The Investment Company PLC

Annual Report • Sep 23, 2019

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RNS Number : 1945N Investment Company PLC 23 September 2019 The Investment Company Plc Annual Results Announcement for the year ended 30 June 2019 STRATEGIC REPORT SUMMARY OF RESULTS At 30 June 2019 At 30 June 2018 Change % Equity shareholders' funds 16,620,311 17,334,093 (4.12)% Number of ordinary shares in issue 4,772,049 4,772,049 - Net asset value ("NAV") per ordinary share 348.28p 363.24p (4.12)% Ordinary share price (mid) 298.00p 331.00p (9.97)% Discount to NAV 14.44% 8.88% - At 30 June 2019 At 30 June 2018 Total return per ordinary share 3.24p 12.27p Dividends paid/declared per ordinary share 16.25p 20.70p * The total return per ordinary share is based on total comprehensive income after taxation as detailed in the Consolidated Statement of Comprehensive Income and in note 6 and is shown to enable comparison with other investment trust companies. FINANCIAL CALENDAR November Payment of quarterly interim dividend. December Annual General Meeting. February Payment of quarterly interim dividend. February/March Announcement of Half-Yearly Financial Report. May Payment of quarterly interim dividend. August Payment of quarterly interim dividend. October Announcement of Annual Results. CHAIRMAN'S STATEMENT This statement covers the year to 30 June 2019. Following a change of Investment Manager in February 2018, and changes to the composition of the Board in July 2018, there has now been substantially a full year of the Company under new management. In this period there have been several substantive changes in portfolio, costs and dividends. Overall impact on NAV I am mindful of the fact that I am reporting a decline in both the net asset value ("NAV") and share price over the last year. Between 30 June 2018 and 30 June 2019 the FTSE All Share Index fell by 3.5%. During the same period, the Company's portfolio outturn was also a fall of 3.45%. Pence per share Year to June 2019 % Pence per share Year to June 2018 % Opening net assets 363.24 100.00 371.68 100.00 Portfolio outturn (12.53) -3.45 2.11 0.57 Investment income 24.19 6.66 20.04 5.39 Expenses paid (8.63) -2.37 (9.89) -2.66 Dividends paid (17.99) -4.95 (20.70) -5.57 Closing net assets 348.28 -4.12 363.24 -2.27 The NAV, which has a portfolio invested in both fixed income and equities, was 4.12% lower within that period. During the year the Company's share price discount to NAV varied between 8.88% and 14.44%. Your board has considered the appropriateness of the Company buying back its shares, but having taken advice does not believe this is currently in the best interests of the Company and its shareholders. Your board will continue to keep this matter under review. Portfolio Changes Almost a year ago we, as your new board, set out what we expected of our investment managers. Your investment manager has broadened the number of investments and has invested in a number of new stocks in keeping with the mandate changes initiated earlier in the financial year. There is still much to be done on the legacy portfolio. The creation of wealth through these and other initiatives is taking some time to feed through to our NAV. The Investment Manager's review of the portfolio is set out fully in the Investment Manager's Report. Portfolio investments were previously reported as being divided between Investments available for sale, and Investments held at fair value through profit and loss. Your Board has taken advantage of IFRS 9 to now report all Portfolio investments as being held at fair value through profit and loss. We believe that this results in a clearer Statement of Comprehensive Income. Costs Total operating costs have reduced from £466,471 in the prior year to £401,168 in the year under review. This is against a background of continuing increasing regulatory and associated costs. Although one can expect costs to rise in the next year, your board continues to pay close attention to minimising such a drag on performance. Dividends As highlighted in last year's annual report, your new board is, after consultation with larger shareholders, pursuing a more prudent approach to dividend payments. Our target is to have dividends covered by income net of operating costs. In terms of implementation, the first two dividends paid out during the year were made under the 'old' stance with the result that the total payout during the year to June 2019 was £868,000, being 18.2p per share (June 2018: 20.7p). Overall, the surplus of income over expenses was £752,636 in the year, which was £115,877 short of covering the dividend paid. The current run rate of 3.75p per quarterly payout amounts to 15p in a full year which would equate to a total of £775,458. Our target is to get portfolio income up to the point where the costs and this dividend are covered. Outlook and Recommendation The Company remains small relative to its fixed cost base, and its viability is dependent not just upon performance but also its ability to grow by attracting further capital. My board colleagues and I are wholly committed to exploring all appropriate opportunities that are likely to enhance long term shareholder returns. We remain fully cognisant of the risks to capital in what are proving to be testing markets. As a board we firmly believe that continuation would be in the best interests of all shareholders as it will enable your new board to continue to explore with confidence new options for the growth of the Company. The Company has put forward an ordinary resolution for the continuation of the Company, and accordingly, your Directors recommend that members vote in favour of continuation. AGM The AGM will be held at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH on 21 November 2019 at 11.30am. I encourage all shareholders to attend. Finally, your board is grateful for the continued support of our shareholder base as we seek a prosperous future for your Company. Yours faithfully, I. R. Dighé Chairman 20 September 2019 INVESTMENT MANAGER'S REPORT Performance The twelve months under review was most certainly a year of two halves. The first, from mid-May 2018 to December 2018, was a difficult time for global equity markets with the sell-off reaching fever pitch in the fourth quarter. Weakening global economic growth, the perceived upward trajectory of US interest rates, the trade tariff dispute between the US and China and the ongoing Brexit negotiations all