 2.40 405,438 419,460 2.40 1919. REA Holdings 9.5% GTD Notes 31/12/ 300,000 2.00 298,254 313,500 17 7.5% Dollar Notes 30/ 150,000 0.44 76,740 87,727 06/17 374,994 401,227 2.2920. Fairpoint Group Ordinary 1p§ 300,000 0.68 307,992 393,000 2.25 9,890,684 12,512,777 71.56§ Issues with unrestricted voting rightsThe Group has a total of 71 portfolio investment holdings in 57 companies.CORPORATE SUMMARYInvestment ObjectiveThe Company's investment objective is to provide shareholders with anattractive level of dividends coupled with capital growth over the long-term,through investment in a portfolio of equities, preference shares, loan stocks,debentures and convertibles.Investment PolicyThe Company will invest primarily in the equity securities of quoted UKcompanies with a wide range of market capitalisations many of which are, or areexpected to be, dividend paying, with anticipated dividend growth in the longterm. The Company may also invest in large capitalisation companies, includingFTSE 100 constituents, where this may increase the yield of the portfolio andwhere it is believed that this may increase shareholder value.The Company will also make investments in preference shares, loan stocks,debentures, convertibles and related instruments of quoted UK companies. Anyuse of derivatives for investment purposes will be made on the basis of thesame principles of risk spreading and diversification that apply to theCompany's direct investments, as described below. The Company will not enterinto uncovered short positions.Risk diversificationPortfolio risk will be mitigated by investing in a diversified spread ofinvestments. Investments in any one company shall not, at the time ofacquisition, exceed 15% of the value of the Company's investment portfolio. Inthe long term, it is expected that the Company's investments will be aportfolio of between 40 and 60 securities, most of which will representindividually no more than 3% of the value of the Company's total investmentportfolio, as at the time of acquisition.The Company will not invest more than 10% of its gross assets, at the time ofacquisition, in other listed closed-ended investment funds, whether managed bythe Manager or not, except that this restriction shall not apply to investmentsin listed closed-ended investment funds which themselves have stated investmentpolicies to invest no more than 15% of their gross assets in other listedclosed-ended investment funds.Unquoted investmentsThe Company may invest in unquoted companies from time to time subject to priorBoard approval.Investments in unquoted companies in aggregate will not exceed 5% of the valueof the Company's investment portfolio as at the time of investment.Borrowing and gearing policyThe Company may use gearing, including bank borrowings and the use ofderivative instruments such as contracts for differences. The Company mayborrow (through bank facilities and derivative instruments) up to 15% of NAV(calculated at the time of borrowing).Investment StrategyThe Manager intends to use a bottom-up investment approach for the portfolio,with a diversified portfolio of securities of various market capitalisationsizes. There will be a bias towards dividend paying smaller companies, but theportfolio will also include preference shares, loan stocks, debentures andconvertibles with attractive yields.The investment approach can be described as active and universal, as theCompany will not seek to replicate any benchmark and will target a significantproportion of smaller company equities within an overall diversified portfolio.Potential investments are assessed against the key criteria including, interalia, their yield, growth prospects, market positions, calibre of managementand risk and cash resources.Dividend PolicyThe Company will seek to maintain an annualised dividend yield of 6% of NAV(based on the opening NAV at the start of each financial year). It is intendedthat dividends of roughly equal size will be paid quarterly. This income willbe paid out of revenue and/or capital, as available.Currently the dividend payable by the Company each year is calculated as 6% ofthe NAV at the start of each year. Given that the asset value of the Companycould fluctuate significantly each year, the Directors are consideringmodifying this in future years so that the dividend payable might be grow moresustainably over the longer term.Capital StructureAs at 30 June 2014 and the date of this report, the Group's share capitalconsists of 4,772,049 ordinary shares of 50p each, of which 32,500 shares areheld in Treasury and 4,739,549 shares are in circulation. In addition there are1,717,565 fixed rate preference shares of 50p in issue, all of which are heldby a wholly owned subsidiary of the Company.There are no restrictions concerning the transfer of securities in the Companyor on voting rights; no special rights with regard to control attached tosecurities; no agreements between holders of securities regarding theirtransfer known to the Company; and no agreements which the Company is party tothat might affect its control following a successful takeover bid.Total Assets and Net Asset ValueThe Group had total assets of £19.4 million and a NAV of 394.41p per ordinaryshare at 30 June 2014.Business ModelThe principal activity of the Company is investment in equity securities ofquoted UK companies with a wide range of market capitalisations, preferenceshares and prior charge securities with a view to achieving a high rate ofincome and capital growth over the medium term. During the year, the Companywas granted approval from HM Revenue & Customs ("HMRC") as an investment trustunder s1158/1159 of the Corporation Tax Act 2010 ("s1158/1159") for theaccounting period commencing 1 July 2013, and for each subsequent accountingperiod, subject to there being no serious breaches of the conditions forapproval.The principal conditions that must be met for approval by HMRC as an investmenttrust for any given accounting period are that the Company's business shouldconsist of "investing in shares, land or other assets with the aim of spreadinginvestment risk and giving members of the company the benefit of the results"and the Company must distribute a minimum of 85% of all its income as dividendpayments. The Company must also not be a close company. The Directors are ofthe opinion that the Company has conducted its affairs for the year ended 30June 2014 so as to be able to continue to qualify as an investment trust.The Company's status as an investment trust allows it to obtain an exemptionfrom paying taxes on the profits made from the sale of its investments and allother net capital gains. Investment trusts offer a number of advantages forinvestors, including access to investment opportunities that might not be opento private investors and to professional stock selection skills at lower cost.The Company owns Abport Limited, an investment dealing company, and NewCenturion Trust Limited, a dormant investment company.Principal Risks and UncertaintiesThe management of the business and the execution of the Group's strategy aresubject to a number of risks. The key business risks affecting the Group are:(i) Investment decisions: the performance of the Group's portfolio is dependenton a number of factors including, but not limited to the quality of initialinvestment decisions and the strategy and timing of sales;(ii) Investment valuations: the valuation of the Group's portfolio andopportunities for realisations depend to some extent on stock market conditionsand interest rates; and(iii) Macroeconomic environment for preference shares and prior chargesecurities: the environment for issuing of new preference shares and priorcharge securities determines whether new issues become available, thusaffecting the choice and scope of investment opportunities for the Group.Risk ManagementSpecific policies for managing risks are summarised below and have been