Annual Report • Jun 30, 2018
Annual Report
Open in ViewerOpens in native device viewer
| INVESTMENT OBJECTIVE | 2 |
|---|---|
| COMPANY INFORMATION | 3 |
| BOARD OF DIRECTORS | 4 |
| STRATEGIC REPORT: | |
| – FINANCIAL HIGHLIGHTS | 5 |
| – CHAIRMAN'S STATEMENT | 6 |
| – INVESTMENT MANAGER'S REPORT | 8 |
| – SCHEDULE OF TWENTY LARGEST INVESTMENTS | 12 |
| – STRATEGIC REVIEW | 14 |
| DIRECTORS' REPORT | 19 |
| CORPORATE GOVERNANCE STATEMENT | 26 |
| REPORT OF THE AUDIT COMMITTEE | 30 |
| DIRECTORS' REMUNERATION REPORT | 32 |
| STATEMENT OF DIRECTORS' RESPONSIBILITIES | 35 |
| INDEPENDENT AUDITOR'S REPORT | 36 |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | 45 |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | 46 |
| COMPANY STATEMENT OF CHANGES IN EQUITY | 47 |
| CONSOLIDATED BALANCE SHEET | 48 |
| COMPANY BALANCE SHEET | 49 |
| CASH FLOW STATEMENTS | 50 |
| NOTES TO THE ACCOUNTS | 51 |
| NOTICE OF ANNUAL GENERAL MEETING | 72 |
The Company's objective is to achieve long-term capital growth.
THIS DOCUMENT IS IMPORTANT and, if you are a holder of Ordinary shares requires your attention. If you are in doubt as to what action to take you should seek advice from your own independent personal financial advisor. If you have sold or otherwise transferred all of your Ordinary shares in the capital of the Company you should send this document and the accompanying Form of Proxy immediately to the purchaser or transferee; or to the stockbroker, bank or other agent through whom the sale or transfer was effected.
The Company's shares are traded on the London Stock Exchange and are not subject to restriction under the Financial Conduct Authority's non-mainstream investment products regime.
1 Knightsbridge Green, London SW1X 7QA Company Number: 03969011
G Howard-Spink (Chairman) J L Duffield (Deputy Chairman) D J Gamble
Brompton Asset Management LLP 1 Knightsbridge Green, London SW1X 7QA (Authorised and regulated by the Financial Conduct Authority)
Maitland Administration Services Limited Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Telephone: 01245 398950 Facsimile: 01245 398951
CMS Cameron McKenna Nabarro Olswang LLP Cannon Place, 78 Cannon Street, London EC4N 6AF
Ernst & Young LLP 25 Churchill Place, London E14 5EY
Brown Brothers Harriman & Co Park House, 16-18 Finsbury Circus, London EC2M 7EB
Equiniti Limited Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA Telephone: 0371 384 2549 Website: shareview.co.uk
The Company's shares are traded on the London Stock Exchange and their prices are shown in the Financial Times under "Investment Companies".
Geoffrey Howard-Spink (Chairman)* was one of the founders in 1981 of Lowe Group Limited, one of the UK's biggest advertising groups. He was Chairman of Immedia Group PLC and a director of Chrysalis. Mr Howard-Spink was appointed Chairman of the Company with effect from 13th May 2009.
John L Duffield (Deputy Chairman) is the Senior Partner of Brompton Asset Management Group LLP. Mr Duffield was Chairman of New Star Asset Management Group PLC between 2000 and April 2009. Prior to founding New Star, Mr Duffield was the founder and chief executive of Jupiter International Group from 1985 to 2000.
David Gamble* was chief executive of British Airways Pension Investment Management from 1993 to 2004. He has also served as a director of numerous financial services companies including a number of investment companies. Mr Gamble was appointed a Director on 16 November 2017 and is the chairman of the Audit Committee.
* Members of the Audit Committee.
for the year ended 30th June 2018
| 30th June | 30th June | % | |
|---|---|---|---|
| 2018 | 2017 | Change | |
| PERFORMANCE | |||
| Net assets (£'000) | 111,366 | 105,056 | 6.0 |
| Net asset value per Ordinary share | 156.80p | 147.92p | 6.0 |
| Mid-market price per Ordinary share | 113.00p | 105.00p | 7.6 |
| Discount of price to net asset value | 27.9% | 29.0% | n/a |
| Total Return* | 6.5% | 17.9% | n/a |
| IA Mixed Investment 40% - 85% Shares (total return) | 4.9% | 16.5% | n/a |
| MSCI AC World Index (total return, sterling adjusted) | 9.5% | 22.9% | n/a |
| MSCI UK Index (total return) | 8.3% | 16.7% | n/a |
| 1st July 2017 to 30th June 2018 |
1st July 2016 to 30th June 2017 |
|
|---|---|---|
| Revenue return per Ordinary share | 1.17p | 1.14p |
| Capital return per share | 8.51p | 21.38p |
| Return per Ordinary share | 9.68p | 22.52p |
| Dividend per Ordinary share | 0.80p | 0.30p |
| TOTAL RETURN* | 10.48p | 22.82p |
| (6.5%) | (17.9%) | |
| PROPOSED DIVIDEND PER ORDINARY SHARE | 1.00p | 0.80p |
* The total return figure for the Group represents the revenue and capital return shown in the consolidated statement of Comprehensive income plus dividends paid (the Alternative performance measure).
for the year ended 30th June 2018
Your Company's net asset value (NAV) total return was 6.5% over the year to 30th June 2018. This took the year-end NAV per ordinary share to 156.80p. By comparison, the Investment Association's Mixed Investment 40-85% Shares index gained 4.9%. Your Directors believe this benchmark is appropriate because your Company has, since inception, been invested in a broad range of asset classes. Equity markets generated positive returns, with UK performance weaker than overseas performance principally as a result of concerns about the outcome of the UK's Brexit negotiations with the European Union. The MSCI AC World Total Return and MSCI UK Total Return Indices gained 9.5% and 8.3% respectively while UK government bonds returned 2.0%. Further information is provided in the investment manager's report.
The revenue return for the year was 1.17p per share (2017: 1.14p).
Your Company has a revenue surplus in its retained revenue reserve, enabling it to pay a dividend. Your directors recommend the payment of a final dividend in respect of the year of 1.0p per share (2017: 0.8p).
Uncertainty over the outcome of trade skirmishes between the US and China may play a significant role in determining investor sentiment over the coming months, with markets remaining volatile and capital flight from emerging markets into the dollar continuing. A swift resolution of the dispute, however, most likely by Beijing agreeing to reduce its trade surplus and ease restrictions on US companies operating in China, could be a buying opportunity for some riskier asset classes.
Strong consumer and business confidence, relatively low interest rates, Trump's fiscal stimulus and technology leadership may continue to underpin US equities. The longevity of the rise in share prices since the nadir of 2008 has, however, led some investors to suggest a correction is likely. Your Company has responded to high US equity valuations and low bond yields by focussing on cheaper markets in Europe, where monetary policy is likely to remain relatively loose for longer than in the US. If, however, inflation and interest rates rise more rapidly than anticipated, generating falls for equities and bonds, your Company's investments in dollars, gold equities and lower-risk multi-asset funds should prove defensive.
Your Company has no borrowings and ended its financial year with cash representing 13.5% of its net asset value. Your Company is likely to maintain a significant cash position.
The Company is a small registered Alternative Investment Fund Manager under the European Union directive. The Company's assets now exceed the threshold of 100 million euros. As a result, should it wish to borrow it would require a change in regulatory permissions.
for the year ended 30th June 2018
During the year under review, your Company's shares continued to trade at a significant, albeit narrowing, discount to their NAV. Your directors have discussed various options with a view to reducing this discount but no satisfactory solution has yet been found. The Board, however, keeps this issue under continual review.
Following a vote by shareholders at the last annual meeting, we have been pleased to welcome David Gamble as a Director of your Company. David was chief executive of British Airways Pension Investment Management from 1993 to 2004. He has also served as a director of numerous financial services companies including a number of investment companies.
The Annual General Meeting will be held on Thursday, 15th November 2018 at 11am. The Notice of the Meeting can be found on pages 72 to 75.
NET ASSET VALUE
Your Company's unaudited net asset value per share at 31st August 2018 was 158.98p.
Geoffrey Howard-Spink Chairman 20th September 2018
for the year ended 30th June 2018
In 2015, when Donald Trump said he would run for the US presidency, he reiterated traditional Republican pledges to reduce taxes and regulation. In a departure, however, from previous Republican campaigns, he also said he would tackle America's trade imbalances with countries such as China and Mexico through renegotiating trade deals and, if necessary, imposing tariffs. He said he was "a free trader" but added that America needed "really talented" people to negotiate for it to "take the brand of the United States and make it great again".
In 2018, Trump has set out to recast Sino-US trade relations, targeting the trade imbalance, which reached \$375 billion in 2017, and the uneven playing field US companies face when operating in China, including threats to their intellectual property and state subsidies. In March, Trump's opening salvo included steel and aluminium tariffs affecting \$60 billion of US imports from China. US steel shares rose in response and rust-belt voters assessing Trump's performance relative to his "made in America" pledges may show their approval in November's mid-term elections.
In June, Trump introduced tariffs on a further \$50 billion of China's exports, equivalent to a tenth of its \$500 billion of exports to the US in 2017. Beijing retaliated, imposing tariffs on US exports of equal value. In July, Trump announced tariffs on a further \$200 billion of Chinese exports although these measures will not be enforced until later after a period of consultation. If, however, a settlement is not reached, approximately 50% of China's exports to the US will face higher tariffs.
It may be easier for the Chinese to import more goods than yield on intellectual property and subsidies because Beijing wants to shift China's economy from low-margin goods to products with greater added value. In 2015, Beijing launched its "made in China 2025" initiative, aiming for greater self-sufficiency in sectors such as robotics, semi-conductors and electric vehicles. China has, however, shown willingness to negotiate, saying it would end the requirement for US motor companies to operate through joint ventures with local partners.
Trump's tariffs may bring Beijing to the negotiating table but any gain for American manufacturers may be more than offset by higher consumer prices and lower consumer spending. Beijing, meanwhile, may seek to protect its economy by easing monetary policy. In April, it cut its reserve requirement ratio to encourage lending and soften the impact of public and private sector deleveraging. Chinese export competitiveness increased as the yuan weakened against the dollar in the second quarter of 2018.
The dollar also rose against other currencies because of rising US inflation and interest rates and near-full employment. In July 2018, headline inflation was 2.4%, its highest level in almost a decade and significantly above the Federal Reserve's 2% target. The Federal Open Market Committee raised interest rates three times during the Company's financial year, taking them to a 1.75-2.0% range, and may soon raise rates further. In July, unemployment was 3.9%, a level the Fed believes will generate wage-push inflation. In the early autumn, there were, however, few signs that US monetary policy had become restrictive and the comparatively low pick-up in bond yields suggested investors did not think interest rates would rise sharply over the longer term.
for the year ended 30th June 2018
US businesses and consumers are benefiting from Trump's Tax Cuts and Jobs Act. The cut in the top rate of corporate tax from 35% to a 21% flat rate lowered the hurdle rate of return for corporate capital spending. Changes facilitating the repatriation of cash from abroad increased capital available for investment. Consumers benefit from rationalised tax brackets, lower business income taxes and changes to benefits and allowances. US equities were buoyed during the year under review by economic growth and improved profits, with a majority of US companies in the quarter to June reporting sales and profits ahead of analysts' expectations.
Sterling ended the year under review slightly higher against the dollar despite retreating in the final quarter. UK equities also made gains but underperformed global equities because of fears of an unfavourable Brexit deal and the leftwards shift in UK politics. The Bank of England raised interest rates in November 2017 and August 2018 but the rises may be reversed if there is post-Brexit dislocation. If, however, Britain secures unexpectedly good Brexit terms, interest rates may rise faster than expected as the Bank responds to near-full employment and steady economic growth. This is because UK monetary conditions looked accommodative over the summer, with inflation at 2.4% in July, having been above the Bank's 2% target since February 2017.
A trade war would damage European countries such as Germany, whose exports represented 37% of its economy in 2017 against 8% for the US. Equities in Europe excluding the UK underperformed global equities during the financial year as investors weighed Europe's vulnerability to tariffs and Italy's election of a Eurosceptic government. Higher inflation confirmed the European Central Bank in its plan to end asset purchases in late 2018 although interest rates may not rise until late 2019. Eurozone unemployment at 8.2% and incipient wage growth may result in gradual monetary tightening.
Some emerging markets suffered from capital flight as investors responded to trade tensions and dollar strength. Emerging market bonds fell in sterling while equities in Asia excluding Japan and emerging markets lagged global equities. Investor sentiment was also affected by the Turkish and Argentinian currency crises.
Your Company's total return for the year was 6.50%. This compares with a 4.94% rise in the Investment Association's Mixed Investment 40-85% Shares Index, whose constituent funds have a multi-asset approach, with typically 40-85% of their assets in equities. The MSCI AC World Total Return Index gained 9.51% in sterling while the MSCI UK Total Return Index rose 8.31%. Global bonds fell 0.28% in sterling while UK government bonds and sterling corporate bonds returned 2.0% and 0.37% respectively.