contributed to a period of heightened negative investor sentiment. December 2018 was recorded as the worst December for global equity markets since 1988. Further still 2018 as a whole became the worst year for equities since the financial crisis of 2008. In January 2019 however, investor sentiment for risk assets changed abruptly. In response to the deterioration in the global economic outlook, the Federal Reserve changed their hawkish position on interest rates to a far more dovish one, hinting at interest rate cuts. This was particularly surprising as in the fourth quarter of 2018 the Federal Reserve had indicated that three separate increases in rates may be required in 2019. This dramatic about-turn provided equity markets with the oxygen required to recover and rise strongly in the first quarter of 2019. Such was the strength of the rally that it all but reversed the losses of the fourth quarter. During the year to 30 June 2019 the NAV of the Company fell by 4.12% whilst the share price fell by 9.97%. This was the first full reporting year in which Fiske has managed the portfolio and we are largely pleased with the relative progress made in restructuring the portfolio. Over 90% of the combined costs of running the company and paying the dividends are now covered by forecast income receipts. Work remains ongoing to fully cover these costs in the current year. Portfolio We introduced a new holding in Standard Life Aberdeen (SLA) which we believe is a deep value situation for patient investors. SLA owns 29% of HDFC Life and the value to SLA of exiting this investment at close to prevailing values would be approximately £2.4 billion or 98 pence per share. It would be likely that a significant proportion of this cash would be returned to shareholders which would subsequently improve the dividend cover. Assets under management are currently £572 billion with plenty of scope to support growing funds and take cost out of mature parts of the fund estate. While we wait for the business restructuring process to be concluded, the shareholders are currently receiving an attractive dividend which, at the time we invested, was equivalent to a yield of around 9%. Greene King continues to make steady progress and recently announced the arrival of a new Chief Executive, Nick Mackenzie, from Merlin Entertainments. We recently met with the company and believe that they are taking the necessary steps in the evolution of the customer proposition. The shares continue to trade at a significant discount to the NAV, have a yield of over 5%, and are supported by a progressive dividend policy. We believe that with his customer focused experience at Merlin, Nick will drive the digital and consumer focused strategy of the business forward. We are pleased to note that post the end of the period under review, an agreed offer for Greene King plc at 850p per share has been recommended by the Board. This is substantially above the price at which we made the investment in Greene King plc for the Company. We are encouraged by the progress Emma Walmsley is making at GlaxoSmithKline as she continues to push the company towards becoming a science-led global healthcare company. The aim is to deliver growth and improve shareholder returns through the development of innovative pharmaceutical, vaccine and consumer healthcare products. Zejula, the ovarian cancer treatment, is showing promise and recent comments suggest that it could be used on far more patients than initially anticipated. Furthermore Zejula is also being trialled for the treatment other cancers. As mentioned in the interim report, the largest corporate exposure in the portfolio is Aggregated Micro Power Holdings ordinary shares. These shares were received following the conversion of our previous holding in Aggregated Micro Power Holdings 8% 2021 Convertible Loan Note. We have started to sell down the holding in Aggregated Micro Power as following the conversion of the preference shares into ordinary shares this holding is not paying a dividend. The Company benefitted from the liquidation of the Whitnash 5% preference share where it received £641,000 in cash. Moreover, there is a possibility of a return of capital and income with respect to the Whitnash 6.5% preference share. In the fixed interest part of the portfolio we have added two new names in the last six months, namely CYBG 8% Perpetual and Punch Taverns Finance 7.75% 2025 whilst adding selectively to existing holdings. CYBG is the combination of the Clydesdale and Yorkshire banks. It has recently acquired Virgin Money which brings a strong brand to the enlarged group and gives further scope to grow market share in the retail banking sector. Punch Taverns manages a large pub estate of over 1,000 pubs with most of the properties owned on a freehold basis. The company is owned by Patron Capital Partners, a private equity house with a focus on property related investments. Information on the business is made publicly available to bond holders and shows the business operating well in the current economic climate. Future Prospects Little has changed in the world economic backdrop since our interim report. Both bond and equity markets have continued to respond favourably to dovish sentiment emanating from the Federal Reserve and European Central Bank in response to a slowdown in global growth rates. Brexit continues to dominate the UK political commentary and its consequential effects on sterling are apparent. Overall, the UK market remains very attractively priced against the rest of the world. We maintain the view that, unless a global recession takes hold, the historically low yields on government bonds offer very little scope for capital appreciation. A resolution to Brexit in our opinion will remove some uncertainty and in doing so will provide international investors more reason to invest in UK assets. M. Foster, J. Harrison & J. Dieppe Fiske plc 20 September 2019 TWENTY LARGEST INVESTMENTS At 30 June 2019 Stock 1. GlaxoSmithKline Number Book cost £ Market or Directors' valuation £ % of total portfolio Ordinary 25p 41,450 607,354 653,501 4.14% 2. Newcastle Building Society 3.849% sub notes 23/12/19 (variable) 600,000 405,438 596,292 3.78% 3. Phoenix Group Ordinary 10p 82,245 536,954 583,035 3.70% 4. 