appliedthroughout the period:1. Market price riskThe Manager monitors the prices of financial instruments held by the Group on aregular basis. In addition, it is the Board's policy to hold an appropriatespread of investments in the portfolio in order to reduce risks arising frominvestment decisions and investment valuations. The Manager actively monitorsmarket prices throughout the year and report to the Board, which meetsregularly in order to review investment strategy. Most of the equityinvestments held by the Company are listed on the London Stock Exchange.2. Interest rate riskIn addition to the impact of the general investment climate, interest ratemovements may specifically affect the fair value of investments in fixedinterest securities.3. Liquidity riskThe Group's assets mainly comprise readily realisable quoted securities thatcan be sold to meet funding commitments if necessary. Short term flexibility isachieved through the use of overdraft facilities.Additional Risks and Uncertainties Include:Credit risk: the failure of a counterparty to a transaction to discharge itsobligations under that transaction that could result in the Company suffering aloss. Normal delivery versus payment practice and review of counterparties andcustodians by the Manager mean that this is not a significant risk.Discount volatility: The Company's shares may trade at a price which representsa discount to its underlying NAV.Regulatory risk: The Company operates in an evolving regulatory environment andfaces a number of regulatory risks. A breach of s1158/1159 would result in theCompany being subject to capital gains tax on portfolio investments. Breachesof other regulations, including the Companies Act 2006, the UKLA Listing Rules,the UKLA Disclosure and Transparency Rules, or the Alternative Investment FundManagers Directive could lead to a detrimental outcome. Breaches of controls byservice providers to the Company could also lead to reputational damage orloss. The Board monitors compliance with regulations, with reports from theManager and the Administrator.Protection of assets: The Company's assets are protected by the use of anindependent custodian, BNY Mellon. In addition, the Company operates clearinternal controls to safeguard all assets.These and other risks facing the Company are reviewed regularly by the Board.Key Performance Indicators ("KPIs")The Board reviews performance by reference to a number of KPIs and considersthat the most relevant KPIs are those that communicate the financialperformance and strength of the Company as a whole. The Board and Managermonitor the following KPIs:NAV performance relative to the FTSE All-Share Index (total return)The NAV per ordinary share at 30 June 2014 was 394.4p per share (2013: 342.6p).The total return of the NAV after adding back dividends paid was 19.5%. Thiscompares favourably with a total return on the FTSE All-Share Index of 13.1%.Premium/(discount) of share price in relation to NAVOver the year to 30 June 2014 the Company's share price moved from trading at adiscount of 4.4% to a premium of 2.9%.Ongoing Charges RatioThe Ongoing Charges Ratio for the year to 30 June 2014 amounted to 2.5%. Themanagement fee for the year was reduced by £65,747 in order to achieve themaximum Ongoing Charges Ratio permitted under the Management Agreement asexplained below.ManagementThe Company's investments are managed by Miton Asset Management Limited.What Miton brings to the CompanyMiton is distinctive• Miton is an independent fund management company quoted on the AIM market withan extensive shareholder base of major institutions and a particularly robustbalance sheet.• Miton is distinctive from most other fund managers in that many of its fundsdo not use traditional benchmarks since they can bring unintentional risks thatcan impede the day-to-day managers' ability to maximise absolute return inunsettled markets.• Through anticipating post credit boom trends, Miton proposes investmentstrategies that are set up with the forthcoming trends in mind, rather thanslavishly following the consensus.• Many of Miton's funds have greater scope to manage volatility more closelythan others, with an aim to better sustain its clients' assets through marketcycles.Miton asks more of its managersMiton believes that able fund managers are better placed to deliver for clientsif they have wide ranging flexibility. Limiting the investment universe to ashort list of benchmark stocks can be demotivating since the risk/reward ratioof the portfolio could be constrained above the optimal level unnecessarily.The best managers can take advantage of this wider flexibility to bettermoderate portfolio risk, as well as enhancing their clients' returns throughselecting the best from a wider range of potential investments.In addition, Miton also places great emphasis on its fund managers doing theirown analysis since it believes this ensures that they have greater convictionin subsequent investment decisions, and are less vulnerable to becoming panickysellers when a share price moves adversely.Details of the ManagerMiton has a team of six fund managers researching the full universe of quotedUK stocks. These included George Godber and Georgina Hamilton who principallyseek stocks which are intrinsically cheap with regard to their tangible assetsor where the scale of the underlying cashflow is underappreciated. Bill Mottand Eric Moore principally concentrate on identifying mid and larger companieswhich have the best opportunities to grow their dividends over time.The day-to-day management of the portfolio is carried out by Gervais Williamsand Martin Turner, who research all quoted companies, but have a particularfocus on many of the smaller quoted stocks.Gervais WilliamsGervais joined Miton in March 2011 as Managing Director of the Group. He hasbeen an equity portfolio manager since 1985, including 17 years as Head of UKSmaller Companies and Irish Equities at Gartmore. He won the Grant ThorntonInvestor of the Year Award in 2009 and 2010, and was recently awarded FundManager of the Year 2014 by What Investment?Martin TurnerMartin joined Miton in May 2011. Martin and Gervais have had a close workingrelationship since 2004, and their complementary expertise and skills led to aseries of successful companies being backed. Martin qualified as a CharteredAccountant with Arthur Andersen, and also has extensive experience at Rothschild,Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities hisrole covered their research, sales and trading activities.Management ArrangementsDuring the year, the Company's investments were managed by Miton AssetManagement Limited under an agreement dated 31 May 2013. On 1 January 2014, theagreement was novated from Miton Capital Partners Limited to Miton AssetManagement Limited.Subsequent to the year end on 22 July 2014, the Company appointed PSigma UnitTrust Managers Limited ("PUTM"), a Miton Group company, as the Company'sAlternative Investment Fund Manager ("AIFM") on the terms of, and subject tothe conditions of a new investment management agreement (the "ManagementAgreement") between the Company and PUTM. PUTM has been approved as an AIFM bythe UK's Financial Conduct Authority.The existing investment management agreement between the Company and MitonAsset Management Limited, which is not authorised as an AIFM, has beenterminated. Miton Asset Management Limited has been appointed by PUTM asinvestment manager to the Company pursuant to a delegation agreement, so therewill be no change to the day-to-day investment management arrangements.Under the terms of the Management Agreement, the Manager has discretion to buy,sell, retain, exchange or otherwise deal in investment assets for the accountof the Company.The Manager is entitled to receive from the Company or any member of its groupin respect of its services provided under the Management Agreement, amanagement fee payable monthly in arrears