US equities outperformed, rising 12.53% in sterling. Your Company had a relatively low direct US allocation because American stocks appeared highly valued and this was further reduced through the sale of the iShares S&P 500 exchange-traded fund (ETF) in November 2017. The iShares S&P Financials ETF holding underperformed, rising 9.29%, but Polar Capital Technology, which has significant US holdings, was the portfolio's best performer, rising 30.05%. At the year end, Polar Capital Technology had a fifth of its portfolio in sector leaders such as Alphabet, which owns Google, and Microsoft, while also focussing on small and medium-sized companies with new, potentially disruptive technologies. This approach produced strong returns relative to its benchmark.
for the year ended 30th June 2018
The US stockmarket did well in sterling despite the dollar's 1.61% fall against the pound. The dollar did, however, recover during the final quarter as Brexit fears weighed on sterling. The lack of clarity regarding Brexit and rising political risk following two cabinet resignations are strong arguments in favour of maintaining significant foreign currency assets in the portfolio. At the year end, the majority of the Company's cash was in dollars.
Among the global equity holdings, Polar Capital Technology was not alone in benefitting from its US holdings. Fundsmith Equity, where partial profits were taken in November 2017, gained 15.18%. Profits were also taken from the sale of Newton Global Income in May 2018. The higheryielding Artemis Global Income holding lagged, however, rising 8.66%.
The Company's largest investment, FP Crux European, rose 2.92%, marginally outperforming the 2.70% gain from Europe excluding UK equities in sterling. Standard Life European Income underperformed, however, returning 1.38%. Investment in higher-yielding funds increased in November through the addition of Blackrock European Income.
In the UK, Man GLG UK Income outperformed, rising 13.47%, but the conservatively-managed Trojan Income holding fell 1.02%. UK equities ended the year relatively lowly valued and the market dividend yield looked attractive to income-seeking investors. UK larger companies may perform well if Brexit drives down sterling, with currency weakness enhancing their export competitiveness and the profits of their overseas operations on translation. Schroder Income, which holds stocks with "value" characteristics including high dividend yields, was added to the portfolio in May.
Smaller UK companies rose 7.64%, underperforming larger peers because of their domestic focus, which leaves them vulnerable to a poor outcome to the Brexit talks. Aberforth Split Level Income, which holds smaller stocks, rose just 0.71% but MI Brompton UK Recovery outperformed, rising 10.02%.
Equities in Asia excluding Japan and emerging markets rose 8.43% and 6.84% respectively in sterling but Liontrust Asia Income underperformed, rising 4.29%. Wells Fargo China was sold in favour of JP Morgan Emerging Market Income while Neptune Russia was replaced by the HSBC MSCI Russia Capped ETF. Russian equities outperformed, rising 24.29% as oil prices increased 57.46% in sterling terms, and Russia's market remained relatively resilient after the financial year end despite US sanctions.
Indian equities rose 4.76% in sterling despite the rupee's 7.18% fall. Stewart Indian Subcontinent outperformed, rising 11.09%. In response to high valuations, its manager bought more lowlyvalued Indian information technology stocks as well as less well-researched stocks in Sri Lanka and Bangladesh.
Gold fell 1.41% in sterling as interest rate rises decreased the attraction of this nil-yielding asset and Blackrock Gold & General fell 9.88%. The potentially defensive characteristics of gold and gold shares, however, provide an important source of diversification to the portfolio given its minimal bond holdings.
for the year ended 30th June 2018
Within the portfolio's private equity holdings, which accounted for 4.83% of assets at 30th June 2018, one company made a £2.8 million capital distribution to your Company following a disposal. The investment in the ongoing business was retained. Increased investments in Embark and another private equity investment were made and one new holding was added.
The focus on income-focused equity funds and interest income from the Company's dollar deposits has required the Company to pay an increased dividend.
Since Adam Smith wrote "An Inquiry into the Nature and Causes of the Wealth of Nations", most economists have supported free trade. Milton Friedman said import tariffs and export subsidies were "an indirect and concealed form of devaluation", a form of protectionism that served to "protect" consumers from low prices. It is, therefore, unsurprising that the Chinese responded to US tariffs with retaliatory tariffs and devaluation. Trump's protectionist rhetoric may in reality be an attempt to push China into buying more US goods and easing restrictions on US companies seeking to expand there, not a rejection of free trade principles. In the meantime, markets may remain volatile and capital flight from emerging markets into the dollar may continue. A swift resolution to the US-China trade dispute may in time confirm the recent sell-off in some markets as a buying opportunity. Over the longer term, a Chinese economic slowdown may be more concerning than the trade spat as Chinese policy makers seek to reduce public and private indebtedness.
Despite high valuations, US equities may be supported by strong consumer and business confidence, supportive monetary policy and Trump's fiscal stimulus. US superiority in sectors such as technology has also driven some stocks higher. The rise in US equities after the 2008 credit crisis has been one of the longest bull markets in history, causing investors to question how long the gains can continue. The Company has significant holdings in more lowly-valued markets where monetary policy is likely to remain accommodative for longer such as in Europe excluding the UK and, potentially, the UK, where sentiment may have become overly negative because of Brexit.
In July 2018, inflation was above central bank targets in the US, UK and the Eurozone, and central banks were reversing, or on course to reverse, the exceptionally loose conditions of recent years. This may generate falls for global bonds. Monetary policy has not, however, been restrictive and this may support global equities. If inflation and interest rates rise more rapidly than anticipated, generating falls for equities and bonds, the Company's investments in dollars, gold equities and lower-risk multi-asset funds should prove defensive.
Brompton Asset Management LLP Investment Manager 20th September 2018
for the year ended 30th June 2018
| Holding | Activity | Bid-market value |
Percentage of invested |
|---|---|---|---|
| £'000 | portfolio | ||
| FP Crux European Special Situations Fund | Investment Fund | 11,237 | 10.09 |
| Polar Capital - Global Technology Fund | Investment Fund | 5,473 | 4.91 |
| Schroder Income Fund | Investment Fund | 5,242 | 4.71 |
| Fundsmith Equity Fund | Investment Fund | 5,191 | 4.66 |
| Aberforth Split Level Income Trust | Investment Company | 4,859 | 4.36 |
| Artemis Global Income Fund | Investment Fund | 4,120 | 3.70 |
| EF Brompton Global Conservative Fund | Investment Fund | 4,105 | 3.69 |
| BlackRock Continental European | |||
| Income Fund | Investment Fund | 3,699 | 3.32 |
| Aquilus Inflection Fund | Investment Fund | 3,562 | 3.20 |
| Lindsell Train Japanese Equity Fund | Investment Fund | 3,312 | 2.97 |
| Embark Group | Unquoted Investment | 3,268 | 2.93 |
| Man GLG UK Income Fund | Investment Fund | 2,929 | 2.63 |
| BlackRock Gold & General Fund | Investment Fund | 2,904 | 2.61 |
| EF Brompton Global Opportunities Fund | Investment Fund | 2,785 | 2.50 |
| Liontrust Asia Income Fund | Investment Fund | 2,768 | 2.49 |
| MI Brompton UK Recovery Unit Trust | Investment Fund | 2,746 | 2.47 |
| Stewart Investors Indian Subcontinent Fund | Investment Fund | 2,706 | 2.43 |
| EF Brompton Global Equity Fund | Investment Fund | 2,687 | 2.41 |
| EF Brompton Global Growth Fund | Investment Fund | 2,630 | 2.36 |
| Trojan Income Fund | Investment Fund | 2,384 | 2.14 |
| 78,607 | 70.58 | ||
| Balance not held in 20 investments above | 17,694 | 15.89 | |
| Total investments (excluding cash) | 96,301 | 86.47 | |
| Cash | 15,027 | 13.49 | |
| Other net current assets | 38 | 0.04 | |
| Net assets | 111,366 | 100.00 |
The investment portfolio, excluding cash, can be further analysed as follows:
| £'000 | |
|---|---|
| Investment funds | 80,548 |
| Investment companies and exchange traded funds | 9,357 |
| Unquoted investments, including interest bearing loans of £250,000 | 5,375 |
| Other quoted investments | 1,021 |
| 96,301 |
for the year ended 30th June 2017
| Holding | Activity | Bid-market value |
Percentage of invested |
|---|---|---|---|
| £'000 | portfolio | ||
| FP Crux European Special Situations Fund | Investment Fund | 10,918 | 10.39 |
| Fundsmith Equity Fund | Investment Fund | 9,014 | 8.58 |
| Newton Global Income Fund | Investment Fund | 5,524 | 5.26 |
| Aberforth Split Level Income Trust | Investment Company | 4,898 | 4.66 |
| Polar Capital - Global Technology Fund | Investment Fund | 4,208 | 4.01 |
| EF Brompton Global Conservative Fund | Investment Fund | 4,014 | 3.82 |
| Artemis Global Income Fund | Investment Fund | 3,930 | 3.74 |
| Aquilus Inflection Fund | Investment Fund | 3,364 | 3.20 |
| BlackRock Gold & General Fund | Investment Fund | 3,223 | 3.07 |
| Embark Group | Unquoted Investment | 3,130 | 2.98 |
| Liontrust Asia Income Fund | Investment Fund | 2,777 | 2.64 |
| Man GLG UK Income Fund | Investment Fund | 2,732 | 2.60 |
| Lindsell Train Japanese Equity Fund | Investment Fund | 2,694 | 2.56 |
| EF Brompton Global Opportunities Fund | Investment Fund | 2,652 | 2.53 |
| EF Brompton Global Growth Fund | Investment Fund | 2,515 | 2.39 |
| EF Brompton Global Equity Fund | Investment Fund | 2,508 | 2.39 |
| MI Brompton UK Recovery Trust | Investment Fund | 2,496 | 2.38 |
| Trojan Income Fund | Investment Fund | 2,449 | 2.33 |
| Stewart Investors Indian Subcontinent Fund | Investment Fund | 2,436 | 2.32 |
| EF Brompton Global Income Fund | Investment Fund | 2,215 | 2.11 |
| 77,697 | 73.96 | ||
| Balance not held in 20 investments above | 14,033 | 13.36 | |
| Total investments (excluding cash) | 91,730 | 87.32 | |
| Cash | 13,451 | 12.80 | |
| Other net current assets | (125) | (0.12) | |
| Net assets | 105,056 | 100.00 | |
The investment portfolio, excluding cash, can be further analysed as follows:
| £'000 | |
|---|---|
| Investment funds | 78,326 |
| Investment companies and exchange traded funds | 7,920 |
| Unquoted investments, including interest bearing loans of £250,000 | 4,810 |
| Other quoted investments | 674 |
| 91,730 |
for the year ended 30th June 2018
The Strategic Review is designed to provide information primarily about the Company's business and results for the year ended 30th June 2018. The Strategic Review should be read in conjunction with the Chairman's Statement on pages 6 and 7 and the Investment Manager's Report on pages 8 to 11, which provide a review of the year's investment activities of the Company and the outlook for the future.
The Company is an investment company under section 833 of the Companies Act 2006. It is an Approved Company under the Investment Trust (Approved Company) (Tax) Regulations 2011 (the 'Regulations') and conducts its affairs in accordance with those Regulations so as to retain its status as an investment trust and maintain exemption from liability to United Kingdom capital gains tax.
The Company is a small registered Alternative Investment Fund Manager under the European Union Markets in Financial Instruments Directive.
The Company's investment objective is to achieve long-term capital growth.
The Company's investment policy is to allocate assets to global investment opportunities through investment in equity, bond, commodity, real estate, currency and other markets. The Company's assets may have significant weightings to any one asset class or market, including cash.
The Company will invest in pooled investment vehicles, exchange traded funds, futures, options, limited partnerships and direct investments in relevant markets. The Company may invest up to 15% of its net assets in direct investments in relevant markets.
The Company will not follow any index with reference to asset classes, countries, sectors or stocks. Aggregate asset class exposure to any one of the United States, the United Kingdom, Europe ex UK, Asia ex Japan, Japan or Emerging Markets and to any individual industry sector will be limited to 50% of the Company's net assets, such values being assessed at the time of investment and for funds by reference to their published investment policy or, where appropriate, the underlying investment exposure.
The Company may invest up to 20% of its net assets in unlisted securities (excluding unquoted pooled investment vehicles) such values being assessed at the time of investment.
The Company will not invest more than 15% of its net assets in any single investment, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used for the purposes of efficient portfolio management and currency hedging. Derivatives may also be used outside of efficient portfolio management to meet the Company's investment objective. The Company may take outright short positions in relation to up to 30% of its net assets, with a limit on short sales of individual stocks of up to 5% of its net assets, such values being assessed at the time of investment.
for the year ended 30th June 2018
The Company may borrow up to 30% of net assets for short-term funding or long-term investment purposes.
No more than 10%, in aggregate, of the value of the Company's total assets may be invested in other closed-ended investment funds except where such funds have themselves published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds.
Information on the Company's portfolio of assets with a view to spreading investment risk in accordance with its investment policy is set out on page 12.
Net assets at 30th June 2018 amounted to £111,366,000 compared with £105,056,000 at 30th June 2017. In the year under review, the NAV per Ordinary share increased by 6.0% from 147.92p to 156.80p, after paying a dividend of 0.8p per share.