600 Group 8% cov loan notes 14/02/20 500,000 500,000 540,455 3.43% 20p Warrants 2,500,000 - 0.00% 500,000 540,455 3.43% 5. Standard Life Aberdeen Ordinary 13.9683p 169,000 405,553 497,705 3.15% 6. Nationwide Building Society 10.25% core capital deferred shares (variable) 3,100 490,536 466,218 2.95% 7. Unilever Ordinary 3.11p 9,500 373,118 464,978 2.95% 8. The Fishguard & Rosslare Railways and Harbours Company 2.45% guaranteed preference stock 790,999 441,809 458,779 2.91% 9. National Westminster Bank 9% non-cumulative irredeemable preference 300,000 217,752 450,600 2.86% 10. National Grid Ordinary 11.395p 53,900 433,101 450,496 2.86% 11. Intercede Group 8% conv loan notes 29/12/21 450,000 450,000 450,000 2.85% 12. CYBG 8% variable perpetual 450,000 415,497 437,904 2.78% 13. Restaurant Group Ordinary 28.125p 332,000 407,616 437,576 2.77% 14. Amalgamated Metal Corporation 5.4% cum pref £1 256,065 144,049 230,458 1.46% 6% cum pref £1 213,510 103,844 207,105 1.31% 247,893 437,563 2.77% 15. WPP Ordinary 10p 43,000 410,263 425,786 2.70% 16. EI Group 7.5% 15/03/24 400,000 409,099 419,060 2.66% 17. Premier Oil 6.5% 31/05/21 410,000 400,497 410,759 2.60% 18. Severn Trent Ordinary 97.89p 20,000 399,179 409,400 2.59% 19. Polar Capital Ordinary 2.5p 66,500 354,056 397,670 2.52% 20. Punch Taverns 7.75% 30/12/25 400,000 397,408 389,500 2.47% 8,303,123 9,377,277 59.44% * Issues with unrestricted voting rights. The Group has a total of 61 portfolio investments holdings in 55 companies. CORPORATE SUMMARY Business and management of the Company The Investment Company plc (the Company) is an investment trust company that has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment. The Company's wholly owned subsidiaries are Abport Limited, an investment dealing company and New Centurion Trust Limited, an inactive investment company (together the Group). Investment Objective The Company's investment objective is to provide shareholders with an attractive level of dividends coupled with capital growth over the long term, through investment in a portfolio of equities, preference shares, loan stocks, debentures and convertibles. Investment Policy The Company invests in equity and fixed income securities. The equity portion of the portfolio would principally invest in UK quoted companies, with a wide range of market capitalisations, which are anticipated to pay a growing stream of dividends. It is expected that the fixed income securities would include preference shares, loan stocks, convertibles and related instruments and be issued by UK quoted companies with a wide range of market capitalisations. The conversion rights or equity warrants would normally convert into the underlying equity of the quoted company. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions. Risk diversification Portfolio risk is mitigated by investing in a diversified spread of investments. Investments in any one company shall not, at the time of acquisition, exceed 15% of the value of the Company's investment portfolio. In the long term, it is expected that the Company's investments will generally be a portfolio of around 75 or more different securities, most of which will represent individually no more than 5% of the value of the Company's total investment portfolio, as at the time of acquisition. The Company will not invest more than 10% of its gross assets, at the time of acquisition, in other listed closed-ended investment funds, whether managed by the Investment Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds. Unquoted investments The Investment Manager may invest in unquoted fixed income securities from time to time subject to prior Board approval. Investment strategy The Company uses a bottom-up investment approach to selecting a diversified portfolio of equity and fixed income securities. The investment approach can be described as active and universal, as the Company will not seek to replicate any benchmark and will adopt a multicap investment approach within an overall diversified portfolio. Potential investments are assessed against the key criteria, including, yield along with an assessment of the prospects of underlying corporate growth prospects, market positions, calibre of management and risk and financial resilience. Performance Details of the Company's performance during the financial year are provided in the Chairman's Statement. The Investment Manager's Report includes a review of developments during the year as well as information on investment activity within the portfolio. Dividend Policy Your Board intends to pay a total dividend of 15p1 per share during the year ending 30 July 2020. Any growth in net income in future years will be taken into account in assessing dividend levels with a view to gradually growing it going forward. 1 This is a target and should not be interpreted as a profit or dividend forecast. Total Assets and Net Asset Value The Group, had total net assets of £16,620,311 and a NAV of 348.28p per ordinary share at 30 June 2019 (2018: £17,334,093 and 363.24p). Principal Risks and Uncertainties The management of the business and the execution of the Group's strategy are subject to a number of risks. An assessment of the principal risks to the Company has been carried out, including those that would threaten its business model, future performance, solvency and liquidity. The UK political risk and continuing uncertainty around Brexit are being closely monitored by the Board and Investment Manager as are its potential impact on the Company, markets and the future relationship between the UK and the EU. With the exception of the potential risk from Brexit, the Company's principal risks remain unchanged since last year and are set out below, together with how these have been mitigated or managed, where appropriate. A summary of the risk management and internal control processes can be found in the Corporate Governance Statement. The key business risks affecting the Group are: (i) Investment decisions: the performance of the Group's portfolio is dependent on a number of factors including, but not limited to the quality of initial investment decisions and the strategy and timing of sales; (ii) Investment valuations: the valuation of the Group's portfolio and opportunities for realisations depend to some extent on stock market conditions and interest rates; and (iii) Macroeconomic environment for preference shares and prior charge securities: the environment for issuing of new preference shares and prior charge securities determines whether new issues become available, thus affecting the choice and scope of investment opportunities for the Group. Risk Management Specific policies for managing risks are summarised below and have been applied throughout the year: 1. Market price risk The Investment Manager monitors the prices of financial instruments held by the Group on a regular basis. In addition, it is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce risks arising from investment decisions and investment valuations. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. Most of the equity investments held by the Company are listed on the London Stock Exchange. 2. Interest rate risk In addition to the impact of the general investment climate, interest rate movements may specifically affect the fair value of investments in fixed interest securities. The Investment Manager monitors the applicable interest rates and yields associated with the securities. 3. Liquidity risk The Group's assets mainly comprise readily realisable quoted securities that can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of overdraft facilities. Additional risks and uncertainties include: Credit risk: the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. Normal delivery versus payment practice and review of counterparties and custodians by the Investment Manager mean that this is not a significant risk. Discount volatility: The Company's shares may trade at a price which represents a discount to its underlying NAV. Regulatory risk: The Company operates in an evolving regulatory environment and faces a number of regulatory risks. A breach of section 1158/1159 of the Corporation Tax Act 2010 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including the Companies Act 2006, the UKLA Listing Rules, the UKLA Disclosure Guidance and Transparency Rules, or the Alternative Investment Fund Managers' Directive, could lead to a detrimental outcome. Breaches of controls by service providers to the Company could also lead to reputational damage or loss. The Board monitors compliance with regulations, with reports from the Investment Manager and the Administrator. Protection of assets: The Company's assets are protected by using a custodian, Fiske plc. In addition, the Company operates clear internal controls to safeguard all assets. These and other risks facing the Company are reviewed regularly by the Audit Committee. Key Performance Indicators ("KPIs") The Board reviews performance by reference to a number of KPIs and considers that the most relevant KPIs are those that communicate the financial performance and strength of the Group as a whole. The Board and Investment Manager monitor the following KPIs: - NAV performance relative to the FTSE All-Share Index (total return) The NAV per ordinary share at 30 June 2019 was 348.28p per share (2018: 363.24p). The total return of the NAV after adding back dividends paid was 3.24%. This compares with a total return on the FTSE All-Share Index of 0.6%. - (Discount)/premium of share price in relation to NAV Over the year to 30 June 2019, the Company's share price moved from trading at a discount of 8.9% to a discount of 14.4%. - Ongoing Charges Ratio The Ongoing Charges Ratio for the year to 30 June 2019 amounted to 2.44%. Viability Statement The Directors have assessed the viability of the Company over a two-year period, taking account of the Company's position and the risks as set out in the Strategic Report. The period assessed balances the long-term aims of the Company, the Board's view that the success of the Company is best assessed over a longer time period and the inherent uncertainty of looking too far ahead. The Company puts forward an ordinary resolution for the continuation of the Company each year, with the vote taking place at the AGM. As part of its assessment of the viability of the Company, the Board has considered the principal risks and uncertainties and the impact on the Company of a significant fall in the value of its portfolio. To provide this assessment, the Board has considered the Company's financial position and its ability to liquidate its portfolio to meet its expenses or other liabilities as they fall due. · The Company invests largely in debt, preference shares and equity instruments issued by companies listed and traded on regulated stock exchanges. These are traded, and whilst some may be less liquid than larger quoted companies, the portfolio is well diversified by both number of holdings and industry sector. · The expenses of the Company are predictable and modest in comparison with the assets in the portfolio. There are no commitments that would change that position. · The ongoing charges ratio of the Company was 2.44% as at 30 June 2019. Future Prospects The future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in the Chairman's Statement and the Investment Manager's report. Further details are also provided in the above Viability Statement. Board Diversity When recruiting a new Director, the Board's policy is to appoint individuals on merit. The Board believes diversity is important in bringing an appropriate range of skills, knowledge and experience to the Board and gives that consideration when recruiting new Directors. As at 30 June 2019 there were three male Directors on the Board. Environmental, Human Rights, Employee, Social and Community Issues The Board consists entirely of non-executive Directors and during the year the Company had no employees. Day-to-day management of the portfolio is delegated to the Investment Manager. The Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. Environmental, Social and Governance factors are considered as part of the investment process as misjudgments on these matters can incur additional costs to the portfolio holdings, as well as undermining their equity return through reputational damage. The Investment Manager questions the corporate management on a variety of topics to ensure that investee companies are adhering to best practice. These questions can be wide ranging. The Strategic Report has been approved by the Board of Directors. On behalf of the Board I. R. Dighé Chairman 20 September 2019 STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for preparing this Annual Report and the financial statements in accordance with applicable law and regulations and those International Financial Reporting Standards ("IFRS") adopted by the European Union and Article 4 of the International Accounting Standards. Company law requires the Directors to prepare financial statements for each financial period which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing those financial statements, the Directors are required to: · select suitable accounting policies and then apply them consistently; · make judgements and estimates that are reasonable and prudent; · present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; · state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements; · prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business; and · provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group 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 Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority. The financial statements are available on the Administrator's website, www.maitlandgroup.com. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction. We confirm that to the best of our knowledge: · the Group and Company financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; · this Annual Report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces; and · the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position and performance, business model and strategy. On behalf of the Board I. R. Dighé Chairman 20 September 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2019 Year to 30 June 2019 Year ended 30 June 2018 Revenue Capital Total Revenue Capital Total Notes £ £ £ £ £ £ Realisted gains on investments 11 - 267,049 267,049 - 79,185 79,185 Unrealised (losses)/gains on investments held at fair value through profit or loss 11 - (864,171) (864,171) - 732,429 732,429 Movement in impairment provision on investments held as available for sale - - - - (3,745) (3,745) Exchange losses on capital items - (137) (137) - (3,050) (3,050) Losses on derivative contracts 12 - - - - (63,640) (63,640) Investment income 2 1,154,271 - 1,154,271 956,273 - 956,273 Investment management fee 3 (98,697) - (98,697) (88,259) - (88,259) Other expenses 4 (301,825) (646) (302,471) (378,089) (123) (378,212) Return before taxation 753,749 (597,905) 155,844 489,925 741,056 1,230,981 Taxation 5 (1,113) - (1,113) (5,329) - (5,329) Return after taxation 752,636 (597,905) 154,731 484,596 741,056 1,225,652 Other comprehensive income Movement in unrealised appreciation on investments held as available for sale Recognised in equity - - - - 30,134 30,134 Recognised in return after taxation - - - - (670,657) (670,657) Other comprehensive income after taxation - - - - (640,523) (640,523) Profit for the year 752,636 (597,905) 154,731 484,596 100,533 585,129 Return after taxation per 50p ordinary share Basic and diluted 6 15.77p (12.53p) 3.24p 10.16p 15.53p 25.69p Return on profit for the year per 50p ordinary share Basic and diluted 6 15.77p (12.53p) 3.24p 10.16p 2.11p 12.27p The total column of this statement is the Consolidated Statement of Comprehensive Income of the Group prepared in accordance with IFRS. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. The "Profit for the year" is also the "Total comprehensive income for the year" as defined in IAS2 and no seperate Statement of Comprehensive Income has been presented. The notes form part of these financial statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2019 Issued ordinary share capital Share premium Capital redemption reserve Revaluation reserve Capital reserve Revenue reserve Total £ £ £ £ £ £ £ Balance at 1 July 2018 2,386,025 4,453,903 2,408,820 1,917,418 7,310,117 (1,142,190) 17,334,093 Transition to IFRS 9 (see note 19) - - - (1,917,418) 1,917,418 - - Total comprehensive income Profit for the year - - - - (597,905) 752,636 154,731 Transactions with shareholders recorded directly to equity Ordinary dividends paid - - - - - (868,513) (868,513) Balance at 30 June 2019 2,386,025 4,453,903 2,408,820 - 8,629,630 (1,258,067) 16,620,311 Balance at 1 July 2017 2,386,025 4,453,903 2,408,820 2,557,941 6,569,061 (638,973) 17,736,777 Total comprehensive income Net return for the year - - - - 741,056 484,596 1,225,652 Movement in unrealised appreciation on investments held as available for sale: - Recognised in equity - - - 30,134 - - 30,134 - Recognised in return after taxation - - - (670,657) - - (670,657) Transactions with shareholders recorded directly to equity Ordinary dividends paid - - - - - (987,813) (987,813) Balance at 30 June 2018 2,386,025 4,453,903 2,408,820 1,917,418 7,310,117 (1,142,190) 17,334,093 COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2019 Issued ordinary share capital £ Issued preference share capital £ Share premium £ Capital redemption reserve £ Revaluation reserve £ Capital reserve £ Revenue reserve £ Total £ Balance at 1 July 2018 2,386,025 858,783 4,453,903 2,408,820 1,923,762 4,758,355 1,327,945 18,117,593 Transition to IFRS 9 (see note 19) - - - - (1,923,762) 1,923,762 - - Total comprehensive income Net return for the year - - - - - (597,925) 764,255 166,330 Transactions with shareholders recorded directly to equity Ordinary dividends paid - - - - - - (868,513) (868,513) Preference share dividends paid - - - - - - (172) (172) Balance at 30 June 2019 2,386,025 858,783 4,453,903 2,408,820 - 6,084,192 1,223,515 17,415,238 Balance at 1 July 2017 2,386,025 858,783 4,453,903 2,408,820 2,556,323 4,025,262 1,827,740 18,516,856 Total comprehensive income Net return for the year - - - - - 733,093 488,190 1,221,283 Movement in unrealised appreciation on investments held as available for sale: - Recognised in equity - - - - 41,318 - - 41,318 - Recognised in return after taxation - - - - (673,879) - - (673,879) Transactions with shareholders recorded directly to equity Ordinary dividends paid - - - - - - (987,813) (987,813) Preference share dividends paid - - - - - - (172) (172) Balance at 30 June 2018 2,386,025 858,783 4,453,903 2,408,820 1,923,762 4,758,355 1,327,945 18,117,593 CONSOLIDATED BALANCE SHEET As at 30 June 2019 Note Group 2019 £ Group 2018 £ Non-current assets Investments 11 15,777,113 16,340,329 Current assets Trade and other receivables 15 192,958 265,341 Investments available for sale - 2,077 Cash and cash equivalents 785,703 843,433 978,661 1,110,851 Current liabilities Trade and other payables 16 (135,463) (117,087) (135,463) (117,087) Net current assets 843,198 993,764 Net assets 16,620,311 17,334,093 Capital and reserves Issued ordinary share capital 8 2,386,025 2,386,025 Share premium 4,453,903 4,453,903 Capital redemption reserve 2,408,820 2,408,820 Revaluation reserve - 1,917,418 Capital reserve 8,629,630 7,310,117 Revenue reserve (1,258,067) (1,142,190) Shareholders' funds 10 16,620,311 17,334,093 NAV per 50p ordinary share 