calculated at the rate of one-twelfthof 1% per calendar month of the NAV for its services under the ManagementAgreement, save that its management fee will be reduced by such amount (beingnot more than the fees payable to the Manager in respect of any year (exclusiveof VAT)) so as to seek to ensure that the Ongoing Charges Ratio of the Companydoes not exceed 2.5% per annum.The Management Agreement is terminable by either the Manager or the Companygiving to the other not less than six months' written notice, such notice notto expire earlier than the second anniversary of commencement. The ManagementAgreement may be terminated earlier by the Company with immediate effect on theoccurrence of certain events, including the liquidation of the Manager orappointment of a receiver or administrative receiver over the whole or anysubstantial part of the assets or undertaking of the Manager or a materialbreach by the Manager of the Management Agreement which is not remedied. TheCompany may also terminate the Management Agreement should Gervais Williamscease to be an employee of the Manager's group and, within three months of hisdeparture is not replaced by a person whom the Company considers to be of equalor satisfactory standing. The Company may also terminate the ManagementAgreement if a continuation vote is not passed.Environmental, Human Rights, Employee, Social and Community IssuesThe Board consists entirely of non-executive Directors. Day-to-day managementof the business is delegated to the Manager. As an investment trust, theCompany has no direct impact on the community or the environment, and as suchhas no environmental, human rights, social or community policies. In carryingout its investment activities and in relationships with suppliers, the Companyaims to conduct itself responsibly, ethically and fairly. In relation to genderdiversity considerations, whilst there are currently no female Directors of theCompany, members of the Board are appointed on merit, against an objectivecriteria set by the Board acting as the Nomination Committee.On behalf of the BoardSir David ThomsonChairman1 October 2014Going ConcernThe Company's Articles of Association require a continuation vote to beproposed at the 2016 Annual General Meeting for the Company to be wound up on avoluntary basis.The Directors believe that it is appropriate to adopt the going concern basisin preparing the financial statements as the assets of the Group consist mainlyof securities which are readily realisable. The Directors are of the opinionthat the Group has adequate resources to continue in operational existence forthe foreseeable future. In arriving at this conclusion the Directors haveconsidered the liquidity of the portfolio and the Company's ability to meetobligations as they fall due for a period of at least 12 months from the datethat these financial statements were approved.STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTSThe Directors are responsible for preparing this report and the financialstatements in accordance with applicable United Kingdom law and regulations andthose International Financial Reporting Standards ("IFRS") adopted by theEuropean Union. Company law requires the Directors to prepare financialstatements for each financial period which present fairly the financialposition of the Company and of the Group and the financial performance and cashflows of the Company and of the Group for that period.In preparing those financial statements, the Directors are required to:• select suitable accounting policies and then apply them consistently;• make judgements and estimates that are reasonable and prudent;• present information, including accounting policies, in a manner that providesrelevant, reliable, comparable and understandable information;• state whether applicable UK Accounting Standards have been followed, subjectto any material departures disclosed and explained in the financial statements;• prepare the financial statements on the going concern basis unless it isinappropriate to presume that the Group and Company will continue in business;and• provide additional disclosures when compliance with the specific requirementsin IFRSs is insufficient to enable users to understand the impact of particulartransactions, other events and conditions on the Company's financial positionand financial performance.The Directors are responsible for keeping adequate accounting records that aresufficient to show and explain the Company's transactions and disclose withreasonable accuracy at any time the financial position of the Group and enablethem to ensure that the Group financial statements comply with the CompaniesAct 2006 and Article 4 of the International Accounting Standards ("IAS")Regulation. They are also responsible for safeguarding the assets of the Groupand hence for taking reasonable steps for the prevention and detection of fraudand other irregularities.Under applicable law and regulations, the Directors are also responsible forpreparing a Strategic Report, Directors' Report, Directors' Remuneration Reportand Corporate Governance Statement that comply with that law and thoseregulations, and for ensuring that the Annual Report includes informationrequired by the Listing Rules of the Financial Conduct Authority.The financial statements are published on the Company's website,www.mitongroup.com/tic, which is maintained on behalf of the Company by theManager. Under the Management Agreement, the Manager has agreed to maintain,host, manage and operate the Company's website and to ensure that it isaccurate and up-to-date and operated in accordance with applicable law. Thework carried out by the Auditor does not involve consideration of themaintenance and integrity of this website and accordingly, the Auditor acceptsno responsibility for any changes that have occurred to the financialstatements since they were initially presented on the website. Visitors to thewebsite need to be aware that legislation in the United Kingdom covering thepreparation and dissemination of the financial statements may differ fromlegislation in their jurisdiction.We confirm that to the best of our knowledge:• the Group financial statements, prepared in accordance with IFRS as adoptedby the European Union, give a true and fair view of the assets, liabilities,financial position and profit of the Group;• this Annual Report includes a fair review of the development and performanceof the business and the position of the Group together with a description ofthe principal risks and uncertainties that it faces; and• the Annual Report and financial statements, taken as a whole, are fair,balanced and understandable and provide the information necessary forshareholders to assess the Company's performance, business model and strategy.On behalf of the BoardSir David ThomsonChairman1 October 2014NON-STATUTORY ACCOUNTSThe financial information set out below does not constitute the Company'sstatutory accounts for the years ended 30 June 2014 or 30 June 2013 but isderived from those accounts. Statutory accounts for the year ended 30 June 2013have been delivered to the Registrar of Companies and statutory accounts forthe year ended 30 June 2014 will be delivered to the Registrar of Companies indue course. The Auditor has reported on those accounts; their reports were(i) unqualified, (ii) did not include a reference to any matters to which theAuditor drew attention by way of emphasis without qualifying their report and(iii) did not contain a statement under Section 498 (2) or (3) of the CompaniesAct 2006. The text of the Auditor's reports can be found in the Company's fullAnnual Report and Accounts at www.mitongroup.com/tic.