Galata Investment Company AD

Interim / Quarterly Report • Feb 27, 2015

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THE INVESTMENT COMPANY PLC - Half-yearly Report

PR Newswire

London, February 26

THE INVESTMENT COMPANY PLCHALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 31 DECEMBER 2014The Investment Company plc presents its Half-Yearly Report for the six monthperiod ended 31 December 2014. It is referred to as TIC, the Company or theGroup in the text of this report.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.Summary of Investment PolicyThe Company invests primarily in the equity securities of quoted UK companieswith a wide range of market capitalisations many of which are, or are expectedto be, dividend paying, with anticipated dividend growth in the long term. TheCompany can also make investments in preference shares, loan stocks,debentures, convertibles and related instruments of quoted UK companies.Risk diversificationPortfolio risk is mitigated by investing in a diversified spread of investments.Investments in any one company shall not, at the time of acquisition, exceed 15%of the value of the Company's investment portfolio. In the long term it isexpected that the Company's investments will generally be a portfolio of between40 and 60 securities, most of which will represent individually no more than 3%of the value of the Company's total investment portfolio, as at the time ofacquisition.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 of derivativeinstruments such as contracts for differences. The Company may borrow up to 15%of net asset value ("NAV").Investment StrategyThe Manager uses a bottom-up investment approach for the portfolio, with adiversified portfolio of securities of various market capitalisation sizes.There is a bias towards dividend paying smaller companies.The investment approach can be described as active and universal, as theCompany does not seek to replicate any benchmark. Potential investments areassessed against the key criteria including, inter alia, their yield, growthprospects, market positions, calibre of management and risk and cash resources.A copy of the complete investment policy can be found in the Company's AnnualReport and Accounts for the year ended 30 June 2014.Dividend PolicyThe Company has sought 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.A modification to the dividend policy for future financial years is explainedin the Chairman's Statement below.Capital StructureAs at 31 December 2014, and the date of this report, the Company has in issue4,772,049 ordinary shares of 50p each, of which 32,500 shares were held inTreasury.Total Assets and Net Asset ValueThe Group had total assets of £18.4 million and a NAV of 388.1p per ordinaryshare at 31 December 2014.WebsiteFurther detail is available from www.mitongroup.com/tic.Management ArrangementsIn order to comply with the Alternative Investment Fund Managers' Directive("AIFMD"), the Company's previous investment management agreement with MitonAsset Management Limited was terminated, and the Company appointed PSigma UnitTrust Managers Limited as its Alternative Investment Fund Manager ("AIFM") witheffect from 22 July 2014. Miton Asset Management Limited has been appointed bythe AIFM as investment manager to the Company pursuant to a delegation agreement.Subsequent to this appointment, PSigma Unit Trust Managers has changed its nameto Miton Trust Managers Limited. There has been no change to the fee structureor the portfolio management arrangements as a result of these changes.SUMMARY OF RESULTS At 31 December 2014 At 30 June 2014 (unaudited) (audited) ChangeEquity shareholders' funds 18,393,924 18,693,293 (1.6)%Number of ordinary shares inissue* 4,739,549 4,739,549Net asset value per ordinaryshare 388.09p 394.41p (1.6)%Ordinary share price (mid) 395.00p 406.00p (2.7)%Premium to net asset value 1.78% 2.94%* Excluding shares held in treasury. 6 months to 12 months to 31 December 2014 30 June 2014 (unaudited) (audited)Total return per ordinary share** 4.66p 67.03pReturn after taxation perordinary share 4.66p 91.02pDividends paid per ordinaryshare 11.00p 20.72p* Excluding 32,500 ordinary shares held in treasury.