The Group's gross revenue rose to £1,776,000 (2017: £1,715,000). Last year the Company decided to increase its investment in income focused funds resulting in an increase in gross income during the year under review. After deducting expenses and taxation the revenue profit for the year was £831,000 (2017: £810,000).
Total expenses for the year amounted to £940,000 (2017: £898,000). In the year under review the investment management fee amounted to £668,000 (2017: £622,000). No performance fee was payable in respect of the year under review as the Company has not outperformed the cumulative hurdle rate. At 30 June 2018 the hurdle rate NAV was slightly above the Company's NAV. Further details on the Company's expenses may be found in notes 3 and 4.
Dividends have not formed a central part of the Company's investment objective. The increased investment in income focused funds has enabled the Directors to declare an increased dividend. The Directors propose a final dividend of 1.0p per Ordinary share in respect of the year ended 30th June 2018 (2017: 0.8p). If approved at the Annual General Meeting, the dividend will be paid on 30th November 2018 to shareholders on the register at the close of business on 16th November 2018 (ex-dividend 15th November 2018).
The primary source of the Company's funding is shareholder funds.
While the future performance of the Company is dependent, to a large degree, on the performance of international financial markets, which in turn are subject to many external factors, the Board's intention is that the Company will continue to pursue its stated investment objective in accordance with the strategy outlined above. Further comments on the short-term outlook for the Company are set out in the Chairman's Statement on pages 6 and 7 and the Investment Manager's report on pages 8 to 11.
Throughout the year the Group's investments included seven funds managed by the Investment Manager (2017: seven). No investment management fees were payable directly by the Company in respect of these investments.
for the year ended 30th June 2018
In order to measure the success of the Company in meeting its objectives, and to evaluate the performance of the Investment Manager, the Directors review at each meeting: – net asset value, income and expenditure, asset allocation and attribution, share price of the Company and the discount. The Directors take into account a number of different indicators as the Company does not have a formal benchmark, and performance against these is shown in the Financial Highlights on page 5.
Performance is discussed in the Chairman's Statement and Investment Manager's Report on pages 6 to 11.
The principal risks identified by the Board, and the steps the Board takes to mitigate them, are as follows:
Inappropriate long-term strategy, asset allocation and fund selection could lead to underperformance. The Board discusses investment performance at each of its meetings and the Directors receive reports detailing asset allocation, investment selection and performance.
The Company's future performance is heavily dependent on the performance of different equity and currency markets. The Board cannot mitigate the risks arising from adverse market movements. However, diversification within the portfolio will reduce the impact. Further information is given in portfolio risks below.
The twenty largest investments are listed on page 12. Investment returns will be influenced by interest rates, inflation, investor sentiment, availability/cost of credit and general economic conditions in the UK and globally. A proportion of the portfolio is in investments denominated in foreign currencies and movements in exchange rates could significantly affect their sterling value. The Investment Manager takes all these factors into account when making investment decisions but the Company does not normally hedge against foreign currency movements. The Board's policy is to hold a spread of investments in order to reduce the impact of the risks arising from the above factors by investing in a spread of asset classes and geographic regions.
The discount in the price at which the Company's shares trade to net asset value means that shareholders cannot realise the real underlying value of their investment. Over the last few years the Company's share price has been at a significant discount to the Company's net asset value. The Directors review regularly the level of discount, however given the investor base of the Company, the Board is very restricted in its ability to influence the discount to net asset value.
for the year ended 30th June 2018
The quality of the team employed by the Investment Manager is an important factor in delivering good performance and the loss of key staff could adversely affect returns. A representative of the Investment Manager attends each Board meeting and the Board is informed if any major changes to the investment team employed by the Investment Manager are proposed.
A breach of The Investment Trust (Approved Company) (Tax) Regulations 2011 (the 'Regulations') could lead to capital gains realised within the portfolio becoming subject to UK capital gains tax. A breach of the UKLA Listing Rules could result in suspension of the Company's shares, while a breach of company law could lead to criminal proceedings, financial and/or reputational damage. The Board employs Brompton Asset Management LLP as Investment Manager, and Maitland Administration Services Limited as Secretary and Administrator, to help manage the Company's legal and regulatory obligations.
Disruption to, or failure of, the Investment Manager's or Administrator's accounting, dealing or payment systems, or the Custodian's records, could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational risk that one or more of its suppliers may not provide the required level of service. How the Board monitors its service providers is set out in the Corporate Governance Statement on pages 26 to 29.
The Directors confirm that they have carried out an assessment of the risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity.
The assets of the Company consist mainly of securities that are readily realisable or cash and it has no significant liabilities. Investment income exceeds annual expenditure and current liquid net assets cover current annual expenses for many years. Accordingly, the Company is of the opinion that it has adequate financial resources to continue in operational existence for the long term which is considered to be in excess of five years. Five years is considered a reasonable period for investors when making their investment decisions. In reaching this view the Directors reviewed the anticipated level of annual expenditure against the cash and liquid assets within the portfolio. The Directors have also considered the risks the Company faces.
for the year ended 30th June 2018
The Company has no employees, with day-to-day management and administration of the Company being delegated to the Investment Manager and the Administrator. The Company's portfolio is managed in accordance with the investment objective and policy; environmental, social and community matters are considered to the extent that they potentially impact on the Company's investment returns. Additionally, as the Company has no premises, properties or equipment, it has no carbon emissions to report on.
The Company has sought, wherever possible, and been provided with assurance from each of its main suppliers, that no slaves, forced labour, child labour, or labour employed at rates of pay below statutory minimums for the country of their operations, are being employed in the provision of services to the Company.
The Board of Directors comprises three male directors. The Board recognises the benefits of diversity, however, the Board's primary consideration when appointing new directors is their knowledge, experience and ability to make a positive contribution to the Board's decision making regardless of gender.
The Strategic Report of the Company, comprising the information contained on pages 5 to 18 of this Report & Accounts was approved by the Board and signed on its behalf by:
Geoffrey Howard-Spink Chairman 20th September 2018
for the year ended 30th June 2018
The Directors present the audited accounts of the Company and their report for the year ended 30th June 2018.
The Company is a public limited company incorporated and registered in England and Wales and is domiciled in the United Kingdom. The Company number is 03969011.
The Company is an investment company under section 833 of the Companies Act 2006. It is an Approved Company under the Investment Trust (Approved Company) (Tax) Regulations 2011 (the 'Regulations') and conducts its affairs in accordance with those Regulations so as to continue to gain exemption from liability to United Kingdom capital gains tax.
The Company is listed on the London Stock Exchange and adheres to the Listing Rules issued by the UK Listing Authority, and the Disclosure and Transparency Rules issued by the Financial Conduct Authority.
The Company has been approved by the Financial Conduct Authority to be a small registered Alternative Investment Fund Manager under the European Union Directive.
The names and biographies of the Directors are given on page 4. The Articles of Association provide that the total number of Directors shall be not less than two nor more than ten.
No Director has a contract of employment with the Company. Directors' terms of appointment are set out in letters of appointment which are available for inspection at the registered office of the Company and will be available at the Annual General Meeting ('AGM').
The following Directors, all of whom are non-executive, served during the year:
| Date of appointment | |
|---|---|
| G Howard-Spink (Chairman) | as a Director 13th April 2000 |
| J L Duffield | 5th April 2000 |
| D J Gamble | 16th November 2017 |
| M J Gregson (resigned 15th September 2017) | 1st December 2006 |
During the year under review the Company did not arrange insurance cover in respect of legal action against the Directors, as it was considered that the premium would not constitute good value to shareholders. The Directors are indemnified by the Company against all liabilities, except where prohibited by law.
for the year ended 30th June 2018
The Board considers a range of factors in determining the independence of the individual directors including their character and judgment, whether they have any material business relationships with the Company or its advisers, whether they have any close family ties with the Company's advisers or Directors and their other commitments.
The Directors consider that length of service does not of itself impair their ability to act independently, rather, a long-serving Director can offer a perspective that adds value to the deliberations of a well-balanced investment trust company board.
It is considered by the Board that, with the exception of Mr Duffield, all of the Directors are independent. The Board specifically considered the independence of Mr Gamble, who has an immaterial holding in Brompton Asset Management Group LLP and concluded that he is an independent Director. The biographies of the Directors holding office at the date of this report demonstrate a breadth of investment and commercial experience relevant to their positions as Directors. All Directors have a wide range of other interests and are not dependent on the Company itself.
The Board considers that, given its small size and the size and nature of the Company's operations, it is unnecessary to nominate one Director as a Senior Independent Director.
The Board may appoint directors without shareholder approval. Any Director so appointed must stand for election by shareholders at the next AGM in accordance with the Articles of Association. Mr Gamble was appointed a Director in November 2017 at the AGM. The Board considered it would benefit from having a Non-Executive who had investment experience and Investment Trust experience. Mr Gamble provides significant investment knowledge as well as Investment Trust experience. He was recommended to the Board. No external search firm was used as it was not considered necessary and not have provided value for money.
Under the Articles of Association one-third of Directors are required to retire by rotation each year. All Directors are required to stand for re-election at least every three years, although the UK Corporate Governance Code ('Code') requires any Director who has served for more than nine years to stand for re-election annually. The Directors recognise the desirability for the composition of the Board to be reviewed and refreshed periodically.
Shareholders may remove a director before the end of their term of office by passing an ordinary resolution at a general meeting. An ordinary resolution is passed if more than 50% of the votes cast in person or by proxy are in favour of the resolution. All Directors standing for re-election at the AGM are eligible for re-election.
Mr Howard-Spink stands for re-election annually, having served on the Board for more than nine years. The Board considers the contribution by Mr Howard-Spink to its deliberations to be valuable, and he continues to exhibit independence of character and judgment. The Board accordingly strongly recommends that shareholders vote in favour of Mr Howard-Spink's re-election.
Mr Gamble will retire by rotation at the forthcoming AGM. Being eligible, he offers himself for re-election. The Board considers the contribution by Mr Gamble to be very valuable, and therefore strongly recommends that shareholders vote in favour of Mr Gamble's re-election.
for the year ended 30th June 2018
Mr Duffield has a beneficial interest in 59.14% of the Company's shares and is the senior partner of the Investment Manager's parent entity. He is accordingly not considered to be independent. In line with the UKLA's Listing Rules, not being considered independent, Mr Duffield stands for re-election annually. The independent Directors consider that Mr Duffield makes a significant contribution to the Company and recommend his re-election to shareholders.
The Board consists solely of non-executive directors and accordingly the Company is not required to comply with the principles of the Code in relation to executive directors' remuneration, nor does it have a Remuneration Committee. Details of the fees paid to the Directors can be found in the Directors' Remuneration Report on page 33.
The Company has no executive directors or employees. The day-to-day management and administration of the Company, including investment management, accounting and company secretarial matters, and custodian arrangements are delegated to specialist third party companies.
The Company's investments are managed by Brompton (the 'Investment Manager'). This relationship is governed by an agreement dated 17 May 2018. The portfolio manager is Gill Lakin.
Brompton receives a management fee, payable quarterly in arrears, equivalent to an annual 0.75 per cent of total assets after the deduction of the value of any investments managed by the Investment Manager or its associates (as defined in the investment management agreement). The investment management agreement may be terminated by either party giving three months written notice to expire on the last calendar day of any month.
The Investment Manager is also entitled to a performance fee of 15 per cent of the growth in net assets over a hurdle of 3 month Sterling LIBOR plus 1 per cent per annum, payable six monthly in arrears, subject to a high watermark. The aggregate of the Company's management fee and performance fee are subject to a cap of 4.99 per cent of net assets in any financial year (with any performance fee in excess of this cap capable of being earned in future years).
During the year under review the investment management fee amounted to £668,000 (2017: £622,000). No performance fee was accrued or payable in respect of the year ended 30th June 2018 (2017: £nil).
The Independent Directors have reviewed the performance and terms of Brompton as Investment Manager. The Directors believe that it is in the best interests of all the shareholders to continue the appointment of the Investment Manager on their existing terms of appointment having had regard to the Group's performance in recent periods.
for the year ended 30th June 2018
Company secretarial services, general administration and accounting services for the Company are undertaken by Maitland Administration Services Limited (the 'Administrator').
Brown Brothers Harriman & Co is the independent custodian to the Company.
Mr Duffield is the senior partner of Brompton Asset Management Group LLP, the ultimate parent of the Investment Manager. Details of fees paid to the Investment Manager are given on page 21 and in note 3 on page 55.
The Company's share capital comprises 305,000,000 Ordinary shares of 1p each (2017: 305,000,000), of which 71,023,695 (2017: 71,023,695) are issued and fully paid. No shares are held in treasury (2017: nil). The Company did not issue or repurchase any shares during the year or up to the date of this report.
There are no restrictions on the transfer of the Company's shares other than: a) transfers by Directors and Persons Discharging Managerial Responsibilities and their connected persons during prohibited periods under the rules of the UK Listing Authority or which may constitute insider dealing; b) transfers for more than one class of share; c) transfers to more than 4 joint transferees; and d) transfers of shares which are not fully paid up or on which the Company has a lien provided that such would not prohibit dealings taking place on an open and proper basis.