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 30 June 2014 Year to 30 June 2014 15 months to 30 June 2013 Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £Realised gains on 12 - 2,456,691 2,456,691 - 220,111 220,111investmentsUnrealised gains 12 - 522,123 522,123 - - -on investmentsheld at fairvalue throughprofit or lossMovement in - 791,998 791,998 - 48,876 48,876impairmentprovision oninvestments heldas available forsaleExchange losses - (221) (221) - - -on capital itemsInvestment income 2 1,045,888 - 1,045,888 1,134,994 - 1,134,994Investment 3 (116,251) - (116,251) - - -management feeOther 4 (348,198) - (348,198) (707,351) - (707,351)administrativeexpensesReturn before 581,439 3,770,591 4,352,030 427,643 268,987 696,630finance costs andtaxationFinance costsOther finance 5 - - - (432,550) - (432,550)costsLoan note (30,759) - (30,759) (62,700) - (62,700)interestOther interest - - - (2,195) - (2,195)payableReturn before 550,680 3,770,591 4,321,271 (69,802) 268,987 199,185taxationTaxation 6 (7,299) - (7,299) - - -Return after 543,381 3,770,591 4,313,972 (69,802) 268,987 199,185taxationOther comprehensiveincomeMovement inunrealisedappreciation oninvestments heldas available forsaleRecognised in - 798,908 798,908 - 1,357,358 1,357,358equityRecognised in - (1,935,599) (1,935,599) - (159,534) (159,534)return aftertaxationOther - 1,136,691 1,136,691 - 1,197,824 1,197,824comprehensiveincome aftertaxationTotal 543,381 2,633,900 3,177,281 (69,802) 1,466,811 1,397,009comprehensiveincome aftertaxationReturn aftertaxation per 50pordinary shareBasic and diluted 7 11.46p 79.56p 91.02p (6.35)p 14.26p 7.91pReturn on totalcomprehensiveincome aftertaxation per 50pordinary shareBasic and diluted 7 11.46p 55.57p 67.03p (6.35)p 77.76p 71.41pThe total column of this statement is the Consolidated Statement ofComprehensive Income of the Group prepared in accordance with IFRS. Thesupplementary revenue and capital columns are prepared in accordance with theStatement of Recommended Practice issued by the Association of InvestmentCompanies ("AIC SORP").All revenue and capital items in the above statement derive from continuingoperations. No operations were acquired or discontinued during the period.The notes below form part of these financial statements.CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 30 June 2014 Capital Issued Share Own redemption Revaluation Capital Revenue capital premium shares held reserve reserve reserve* account* Total £ £ £ £ £ £ £ £Balance at 1 July 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,4842013Total comprehensiveincomeNet return for the - - - - - 3,770,591 543,381 4,313,972periodMovement inunrealisedappreciation oninvestments held asavailable for sale:- Recognised in - - - - 798,908 - - 798,908equity- Recognised in - - - - (1,935,599) - - (1,935,599)return after taxationTransactions withshareholders recordeddirectly to equityOrdinary dividends - - - - - - (710,932) (710,932)paidCosts of issue - (10,540) - - - - - (10,540)Balance at 30 June 2,386,025 4,453,903 - 2,408,820 2,374,878 6,784,563 285,104 18,693,2932014Balance at 1 April 1,808,728 1,019,246 (2,919,861) 685,250 2,313,745 4,806,064 684,449 8,397,6212012Total comprehensiveincomeNet return for the - - - - - 268,987 (69,802) 199,185periodMovement inunrealisedappreciation oninvestments held asavailable for sale:- Recognised in - - - - 1,357,358 - - 1,357,358equity- Recognised in - - - - (159,534) - - (159,534)return after taxationTransactions withshareholders recordeddirectly to equityOrdinary dividends - - - - - - (112,044) (112,044)paidParticipating element - - - - - - (49,948) (49,948)of preferencedividends paidConversion of (858,782) - 2,919,861 - - (2,061,079) - -non-voting ordinaryshares into fixedrate preferencesharesConversion of 773,833 - - 1,723,570 - - - 2,497,403preference sharesinto ordinary sharesIssue of new ordinary 662,246 3,682,753 - - - - - 4,344,999sharesCosts of issue - (237,556) - - - - - (237,556)Balance at 30 June 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,4842013* Reserves that are distributable by way of a dividend.The notes below form part of these financial statements.COMPANY STATEMENT OF CHANGES IN EQUITYFor the year ended 30 June 2014 Capital Issued Share redemption Revaluation Capital Revenue capital premium reserve reserve reserve* Account* Total £ £ £ £ £ £ £Balance at 1 July 2013 2,386,025 4,464,443 2,408,820 3,536,373 443,750 2,962,669 16,202,080Total comprehensiveincomeNet return for the - - - - 3,788,678 554,107 4,342,785periodMovement in unrealisedappreciation oninvestments held asavailable for sale:- Recognised in equity - - - 780,821 - - 780,821- Recognised in return - - - (1,935,599) - - (1,935,599)after taxationTransactions withshareholders recordeddirectly to equityOrdinary dividends - - - - - (710,932) (710,932)paidPreference share - - - - - (172) (172)dividends paidCosts of issue - (10,540) - - - - (10,540)Balance at 30 June 2,386,025 4,453,903 2,408,820 2,381,595 4,232,428 2,805,672 18,668,4432014Balance at 1 April 1,808,728 1,019,246 685,250 2,343,247 4,717,960 791,006 11,365,4372012Total comprehensiveincomeNet return for the - - - - 273,686 2,333,655 2,607,341periodProvision for - - - - (4,547,896) - (4,547,896)diminution in value ofinvestment insubsidiaryMovement in unrealisedappreciation oninvestments held asavailable for sale:- Recognised in equity - - - 1,352,660 - - 1,357,358- Recognised in return - - - (159,534) - - (159,534)after taxationTransactions withshareholders recordeddirectly to equityOrdinary dividends - - - - - (112,044) (112,044)paidParticipating element - - - - - (49,948) (49,948)of preferencedividends paidConversion of (858,782) - - - - - (858,782)non-voting ordinaryshares into fixed ratepreference sharesConversion of 773,833 - 1,723,570 - - - 2,497,403preference shares intoordinary sharesIssue of new ordinary 662,246 3,682,753 - - - - 4,344,999sharesCosts of issue - (237,556) - - - - (237,556)Balance at 30 June 2,386,025 4,464,443 2,408,820 3,536,373 443,750 2,962,669 16,202,0802013*Reserves that are distributable by way of a dividend.The notes below form part of these financial statementsCONSOLIDATED AND COMPANY BALANCE SHEETSAs at 30 June 2014 Group Group Company Company 2014 2013 2014 2013 Note £ £ £ £Non-current assetsInvestments 12 17,486,703 12,798,594 17,486,703 12,798,594Investment in 13 - - 862,656 862,656subsidiaries 17,486,703 12,798,594 18,349,359 13,661,250Current assetsTrade and other 15 161,071 1,393,916 171,703 1,476,220receivablesInvestments held for 1,564 122,860 - -tradingCash and bank 1,754,315 3,138,062 1,711,321 3,135,055balances 1,916,950 4,654,838 1,883,024 4,611,275Current liabilitiesPreference dividends 5 - 82,914 - 82,914payableTrade and other 16 344,660 401,634 339,457 397,348payables5% loan notes 10 365,700 365,700 365,700 365,700maturing 2015 710,360 850,248 705,157 845,962Net current assets 1,206,590 3,804,590 1,177,867 3,765,313Non-currentliabilities5% loan notes 10 - (365,700) - (365,700)maturing 2015Fixed rate 10 - - (858,783) (858,783)preference sharesNet assets 18,693,293 16,237,484 18,668,443 16,202,080Capital and reservesIssued capital 9 2,386,025 2,386,025 2,386,025 2,386,025Share premium 4,453,903 4,464,443 4,453,903 4,464,443Capital redemption 2,408,820 2,408,820 2,408,820 2,408,820reserveRevaluation reserve 2,374,878 3,511,569 2,381,595 3,536,373Capital reserve 6,784,563 3,013,972 4,232,428 443,750Revenue reserve 285,104 452,655 2,805,672 2,962,669Shareholders' funds 11 18,693,293 16,237,484 18,668,443 16,202,080Net asset value per 50p 394.41p 342.60pordinary shareThese financial statements were approved by the Board of The Investment CompanyPLC on 1 October 2014 and were signed on its behalf by:Sir David ThomsonChairmanCompany Number: 4205The notes below form part of these financial statements.CONSOLIDATED AND COMPANY CASH FLOW STATEMENTSFor the year ended 30 June 2014 Group Company Year to 15 months to Year to 15 months to 30 June 2014 30 June 2013 30 June 2014 30 June 2013 £ £ £ £Cash flows from operatingactivitiesCash received from 1,204,193 406,454 1,087,064 402,933investmentsInterest received 1,684 722,332 1,678 