** The total return per ordinary share is based on total comprehensive income as detailed in the Consolidated Statement of Comprehensive Income.FINANCIAL CALENDARFebruary 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/ Announcement of Annual Results.OctoberNovember Payment of first interim dividend for the year ending 30 June 2016.December Annual General Meeting.CHAIRMAN'S STATEMENTHalf-year to 31 December 2014This report covers the six month period ended 31 December 2014.Although markets have been volatile, the characteristics of the portfolio meanthat the Company has remained relatively steady.Bond market prices rose as deflationary pressures came through. The FTSEActuaries Government UK Gilts All Stocks Securities Index rose 8.4% in the halfyear. The portfolio has many fixed income investments issued by small andlarger corporates, and it is anticipated that (after a time lag) their priceswill also reflect a good part of this rise too. Equity markets were unsettled,with the FTSE All-Share Index gyrating and finishing the period down 1.9%.Generally, trading conditions for our investee companies remained good andtherefore, it is expected that their premium dividends will be increased inmany cases, or at least otherwise maintained.Two interim dividends of 5.5p each have been declared for the half year period,an increase of 0.5p each on the previous half year. However, the NAV of theCompany has fallen 1.6% in the six month period.I recently indicated that the Board was actively considering modifying thedividend policy of the Company so that the dividend payable might grow moresustainably over the longer term.Following the capital reconstruction at the end of June 2013, your Boardcommenced paying dividends through the year amounting to 6% of the NAV. Inaccordance with that policy, in respect of the year to 30 June 2015, it is theDirectors' intention to pay dividends totalling 23.6p based on a NAV at 30 June2014 of 394.4p.For future financial years the Board believes that the dividend policy shouldbe modified to increase the likelihood that the Company can pay a sustainableand growing dividend. The Board notes that interest rates remain low, and arelikely to remain lower for longer than was foreseen at the time of thereorganisation. This has implications for the level of risk that might have tobe taken to maintain the current level of dividend.The current policy explicitly links the dividend payment to the capital valueof the portfolio at the beginning of a financial period. There is concern thatthis may lead to the dividends paid conflicting with the Company's longer-termsuccess.For the year to 30 June 2016 therefore, it is the Directors' present intentionto pay a reduced total dividend of 20.72p, equal to that paid in the year to 30June 2014. Thereafter, the Directors will seek to grow the dividend from thislevel at a rate that is sustainable. This dividend may be paid out of revenueand/or capital. As with the current policy, it remains the Board's intentionthat the modified dividend policy will lead to our dividend yield remainingahead of many competitor funds.At our AGM, shareholders approved a resolution for the Company to issue furtherequity at NAV (or at a higher price) so it can grow over time. As yet, theBoard has not approved the issue of any additional shares, as extra capitalwill only be taken when sufficient investments with attractive prospects areavailable. The Managers inform us that there has been an increase in theissuance of attractive convertible loan stocks by smaller quoted companiessince the half year, so the Board may approve the issue of new shares in thesecond half of the year. Increasing the scale of the Company defrays the fixedcosts of running the Company over a wider number of shares, which reduces coston a per share basis. In addition, it is expected the extra shares willincrease liquidity in the Company's shares traded on the Stock Exchange.Worldwide growth expectations moderated significantly over the period, asunderlined by the major reduction in various commodity prices. The Boardbelieves the Company's strategy is well placed to prosper as smaller andmicrocap stocks have extra growth potential, which is particularly important attimes of economic stagnation. Prior to the credit boom, smaller UK quotedcompanies outperformed for decades.Sir David ThomsonChairman27 February 2015MANAGER'S REPORTMarketsWorld growth prospects have declined over the six month period, and the changein expectations has led to a pronounced decline in many commodity prices. Theconsequent reduction in inflationary pressures has caused the fixed yields onbonds to become more attractive to investors, and