The Company is not aware of any arrangements between shareholders or between the Company and any shareholders which restrict the transfer of shares or which would take effect or terminate in the event of a change of control of the Company.
The voting rights of the Ordinary shares on a poll are one vote for every share held.
Shareholders are entitled to such dividends (if any) as the Board may from time to time declare, and on a winding up are entitled to a distribution of such surplus assets (if any) as may remain after settling the liabilities of the Company, in proportion to the number of shares held and the respective amounts paid up or credited as paid up on their shares.
for the year ended 30th June 2018
At 30th June 2018 and 7th September 2018, the Company was aware of the following interests which represent 3% or more of the voting rights in the Company:
| Shareholder | % of voting rights 30th June 2018 |
% of voting rights 7th September 2018 |
|---|---|---|
| J L Duffield | 59.1 | 59.1 |
| M R L Astor | 3.9 | 3.9 |
| Miton Asset Management Ltd | 3.9 | 3.8 |
The Board and Investment Manager are available for dialogue with shareholders. The primary mediums through which the Company communicates with its shareholders are the Half Year Report and the Annual Report and Accounts which aim to provide shareholders with a clear understanding of the Company's activities and its results. The Company's Annual Report and Accounts and Half Year Report are also published on the Company's website at: www.nsitplc.com and net asset values are published on the London Stock Exchange and the Company's website on a monthly basis.
All shareholders will have the opportunity to attend and vote at the AGM during which the Directors and Investment Manager will be available to answer questions regarding the Company. The Company will generally seek to provide twenty working days' notice of the AGM.
The Notice of Meeting sets out the business of the AGM and any item not of an entirely routine nature is explained in the Directors' Report or, where applicable, in the Notice of Meeting. Separate resolutions are proposed for each substantive issue.
The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the accounts as the assets of the Company consist mainly of securities that are readily realisable or cash and it has no significant liabilities.
The Company owns the whole of the issued share capital (£1) of JIT Securities Limited, an investment company registered in England and Wales. The results of JIT Securities Limited are included in the consolidated financial statements.
for the year ended 30th June 2018
Ernst & Young LLP have indicated their willingness to remain in office. Accordingly a resolution proposing the re-appointment of Ernst & Young LLP until the close of the next general meeting at which accounts are laid before members, and to authorise the Directors to determine their remuneration, will be put to shareholders at the forthcoming AGM.
The Directors who were members of the Board at the time of approving this Report are listed on page 4. Each of those Directors confirms that:
The AGM of the Company will be held at 1 Knightsbridge Green, London, SW1X 7QA on Thursday, 15th November 2018 and will commence at 11.00 am. The notice of meeting can be found on pages 72 to 75.
In addition to the Ordinary business to be transacted at the forthcoming Annual General Meeting, Resolution 8 will be proposed as an Ordinary Resolution and Resolutions 9 to 12 will be proposed as Special Resolutions.
Resolution 8 seeks renewal of the general and unconditional authority for the Directors to allot shares. The authority can be sought for up to 5 years but is put to shareholders annually. The Directors do not currently have any plans to exercise this authority if granted under this Resolution.
Resolution 9 would allow the Company to allot a limited number of equity securities without applying pre-emption rights. Again, the Directors do not currently have any plans to exercise this authority but consider it desirable and in the Company's interest to have the authority in place.
Resolution 10 is to seek renewal of the existing authority for the Company to make market purchases of the Company's shares. The authority is limited to 10,646,450 Ordinary shares representing approximately 14.99% of the current issued Ordinary share capital. No market purchases have yet been made but the Directors feel it is important to have the ability to make purchases and the Directors would only exercise the authority, if granted, if they considered it to be in the Company's best interest. Any Ordinary shares bought back would be cancelled or held in treasury at the discretion of the Directors.
Resolution 11 would give the Directors discretion to re-issue Ordinary shares held in treasury into the market. Shares would not be re-issued at a price below the most recent published net asset value prior to re-issue.
for the year ended 30th June 2018
Resolution 12 will enable the Directors to call general meetings (other than an Annual General Meeting) at not less than 14 days' notice rather than 21 days. Ordinarily the Directors would expect to give the full notice period but circumstances might make it desirable to call a meeting on shorter notice. A general meeting may only be called on short notice if it complies with certain conditions.
The Directors strongly recommend that shareholders vote in favour of all Resolutions being put to the annual general meeting, as they themselves intend to vote in respect of their own beneficial shareholdings totalling 42,003,223, being approximately 59.14% of the Ordinary share capital in issue at the date of this report.
For and on behalf of the Board of Directors Maitland Administration Services Limited Corporate Secretary 20th September 2018
for the year ended 30th June 2018
Throughout the year under review the Company applied the UK Corporate Governance Code issued by the Financial Reporting Council ('FRC') in June 2016 (the 'Code'), and had regard to the Code of Corporate Governance issued by the Association of Investment Companies in February 2015 (the 'AIC Code') which provides specific corporate governance guidance for investment trusts. Full details of the Company's corporate governance arrangements and instances of non-compliance are given below.
The Code referred to above can be found on the FRC's website at www.frc.gov.uk
It is considered that the Company has complied with the provisions of the Code subject to the exceptions explained below: the Company has not arranged insurance cover in respect of legal action against its Directors (Code provision A.1.3); it has not appointed a Senior Independent Director (Code provision A.4.1); and it does not have a Nominations Committee (Code Provision: B.2.1).
The Board is responsible for the effective stewardship of the Company's affairs. It determines the strategic direction of the Company and sets the boundaries within which the Investment Manager operates. The Board meets at least four times a year and reviews the Company's investment policy, performance and financial position. The Investment Manager takes decisions as to the purchase and sale of individual investments and is responsible for effecting those decisions on the best available terms. There is an agreed procedure for Directors, in the furtherance of their duties, to take independent professional advice at the Company's expense.
The Chairman is responsible for leading the Board and ensuring that it continues to deal effectively with all aspects of its role. In particular, he ensures that the Investment Manager and Administrator provide the Directors, in a timely manner, with management, regulatory and financial information that is clear, accurate and relevant. Representatives of the Investment Manager attend each Board meeting, enabling the Directors to seek clarification on specific issues or to probe further on matters of concern.
The Board comprises three non-executive Directors. In the light of the small size of the Board, it has been decided not to appoint a formal Nominations Committee and appointments of any new directors are considered by the Board as a whole.
The powers of the Directors are set out in the Articles of Association which are publicly available from Companies House. Except as otherwise provided by regulation and legislation, the Directors may exercise all of the ordinary powers usually conferred on directors to manage the affairs of a company and to delegate such of those powers to committees, agents or individuals as they consider appropriate. The Directors may authorise the Company to borrow; to pay fees, expenses, salaries and make other payments to directors, executives and employees; and to provide pensions or other benefits for directors, executives and employees; but have not exercised these powers except for the payment of fees to non-executive directors.
for the year ended 30th June 2018
Attendance at the Board and Audit Committee meetings held during the financial year is shown below.
| Board meetings | Audit committee meetings |
|
|---|---|---|
| No. of meetings | 4 | 2 |
| John Duffield | 4 | N/A |
| David Gamble | 3 | 1 |
| Geoffrey Howard-Spink | 4 | 2 |
| Marcus Gregson (resigned 15th September 2017) | 1 | 1 |
The performance of the Company is considered in detail at each Board meeting.
The Board evaluates its own performance, that of the Audit Committee, and the performance of each Director and the Chairman on a regular basis. Because the Board comprises only three Directors, some of whom are members of all Committees, appraisals are carried out every two years rather than annually. Appraisals are conducted by the use of a tailored questionnaire designed to elicit views on all Board and Committee functions, followed by an opportunity to openly discuss the findings and ensure that effectiveness is maintained. A review was carried out last year.
The Board has overall responsibility for the establishment of the Company's systems of internal control and for reviewing their effectiveness. Internal control systems are designed to meet the particular requirements of the Company and to manage rather than eliminate the risks of failure to achieve its objectives. The systems by their very nature provide reasonable but not absolute assurance against material misstatement or loss. The Board has reviewed the effectiveness of the Company's internal control systems including the financial, operational and compliance controls and risk management processes for the period since 1st July 2017.
for the year ended 30th June 2018
The key procedures which have been established with a view to providing effective internal control are as follows:
The Statement of Directors' Responsibilities in respect of the accounts is set out on page 35. The responsibilities of the independent auditor are set out on pages 36 to 44. The Directors' Report states that the business is a going concern and confirmation of the Directors consideration on viability is on page 17.
The Board has delegated contractually to external third parties (including the Investment Manager) the management of the investment portfolio, custodial services (including safeguarding of assets), day to day accounting, company secretarial and administration duties, and registration services. Each of these contracts was entered into after consideration by the Board of the quality and cost of the services offered. The Board receives regular formal reports from the Investment Manager and ad hoc information as required.
for the year ended 30th June 2018
The Board has delegated the voting of investee company shares to the Investment Manager. The Board is conscious that the majority of its investments are in diverse funds, and its holdings in quoted companies do not constitute positions of significant influence.
The Board has put in place a framework for Directors to report conflicts of interest or potential conflicts of interest, which it believes works effectively. Directors are aware that they have a continuing obligation to notify the Company Secretary of all existing, new and potential situations or interests which do or could conflict with the interests of the Company. All disclosed situations and interests are reviewed by the Board at its meetings and, where appropriate, authorised. It is the Board's intention to continue to review all notified situations on a regular basis.
for the year ended 30th June 2018
The Board has established an Audit Committee which consists of Mr Gamble (Chairman) and Mr Howard-Spink. Mr Gamble was appointed Chairman on becoming a director, Mr Howard-Spink served throughout the year. Both committee members are considered by the Board to be independent of the Investment Manager. It is considered that each of the members of the Audit Committee has recent and relevant financial experience.
The terms of reference for the Audit Committee are available on the Company's website: – www.nsitplc.com
The Audit Committee meets at least twice per year and operates within clearly defined terms of reference. The Committee provides a forum through which the Company's external auditor reports to the Board.
The main work and responsibilities of the Audit Committee include:
As part of the Audit Committee's review of the 2018 Annual Report and Accounts, the Committee considered the following significant issues, including the consideration of principal risks and uncertainties in light of the Company's activities and issues communicated by the Auditor during their work.
Valuation of the investment portfolio: – Over 93% of the portfolio excluding cash has been verified by daily or monthly market prices. The valuation of the remainder of the portfolio, which is more subjective, is reviewed separately by the Investment Manager, the Audit Committee and the Auditor. The Audit Committee reviewed the Investment Manager's detailed valuation paper covering the basis adopted for valuing each unquoted company.
Ownership of the investment portfolio: – The Company uses the services of an independent global custodian, Brown Brothers Harriman & Co. The Investment Manager and Administrator reconcile their records to those of the custodian. The Auditor obtains independent confirmation of the holdings from the custodian at the year end.
for the year ended 30th June 2018
Recognition of Income: The Audit Committee reviewed the accounting treatment of a receipt from one of the unquoted investments following the sale of part of its business. The committee agreed that the receipt was capital in nature.
Compliance with The Investment Trust (Approved Company) (Tax) Regulations 2011: compliance with these regulations is essential to maintaining the taxation benefits of being an Investment Company for UK tax purposes. Schedules are prepared by the Administrator to confirm ongoing compliance and there is an additional review at the year-end by the Investment Manager and the Auditor.
The Audit Committee makes recommendations to the Board regarding the appointment and independence of the external Auditor, Ernst & Young LLP, and assesses the objectivity and effectiveness of the audit process. Representatives of Ernst & Young LLP attended the Audit Committee meeting at which the draft Annual Report and Accounts were considered. They also engage with the Directors as and when required. Details of the amounts payable to the Auditor during the year under review, for audit and other services are set out in note 4 on page 55.
The effectiveness of the audit was assessed by considering the Auditor's direct engagement with the Audit Committee, the auditors' written reports and from feedback from the Investment Manager and the Administrator.
In addition to the statutory audit of the Annual Report and Accounts, Ernst & Young LLP also provided a review of the half year report, which was subject to approval by the Audit Committee prior to engagement. The external auditor no longer provides any taxation services.
Ernst & Young LLP have audited the Company's financial statements since the inception of the Company in 2000 and the current Audit Partner is in her second year. Ernst & Young LLP can continue to audit the accounts through the year ended 2023. No audit tender has been undertaken. The Board concluded, on the recommendation of the Audit Committee, that the Auditor continues to be independent of the Company and the Investment Manager and recommends their reappointment.
In common with many investment trusts, the Company does not have a whistle-blowing policy. The main functions of the Company are delegated to third parties and the Audit Committee believes that it is appropriate to rely on the whistle-blowing policies operated by those third parties.
The Company does not have any employees and its day-to-day operations are delegated to third parties. The Board has determined that, in view of these circumstances, there is no need for the Company to have an internal audit function. The Directors review periodically whether a function equivalent to internal audit is needed and will continue to monitor its systems of internal controls in order to provide assurance that they operate as intended.