722,332Sundry income - 468 - 468Cash paid to and on behalf (34,337) (250,687) (34,337) (250,687)of employeesOther cash payments (483,705) (377,647) (478,229) (373,640)Withholding tax paid (7,299) - (7,299) -Net cash inflow from 680,536 500,920 568,877 501,406operating activitiesCash flows from financingactivitiesBank interest paid - (2,195) - (2,195)Loan note interest paid (35,317) (53,583) (35,317) (53,583)Loan notes redeemed (365,700) (365,700) (365,700) (365,700)Fixed element of dividends (82,914) (524,455) (82,914) (524,455)paid on preference sharesParticipating element of - (49,948) - (49,948)dividends paid onpreference sharesDividends paid on ordinary (710,932) (104,195) (710,932) (104,195)sharesShare capital 1,184,789 2,998,176 1,184,789 2,998,176subscriptions receivedNet cash (outflow)/inflow (10,074) 1,898,100 (10,074) 1,898,100from financingCash flows from investingactivitiesPurchase of investments (9,076,089) (274,005) (9,076,089) (211,189)Amounts received from - - 71,672 (9,315)subsidiariesSale of investments 7,022,181 1,228,530 7,022,181 1,174,574Net cash (outflow)/inflow (2,053,908) 954,525 (1,982,236) 954,070from investing activitiesNet (decrease)/increase in (1,383,466) 3,353,545 (1,423,466) 3,353,576cash and cash equivalentsReconciliation of net cashflow to movement in netcash(Decrease)/increase in (1,383,466) 3,353,545 (1,423,433) 3,353,576cashExchange rate movements (301) - (301) -Loan notes redeemed 365,700 365,700 365,700 365,700(Decrease)/increase in net (1,018,047) 3,719,245 (1,058,034) 3,719,276cashNet cash/(debt) at start 2,406,662 (1,312,583) 2,403,655 (1,315,621)of periodNet cash at end of period 1,388,615 2,406,662 1,345,621 2,403,655Analysis of net cashCash and bank balances 1,754,315 3,138,062 1,711,321 3,135,0555% loan notes due within (365,700) (365,700) (365,700) (365,700)one year5% loan notes due in more - (365,700) - (365,700)than one year 1,388,615 2,406,662 1,345,621 2,403,655The notes below form part of these financial statements.NOTES TO THE FINANCIAL STATEMENTSAt 30 June 20141. Accounting policies(a) Basis of preparationThe Investment Company plc is a public limited company incorporated andregistered in England and Wales.The consolidated financial statements for the year ended 30 June 2014 have beenprepared in conformity with IFRS as adopted by the European Union, whichcomprise standards and interpretations approved by the International AccountingStandards Board ("IASB"), and as applied in accordance with the provisions ofthe Companies Act 2006.During the period, the Company applied for, and was granted, approval from HMRevenue & Customs as an investment trust under s1158/1159 of the CorporationTax Act 2010 for the year ending 30 June 2014. As a result the consolidatedfinancial statements have also been prepared in accordance with the AIC SORPissued in January 2009 for the financial statements of investment trustcompanies and venture capital trusts, except to any extent where it is notconsistent with the requirements of IFRS.The Directors have made an assessment of the Group's ability to continue as agoing concern and are satisfied that the Group has the resources to continue inbusiness for the foreseeable future. The Directors are not aware of anymaterial uncertainties that may cast significant doubt upon the Group's abilityto continue as a going concern. Therefore, the consolidated financialstatements have been prepared on the going concern basis.(b) Basis of consolidationThe consolidated financial statements, which comprise the unaudited results ofthe Company and its wholly owned subsidiaries, Abport Limited and New CenturionTrust Limited, together referred to as the "Group", for the year ended 30 June2014, have been prepared under the historical cost basis, except for themeasurement at fair value of investments, and in accordance with InternationalFinancial Reporting Standards, as adopted by the European Union.As permitted by Section 408 of the Companies Act 2006, the Company has notpresented its own Income Statement. The amount of the Company's return for thefinancial year dealt with in the financial statements of the Group is a profitafter tax of £4,342,785 (2013: profit after tax of £2,607,341).(c) Segmental ReportingThe Directors are of the opinion that the Group is engaged in a single segmentof business, being investment business. The Group primarily invests incompanies listed in the UK.(d) Significant estimates and assumptionsThe Group makes estimates and assumptions regarding the future. Estimates andjudgements are continually evaluated based on historical experience and otherfactors, including expectations of future events that are believed to bereasonable under the circumstance. In the future, actual experience may deviatefrom these estimates and assumptions. The estimates and assumptions that have asignificant risk of causing material adjustment to carrying amounts of assetsand liabilities within the next financial year lie primarily in investments,their fair value and any impairment review.(e) Revenue and expenditureRevenue includes dividends and interest from investments which, on or beforethe balance sheet date, become receivable. Deposit interest receivable,expenses and interest payable are accounted for on an accruals basis. Where,before recognition of dividend income is due, there is any reasonable doubtthat a return will actually be received, for example as a consequence of theinvestee company lacking distributable reserves, the recognition of the returnis deferred until the doubt is removed.(f) TaxationDeferred tax is provided on an undiscounted basis in accordance with IFRS 19 onall timing differences that have originated but not reversed by the BalanceSheet date, based on tax rates that are expected to apply in the period whenthe liability is settled or the asset is realised. Deferred tax assets are onlyrecognised if it is considered more likely than not that there will be suitableprofits from which the future reversal of timing differences can be deducted.In line with the recommendations of the SORP, the allocation method used tocalculate the tax relief on expenses charged to capital is the "marginal"basis. Under this basis, if taxable income is capable of being offset entirelyby expenses charged through the revenue account, then no tax relief istransferred to the capital account.No taxation liability arises on gains from sales of fixed asset investments bythe Company by virtue of its investment trust status. However, the net revenue(excluding UK dividend income) accruing to the Company is liable to corporationtax at the prevailing rates.(g) DividendsOrdinary dividends are recognised as a liability in the period in which theyare paid or approved in general meetings and are taken to the Statement ofChanges in Equity. Ordinary dividends declared and approved by the Companyafter the Balance Sheet date have not been recognised as a liability of theCompany at the Balance Sheet date.(h) Earnings per ordinary shareThe Group calculates both basic and diluted earnings per ordinary share inaccordance with IAS 33 "Earnings Per Share". Under IAS 33, basic earnings pershare is computed using the weighted average number of shares outstandingduring the period. Earnings are adjusted for the participating element ofpreference share dividends.