most mainstream bond marketshave enjoyed some good appreciation. The FTSE Actuaries Government UK Gilts AllStocks Securities Index rose 8.4% in the half year.Equity markets were rather more unsettled, with the FTSE All-Share Indexgyrating over recent months and finishing the period down 1.9%. After somesubstantial outperformance in previous periods the FTSE Smaller Companies Index(excluding investment companies) fell 4.1% and the FTSE AIM All-Share Indexfell 10.6% in the six months to December 2014.PortfolioThe portfolio remains heavily invested in a range of preference shares, loanstocks, debentures and notes. Although the largest corporate exposure in theportfolio is to Phoenix Life through a 7.25% perpetual note, there are over 40issuers from different corporates in the portfolio. It is difficult to purchasemore of these issues because there are almost no significant sellers in themarket given their obvious yield attractions. On occasion, we find that ourissues are redeemed, normally at a premium to their market prices, as happenedin the case of the Braime preference shares during the period.The portfolio also holds a number of equities that are mainly smaller quotedcompanies that are paying high dividend yields. Small companies tend to havegreater growth potential, which we believe will become rather more important toinvestors now that world growth has stalled. As yet, most institutions havelittle capital invested in smaller companies which are, by their nature,naturally diminutive in scale and under-researched. Yet, prior to the creditboom, institutional portfolios were fully weighted in smaller companies, giventhat their key advantage is that as a group they can grow even at a time ofeconomic austerity. We believe that institutional weightings in the smalleststocks will therefore be gradually rebuilt over the coming years.We anticipate that there will be growing interest in funding smaller companies,often via the issue of new convertible loan stocks and convertible preferenceshares. These instruments offer the new investor a regular income at a premiumyield, along with the right to convert into the quoted shares if the relevantshare price appreciates significantly. Whilst such issues have been relativelyrare over recent years, they were more popular prior to the credit boom, and weare now regularly reviewing an increasing number of such issues again. In theperiod we did not find any that we believed had sufficiently attractive risk/reward ratios, but there are indications that there might be some that do meetour criteria issued in the second half of this year.Criteria for selecting new investments for the portfolioThere are five criteria that the managers use to determine the scope for thebusiness to deliver good and growing dividends in the longer term.The prospect of turnover growth - If 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 margins - A business needs to deliver significant valueto its customer base if it is to sustain decent margins. Unexpected costincreases cannot be charged on to customers if they are anything less thandelighted with their suppliers. Turnover growth will not lead to improved cashgeneration if declining margins offset it.A forward-looking management team - Businesses often need to make commercialdecisions on incomplete information. A thoughtful and forward-looking team hasa better chance of making better decisions.Robust balance sheet - There 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 valuation - Many 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 meet these criteria on a prospective basis are believed to bebest 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 holdings that should be considered for divestment. So for example,a business in danger of suffering turnover declines, would naturally beexpected to generate less cash flow in future years and thereby struggle tosustain a good dividend payment over time, let alone grow it. Clearly thesedecisions need to be taken in conjunction with consideration of their marketprices at the time.PerformanceOver the half year, the portfolio of fixed income stocks slightly improved,though the fact that the Lloyds Banking Group Enhanced Capital Notes were beingbought in at the start of the period meant these prices were already atrelatively demanding levels. The share prices of Gable Holdings, an insuranceunderwriter, and Esure, a motor insurance company, both fell