Approved by the Audit Committee and signed on its behalf by: David Gamble Chairman – Audit Committee 20th September 2018
for the year ended 30th June 2018
The Directors are pleased to present their report on remuneration. An Ordinary resolution, to approve the Directors' Remuneration Policy (the 'Policy') (which is binding) was put to the 2017 AGM and approved. An Ordinary resolution to adopt this report (which is advisory) will be put at the forthcoming AGM.
The Auditor is required to report to the Company's members on certain parts of the Directors' Remuneration Report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Act. Where information set out below has been audited, it is clearly indicated. The Auditor's opinion is included within the Independent Auditor's Report on pages 36 to 44.
This report has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). It describes the Policy and how it was implemented for the year to 30th June 2018.
The Board does not consider it necessary or appropriate to establish a separate Remuneration Committee as the Company has no employees, the Board is small, and there are no executive Directors. Non-executive Directors' remuneration is determined by the Board in line with the Policy below.
The Company's policy is that the remuneration of non-executive Directors should reflect the experience of the board as a whole, be fair and comparable to that of other investment trusts that have a similar capital structure (ordinary shares), and have a similar investment objective (longterm capital growth).
The non-executive Directors of the Company are entitled to such rates of annual fees as the Board, at its discretion determines, subject to an aggregate ceiling of £100,000.
No Director shall be entitled to any benefits in kind, share options, long-term incentives, pension or other retirement benefits or compensation for loss of office. It is considered that no part of the Directors' remuneration should be performance related in the light of their non-executive status. Directors are entitled to reimbursement of expenses in respect of duties undertaken in connection with the management of the Company.
If the shareholders approve the policy, the policy will be put to shareholders again for renewal of their approval at intervals of not more than three years, and less if a change to the policy is proposed. If changes to the adopted policy are proposed, they can only take effect after shareholders have approved the changes in general meeting.
It is the Board's policy that none of the Directors has a service contract. Any Director may be removed without notice and no compensation will be due on leaving office.
There are no significant changes proposed to the way that the current approved Remuneration Policy will be implemented during the course of the next financial year. The current policy was last approved at the AGM held on 16th November 2017, at which 100% of the votes were in favour and 0% were against. At last year's AGM, the Directors' Remuneration Report was also approved; 100% voted in favour, still 0% voted against.
for the year ended 30th June 2018
The table below shows the rates of annual fees payable to the highest paid Director, the Chairman, and all other non-executive Directors for the year to 30th June 2018 and the year to 30th June 2017:
| 2018 | 2017 | |
|---|---|---|
| (£) | (£) | |
| Chairman | 20,000 | 20,000 |
| Board member | 15,000 | 15,000 |
The single total figure of remuneration for each Director for the year to 30th June 2018 is detailed below together with the prior year comparative. Emoluments were received solely in the form of fees.
| Name of Director | Fees paid/ Total (£) 2018 |
2017 |
|---|---|---|
| J L Duffield | 15,000 | 15,000 |
| D J Gamble (appointed 16th November 2017) | 9,385 | – |
| M J Gregson (resigned 15th September 2017) | 3,750 | 15,000 |
| G Howard-Spink | 20,000 | 20,000 |
| Total | 48,135 | 50,000 |
The fees payable in respect of Mr Duffield's services are paid to the Investment Manager. The Company has no executive directors. Distributions made to shareholders by way of dividend have no correlation to Directors' remuneration. Any comparison would not be meaningful.
The interests of the Directors in the Ordinary shares of the Company at the beginning and end of the financial year are shown in the table below.
| ORDINARY SHARES OF 1P | 30th June | 30th June |
|---|---|---|
| BENEFICIAL: | 2018 | 2017 |
| J L Duffield | 42,003,223 | 42,003,223 |
| D J Gamble | – | – |
| G Howard-Spink | – | – |
| M J Gregson (resigned 15th September 2017) | – | 10,000 |
There have been no changes in the Directors' interests in the period from 30th June 2018 to the date of this report.
for the year ended 30th June 2018
The graph below compares the share price total return (assuming all dividends are reinvested) over the last seven and a half years against the IA Mixed Investment 40-85% (total return). The data has been rebased to 100 at 31st December 2009.
By order of the Board Geoffrey Howard-Spink Chairman 20th September 2018
for the year ended 30th June 2018
The Directors are responsible for preparing the financial statements in accordance with applicable ~United Kingdom law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors are required to prepare Financial Statements under International Financial Reporting Standards ('IFRSs') as adopted by the European Union.
Under Company Law, the Directors must not approve the Group's Annual Report and Accounts unless they are satisfied that they give a true and fair view of the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing those Group's Annual Report and Accounts the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors have concluded that the Group's Annual Report and Accounts for the year ended 30th June 2018, taken as a whole, is fair, balanced and understandable, and provide the information necessary for shareholders to assess the performance, business model and strategy of the Group.
The Directors of the Company each confirm to the best of their knowledge that:
For and on behalf of the Board of Directors Maitland Administration Services Limited Secretary 20th September 2018
In our opinion:
| Group | Parent Company |
|---|---|
| Consolidated Statement of Comprehensive Income for the year ended 30 June 2018 |
Company Statement of Changes in Equity for the year ended 30 June 2018. |
| Consolidated Statement of Changes in Equity for the year ended 30 June 2018 |
Company Balance Sheet as at 30 June 2018. |
| Consolidated Balance Sheet as at 30 June 2018 |
Company Cash Flow Statement for the year ended 30 June 2018. |
| Consolidated Cash Flow Statement for the year ended 30 June 2018 |
Related notes 1 to 20 to the financial statements, including a summary of significant accounting policies. |
| Related notes 1 to 20 to the financial statements, including a summary of significant accounting policies |
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union, and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report below. We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:
| Key audit matters | • Incomplete or inaccurate revenue recognition, including classification as revenue or capital items in the statement of comprehensive income. • Incorrect valuation and defective title of the investment portfolio. |
|---|---|
| Audit scope | • We performed an audit of the complete financial information of New Star Investment Trust Plc and its subsidiary, JIT Securities Limited in accordance with applicable law and International Standards on Auditing (UK). |
| • All audit work was performed directly by the audit engagement team. | |
| Materiality | • Overall Group materiality of £1.1m (2017: £1.1m) which represents 1% of net assets. |
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
| Risk | Our response to the risk | Key observations communicated to the Audit Committee |
|---|---|---|
| Incomplete or inaccurate revenue recognition, including classification as revenue or capital items in the statement of comprehensive income The investment income receivable by the group during the year directly affects the group's ability to pay a dividend to shareholders. The income received for the year ended 30 June 2018 was £1.7m (2017: £1.7m). The Directors are required to exercise judgement in determining whether income receivable in the form of special dividends should be classified as 'revenue' or 'capital'. During the year the group received one special dividend for an amount of £2.8m. This special dividend was treated as capital. |
We performed the following procedures: We obtained an understanding of the Manager's processes and controls surrounding revenue recognition and allocation of special dividends by performing a walkthrough to understand the design effectiveness. We agreed a sample of dividends received from the income report to an independent pricing source, recalculated the amount received and agreed to bank statements. We agreed a sample of dividends paid on investments held from an independent pricing source to the income report. We agreed 100% of accrued dividends to an independent pricing source, recalculated the amount receivable and agreed to post year end bank statements, where possible. We reviewed the income report and acquisition and disposal report produced by the Administrator to identify special dividends recorded in the year in excess of our testing threshold. |
We have no issues to communicate with respect to our assessment of the Manager's and Administrator's processes and controls surrounding revenue recognition and allocation of special dividends. We agreed the sample of dividend receipts to an independent source, recalculating these amounts and agreeing them to the bank statements and noted no issues. We agreed the sample of investee company announcements to the income entitlements recorded by the company and noted no issues. We recalculated the accrued dividends, agreeing, where possible, to post year end bank statements, and confirming that the income obligation arose prior to 30 June 2018 and noted no issues. We agreed the accounting treatment adopted with respect to the one special dividend receipt reviewed and noted no issues. |
| Risk | Our response to the risk | Key observations communicated to the Audit Committee |
|---|---|---|
| Incorrect valuation and defective title of the investment portfolio. The valuation of the assets held in the investment portfolio is the key driver of the group's net asset value and total return. Incorrect asset pricing, including the judgement involved in the valuation of unquoted investments, or a failure to maintain proper legal title of the assets held by the group could have a significant impact on the portfolio valuation and the return generated for shareholders. The group's accounting policy is to value the investment portfolio at its fair value which is deemed to be bid: • For exchange traded securities, either the bid price or the last traded price, depending on the convention of the exchange on which the security is quoted. • For investments in units of unit trusts or shares in OEICs are valued at the bid price for dual priced funds, or single price for non-dual priced funds, released by the relevant investment manager. Unquoted investments are valued at fair value by Directors following a detailed review and appropriate challenge of the valuations proposed by the Investment Manager. The Investment Manager's unquoted investment policy applies the methodologies consistent with the International Private Equity and Venture Capital Valuation ('IPEV') guidelines. The valuation of the portfolio at 30 June 2018 was £96.3m (2017: £91.7m) consisting primarily of quoted investments with an aggregate value of £90.9m (2017: £86.9m) and unquoted investments with an aggregate value of £5.4m (2017: £4.8m). |
We performed the following procedures: We obtained an understanding of the Manager and Administrator's processes and controls surrounding investment pricing and trade processing, including an understanding of the operation of the Manager's and the Director's process for review of the unquoted valuations by performing a walkthrough to understand the design effectiveness. We agreed 100% of quoted investment valuations and exchange rates to a relevant independent source. We reviewed price exception and stale pricing reports. For each unquoted investment held as at the year-end, we utilised our specialist Valuations and Business Modelling team to assess and corroborate the valuations. This included: • Assessing whether the valuations have been performed in line with the IPEV guidelines. • Assessing the appropriateness of the data inputs and assumptions used to support the valuations. • Assessing other facts and circumstances, such as market movement and comparative company information, that have an impact on the fair market value of the investments. We obtained confirmation from the Custodian of all investments held at the year end and agreed those to the group's records. |
We have no issues to communicate with respect to our assessment of the Manager's and Administrator's processes and controls surrounding investment pricing and trade pricing. For all quoted investments, we noted no material differences in market value or exchange rates when compared to an independent source. For all unquoted investments, we assessed the valuations as reasonable and in line with the IPEV guidelines. We noted no differences between the Custodian confirmation and the group's underlying financial records. |
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors when assessing the level of work to be performed at each entity. All audit work performed for the purposes of the audit was undertaken by the Group audit team.
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £1.1m (2017: £1.1m), which is 1% (2017: 1%) of net assets. We believe that net assets provides us with materiality aligned to the key measurement of the group's performance.
We determined materiality for the parent company to be £1.1m (2017: £1.1m), which is 1% (2017: 1%) of net assets.
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 75% (2017: 75%) of our planning materiality, namely £0.8m (2017: £0.8m). We have set our performance materiality at this percentage due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected.
Given the importance of the distinction between revenue and capital for the group we also applied a separate revenue testing threshold of £0.06m (2017: £0.05m) for the revenue column of the Consolidated Statement of Comprehensive Income, being the greater of 5% of the revenue profit before tax and our reporting threshold which is set at 5% of planning materiality.
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.6m (2017: £0.5m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.
The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard. In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
As explained more fully in the statement of directors' responsibilities set out on page 35, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
• We were appointed by the group on inception of the parent company to audit the financial statements for the period ending 5 May 2000 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is 19 years, covering the period ending 5 May 2000 to the year ended 30 June 2018.
This report is made solely to the parent company members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company members as a body, for our audit work, for this report, or for the opinions we have formed.
Caroline Mercer (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 20th September 2018
for the year ended 30th June 2018
| Year ended 30th June 2018 |
Year ended 30th June 2017 |
||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue Return £'000 |
Capital Return £'000 |
Total £'000 |
Revenue Return £'000 |
Capital Return £'000 |
Total £'000 |
|
| INVESTMENT INCOME Other operating income |
2 2 |
1,654 122 |
– – |
1,654 122 |
1,686 29 |
– – |
1,686 29 |
| 1,776 | – | 1,776 | 1,715 | – | 1,715 | ||
| GAINS AND LOSSES ON INVESTMENTS Gains on investments at fair value through |
|||||||
| profit or loss | 9 | – | 6,218 | 6,218 | – | 14,814 | 14,814 |
| Other exchange (losses)/gains | – | (176) | (176) | – | 367 | 367 | |
| Trail rebates | – | 5 | 5 | – | 4 | 4 | |
| 1,776 | 6,047 | 7,823 | 1,715 | 15,185 | 16,900 | ||
| EXPENSES | |||||||
| Management fees | 3 | (668) | – | (668) | (622) | – | (622) |
| Other expenses | 4 | (272) | – | (272) | (276) | – | (276) |
| (940) | – | (940) | (898) | – | (898) | ||
| PROFIT BEFORE TAX | 836 | 6,047 | 6,883 | 817 | 15,185 | 16,002 | |
| Tax | 5 | (5) | – | (5) | (7) | – | (7) |
| PROFIT FOR THE YEAR | 831 | 6,047 | 6,878 | 810 | 15,185 | 15,995 | |
| EARNINGS PER SHARE Ordinary shares (pence) |
7 | 1.17p | 8.51p | 9.68p | 1.14p | 21.38p | 22.52p |
The total column of this statement represents the Group's profit and loss account, prepared in accordance with IFRS, as adopted by the European Union. The supplementary Revenue Return and Capital Return columns are both prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations.