(i) InvestmentsInvestments are recognised and derecognised on the trade date where a purchaseor sale is under a contract whose terms require delivery within the timeframeestablished by the market concerned.All investments held that have been purchased by the Company since obtainingapproval as an investment trust from 1 July 2013 are classified as at "fairvalue through profit or loss". Investments are initially recognised at cost,being the fair value of the consideration given. After initial recognition,investments are measured at fair value, with unrealised gains and losses oninvestments and impairment of investments recognised in the Consolidated IncomeStatement and allocated to capital.Investments held at 30 June 2014 which were purchased prior to 1 July 2013 areclassified as assets available for sale. These investments have not beenreclassified as "fair value through profit or loss" in accordance with IAS 39Financial Instruments Recognition and Measurement.For investments actively traded in organised financial markets, fair value isgenerally determined by reference to quoted market bid prices or closing pricesfor SETS (London Stock Exchange's electronic trading service) stocks sourcedfrom the London Stock Exchange on the Balance Sheet date, without adjustmentfor transaction costs necessary to realise the asset.Unlisted stocks are reviewed and valued by the Board on a regular basis and thefair value is determined based on estimates using present values or othervaluation techniques.All investments for which fair value is measured or disclosed in the financialstatements are categorised within the fair value hierarchy in note 12,described as follows, based on the lowest significant applicable input:Level 1 reflects financial instruments quoted in an active market.Level 2 reflects financial instruments whose fair value is evidenced bycomparison with other observable current market transactions in the sameinstrument or based on a valuation technique whose variables include only datafrom observable markets.Level 3 reflects financial instruments whose fair value is determined in wholeor in part using a valuation technique based on assumptions that are notsupported by prices from observable market transactions in the same instrumentand not based on available observable market data. For investments that arerecognised in the financial statements on a recurring basis, the Companydetermines whether transfers have occurred between levels in the hierarchy byre-assessing the categorisation (based on the lowest significant applicableinput) at the date of the event that caused the transfer.(j) Investments in subsidiariesInvestments in subsidiaries are stated at cost less provision for diminution invalue.(k) Impairment reviewAt each balance sheet date, a review is carried out to assess whether there isany objective evidence that the Group's available for sale financial assetshave become impaired. Where such evidence exists, the amount of any impairmentloss is recognised immediately in the Consolidated Income Statement. Any excessof the impairment loss over the amount previously recognised in equity isrecognised in the Consolidated Statement of Comprehensive Income.If, in a subsequent period, the fair value of available for sale financialassets increases and the increase can be objectively related to an eventoccurring after the impairment loss was recognised in profit or loss, theimpairment loss is reversed and the amount of the reversal is recognised inprofit or loss where it relates to a debt instrument.(l) Fixed rate preference sharesThe fixed rate preference shares are non-voting, are entitled to receive acumulative dividend of 0.01p per share per annum, and are entitled to receivetheir nominal value, 50p, on a distribution of assets or a winding up.Preference shares are disclosed as non-current liabilities in accordance withIAS 32 (Financial Instruments: Disclosure and Presentation).(m) IFRS standardsThe following standards, amendments to existing standards and interpretationsrelevant to the Group's activities have been published and are mandatory forthe Group's accounting periods beginning on or after 1 January 2014 or laterperiods but the Group has not adopted them early:International Accounting Standards (IAS/IFRSs) Effective for periods beginning on or afterIAS 27 Reissued as IAS 27 Consolidated and Separate 1 January 2014 Financial Statements (as amended in 2011)IAS 28 Investments in Associates and Joint Ventures 1 January 2014IFRS 9 Financial Instruments: Classification and 1 January 2014 MeasurementIFRS 10 Consolidated Financial Statements 1 January 2014IFRS 11 Joint Arrangements 1 January 2014IFRS 12 Disclosure of Interests in Other Entities 1 January 2014The Directors anticipate that the adoption of these standards, amendments toexisting standards and interpretations in future periods will have no materialfinancial impact on the financial statements of the Group or the Company.(n) ReservesCapital reserveThe following are accounted for in this reserve:• gains and losses on the realisation of investments;• net movement arising from changes in the fair value of investments held andclassified as at "fair value through profit or loss" that can be readilyconverted to cash without accepting adverse terms;• net movement in the impairment provision of investments held as available forsale; and• net movement from changes in the fair value of derivative financialinstruments.Revaluation reserveThe revaluation reserve represents the accumulated unrealised gains on theCompany's available-for-sale investments.2 Income Year ended 15 months ended 30 June 2014 30 June 2013 £ £Income from investments:UK dividends 356,083 378,479Un-franked dividend income 199,504 -UK fixed interest 494,554 745,656 1,050,141 1,124,135Other income:Bank deposit interest 1,684 -Sundry income - 468Net dealing (losses)/gains of subsidiaries (5,937) 10,391Total income 1,045,888 1,134,9943 Investment Management fee Year ended 15 months ended 30 June 2014 30 June 2013 £ £Investment Management fee 116,251 -Under the terms of the Management Agreement, the Manager is entitled to receivefrom the Company or any member of the Group in respect of its services providedunder this Agreement, a management fee payable monthly in arrears equal toone-twelfth of 1% per calendar month of the NAV of the Company. For thesepurposes, the NAV shall be calculated as at the last Business Day of each monthand is subject to the ongoing charges ratio of the Company not exceeding 2.5%per annum in respect of any completed financial year.At 30 June 2014 an amount of £116,251 (2013: £nil) was outstanding and due toMiton Asset Management Limited.4 Other expenses Year ended 15 months ended 30 June 2014 30 June 2013 £ £Administration and secretarial services 104,616 138,750Auditors' remuneration for:- audit of the Group's financial 26,000 23,650 statements- other services relating to taxation 4,850 5,000- other assurance services - 32,675Directors' remuneration (see the 62,791 134,796Directors' Remuneration Report in the fullAnnual Report and Accounts)Salaries 14,000 40,000Pension costs 10,829 25,189Restructuring costs 12,932 191,466Other expenses 119,240 115,825 348,198 707,3515 Finance costs Year ended 15 months ended 30 June 2014 30 June 2013 £ £Participating Preference SharesFixed entitlement- in first half year 0.0p (2013: 3.5p) - 174,818- in second half year 0.0p (2013: 3.5p) - 174,818- up to conversion 0.0p (2013: 1.6p) - 82,914 - 432,550The participating preference shares were converted into ordinary shares in theperiod to 30 June 2013.6 Taxation Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital Total £ £ £ £ £ £Overseas taxation 7,299 - 7,299 - - -sufferedThe current taxation charge for the year is lower than the standard rate ofcorporation tax in the UK of 21%. The differences are explained below: Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital Total £ £ £ £ £ £Return on ordinary 550,680 3,770,591 4,321,271 (69,802) 268,987 199,185activitiesTheoretical tax at UK 123,903 848,383 972,286 (16,753) 64,557 47,804corporation tax rate of22.50% (2013: 24%)Effects of:UK dividends that are (80,119) - (80,119) (90,835) - (90,835)not taxableOverseas dividends that (33,585) - (33,585) - - -are not taxableRealised dealing gains (19,764) - (19,764) - - -Unrealised dealing 18,462 - 18,462 - - -lossesNon-taxable investment - (670,183) (670,183) - (52,827) (52,827)gainsMovement in impairment - (178,200) (178,200) - (11,730) (11,730)provision notdeductible for taxpurposesOverseas