back in the sixmonth period. In addition, Bagir Group, a company that produces suits andjackets, and DX Group, a distribution business, also underperformed. Incontrast, there was strong performance from Seeing Machines, as it announcedseveral new partners for their technology, and the holding was sold at theseelevated levels. Shoe Zone also performed well, and Friends Life agreed to beacquired by Aviva at a significant premium. The NAV of the Company fell 1.6% inthe six month period, with the appreciation of some holdings being more thanoffset by the falls of some others.ProspectsNone of the holdings in the portfolio are directly involved in the oil ormining sectors, where trading conditions are expected to be the most adverse.In addition, the Company purchased a Put option on the FTSE 100 Index towardsthe end of the period, which covers approximately one-third of the value of theCompany's assets. This Put option extends for the period through to March 2016.With an exercise level of 5,800, this would rise in value if the mainstreamequity markets were to suffer a significant setback.Although we are in a low growth environment, we believe there are stillencouraging prospects for further income growth from many of the equities inthe portfolio. In addition, the very low yields offered by most GovernmentBonds should lead to the prices of both high yielding fixed income securitiesand higher yielding equities stepping up in market price over time.So whilst it is anticipated that the economic headwinds could inhibit theappreciation of markets generally, we are hopeful that a portfolio of mainlysmaller businesses with premium income instruments or premium growth equitieswill buck the wider trend, especially with a part of the downside riskmoderated via the Put option. We believe the outlook for the Company isfavourable.The rationale for holding the FTSE 100 put optionOn 5 September 2014, the Company invested around 1.2% of the portfolio, at thatdate, to purchase some downside protection, covering approximately one-third ofthe portfolio. Our view is that an option like this should only be purchasedwhen its cost appears modest by historical standards. This tends to occur aftermarkets have appreciated for some years, and at times when confidence infurther appreciation is at a cyclical high.The key advantage for shareholders of holding a Put option is that, shouldmarkets suffer a significant setback, then the market value of the Put optiontends to rise. In part this is proportional to the scale of the market setback,and in part it is related to the duration of the remaining term of the option.It is possible that the market value of the option might be a multiple of itsinitial cost at such a time. The advantage for shareholders is that the optioncould then be sold to bring in additional capital in the Company at a time whenshare prices were depressed. This could be used to buy additional incomestocks, at a time when their prices were abnormally low, on hopefully moreattractive dividend yields. The effect would be to boost the dividend incomegenerated by the Company, as well as increasing the portfolio's ability toparticipate in any subsequent market recovery.The advantage of a FTSE 100 Put option is that it is regularly traded, so theweekly NAV fully reflects the market value of the option. In addition, being apopular instrument, the cost of a FTSE 100 Put option is much lower than aspecialist instrument covering other indices such as the FTSE All-Share or theFTSE SmallCap Indices. Furthermore, at times of market distress when the optionmight want to be sold, market volume in the FTSE 100 Put option tends to bebetter than other more obscure instruments.However, despite the unsettled market conditions, we need to appreciate that itis unusual for the FTSE 100 Index to fall back precipitously. That explains whyPut options should only be purchased when the cost is relatively modest. In ourcase, the running cost is only 0.07% or so each month over the period to March2016 should markets remain resilient.Gervais Williams and Martin TurnerMiton Asset Management Limited27 February 2015TWENTY LARGEST INVESTMENTSAt 31 December 2014 Market or % of Directors' total Stock Number Issue Book cost valuation portfolio % £ £1. Lloyds Banking Group 7.625% Perpetual (LBG Capital) 478,000 0.16 204,360 476,757 7.875% Perpetual (LBG Capital) 362,000 0.05 245,997 366,561 7.5884% ECN 12/05/20 (LBG Capital) 