The Company did not have any income or expense that was not included in 'Profit for the year'. Accordingly, the 'Profit for the year' is also the 'Total comprehensive income for the year', as defined in IAS1 (revised) and no separate Statement of Comprehensive Income has been presented.
No operations were acquired or discontinued during the year.
All income is attributable to the equity holders of the parent company. There are no minority interests.
for the year ended 30th June 2018
| Note | Share £'000 |
Share capital premium £'000 |
Special reserve £'000 |
Retained earnings £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|
| AT 30TH JUNE 2017 | 710 | 21,573 | 56,908 | 25,865 | 105,056 | |
| Total comprehensive | ||||||
| income for the year | – | – | – | 6,878 | 6,878 | |
| Dividend Paid | 8 | – | – | – | (568) | (568) |
| AT 30TH JUNE 2018 | 710 | 21,573 | 56,908 | 32,175 | 111,366 |
Included within Retained earnings were £1,112,000 of Company reserves available for distribution.
for the year ended 30th June 2017
| Share | Share | Special | Retained | |||
|---|---|---|---|---|---|---|
| capital premium | reserve | earnings | Total | |||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | |
| AT 30TH JUNE 2016 | 710 | 21,573 | 56,908 | 10,083 | 89,274 | |
| Total comprehensive | ||||||
| income for the year | – | – | – | 15,995 | 15,995 | |
| Dividend Paid | 8 | – | – | – | (213) | (213) |
| AT 30TH JUNE 2017 | 710 | 21,573 | 56,908 | 25,865 | 105,056 | |
Included within Retained earnings were £851,000 of Company reserves available for distribution.
for the year ended 30th June 2018
| Share | Share | Special | Retained | |||
|---|---|---|---|---|---|---|
| capital premium | reserve | earnings | Total | |||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | |
| AT 30TH JUNE 2017 | 710 | 21,573 | 56,908 | 25,865 | 105,056 | |
| Total comprehensive | ||||||
| income for the year | – | – | – | 6,878 | 6,878 | |
| Dividend paid | 8 | – | – | – | (568) | (568) |
| AT 30TH JUNE 2018 | 710 | 21,573 | 56,908 | 32,175 | 111,366 |
Included within Retained earnings were £1,112,000 of Company revenue reserves available for distribution.
for the year ended 30th June 2017
| Total | |||||
|---|---|---|---|---|---|
| Note | £'000 | £'000 | £'000 | £'000 | £'000 |
| 89,274 | |||||
| 15,995 | |||||
| 8 | – | – | – | (213) | (213) |
| 710 | 21,573 | 56,908 | 25,865 | 105,056 | |
| 710 – |
Share Share capital premium 21,573 – |
Special reserve 56,908 – |
Retained earnings 10,083 15,995 |
Included within Retained earnings were £851,000 of Company revenue reserves available for distribution.
at 30th June 2018
| 30th June | 30th June | ||
|---|---|---|---|
| Notes | 2018 £'000 |
2017 £'000 |
|
| NON-CURRENT ASSETS | |||
| Investments at fair value through profit or loss | 9 | 96,301 | 91,730 |
| CURRENT ASSETS | |||
| Other receivables | 11 | 272 | 85 |
| Cash and cash equivalents | 12 | 15,027 | 13,451 |
| 15,299 | 13,536 | ||
| TOTAL ASSETS | 111,600 | 105,266 | |
| CURRENT LIABILITIES | |||
| Other payables | 13 | (234) | (210) |
| TOTAL ASSETS LESS CURRENT LIABILITIES | 111,366 | 105,056 | |
| NET ASSETS | 111,366 | 105,056 | |
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS | |||
| Called-up share capital | 14 | 710 | 710 |
| Share premium | 15 | 21,573 | 21,573 |
| Special reserve | 15 | 56,908 | 56,908 |
| Retained earnings | 15 | 32,175 | 25,865 |
| TOTAL EQUITY | 111,366 | 105,056 | |
| NET ASSET VALUE PER ORDINARY SHARE | 16 | 156.80p | 147.92p |
These Accounts were approved by the Board of Directors and authorised for issue on 20th September 2018.
Geoffrey Howard-Spink Chairman New Star Investment Trust Plc Registered in England & Wales No. 3969011
| 30th June | 30th June | ||
|---|---|---|---|
| Notes | 2018 £'000 |
2017 £'000 |
|
| NON-CURRENT ASSETS | |||
| Investment at fair value through profit or loss | 9 | 96,301 | 91,730 |
| Investments in subsidiary at fair value through profit or loss | 10 | 506 | 504 |
| 96,807 | 92,234 | ||
| CURRENT ASSETS | |||
| Other receivables | 11 | 272 | 999 |
| Cash and cash equivalents | 12 | 15,027 | 12,033 |
| 15,299 | 13,032 | ||
| TOTAL ASSETS | 112,106 | 105,266 | |
| CURRENT LIABILITIES | |||
| Other payables | 13 | (740) | (210) |
| TOTAL ASSETS LESS CURRENT LIABILITIES | 111,366 | 105,056 | |
| NET ASSETS | 111,366 | 105,056 | |
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS | |||
| Called-up share capital | 14 | 710 | 710 |
| Share premium | 15 | 21,573 | 21,573 |
| Special reserve | 15 | 56,908 | 56,908 |
| Retained earnings1 | 15 | 32,175 | 25,865 |
| TOTAL EQUITY | 111,366 | 105,056 | |
1 The profit for the year dealt with in the accounts of the Company is £6,878,000 (2017: £15,995,000)
These Accounts were approved by the Board of Directors and authorised for issue on 20th September 2018.
Geoffrey Howard-Spink Chairman New Star Investment Trust Plc Registered in England & Wales No. 03969011
for the year ended 30th June 2018
| 30th June 2018 |
Year ended Year ended Year ended Year ended 30th June 2018 |
30th June 2017 |
30th June 2017 |
|
|---|---|---|---|---|
| Note | Group £'000 |
Company £'000 |
Group £'000 |
Company £'000 |
| NET CASH INFLOW FROM OPERATING ACTIVITIES |
673 | 671 | 808 | 807 |
| INVESTING ACTIVITIES Purchase of investments Sale of investments |
(16,016) 17,663 |
(16,016) 17,663 |
(6,500) 9,051 |
(6,500) 9,051 |
| NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES |
1,647 | 1,647 | 2,551 | 2,551 |
| FINANCING Equity dividends paid 8 Amounts owed to subsidiary undertakings |
(568) – |
(568) 1,420 |
(213) – |
(213) – |
| NET CASH INFLOW/(OUTFLOW) AFTER FINANCING |
(568) | 852 | (213) | (213) |
| INCREASE IN CASH | 1,752 | 3,170 | 3,146 | 3,145 |
| RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN CASH & CASH EQUIVALENTS Increase in cash resulting |
||||
| from cash flows Exchange movements |
1,752 (176) |
3,170 (176) |
3,146 367 |
3,145 367 |
| Movement in net funds Net funds at start of the year |
1,576 13,451 |
2,994 12,033 |
3,513 9,938 |
3,512 8,521 |
| CASH & CASH EQUIVALENTS AT END OF YEAR 17 | 15,027 | 15,027 | 13,451 | 12,033 |
| RECONCILIATION OF PROFIT BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES |
||||
| Profit before finance costs and taxation Gains on investments Exchange differences Capital trail rebates |
2 6,883 (6,218) 176 (5) |
6,883 (6,220) 176 (5) |
16,002 (14,814) (367) (4) |
16,002 (14,815) (367) (4) |
| Net revenue gains before finance costs and taxation Increase in debtors Increase in creditors Taxation Capital trail rebates |
836 (187) 24 (5) 5 |
834 (187) 24 (5) 5 |
817 (18) 24 (19) 4 |
816 (18) 24 (19) 4 |
| NET CASH INFLOW FROM OPERATING ACTIVITIES |
673 | 671 | 808 | 807 |
NEW STAR INVESTMENT TRUST PLC
for the year ended 30th June 2018
The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'). These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee ('IASC') that remain in effect, and to the extent that they have been adopted by the European Union.
These financial statements are presented in pounds sterling, the Group's functional currency, being the currency of the primary economic environment in which the Group operates, rounded to the nearest thousand.
(a) Basis of preparation: The financial statements have been prepared on a going concern basis. The principal accounting policies adopted are set out below.
Where presentational guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') issued by the Association of Investment Companies ('AIC') in November 2014 and updated in February 2018 with consequential amendments is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
(b) Basis of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiary made up to 30th June 2018. No statement of comprehensive income is presented for the parent company as permitted by Section 408 of the Companies Act 2006.
The parent company is an investment entity as defined by IFRS 10 and assets are held at their fair value. The consolidated accounts include subsidiaries which are an integral part of the Group and not investee companies.
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiary used in the preparation of the consolidated financial statements are based on consistent accounting policies. All intragroup balances and transactions, including unrealised profits arising therefrom, are eliminated. Subsidiaries are valued at fair value, which is considered to be their NAV in the accounts of the Company.
(c) Presentation of Statement of Comprehensive Income: In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the consolidated statement of comprehensive income between items of a revenue and capital nature has been presented alongside the consolidated statement of comprehensive income.
In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of a dividend. Additionally, the net revenue profit is the measure the Directors believe is appropriate in assessing the Group's compliance with certain requirements set out in the Investment Trust (Approved Company) (Tax) Regulations 2011.
for the year ended 30th June 2018
All investments are classified as held at fair value through profit or loss on initial recognition and are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Investments in units of unit trusts or shares in OEICs are valued at the bid price for dual priced funds, or single price for non-dual priced funds, released by the relevant investment manager. Unquoted investments are valued by the Directors at the balance sheet date based on recognised valuation methodologies, in accordance with International Private Equity and Venture Capital ('IPEVC') Valuation Guidelines such as dealing prices or third party valuations where available, net asset values and other information as appropriate.
(h) Taxation: The charge for taxation is based on taxable income for the year. Withholding tax deducted from income received is treated as part of the taxation charge against income. Taxation deferred or accelerated can arise due to temporary differences between the treatment of certain items for accounting and taxation purposes. Full provision is made for deferred taxation under the liability method on all temporary differences not reversed by the Balance Sheet date. No deferred tax provision is made against deemed reporting offshore funds. Deferred tax assets are only recognised when there is more likelihood than not that there will be suitable profits against which they can be applied.
for the year ended 30th June 2018
The capital reserve is not available for the payment of dividends.
There have been no new standards, amendment to standards and interpretations effective for annual accounting periods beginning after 1 July 2017 that impact these financial statements.
(q) Accounting standards issued but not yet effective: Standards issued but not yet effective up to the date of issuance of the Group's Report & Accounts are listed below. This listing of standards and interpretations issued are those the Group reasonably expects will have an impact on disclosure, financial position and/or financial performance, when applied at a future date. The Group intends to adopt those standards (where applicable) when they become effective. We currently do not believe that this will have a material impact on the results or financial position.
NEW STAR INVESTMENT TRUST PLC
for the year ended 30th June 2018
The revised IFRS 9 Financial Instruments replaces IAS 39 and applies to the classification and measurement and impairment of financial assets and financial liabilities, and hedge accounting. The adoption of IFRS 9 will have an effect on the classification of the Group's financial assets, but will have no impact on the classification and measurement of financial liabilities. It will also introduce a new expected loss impairment model requiring more timely recognition of expected credit losses and a reformed model for hedge accounting with enhanced disclosure of risk management activity. The standard is effective for annual periods beginning on or after 1 January 2018.
IFRS 15 'Revenue from Contracts with Customers' (IFRS 15) supersedes IAS 11 'Construction Contracts', IAS 18 'Revenue' and related interpretations. The revenue of the Group is not within the scope of IFRS 15 and therefore it has had no material impact on adoption.
| Year ended Year ended | ||
|---|---|---|
| 30th June | 30th June | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| INCOME FROM INVESTMENTS | ||
| UK net dividend income | 1,481 | 1,540 |
| Unfranked investment income | 173 | 146 |
| 1,654 | 1,686 | |
| OTHER OPERATING INCOME | ||
| Bank interest receivable | 111 | 28 |
| Loan interest income | 11 | 1 |
| 122 | 29 | |
| TOTAL INCOME COMPRISES | ||
| Dividends | 1,654 | 1,686 |
| Other income | 122 | 29 |
| 1,776 | 1,715 |
The above dividend and interest income has been included in the profit before finance costs and taxation included in the cash flow statements.
NEW STAR INVESTMENT TRUST PLC
for the year ended 30th June 2018
| Year ended 30th June 2018 |
Year ended 30th June 2017 |
|||||
|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
£'000 | Total Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Investment management fee Performance fee |
668 – |
– – |
668 – |
622 – |
– – |
622 – |
| 668 | – | 668 | 622 | – | 622 |
At 30th June 2018 there were amounts accrued of £173,000 (2017: £162,000) for investment management fees.