348.28p 363.24p These financial statements were approved by the Board on 20 September 2019 and were signed on its behalf by: I. R. Dighé Chairman Company Number: 4205 COMPANY BALANCE SHEET As at 30 June 2019 Note Company 2019 £ Company 2018 £ Non-current assets Investments 11 15,775,016 16,340,329 Investment in subsidiaries 13 862,656 862,656 16,637,672 17,202,985 Current assets Trade and other receivables 15 218,353 285,830 Cash and cash equivalents 785,703 843,433 1,004,056 1,129,263 Current liabilities Trade and other payables 16 (226,490) (214,655) (226,490) (214,655) Net current assets 777,566 914,608 Net assets 17,415,238 18,117,593 Capital and reserves Issued ordinary share capital 8 2,386,025 2,386,025 Issued preference share capital 9 858,783 858,783 Share premium 4,453,903 4,453,903 Capital redemption reserve 2,408,820 2,408,820 Revaluation reserve - 1,923,762 Capital reserve 6,084,192 4,758,355 Revenue reserve 1,223,515 1,327,945 Shareholders' funds 17,415,238 18,117,593 As permitted by section 408 of the Companies Act 2006, the Company has not presented its own Income Statement. The amount of the Company's return for the financial year dealt with in the financial statements of the Group is a profit after tax of £166,330 (2018: £588,722). These financial statements were approved by the Board on 20 September 2019 and were signed on its behalf by: I. R. Dighé Chairman Company Number: 4205 CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS For the year ended 30 June 2019 Cash flows from operating activities Note Group Year to Year to 30 June 2019 30 June 2018 £ £ Company Year to Year to 30 June 2019 30 June 2018 £ £ Cash received from investments 1,203,692 920,760 1,203,692 914,479 Interest received - 86 - 86 Sundry income - 1,300 - 1,300 Investment management fees paid (95,795) (88,043) (95,795) (88,043) Cash paid to and on behalf of employees (1,167) (14,000) (1,167) (14,000) Other cash payments (263,981) (369,197) (259,075) (359,643) Net cash inflow from operating activities 842,749 450,906 847,655 454,179 Cash flows from financing activities Dividends paid on ordinary shares 7 (868,513) (987,813) (868,513) (987,813) Net cash outflow from financing activities (868,513) (987,813) (868,513) (987,813) Cash flows from investing activities Purchase of investments 11 (6,497,746) (5,655,702) (6,497,746) (5,655,702) Sale of investments 11 6,465,917 5,771,848 6,465,917 5,771,848 Loans to subsidiaries - - (4,906) (1,426) Net cash (outflow)/inflow from investing activities (31,829) 116,146 (36,735) 114,720 Net decrease in cash and cash equivalents (57,593) (420,761) (57,593) (418,914) Reconciliation of net cash flow to movement in net cash Decrease in cash (57,593) (420,761) (57,593) (418,914) Exchange rate movements (137) (3,050) (137) (3,050) Decrease in net cash (57,730) (423,811) (57,730) (421,964) Net cash at start of period 843,433 1,267,244 843,433 1,265,397 Net cash at end of period 785,703 843,433 785,703 843,433 Analysis of net cash Cash and cash equivalents 785,703 843,433 785,703 843,433 785,703 843,433 785,703 843,433 NOTES TO THE FINANCIAL STATEMENTS At 30 June 2019 1. Accounting policies Basis of Preparation The Company is a public limited company limited by shares and incorporated and registered in England and Wales. The Company has been approved as an investment trust within the meaning of section 1158/1159 of the Corporation Tax Act 2010. The Company's registered office is Hamilton Centre, Rodney Way, Chelmsford CM1 3BY. The Group's consolidated financial statements for the year ended 30 June 2019, which comprise the audited results of the Company and its wholly owned subsidiaries, Abport Limited and New Centurion Trust Limited (together referred to as the "Group"), have been prepared in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with the provision of the Companies Act 2006. The annual financial statements have also been prepared in accordance with the AIC Statement of Recommended Practice issued in November 2014 and updated in February 2018 with consequential amendments ("AIC SORP"), except to any extent where it is not consistent with the requirements of IFRS. 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 Income Statement between items of a revenue and capital nature have been prepared alongside the Income Statement. The financial statements are presented in Sterling, which is the Group's functional currency as the UK is the primary environment in which it operates. Going Concern The financial statements have been prepared on a going concern basis, being a period of at least 12 months from the date that these financial statements were approved, and on the basis that approval as an investment trust company will continue to be met. The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern, having taken into account the liquidity of the Group's investment portfolio and the Group's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis. Basis of Consolidation IFRS10 stipulates that subsidiaries of Investment Entities are not consolidated. The Investment Company meets all three characteristics of Investment Entity as described, however, it is envisaged that one of the subsidiaries will be a dealing subsidiary and, therefore consolidated financial statements are presented for the Group. The financial statements of the subsidiaries are prepared for the same reporting year as the parent Company, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from them are eliminated. Segmental Reporting The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business. The Group primarily invests in companies listed in the UK. Accounting Developments The following policies were adopted during the financial year. International Financial Reporting Standards IFRS 9 Classification and measurement of financial assets after initial recognition IFRS 15 Revenue form contracts with customers The new impairment model will also apply to the Group's other financial assets including trade and other receivables and cash and cash equivalents. The Directors expect to apply the simplified approach to recognise lifetime expected credit losses for these current assets. The adoption of IFRS 9 has no material impact on the reported Net Asset Value. There will be no change in the accounting for financial liabilities. In summary, on adoption of IFRS 9 for the first period commencing after 1 January 2018, the Directors consider that IFRS 9 has not had a material impact on the financial