300,000 0.04 136,323 302,250 7.281% Perpetual (Bank of Scotland) 400,000 0.27 315,330 449,360 902,010 1,595,928 9.432. Phoenix Life 7.25% perpetual notes 1,060,000 0.53 811,923 1,119,466 6.623. Royal Bank of Scotland Group 9% series 'A' non-cum pref (NatWest) 500,000 0.36 362,920 670,000 Sponsored ADR each rep pref C (NatWest) 20,000 0.20 55,473 334,905 418,393 1,004,905 5.944. Friends Life Group Ordinary NPV* 173,069 0.01 565,438 633,779 3.755. Safestyle UK Ordinary 1p* 369,000 0.47 369,000 633,296 3.746. Conygar Investment Company Ordinary 5p* 320,478 0.37 406,493 599,294 3.547. Brit Ordinary 1p* 219,167 0.01 526,001 592,847 3.508. Manx Telecom Ordinary 0.2p* 340,321 0.30 507,782 588,755 3.489. Charles Taylor Ordinary 1p* 230,000 0.54 419,215 575,000 3.4010. Newcastle Building Society 6.625% sub notes 23/12/19 600,000 2.40 405,438 540,000 3.1911. Juridica Investments Ordinary NPV* 410,000 0.39 544,190 524,800 3.1012. Fishguard & Rosslare 3.5% GTD Preference Stock 790,999 63.91 441,810 506,239 2.9913. William Sinclair Holdings 8% convertible loan notes† 550,000 6.67 563,750 495,000 2.9314. Fairpoint Group Ordinary 1p* 400,000 0.91 442,261 468,000 2.7715. Randall & Quilter Investment Ordinary 2p* 387,000 0.54 502,731 448,920 2.6516. Esure Group Ordinary 0.08333p* 201,217 0.05 545,776 410,885 2.4317. REA Holdings 9.5% GTD Notes 31/12/17 300,000 2.00 298,254 313,500 7.5% Dollar Notes 30/06/17 150,000 0.44 76,740 96,200 374,994 409,700 2.4218. DX (Group) Ordinary 1p* 420,000 0.21 484,204 367,500 2.1719. Shoe Zone Ordinary 1p* 166,662 0.33 266,659 348,324 2.0620. Investec Investment Trust 3.5% cum pref £1 461,508 35.50 271,938 258,444 5% cum pref £1 104,043 30.12 92,858 86,356 364,796 344,800 2.04 9,862,864 12,207,438 72.15* Issues with unrestricted voting rights.† Unquoted investments at Directors' valuation.The Group has a total of 73 portfolio investment holdings in 59 companies.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the six months ended 31 December 2014 6 months to 31 December 2014 6 months to 31 December 2013 Year ended 30 June 2014 (unaudited) (unaudited) (audited) Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ £ £ £Realised(losses)/gains oninvestments - (1,922,345) (1,922,345) - 532,229 532,229 - 2,456,691 2,456,691Unrealised(losses)/gainson investmentsheld at fairvalue throughprofit or loss - (419,172) (419,172) - 1,788,376 1,788,376 - 522,123 522,123Movement inimpairmentprovision oninvestmentsheld asavailable forsale - 1,780,314 1,780,314 - (105,798) (105,798) - 791,998 791,998Exchangegains/(losses)on capitalitems - 5,748 5,748 - - - - (221) (221)Investmentincome 647,801 - 647,801 517,101 - 517,101 1,045,888 - 1,045,888Investmentmanagement fee 3 (71,559) - (71,559) (100,703) - (100,703) (116,251) - (116,251)Otheradministrativeexpenses (164,531) - (164,531) (194,512) - (194,512) (348,198) - (348,198)Return beforefinance costsand taxation 411,711 (555,455) (143,744) 221,886 2,214,807 2,436,693 581,439 3,770,591 4,352,030Finance costsLoan noteinterest (9,218) - (9,218) (18,436) - (18,436) (30,759) - (30,759)Return beforetaxation 402,493 (555,455) (152,962) 203,450 2,214,807 2,418,257 550,680 3,770,591 4,321,271Taxation (486) - (486) - - - (7,299) - (7,299)Return aftertaxation 402,007 (555,455) (153,448) 203,450 2,214,807 2,418,257 543,381 3,770,591 4,313,972OthercomprehensiveincomeMovement inunrealisedappreciationon investmentsheld asavailable forsaleRecognised inequity - 385,779 385,779 - 576,952 576,952 - 798,908 798,908Recognised inreturn aftertaxation - (11,429) (11,429) - (218,248) (218,248) - (1,935,599)(1,935,599)Othercomprehensiveincome aftertaxation - 374,350 374,350 - 358,704 358,704 - (1,136,691)(1,136,691)Totalcomprehensiveincome aftertaxation 402,007 (181,105) 220,902 203,450 2,573,511 2,776,961 543,381 2,633,900 3,177,281Return aftertaxation per50p ordinaryshareBasic and 5diluted 8.48p (3.82)p 4.66p 4.29p 54.30p 58.59p 11.46p 79.56p 91.02pReturn ontotalcomprehensiveincome per 50pordinary shareBasic and 5diluted 8.48p (3.82)p 4.66p 4.29p 54.30p 58.59p 11.46p 55.57p 67.03pThe total column of this statement is the Consolidated Statement of Total ComprehensiveIncome of the Group prepared in accordance with International Financial Reporting Standards("IFRS"). The supplementary revenue return and capital return columns are prepared inaccordance with the Statement of Recommended Practice issued by the Association ofInvestment Companies ("AIC SORP").All revenue and capital items in the above statement derive from continuing operations.