A summary of the terms of the investment management agreement may be found in the Directors' Report on page 21.
| Year ended Year ended | ||
|---|---|---|
| 30th June | 30th June | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Directors' remuneration | 48 | 50 |
| Administrative and secretarial fee | 94 | 94 |
| Auditors' remuneration | ||
| – Audit | 31 | 31 |
| – Interim review | 8 | 8 |
| Other | 91 | 93 |
| 272 | 276 | |
| Allocated to: | ||
| – Revenue | 272 | 276 |
| – Capital | – | – |
| 272 | 276 | |
for the year ended 30th June 2018
(a) Analysis of tax charge for the year:
| Year ended | Year ended | ||||||
|---|---|---|---|---|---|---|---|
| 30th June 2018 | 30th June 2017 | ||||||
| Revenue | Capital | Revenue | Capital | ||||
| Return | Return | Total | Return | Return | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Overseas tax | 17 | – | 17 | 18 | – | 18 | |
| Recoverable income tax | (12) | – | (12) | (11) | – | (11) | |
| Total current tax for the year | 5 | – | 5 | 7 | – | 7 | |
| Deferred tax | – | – | – | – | – | – | |
| Total tax for the year | |||||||
| (note 5b) | 5 | – | 5 | 7 | – | 7 | |
The charge for the year of £5,000 (2017: £7,000) can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
| 30th June 2018 £'000 |
Year ended Year ended 30th June 2017 £'000 |
|
|---|---|---|
| Total profit before tax | 6,883 | 16,002 |
| Theoretical tax at the UK corporation tax rate of 19.00% (2017: 19.75%) Effects of: |
1,307 | 3,162 |
| Non-taxable UK dividend income | (281) | (304) |
| Gains and losses on investments that are not taxable | (1,148) | (3,000) |
| Excess expenses not utilised | 138 | 153 |
| Overseas dividends which are not taxable | (16) | (11) |
| Overseas tax | 17 | 18 |
| Recoverable income tax | (12) | (11) |
| Total tax for the year | 5 | 7 |
Due to the Company's tax status as an investment trust and the intention to continue meeting the conditions required to maintain approval of such status in the foreseeable future, the Company has not provided tax on any capital gains arising on the revaluation or disposal of investments.
There is no deferred tax (2017: £nil) in the capital account of the Company. There is no deferred tax charge in the revenue account (2017: £nil).
At the year-end there is an unrecognised deferred tax asset of £478,000 (2017: £386,000) based on the enacted tax rates of 17% for financial years beginning 1 April 2020 as a result of excess expenses.
for the year ended 30th June 2018
The Company's total return for the year was £6,878,000 (2017: £15,995,000).
Total return per Ordinary share is based on the Group total return on ordinary activities after taxation of £6,878,000 (2017: £15,995,000) and on 71,023,695 (2017: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Revenue return per Ordinary share is based on the Group revenue profit on ordinary activities after taxation of £831,000 (2017: £810,000) and on 71,023,695 (2017: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on net capital gains for the year of £6,047,000 (2017: £15,185,000) and on 71,023,695 (2017: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Amounts recognised as distributions in the year:
| Year ended Year ended | ||
|---|---|---|
| 30th June | 30th June | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Dividends paid during the year | 568 | 213 |
| Dividends payable in respect of the year ended: | ||
| 30th June 2018: 1.0p (2017: 0.8p) per share | 710 | 568 |
It is proposed that a dividend of 1.0p per share will be paid in respect of the current financial year.
for the year ended 30th June 2018
| Year ended Year ended | |||
|---|---|---|---|
| 30th June | 30th June | ||
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| GROUP AND COMPANY | 96,301 | 91,730 | |
| ANALYSIS OF INVESTMENT | |||
| PORTFOLIO – GROUP AND COMPANY | |||
| Quoted* £'000 |
Unquoted £'000 |
Total £'000 |
|
| Opening book cost | 55,791 | 7,555 | 63,346 |
| Opening investment holding gains/(losses) | 31,129 | (2,745) | 28,384 |
| Opening valuation Movement in period |
86,920 | 4,810 | 91,730 |
| Purchases at cost Sales |
14,821 | 1,195 | 16,016 |
| – Proceeds | (14,820) | (2,843) | (17,663) |
| – Realised gains on sales | 5,782 | 1,675 | 7,457 |
| Movement in investment holding gains for the year | (1,778) | 539 | (1,239) |
| Closing valuation | 90,925 | 5,376 | 96,301 |
| Closing book cost | 61,574 | 7,582 | 69,156 |
| Closing investment holding gains/(losses) | 29,351 | (2,206) | 27,145 |
| Closing valuation | 90,925 | 5,376 | 96,301 |
* Quoted investments include unit trust and OEIC funds and one monthly priced fund.
| Year ended Year ended | ||
|---|---|---|
| 30th June | 30th June | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| ANALYSIS OF CAPITAL GAINS AND LOSSES | ||
| Realised gains on sales of investments | 7,457 | 2,739 |
| (Decrease)/Increase in investment holding gains | (1,239) | 12,075 |
| Net gains on investments attributable to ordinary shareholders | 6,218 | 14,814 |
The purchase and sale proceeds figures above include transaction costs on purchases of £8,870 (2017: £2,282) and on sales of £626 (2017: £nil).
for the year ended 30th June 2018
The Company owns the whole of the issued share capital (£1) of JIT Securities Limited, a company registered in England and Wales.
The financial position of the subsidiary is summarised as follows:
| 30th June | Year ended Year ended 30th June |
||||
|---|---|---|---|---|---|
| 2018 | 2017 | ||||
| £'000 | £'000 | ||||
| Net assets brought forward | 504 | 503 | |||
| Profit for year | 2 | 1 | |||
| Net assets carried forward | 506 | 504 | |||
| 11. | OTHER RECEIVABLES | ||||
| 30th June | 30th June | 30th June | 30th June | ||
| 2018 | 2018 | 2017 | 2017 | ||
| Group £'000 |
Company £'000 |
Group £'000 |
Company £'000 |
||
| Prepayments and accrued income | 257 | 257 | 70 | 70 | |
| Taxation | 15 | 15 | 15 | 15 | |
| Amounts owed by subsidiary undertakings | – | – | – | 914 | |
| 272 | 272 | 85 | 999 | ||
| 12. | CASH AND CASH EQUIVALENTS | ||||
| 30th June | 30th June | 30th June | 30th June | ||
| 2018 | 2018 | 2017 | 2017 | ||
| Group | Company | Group | Company | ||
| £'000 | £'000 | £'000 | £'000 | ||
| Cash at bank and on deposit | 15,027 | 15,027 | 13,451 | 12,033 | |
| 13. | OTHER PAYABLES | ||||
| 30th June | 30th June | 30th June | 30th June | ||
| 2018 | 2018 | 2017 | 2017 | ||
| Group £'000 |
Company £'000 |
Group £'000 |
Company £'000 |
||
| Accruals | 234 | 234 | 210 | 210 | |
| Amounts owed to subsidiary undertakings | – | 506 | – | – | |
| 234 | 740 | 210 | 210 | ||
for the year ended 30th June 2018
| 30th June | 30th June | |
|---|---|---|
| 2018 | 2017 | |
| £'000 | £'000 | |
| Authorised 305,000,000 (2017: 305,000,000) Ordinary shares of £0.01 each |
3,050 | 3,050 |
| Issued and fully paid 71,023,695 (2017: 71,023,695) Ordinary shares of £0.01 each |
710 | 710 |
| Share | |||
|---|---|---|---|
| premium | Special | Retained | |
| account | reserve | earnings | |
| £'000 | £'000 | £'000 | |
| GROUP | |||
| At 30th June 2017 | 21,573 | 56,908 | 25,865 |
| Decrease in investment holding gains | – | – | (1,239) |
| Net gains on realisation of investments | – | – | 7,457 |
| Gain on foreign currency | – | – | (176) |
| Trail rebates | – | – | 5 |
| Retained revenue profit for year | – | – | 831 |
| Dividend paid | – | – | (568) |
| At 30th June 2018 | 21,573 | 56,908 | 32,175 |
| Share | |||
| premium | Special | Retained | |
| account | reserve | earnings | |
| £'000 | £'000 | £'000 | |
| COMPANY | |||
| At 30th June 2017 | 21,573 | 56,908 | 25,865 |
| Decrease in investment holding gains | – | – | (1,237) |
| Net gains on realisation of investments | – | – | 7,457 |
| Gain on foreign currency | – | – | (176) |
| Trail rebates | – | – | 5 |
| Retained revenue profit for year | – | – | 829 |
| Dividend paid | – | – | (568) |
| At 30th June 2018 | 21,573 | 56,908 | 32,175 |
for the year ended 30th June 2018
The components of retained earnings are set out below:
| 30th June | 30th June | |
|---|---|---|
| 2018 | 2017 | |
| £'000 | £'000 | |
| GROUP | ||
| Capital reserve – realised | 3,764 | (3,522) |
| Capital reserve – revaluation | 27,145 | 28,384 |
| Revenue reserve | 1,266 | 1,003 |
| 32,175 | 25,865 | |
| COMPANY | ||
| Capital reserve – realised | 3,412 | (3,874) |
| Capital reserve – revaluation | 27,651 | 28,888 |
| Revenue reserve | 1,112 | 851 |
| 32,175 | 25,865 | |
The net asset value per Ordinary share is calculated on net assets of £111,366,000 (2017: £105,056,000) and 71,023,695 (2017: 71,023,695) Ordinary shares in issue at the year end.
| At 1st July 2017 £'000 |
Cash flow |
Exchange movement |
At 30th June 2018 £'000 |
|
|---|---|---|---|---|
| GROUP Cash at bank and on deposit |
13,451 | 1,752 | (176) | 15,027 |
| COMPANY Cash at bank and on deposit |
12,033 | 3,170 | (176) | 15,027 |
for the year ended 30th June 2018
The Group's investment objective is to produce long-term capital growth. The investment objective is implemented by allocating assets to global investment opportunities through investment in equity, bond, commodity, real estate, currency and other markets. The Group's assets are stated at fair value.
For listed securities, this represents the last traded bid price, or for unit trusts and OEICs, the bid price for dual priced funds, or single price for non-dual priced funds, released by the relevant investment manager.
Unquoted investments are valued by the Directors at the balance sheet date based on recognised valuation methodologies, in accordance with IPEVC valuation guidelines such as dealing prices or third party valuations where available, net asset values and other information as appropriate.
The holding of securities, investing activities and associated financing undertaken pursuant to this objective involve certain inherent risks. Events may occur that would result in either a reduction in the Group's net assets or a reduction of potential revenue profits available for dividend. As an investment trust, the Group invests in securities for the long term. Accordingly it is, and has been throughout the year under review, the Group's policy that no short-term trading in investments or other financial instruments shall be undertaken.
The main financial instrument risks arising from the Group's pursuit of its investment objective are market risk (comprising price risk, currency risk, and interest rate risk), liquidity risk and credit risk. The Board has reviewed and agreed policies for managing each of these risks, which are unchanged from the previous year, and which are summarised below.
Note 18 (h) sets out a summary of the Group's financial assets and liabilities by category.
The only difference between the Group and the Company's financial assets is the Company's investment in subsidiary, which is held at net asset value.
The fair value or future cash flows of a financial instrument held by the Group may fluctuate because of changes in market prices of investments held by the Group.
This market risk comprises three elements - currency risk (see note 18 (b)), interest rate risk (see note 18 (c)), and other price risk (see note 18 (d)). The Board reviews and agrees policies for managing these risks. The Group's Investment Manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.
for the year ended 30th June 2018
A proportion of the Group's portfolio is invested in investments denominated in a foreign currency and movements in exchange rates can significantly affect their Sterling value.
Furthermore, a proportion of the Company's investments in other collective investment schemes may have underlying currency exposure through their investments and, as a result, the Company may be subject to further indirect currency movement.
The Investment Manager does not normally hedge against foreign currency movements affecting the value of the investment portfolio, but takes account of this risk when making investment decisions. In addition, the Directors may authorise the Investment Manager to hedge currency risk or increase it in appropriate circumstances.
During the year under review, the Investment Manager did not enter into any forward currency contracts. (2017: £nil).
The fair values of the Group's assets that have foreign currency exposure at 30th June 2018 are shown below.
| 2018 | 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | 2017 | |
|---|---|---|---|---|---|---|---|---|
| US | Japanese | US | Japanese | |||||
| Dollars | Euros | Yen | Total Dollars | Euros | Yen | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment at | ||||||||
| fair value through | ||||||||
| profit or loss | 3,036 | 3,563 | 3,312 | 9,911 | 4,422 | 3,364 | 2,694 | 10,480 |
| Cash at bank and | ||||||||
| short-term deposits | 9,090 | – | 19 | 9,109 | 9,320 | – | 34 | 9,354 |
| Other receivables | 72 | – | – | 72 | – | – | – | – |
| Total net foreign | ||||||||
| currency exposure | 12,198 | 3,563 | 3,331 | 19,092 | 13,742 | 3,364 | 2,728 | 19,834 |
The above table represents the direct assets denominated/dealt in US Dollars, Japanese Yen and Euros. The Company holds investments which are denominated in sterling which have significant currency exposure. These assets are not included in the above table. The underlying currency exposure will be significantly greater.
for the year ended 30th June 2018
Foreign currency sensitivity
During the financial year sterling appreciated by 1.64% against the US dollar (2017: depreciated 2.83%), depreciated by 0.71% against the euro (2017: depreciated 5.35%) and appreciated by 0.20% (2017: appreciated 6.42%) against the Japanese Yen.