position or performance of the Group. See note 19 for further details. The following accounting standards and their amendments were in issue at the period end but will not be in effect until after this financial year. International Financial Reporting Standards Effective date IFRS 3 Business Combinations (amendment) 1 January 2020 IFRS 16 Leases 1 January 2019 International Accounting Standards IAS 28 Investments in Associates and Joint Ventures (long term interests in associates or joint venture) 1 January 2019 IFRIC Interpretations IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019 Annual improvements to IFRS 2015-2017 Cycle 1 January 2019 Years beginning on or after Not yet endorsed for use in the EU The Directors do not expect that the adoption of other standards listed above will have a material impact on the financial statements of the Group in future periods. Critical Accounting Judgments and Key Sources of Estimation Uncertainty The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Statement of Comprehensive Income and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. These are reviewed on an ongoing basis. Actual results may differ from these estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future period if the revision affects both current and future periods. The major part of the investment portfolio is valued by reference to quoted prices. However £4,087,767 of the portfolio comprises fixed interest stocks which are thinly traded; such stocks are best valued by reference to current market price lists provided by an independent broker, itself a recognised leader in such preference share and similar fixed interest stocks. The Directors may overlay such prices with situation specific adjustments including (a) taking a second independent opinion on a specific stock, or (ii) reducing the value to a net present value, to reflect the likely time to be taken to realise a stock which the Group is actively looking to sell. The outturn is reflected in the valuations set out in Note 11 to the accounts. There were no other significant accounting estimates or significant judgements in the current or previous year. Investments As the Group's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth, Investments are classified at fair value through profit or loss on initial recognition in accordance with IFRS 9. The portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Group's Board of Directors. Investments are measured initially, and at subsequent reporting dates, at fair value, and derecognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time-frame of the relevant market. For listed investments this is deemed to be bid market prices or closing prices for Stock Exchange Electronic Trading Service - quotes and crosses ("SETSqx"). Changes in fair value of investments, realised gains and losses on disposal are recognised in the Income Statement as capital items. The holdings of the investment in subsidiaries are stated at cost less diminution in value. All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 11. Foreign Currency Transactions denominated in foreign currencies are converted to Sterling at the actual exchange rate as at the date of the transaction. Items that are denominated in foreign currencies at the year end are reported at the rate of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is of a capital or revenue nature. Cash and Cash Equivalents Cash comprises cash in hand, overdrafts and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above. Income Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis. Dividends from overseas companies are shown gross of any non-recoverable withholding taxes which are disclosed separately in the Income Statement. Dividend income will only be recognised when there is reasonable certainty that the issuer has the ability to make the return. Expenses and Finance Costs All expenses and finance costs are accounted for on an accruals basis. Taxation The tax expense represents the sum of the tax currently payable. The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates applicable at the balance sheet date. No taxation liability arises on gains from sales of fixed asset investments by the Group by virtue of its investment trust status. However, the net revenue (excluding UK dividend income) accruing to the Group is liable to corporation tax at the prevailing rates. Dividends Payable to Shareholders Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date. Share Capital Issued share capital consists of Ordinary shares with voting rights and issued preference shares which are non-voting. The Issued preference shares, owned in their entirety by New Centurion Trust Limited, a wholly-owned subsidiary of the Company, are entitled to receive a cumulative dividend of 0.01p per share per annum, and are entitled to receive their nominal value, 50p, on a distribution of assets or a winding up. Share Premium The share premium account represents the accumulated premium paid for shares issued in previous periods above their normal value less issue expenses. This is a reserve forming part of non-distributable reserves. The following items are taken to this reserve: · Costs associated with the issue of equity; · Premium on the issue of shares. Capital Redemption Reserve The reserve represents the nominal value of the shares bought back and cancelled. This reserve is not distributable. Revaluation Reserve Following the adoption of IFRS 9, there are no investments classified as "assets available for sale". As a result the revaluation reserve has been transferred to the Capital Reserve. Capital Reserve The following are taken to this reserve: · Gains and losses on derivatives; · Gains and losses on the disposal of investments; · Net movement arising from changes in the fair value of investments held and classified as at "fair value through profit or loss"; · Exchange differences of a capital nature; and · Expenses together with the related taxation effect, allocated to this reserve in accordance with the above policies. Realised gains on investments less expenses, provisions and unrealised gains may be considered by the Board for distribution. This reserve is not distributable. Revenue Reserves The revenue reserve represents the surplus accumulated profits and is distributable. 