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 six months ended 31 December 2014 Capital Issued Share redemption Revaluation Capital Revenue capital premium reserve reserve reserve account Total £ £ £ £ £ £ £Balance at1 July 2014 2,386,025 4,453,903 2,408,820 2,374,878 6,784,563 285,104 18,693,293TotalcomprehensiveincomeNet returnfor theperiod - - - - (555,455) 402,007 (153,448)Movement inunrealisedappreciationoninvestmentsheld asavailable forsale:Recognised inequity - - - 385,779 - - 385,779Recognised inreturn aftertaxation - - - (11,429) - - (11,429)Transactionswithshareholdersrecordeddirectly toequityOrdinarydividendspaid - - - - - (531,777) (531,777)Unclaimedordinarydividendswritten back - - - - - 11,506 11,506Balance at 31December 2014 2,386,025 4,453,903 2,408,820 2,749,228 6,229,108 166,840 18,393,924Balance at1 July 2013 2,386,025 4,464,443 2,408,820 3,511,569 3,013,972 452,655 16,237,484TotalcomprehensiveincomeNet returnfor theperiod - - - - 2,214,807 203,450 2,418,257Movement inunrealisedappreciationoninvestmentsheld asavailable forsale:Recognised inequity - - - 576,952 - - 576,952Recognised inreturn aftertaxation - - - (218,248) - - (218,248)Transactionswithshareholdersrecordeddirectly toequityOrdinarydividendspaid - - - - - (236,977) (236,977)Costs ofissue - (23,456) - - - - (23,456)Balance at 31December 2013 2,386,025 4,440,987 2,408,820 3,870,273 5,228,779 419,128 18,754,012Balance at1 July 2013 2,386,025 4,464,443 2,408,820 3,511,569 3,013,972 452,655 16,237,484TotalcomprehensiveincomeNet returnfor theperiod - - - - 3,770,591 543,381 4,313,972Movement inunrealisedappreciationoninvestmentsheld asavailable forsale:Recognised inequity - - - 798,908 - - 798,908Recognised inreturn aftertaxation - - - (1,935,599) - - (1,935,599)Transactionswithshareholdersrecordeddirectly toequityOrdinarydividendspaid - - - - - (710,932) (710,932)Costs ofissue - (10,540) - - - - (10,540)Balance at30 June 2014 2,386,025 4,453,903 2,408,820 2,374,878 6,784,563 285,104 18,693,293CONSOLIDATED BALANCE SHEETAs at 31 December 2014 31 December 31 December 30 June 2014 2013 2014 (unaudited) (unaudited) (audited) Note £ £ £Non-current assetsInvestments 16,916,824 18,893,881 17,486,703Current assetsTrade and other receivables 280,143 262,720 161,071Investments held for trading 1,569 35,897 1,564Cash and bank balances 1,770,227 648,928 1,754,315 2,051,939 947,545 1,916,950Current liabilitiesTrade and other payables 209,139 356,014 344,6605% loan notes maturing 2015 365,700 365,700 365,700 574,839 721,714 710,360Net current assets 1,477,100 225,831 1,206,590Non-current liabilities5% loan notes maturing 2015 - (365,700) -Net assets 18,393,924 18,754,012 18,693,293Capital and reservesIssued capital 2,386,025 2,386,025 2,386,025Share premium 4,453,903 4,440,987 4,453,903Capital redemption reserve 2,408,820 2,408,820 2,408,820Revaluation reserve 2,749,228 3,870,273 2,374,878Capital reserve 6,229,108 5,228,779 6,784,563Revenue reserve 166,840 419,128 285,104Shareholders' funds 18,393,924 18,754,012 18,693,293Net Asset Value per 50p ordinaryshare 6 388.09p 395.69p 394.41pThe notes below form part of these financial statements.CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 31 December 2014 6 months to 6 months to Year ended 31 December 31 December 30 June 2014 2013 2014 (unaudited) (unaudited) (audited) £ £ £Cash flows from operating activitiesCash received from investments 469,662 290,573 1,204,193Interest received 17 252,388 1,684Sundry income 70,748 - -Cash paid to and on behalf of employees (17,616) (17,307) (34,337)Other cash payments (379,498) (433,521) (483,705)Withholding tax paid (486) - (7,299)Net cash inflow from operating activities 142,827 92,133 680,536Cash flows from financing activitiesLoan note interest paid (9,168) (17,859) (35,317)Loan notes redeemed - - (365,700)Fixed element of dividends paid onpreference shares - - (82,914)Dividends paid on ordinary shares (531,777) (236,977) (710,932)Unclaimed dividends written back 11,506 - -Share capital subscriptions received - 1,195,345 1,184,789Net cash (outflow)/inflow from financingactivities (529,439) 940,509 (10,074)Cash flows from investing activitiesPurchase of investments (527,933) (6,126,454) (9,076,089)Sale of investments 924,709 2,604,678 7,022,181Net cash inflow/(outflow) from investingactivities 396,776 (3,521,776) (2,053,908)Net