Applying a 10% change in rate to the exposures listed above would affect net assets and total return as follows:
| 2018 2018 |
2018 | 2018 | 2017 | 2017 | 2017 | 2017 | |
|---|---|---|---|---|---|---|---|
| US | Japanese | US | Japanese | ||||
| Dollars | Euros | Yen | Total Dollars | Euros | Yen | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| If exchange rates appreciated by 10% (1,109) |
(324) | (301) | 1,734 | (1,249) | (306) | (245) (1,800) | |
| If exchange rates depreciated by 10% 1,355 |
396 | 368 | 2,119 | 1,527 | 374 | 299 | 2,200 |
It should be noted that the above illustration is based on the currency denominated/dealt assets noted above at the year end. Exposures may be subject to change during the year as a result of investment decisions.
The Group will be affected by interest rate changes as it holds cash. The majority of the Group's investments are equity based and are not therefore subject to interest rate risk. However, interest rate changes will have an impact on the valuation of equities, although this forms part of other price risk, which is considered separately below.
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Group currently has no gearing.
The Group may from time to time hold significant cash balances. Short-term borrowings are used when required. Cash balances are invested in the market and may be put on deposit for up to one year to improve the return.
Derivative contracts are not used to hedge against the exposure to interest rate risk.
for the year ended 30th June 2018
Interest rate exposure
The exposure, at 30th June, of financial assets and liabilities to interest rate risk is shown by reference to:
– floating interest rates – when the rate is due to be re-set;
– fixed interest rates – when the financial instrument is due for repayment.
| GROUP | 2018 | 2018 Greater |
2018 | 2017 | 2017 Greater |
2017 |
|---|---|---|---|---|---|---|
| In 1 year | than | In 1 year | than | |||
| or less | 1 year | Total | or less | 1 year | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Exposure to fixed interest rates: |
||||||
| Unquoted loan | 1,325 | – | 1,325 | – | 250 | 250 |
| Cash in Deposit Accounts | 9,089 | – | 9,089 | – | – | – |
| Exposure to floating interest rates: |
||||||
| Cash at bank | 5,938 | – | 5,938 | 13,451 | – | 13,451 |
| Total exposure to | ||||||
| interest rates | 16,352 | – | 16,352 | 13,451 | 250 | 13,701 |
The above year end amounts may not be representative of the exposure to interest rates during the year, since the level of cash held during the year will be affected by the strategy being followed in response to the Board's and Investment Manager's perception of the market prospects and the investment opportunities available at any particular time.
Interest receivable and payable are at the following rates:
– Interest received on cash balances, or paid on bank overdrafts is at a margin below or above LIBOR or its foreign currency equivalent (2017: same).
The following table illustrates the sensitivity of the profit before taxation for the year and equity to an increase or decrease of 50 (2017: 50) basis points in interest rates in regard to the Group's monetary financial assets which are subject to interest rate risk.
The sensitivity analysis is based on the Group's monetary financial instruments held at each balance sheet date, with all other variables held constant.
| GROUP | Increase | Decrease | Increase | Decrease |
|---|---|---|---|---|
| in rate | in rate | in rate | in rate | |
| 2018 | 2018 | 2017 | 2017 | |
| £'000 | £'000 | £'000 | £'000 | |
| Effect on total return to equity | 75 | (111) | 67 | (28) |
for the year ended 30th June 2018
The Group's exposure to other price risk comprises mainly movements in the value of its equity related investments.
A Schedule of the Twenty Largest Investments is given on page 12. Investments are valued in accordance with the Group's accounting policies. Uncertainty in future valuations of the Group's investments arises as a result of future changes in the market prices of the Group's listed equity investments and its unit trust and OEIC investments, and the effect changes in exchange rates may have on the sterling value of the investments.
In order to manage this risk the Directors meet regularly with the Investment Manager to compare the performance of the portfolio against the IA sector benchmark and market indices. Given the Group's investment objective, the Group does not hedge against the effect of changes in the underlying prices of the investments.
The Group had no derivative instruments at the year end.
The unquoted investments are held at Directors' valuations. All valuations are reviewed by the Investment Manager, the Group's Audit Committee and subsequently recommended to the Board.
The Group's exposure to other changes in market prices at 30th June on its quoted investments, which are all equities or equity related, was as follows:
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Fixed assets quoted investments at fair value through profit or loss |
90,925 | 86,920 |
| The Group's exposure to other changes in prices at 30th June on its unquoted investments was as follows: |
||
| 2018 | 2017 | |
| £'000 | £'000 | |
| Fixed asset unquoted equity investments at fair value through profit or loss |
5,376 | 4,810 |
| Analysed as: | ||
| 2018 £'000 |
2017 £'000 |
|
| Equities | 4,051 | 4,560 |
| Loan – non-interest bearing | 1,075 | – |
| Loan – interest bearing | 250 | 250 |
| 5,376 | 4,810 | |
for the year ended 30th June 2018
The following table illustrates the sensitivity of the profit after taxation for the year and the equity to an increase or decrease of 10% in the fair values of the Group's investments. The sensitivity analysis is based on the Group's investments at each balance sheet date, with all other variables held constant.
| Increase | Decrease | Increase | Decrease | |
|---|---|---|---|---|
| in fair | in fair | in fair | in fair | |
| value | value | value | value | |
| 2018 | 2018 | 2017 | 2017 | |
| £'000 | £'000 | £'000 | £'000 | |
| Effect on total return and on net assets | 9,630 | (9,630) | 9,173 | (9,173) |
Liquidity risk is the possibility of failure of the Group to realise sufficient assets to meet its financial liabilities, including outstanding commitments associated with financial instruments.
The Group's assets mainly comprise securities which can be readily sold to meet future funding commitments, if necessary. Unlisted securities, which carry a higher degree of liquidity risk form less than 5% (2017: 5%) of the investment portfolio.
All financial liabilities of the Group at the balance sheet date are payable within three months.
The liquidity risk is managed by maintaining some cash or cash equivalent holdings in order to meet investment requirements and other liabilities as they fall due. At the year end the Group had liquid resources of £102 million (2017: £97 million).
This included £15.0 million (2017: £13.4 million) of cash and deposits and £87.4 million (2017: £83.6 million) of listed/daily priced investments.
A summary of the Group's financial liabilities is provided in note 18 (h). The Group has sufficient funds to meet these financial liabilities as they fall due.
for the year ended 30th June 2018
Credit risk is the exposure to loss from failure of a counterparty to deliver securities or cash for acquisitions or disposals of investments or to repay deposits.
Management of the risk
Credit risk is managed as follows:
The maximum exposure to credit risk at 30th June 2018 was £15,027,000 (2017: £13,451,000), comprising:
| 2018 | 2017 | |
|---|---|---|
| £'000 | £'000 | |
| Cash and cash equivalents | 15,027 | 13,451 |
All of the above financial assets are current, their fair values are considered to be approximately the same as the values shown and the likelihood of a material credit default is considered to be low.
The Group's financial assets and financial liabilities are stated at their fair values at the year end. The fair value of quoted shares and securities and unit trusts and OEICs is based on last traded market bid prices or the bid/single price provided by the fund administrator. The fair value of unlisted shares and securities is based on Directors' valuations as detailed in the accounting policies (note 1(g)).
for the year ended 30th June 2018
The carrying amounts of the Group's financial assets and financial liabilities, as recognised at the balance sheet date of the reporting periods under review, are categorised as follows:
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| FINANCIAL ASSETS | ||
| Financial assets at fair value through profit or loss: | ||
| Fixed asset investments – designated as such on initial | ||
| recognition | 96,301 | 91,730 |
| Current assets carried at cost: | ||
| Debtors (due from brokers, dividends receivable, | ||
| accrued income and other debtors) | 257 | 70 |
| Tax recoverable | 15 | 15 |
| Cash and cash equivalents | 15,027 | 13,451 |
| 111,600 | 105,266 | |
| FINANCIAL LIABILITIES | ||
| Measured at amortised cost: | ||
| Creditors: amounts falling due within one year | ||
| Accruals | 234 | 210 |
| 234 | 210 | |
The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:
The tables overleaf set out fair value measurements of financial instruments at the year end, by the level in the fair value hierarchy into which the fair value measurement is categorized.
for the year ended 30th June 2018
| FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AT 30TH JUNE 2018 | ||||
|---|---|---|---|---|
| Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
| Equities and funds | 87,363 | 3,562 | 5,376 | 96,301 |
| FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AT 30TH JUNE 2017 | ||||
| Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
| Equities and funds | 83,556 | 3,364 | 4,810 | 91,730 |
The valuation techniques used by the Company are explained in the accounting policies on page 51. There have been no transfers during the year between Levels 1 and 2.
The level 2 investment is an offshore fund, traded monthly. All loans are level 3 investments.
A reconciliation of fair value measurements in Level 3 is set out below.
| 2018 | 2017 | |
|---|---|---|
| £'000 | £'000 | |
| Opening fair value | 4,810 | 1,580 |
| Movement in classification of investments: | ||
| Purchases at cost | 1,195 | 3,230 |
| Sales proceeds | (2,843) | – |
| Total gains or losses included in gains on investments in the | ||
| Statement of Comprehensive Income | ||
| – on sold assets | 1,675 | – |
| – on assets held at the end of the year | 539 | – |
| Closing fair value | 5,376 | 4,810 |
Level 3 valuations comprise the unlisted investments held at Directors' valuation.
The Level 3 unquoted portfolio represents approximately 5% of the net asset value of the Group. Fair value has been established using recognised valuation techniques in accordance with IPEVC guidelines. Only two investments each represent more than 0.6% of the Group's net asset value. Both investments are valued based on recent transaction value. A 10% increase or decrease in its earnings would not have a material impact on the valuation of these investments. Neither of the investments have reached maturity and are not valued on the basis of their earnings.
for the year ended 30th June 2018
The Group and the Company's capital is as disclosed in their Balance Sheets and is managed on a basis consistent with its investment objective and policies, as disclosed in the Strategic Report on pages 14 and 15. The principal risks and their management are disclosed in the Strategic Report.
Since 1st January 2010 Brompton Asset Management LLP ('Brompton') has acted as Investment Manager to the Company. This relationship is governed by an agreement dated 23rd December 2009. Details of the investment management fee payable can be found on page 21.
Mr Duffield is the senior partner of Brompton Asset Management Group LLP, the ultimate parent of Brompton. Mr Duffield owns the majority (59.14%) of the shares in the Company.
Mr Gamble has an immaterial holding in Brompton Asset Management Group LLP.
The total investment management fee payable to Brompton for the year ended 30th June 2018 was £668,000 (2017: £622,000) and at the year-end £173,000 (2017: £162,000) was accrued. No performance fee was payable in respect of the year ended 30th June 2018 (2017: £nil).
The Group's investments include seven funds managed by Brompton or its associates totalling £19,331,000 (2017: £18,510,000). No investment management fees were payable directly by the Company in respect of these investments.
Details of Directors fees paid may be found on page 33.
Subsequent to the Investment Manager's initial decision to invest, one of the Company's directors was appointed as a director of an investee company. Mr Howard-Spink was the chairman of Immedia Group Plc until August 2017.
There are no other commitments or contingencies at the reporting date (2017: £nil).
Notice is hereby given that the 2018 Annual General Meeting of New Star Investment Trust plc ("Company") shall be held at Tenth Floor, 1 Knightsbridge Green, London, SW1X 7QA commencing at 11.00 am on Thursday 15th November 2018 for the following purposes:
To consider, and if thought fit to pass, the following Resolutions which are proposed as Ordinary Resolutions of the Company:
To consider, and if thought fit to pass, Resolution 8 as an Ordinary Resolution of the Company, and Resolutions 9 to 12 as Special Resolutions of the Company:
subject to such exclusions restrictions or other arrangements as the Directors consider necessary or appropriate in relation to fractional entitlements, record dates, treasury shares, or any legal or regulatory or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and
unless otherwise renewed varied or revoked the authorities hereby granted shall expire at the earlier of the conclusion of the Annual General Meeting of the Company in 2019 or fifteen months after the passing of this Resolution save that the Company may before such expiry enter into offer(s) or agreement(s) which shall or may require Shares to be allotted after such expiry and the Company may allot Shares in pursuance of such offer(s) or agreement(s) as if the authorities hereby granted had not so expired.
Save that the Company may enter into offer(s) or agreement(s) which shall or may require Shares to be allotted after such expiry and the Company is authorised to allot Shares in pursuance of such offer(s) or agreement(s) as if the authorities hereby granted had not so expired.
By order of the Board Maitland Administration Services Limited Corporate Secretary 20th September 2018
Registered Office: 1 Knightsbridge Green, London SW1X 7QA Registered in England & Wales No: 3969011
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.