taxation 7,299 - 7,299 - - -sufferedPreference dividends - - - 103,812 - 103,812not deductible for taxExpenses not deductible - - 2,742 - 2,742for taxUtilisation of tax (8,897) - (8,897) 1,034 - 1,034losses 7,299 - 7,299 - - -Factors that may affect future tax chargesThe Company has excess management expenses of £2,134,613 (2013: £2,199,842)that are available to offset future taxable revenue.In addition, deferred tax is not provided on capital gains and losses arisingon the revaluation or disposal of investments because the Company meets (andintends to continue for the foreseeable future to meet) the conditions forapproval as an investment trust company under HMRC rules. It is unlikely thatthe Company will generate sufficient taxable income in the future to utilisethese expenses to reduce future tax charges and therefore no deferred taxcharge has been recognised.7 Return/(loss) per ordinaryshare Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital TotalReturn after taxationReturn attributable 543,381 3,770,591 4,313,972 (69,802) 268,987 199,185to ordinaryshareholders (£)Add participating - - - (49,948) - (49,948)element of Preferenceshare dividendReturn attributable 543,381 3,770,591 4,313,972 (119,750) 268,987 149,237to ordinaryshareholders (£)Weighted average 4,739,549 1,886,328number of ordinaryshares in issue(excluding sharesheld in treasury)Return/(loss) per 11.46 79.56 91.02 (6.35) 14.26 7.91ordinary share(pence)The return on total comprehensive income per ordinary share has been calculatedto enable comparison of the returns per share shown in the annual reports ofother investment trust companies. A reconciliation is shown below: Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital TotalReturn on totalcomprehensive incomeReturn attributable 543,381 3,770,591 4,313,972 (119,750) 268,987 149,237to ordinaryshareholders (£)Add other - 798,908 798,908 - 1,357,358 1,357,358comprehensive incomerecognised in equityAdd other - (1,935,599) (1,935,599) - (159,534) (159,534)comprehensive incomerecognised in profitand lossReturn attributable 543,381 2,633,900 3,177,281 (119,750) 1,466,811 1,347,061to ordinaryshareholders (£)Weighted average 4,739,549 1,886,328number of ordinaryshares in issue(excluding sharesheld in treasury)Return/(loss) per 11.46 55.57 67.03 (6.35) 77.76 71.41ordinary share(pence)8 Dividends per ordinary share Year ended 15 months ended 30 June 2014 30 June 2013 £ £In respect of the prior period:Final dividend 0.00p (2013: 4.00p) - 74,696In respect of the year under review:First interim dividend 5.00p paid on 236,978 37,34822 November 2013 (2013: 2.00p)Second interim dividend 5.00p paid on 236,977 -21 February 2014Third interim dividend 5.00p paid on 23 May 236,977 -2014 710,932 112,044Dividend declared in respect of the yearunder review:Fourth interim dividend 5.72p paid on 271,102 -22 August 20149 Called up share capital Group and Company Group and Company 2014 2013 Number £ Number £Ordinary shares 50peach:Opening balance 4,772,049 2,386,025 1,899,891 949,946Issued pursuant to - - 1,547,665 773,833conversion ofParticipatingPreference SharesIssued pursuant to a - - 1,324,493 662,246placing 4,772,049 2,386,025 4,772,049 2,386,025In addition to the above ordinary shares, the issued capital of the Companyincludes 1,717,565 fixed rate preference shares of 50p each. Details of thesepreference shares in the Company are set out in note 10.The ordinary shares entitle the holders to receive all ordinary dividends andall remaining assets on a winding up, after the fixed rate preference shareshave been satisfied in full.The Company holds 32,500 ordinary shares in treasury.10 Interest bearing liabilities Group Company 2014 2013 2014 2013 £ £ £ £5% loan notes maturing 2015 365,700 731,400 365,700 731,400Fixed rate preference shares - - 858,783 858,783 365,700 731,400 1,224,483 1,590,183A bank loan facility is available to the company of up to £500,000, to besecured by an omnibus charge over a portfolio of shares with a valuation of£2,219,760. At 30 June 2014 no loan was outstanding.The loan notes were issued at par on 7 March 2005 as part of the considerationfor the acquisition of New Centurion Trust Limited. The loan notes areunsecured and unsubordinated and are being redeemed by the Company at par as to50% of their aggregate original principal amount on the fifth anniversary ofthe completion date, which was 7 March 2010, and as to a further 10% on eachanniversary thereafter up to and including the tenth anniversary.Loan notes maturity analysis Group Company 2014 2013 2014 2013 £ £ £ £In not more than one year 365,700 365,700 365,700 365,700In more than one year but not more - 365,700 - 365,700than two years 365,700 731,400 365,700 731,400The 1,717,565 fixed rate preference shares of 50p each, all of which are heldby New Centurion Trust Limited, a wholly owned subsidiary of the Company, arenon-voting, are entitled to receive a cumulative dividend of 0.01p per shareper annum, and are entitled to receive their nominal value, 50p, on adistribution of assets or a winding up.The Directors do not consider the fair values of the Group's financialinstruments to be significantly different from the carrying values.11 Net Asset Value per Ordinary ShareThe net asset value per ordinary share is calculatedas follows: 2014 2013 £ £Net assets 18,693,293 16,237,484Ordinary shares in issue, excluding own shares held 4,739,549 4,739,549in treasuryNet asset value per ordinary share 394.41p 342.60pThe underlying investments of New Centurion Trust Limited comprise Fixed RatePreference Shares in The Investment Company plc and, being effectivelyeliminated on consolidation, the valuation thereof does not impact the netasset value attributable to ordinary shareholders.12 Investments Group Company 2014 2013 2014 2013 £ £ £ £Available for sale 8,865,845 12,798,594 8,865,845 12,798,594At fair value through profit and 8,620,858 - 8,620,858 -lossTotal investments designated at 17,486,703 12,798,594 17,486,703 12,798,594fair valueInvestments held asavailable for sale Group Company 2014 2013 2014 2013 £ £ £ £Opening book cost 12,408,510 13,073,264 12,505,185 13,169,938Opening net investment 390,084 (856,618) 293,409 (953,292)holding gains/(losses)Total investments 12,798,594 12,216,646 12,798,594 12,216,646designated at fair valueMovements in the period:Purchases at cost - 290,439 - 290,439Sales - proceeds (4,593,355) (1,175,304) (4,593,355) (1,175,304)- gains on sales 1,005,299 220,111 1,005,299 220,111(Decrease)/increase in (344,693) 1,246,702 (344,693) 1,246,702investment holding gainsClosing valuation 8,865,845 12,798,594 8,865,845 12,798,594Closing book cost 8,820,454 12,408,510 8,917,129 12,505,185Closing net investment 45,391 390,084 (51,284) 293,409holding gains/(losses) 8,865,845 12,798,594 8,865,845 12,798,594Investmentsheld at fairvalue throughprofit and loss Group Company 2014 2013 2014 2013 £ £ £ £Opening book - - - -costOpening net - - - -investmentholding gainsTotal - - - -investmentsdesignated atfair valueMovements inthe period:Purchases at 9,076,089 - 9,076,089 -costSales- proceeds (2,428,746) - (2,428,746) -- gains on 1,451,392 - 1,451,392 -salesIncrease in net 522,123 - 522,123 -investmentholding gainsClosing 8,620,858 - 8,620,858 -valuationClosing book 8,098,735 - 8,098,735 -costClosing net 522,123 - 522,123 -investmentholding gains 8,620,858 - 8,620,858 - Group & Company Year ended 30 June 2014 £Transaction costsCosts on acquisitions 28,280Costs on disposals 12,909 41,189 Group & Company Group & Company Year ended 15 months ended 30 June 2014 30 June 2013 £ £Analysis of capital gainsGains on sale of investments 2,456,691 220,111Movement in investment holding 177,430 1,246,702gains 2,634,121 1,466,813Fair value estimation: IFRS 7 requires disclosure of fair value measurements bylevel of the following fair value measurement hierarchy:Level 1 - Quoted prices (unadjusted) in active markets for