increase/(decrease) in cash and cashequivalents 10,164 (2,489,134) (1,383,446)Reconciliation of net cash flow to movementin net debtIncrease/(decrease) in cash 10,164 (2,489,134) (1,383,446)Exchange rate movements 5,748 - (301)Loan notes redeemed - - 365,700Increase/(decrease) in net cash 15,912 (2,489,134) (1,018,047)Net cash at start of period 1,388,615 2,406,662 2,406,662Net cash/(debt) at end of period 1,404,527 (82,472) 1,388,615Analysis of net cash/(net debt)Cash and bank balances 1,770,227 648,928 1,754,3155% loan notes due within one year (365,700) (365,700) (365,700)5% loan notes due in more than one year - (365,700) - 1,404,527 (82,472) 1,388,615NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. Financial informationThe Investment Company plc is a public limited company incorporated andregistered in England and Wales. The address of its registered office isBeaufort House, 51 New North Road, Exeter EX4 4EP.The 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 half year to31 December 2014, have been prepared under the historical cost basis, except forthe measurement at fair value of investments, and in accordance withInternational Financial Reporting Standards, as adopted by the European Union.Where guidance set out in the AIC SORP is consistent with the requirements ofIFRS, the Directors have sought to prepare the financial statements on a basiscompliant with the recommendations of the SORP.In order better to reflect the activities of an investment trust company and inaccordance with guidance issued by the AIC, supplementary information whichanalyses the Consolidated Statement of Comprehensive Income between items of arevenue and capital nature has been presented alongside the ConsolidatedStatement of Comprehensive Income.The financial information contained in this half-yearly financial report doesnot constitute statutory accounts as defined in section 434 of the CompaniesAct 2006. The financial information for the half years ended 31 December 2014and 31 December 2013 has been neither audited nor reviewed by the auditors.The figures and financial information for the year ended 30 June 2014 areextracted from the latest published audited financial statements of the Companyand do not constitute the statutory accounts for that year. The auditedfinancial statements for the year ended 30 June 2014 have been filed with theRegistrar of Companies. The report of the independent auditors on thoseaccounts contained no qualification or statement under section 498(2) orsection 498(3) of the Companies Act 2006.Except as described below, the Group has applied consistent accounting policiesin preparing the half-yearly financial statements for the six months ended31 December 2014, the comparative information for the six months ended 31 December2013, and the financial statements for the year ended 30 June 2014.2. Accounting policiesThe Company seeks to conduct its affairs in a manner consistent with continuingto receive approval from HM Revenue & Customs as an investment trust unders1158/1159 of the Corporation Tax Act 2010. The Company's policies set out innote 1 of the Annual Report and Financial Statements for the year ended 30 June2014 have remained substantially unchanged except for the following:a) Valuation of 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, and are initially measured at fair value.All investments held by the Company are classified as at "fair value throughprofit or loss". Investments are initially recognised at cost, being the fairvalue of the consideration given. After initial recognition, investments aremeasured at fair value, with unrealised gains and losses on investments andimpairment of investments recognised in the Consolidated Statement ofComprehensive Income and allocated to capital.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.After initial recognition, unlisted stocks are reviewed and valued by the Boardon a regular basis.b) 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 that canbe readily converted to cash without accepting adverse terms;• net movement from changes in the fair value of derivative financialinstruments; and• expenses, together with related taxation effect, charged to this account inaccordance with the above policies.Revaluation reserveThe revaluation reserve represents the accumulated unrealised gains on theCompany's available-for-sale investments. Following investment trust statusbeing granted to the Company, and in order better to reflect the requirementsof investment companies in accordance with the AIC SORP, all such movements inunrealised gains and losses will be accounted for in the capital reserve asdescribed above.3. Management feeUnder 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.4. Dividends 6 months to 6 months to Year ended 31 December 31 December 30 June 2014 2013 2014 (unaudited) (unaudited) (audited) £ £ £Ordinary sharesPrior year interim dividend of 5p paid on22 November 2013 - 236,977 236,978Prior year interim dividend of 5p paid on21 February 2014 - - 236,977Prior year interim dividend of 5p paid on23 May 2014 - - 236,977Prior year interim dividend of 5.72p paid 271,102 - -on 22 August 2014Current year first interim dividend of 5.5ppaid on 21 November 2014 260,675 - -Total dividends 531,777 236,977 710,932The Board declared a second interim dividend of 5.5p per ordinary share, whichwas paid on 20 February 2015 to shareholders registered at the close ofbusiness on 30 January 2015. This dividend has not been included as a liabilityin these financial statements.5. Return per ordinary share 6 months to 6 months to Year ended 31 December 31 December 30 June 2014 2013 2014 (unaudited) (unaudited) (audited)Weighted average ordinary shares inissue (excluding shares held intreasury) 4,739,549 4,739,549 4,739,549 Per Per Per share share share £ pence £ pence £ penceRevenue returnNet return after taxationattributable toordinary shareholders 402,007 8.48 203,450 4.29 543,381 11.46Capital returnNet investment (losses)/gainsafter tax (181,105) (3.82) 2,573,511 54.30 2,633,900 55.57Total return 220,902 4.66 2,776,961 58.59 3,177,281 67.036. Net asset value per ordinary shareNet asset value per ordinary share is based on net assets at the period end and4,739,549 (31 December 2013: 4,739,549 and 30 June 2014: 4,739,549) ordinary shares,being in each case the number of ordinary shares in issue at the period end less32,500 shares held in Treasury.7. Principal risks and uncertaintiesThe principal risks facing the Group are substantially unchanged since the dateof the Annual Report for the year ended 30 June 2014 and continue to be as setout in that report. Risks faced by the Group include, but are not limited to,investment decisions, investment valuations, macro-economic environment forpreference shares and prior charge securities, market price risk, interest raterisk and liquidity risk.8. Responsibility statementThe Directors confirm that to the best of their knowledge:• the condensed set of financial statements has been prepared in accordancewith International Accounting Standard 34, Interim Financial Reporting, asadopted by the European Union and gives a true and fair view of the assets,liabilities and financial position of the Group; and• this Half-Yearly Financial Report includes a fair review of the informationrequired by DTR 4.2.7R and DTR 4.2.8R.This Half-Yearly Financial Report was approved by the Board of Directors on27 February 2015 and the above responsibility statement was signed on its behalfby Sir David Thomson, Chairman.DIRECTORS (all non-executive)Sir David Thomson Bt. (Chairman)S. J. CockburnP. S. AllenM. H. W. Perrin (Audit Committee Chairman)ADVISERSSecretary and Registered Office AdministratorCapita Company Secretarial Services Limited Capita Sinclair Henderson LimitedBeaufort House Beaufort House51 New North Road 51 New North RoadExeter EX4 4EP Exeter EX4 4EPTelephone: 01392 412122 Independent AuditorsManager Saffery ChampnessMiton Asset Management Limited Lion House51 Moorgate Red Lion StreetLondon EC2R 6BH London WC1R 4GBTelephone: 020 3714 1525Website: www.mitongroup.com Registrar Capita Asset ServicesAlternative Investment Fund Manager The RegistryMiton Trust Managers Limited 34 Beckenham Road51 Moorgate BeckenhamLondon EC2R 6BH Kent BR3 4TUAn investment company as defined under Section 833 of the Companies Act 2006.A copy of the Half-Yearly Financial Report 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/NSM.The Half-Yearly Financial Report will be posted to shareholders shortly. TheReport will also be available for download from the following website:www.mitongroup.com/tic or on request from the Company Secretary.Neither the contents of the Company's website nor the contents of any websiteaccessible from hyperlinks on the Company's website (or any other website) isincorporated into, or forms part of this announcement.