identical assets orliabilities.Level 2 - Inputs other than quoted prices included within level 1 that areobservable for the asset either directly (that is, as prices) or indirectly(that is, derived from prices).Level 3 - Inputs for assets that are not based on observable market data (thatis, unobservable inputs).The table below presents the Group's assets that are measured at fair value:At 30 June 2014 Level 1 Level 2 Level 3 Total £ £ £ £Fixed asset investments held by 13,888,686 372,816 3,225,201 17,486,703the CompanyCurrent asset investments held 1,564 - - 1,564by a trading subsidiary 13,890,250 372,816 3,225,201 17,488,267At 30 June 2013 Level 1 Level 2 Level 3 Total £ £ £ £Fixed asset investments held by - 6,008,774 6,789,820 12,798,594the CompanyCurrent asset investments held 122,860 - - 122,860by a trading subsidiary 122,860 6,008,774 6,789,820 12,921,454At 30 June 2013, instruments included in Level 2 are reported at the mid bid/offer price less 1%.Specific valuation techniques used to value the financial instruments include:(i) Quoted market prices(ii) Other techniques, taking account of independent market opinion, are usedto determine the fair value for the remaining financial instrumentsThese assets comprise primarily London Stock Exchange equity investments andfixed income securities classified as fixed asset and current asset investmentsas appropriate.Where significant inputs are not based on observable market data, theinstrument is included in Level 3. There were no transfers between levelsduring the period ended 30 June 2013. The table below presents the movement inLevel 3 investments for the year ending 30 June 2014. Group Company £ £Opening balance 6,789,920 6,789,920Transfers to Level 1 (2,592,810) (2,592,810)Movement in impairment provision 189,880 194,722Movement in unrealised appreciation recognised (85,730) (90,572)in equityMovement in unrealised appreciation recognised (39,312) (39,312)in return after taxationRealised loss (209,253) (209,253)Sales proceeds (827,394) (827,394)Total gains for the year included in the 274,091 274,091Statement of Comprehensive IncomeClosing balance 3,225,201 3,225,20113 Investment in Subsidiaries Company 2014 2013 £ £At cost 5,410,552 5,410,552Provision for diminution in value (4,547,896) (4,547,896)At cost 862,656 862,656At 30 June 2014, the Company held interests in the following subsidiarycompanies: % share % share Country of of capital of voting Nature of Incorporation held rights businessAbport Limited England 100% 100% Investment dealing companyNew Centurion Trust England 100% 100% InvestmentLimited holding company (dormant)14 Substantial share interestsThe Company has notified interests in 3% or more of the voting rights of thefollowing companies:Company % share of voting rightsAssociated British Engineering plc 4.8815 Trade and Other Receivables Group Company 2014 2013 2014 2013 £ £ £ £Amount due from subsidiaries - - 10,634 82,306Share capital subscriptions - 1,195,345 - 1,195,345Trade and other receivables 161,071 198,571 161,069 198,569 161,071 1,393,916 171,703 1,476,220The carrying amount of trade receivables approximates to their fair value.Trade and other --**receivables are not past due at 30 June 2014.16 Trade and Other Payables Group Company 2014 2013 2014 2013 £ £ £ £Reconstruction costs accrued - 186,656 - 186,656Other trade payables 344,660 214,978 339,457 210,692 344,660 401,634 339,457 397,34817 Analysis of financial assets and liabilitiesBackgroundThe investment objective of the group is to generate income and capital growthover the medium term. The group's financial instruments comprise investments infixed interest securities and prior charge investments, borrowings forinvestment purposes, cash balances and debtors and creditors that arisedirectly from its operations.RisksThe principal risks the group faces in its portfolio management activities are:• Market price risk - arising from uncertainty about future prices of financialinstruments used by the group;• Interest rate risk - arising because the group may borrow funds in order toincrease the amount of capital available for investment; and• Liquidity risk - because the group may invest in small companies with morelimited marketability and in investments not traded on recognised or designatedinvestment exchanges.PolicyThe investment philosophy of the Directors is to identify areas of value andpotential capital growth in the medium term.Specific policies for managing risks are summarised below and have been appliedthroughout the period:1.Market price riskThe Manager monitors the prices of financial instruments held by the group on aregular basis.2.Interest rate riskThe Company finances its operations through existing reserves and loan noteswith a fixed coupon of 5%3.Liquidity riskThe group's assets mainly comprise readily realisable quoted and unquotedsecurities that can be sold to meet funding commitments if necessary.Short-term flexibility is achieved through the use of overdraft facilities.Financial instrumentsNon-current assets 2014 2013 £ £Listed investments 16,777,797 11,773,385Unlisted investments 708,906 1,025,209 17,486,703 12,798,594Current asset investmentsThe group holds current asset investments with a market value of £1,564 (2013:£122,860) at the period end. Investments are subject to fluctuation in valuedue to market forces including interest rates.Current assets and current liabilitiesThe Group's current assets and liabilities are denominated in sterling.Long-term loanThe loan notes bear interest at a fixed rate of 5% per annum and are repayablein instalments. The value of current assets, current liabilities and long-termloans are not subject to interest rate risk.SensitivityThe direct impact of a 5% movement in the value of the portfolio investmentsand current asset investments amounts to £874,413 (2013: £646,073), being 18p(2013: 14p) per ordinary share. The Directors are of the opinion that thedirect impact of a movement in short-term interest rates on the value of theinvestments is relatively small due to the illiquid and specialised nature ofthe investments in the portfolio.Capital structure and managementThe capital structure of the Group consists of cash held on deposit, loan notesand Ordinary Shares. 2014 2013 £ £Cash and bank balances 1,754,315 3,138,062Interest bearing liabilities (365,700) (731,400)Net cash 1,388,615 2,406,662Ordinary Shareholders' funds 18,693,293 16,237,484Gearing (net debt/ordinary shareholders' nil nilfunds)The type and maturity of the Group's borrowings are analysed in note 10 and theGroup's equity is analysed in note 9. Capital is managed so as to maximise thereturn to shareholders while maintaining a capital base to allow The InvestmentCompany plc to operate effectively. Capital is managed on a consolidated basis.The Group is not a member of anybody that imposes minimum levels of regulatorycapital. No significant external constraints in the management of capital havebeen identified in the past.18 Related party transactionsDuring the year the Company was charged administration fees of £52,383(15 months to 30 June 2013: £138,750) by Ionian Investment Management whichis a division of Fiske plc. At 30 June 2014 there were no balances outstanding(2013: £nil). Mr S. J. Cockburn is a substantial shareholder in Fiske plc.ANNUAL GENERAL MEETINGThe Company's Annual General Meeting will be held on Thursday, 11 December 2014at 12.30 pm at the offices of Miton Group plc, 51 Moorgate, London EC2R 6BH.NATIONAL STORAGE MECHANISMA copy of the Annual Report and Accounts will be submitted shortly to theNational Storage Mechanism ("NSM") and will be available for inspection at theNSM, which is situated at: www.morningstar.co.uk/uk/nsmENDSNeither the contents of the Company's website nor the contents of any websiteaccessible from hyperlinks on this announcement (or any other website) isincorporated into, or forms part of, this announcement.