2. Income Year ended Year ended 30 June 2019 30 June 2018 £ £ Income from investments: UK dividends 848,003 505,852 Un-franked dividend income 46,335 96,066 UK fixed interest 259,933 346,877 1,154,271 948,795 Other income: Bank deposit interest - 85 Underwriting commission - 1,300 Net dealing gains of subsidiaries - 6,093 Total income 1,154,271 956,273 3. Investment Management Fee Year ended Year ended 30 June 2019 30 June 2018 £ £ Investment Management Fee 98,697 88,259 The management fee payable monthly in arrears by the Company to the Investment Manager, Fiske plc is calculated at the rate of one-twelfth of 0.75% per calendar month of the NAV of the Company, capped at £90,000 for the first twelve months to 31 March 2019. For these purposes, the NAV shall be calculated as at the last business day of each month. At 30 June 2019 an amount of £10,402 (2018: £7,500) was outstanding and due to the Investment Manager. 4. Other Expenses Year ended 30 June 2019 £ Year ended 30 June 2018 £ Administration and secretarial services 81,000 121,229 Auditors' remuneration for: - audit of the Group's financial statements 35,000 33,950 Directors' remuneration (see note 18) 45,319 60,000 Staff costs 1,167 14,000 Pension costs 233 280 Other expenses 139,106 148,630 301,825 378,089 The audit of the Group's financial statements includes the cost of the audit of Abport Limited of £2,000 (2018: £2,000) and New Centurion Trust Limited £2,000 (2018: £2,000), which are charged to the subsidiaries. In conjunction with the resignation of former directors, a secretary also retired with the aggregate remuneration consisting of: Staff costs Year ended 30 June 2019 £ Year ended 30 June 2018 £ Wages and salaries 1,167 14,000 Social security costs - 1,579 Total 1,167 15,579 Pension costs Pension payments 233 280 Total 233 280 There were no employees as at 30 June 2019 (2018: one). The Company does not have a provision (2018: same) in respect of future pension payments. There are no pension liabilities due to past employees. 5. Taxation Revenue Year ended 30 June 2019 Capital Total Revenue Year ended 30 June 2018 Capital Total £ £ £ £ £ £ Current Taxation Overseas taxation suffered 1,113 - 1,113 5,329 - 5,329 1,113 - 1,113 5,329 - 5,329 The current tax charge for the year is lower than (2018: lower than) the standard rate of corporation tax in the UK of 19% to 30 June 2019 and 19% to 30 June 2018. The differences are explained below: Revenue Year ended 30 June 2019 Capital Total Revenue Year ended 30 June 2018 Capital Total £ £ £ £ £ £ Return on ordinary activities 753,749 (597,905) 155,844 489,925 741,056 1,230,981 Theoretical tax at UK Corporation tax rate of 19% (2018: 19%) 143,212 (113,602) 29,610 93,086 140,801 233,887 Effects of: UK dividends that are not taxable (161,121) - (161,121) (96,112) - (96,112) Overseas dividends that are not taxable (4,422) - (4,422) (18,253) - (18,253) Non taxable investment gains/(losses) - 113,602 113,602 - (140,801) (140,801) Overseas taxation suffered 1,113 - 1,113 5,329 - 5,329 Unrelieved expenses 22,331 - 22,331 21,279 - 21,279 Actual current tax charged to the revenue account 1,113 - 1,113 5,329 - 5,329 Factors that may affect future tax charges The Company has excess management expenses of £1,714,172 (2018: £1,596,643). It is unlikely that the Company will generate sufficient taxable income in the future to use these expenses to reduce future tax charges and therefore no deferred tax asset has been recognised. Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an investment trust company under HMRC rules. Further reductions to the UK Corporation tax rates were substantively enacted as part of the Finance Bill on 15 September 2015. These reduce the main rate to 17% from 1 April 2020. 6. Return per Ordinary Share Year ended 30 June 2019 Year ended 30 June 2018 Revenue Capital Total Revenue Capital Total Return after taxation Return attributable to ordinary shareholders (£) 752,636 (597,905) 154,731 484,596 741,056 1,225,652 Weighted average number of ordinary shares in issue (excluding shares held in Treasury) 4,772,049 4,772,049 Return per ordinary share (pence) basic and diluted 15.77p (12.53)p 3.24p 10.16p 15.53p 25.69p 7. Dividends per Ordinary Share Year ended Year ended 30 June 2019 30 June 2018 £ £ Declared and paid per Ordinary Share In respect of the prior period: Fourth interim dividend 5.70p (2018: 5.70p) 272,007 272,007 In respect of the year under review: First interim 5.00p (2018: 5.00p) 238,602 238,602 Second interim dividend 3.75p (2018: 5.00p) 178,952 238,602 Third interim dividend 3.75p (2018: 5.00p) 178,952 238,602 868,513 987,813 Declared per Ordinary Share Dividend declared in respect of the year under review: Fourth interim dividend 3.75p (2018: 5.70p) 178,952 272,007 8. Ordinary Share Capital Group and Company Group and Company 2019 2018 Number £ Number £ Issued, allotted and fully paid: Ordinary shares of 50p each 4,772,049 2,386,025 4,772,049 2,386,025 The ordinary shares entitle the holders to receive all ordinary dividends and all remaining assets on a winding up, after the fixed rate preference shares have been satisfied in full. The Company does not hold any ordinary shares in Treasury (2018: none). 9. Issued Preference Share Capital Group Company 2019 2018 2019 2018 £ £ £ £ Issued preference share capital - - 858,783 858,783 The 1,717,565 fixed rate preference shares of 50p each are non-voting, entitled to receive a cumulative dividend of 0.01p per share per annum, and are entitled to receive their nominal value, 50p, on a distribution of assets or a winding up. The whole of the issue is held by New Centurion Trust Limited, a wholly owned subsidiary of the Company. The Directors do not consider the fair values of the issued preference share capital to be significantly different from the carrying values. 10. Net Asset Value per Ordinary Share The NAV per ordinary share is calculated as follows: 2019 2018 £ £ Net assets 16,620,311 17,334,093 Ordinary shares in issue, excluding own shares held in Treasury 4,772,049 4,772,049 NAV per ordinary share 348.28p 363.24p The underlying investments of the wholly owned subsidiary New Centurion Trust Limited comprise issued preference share capital, as discussed in note 9, in the Company and, being effectively eliminated on consolidation, the valuation thereof does not impact the NAV attributable to ordinary shareholders. 11. Investments During the year, upon transition to IFRS 9, investments held for sale were re-designated as investments held at fair value through profit or loss. 2019 £ Group 2018 £ 2019 £ Company 2018 £ Available for sale - 6,592,447 - 6,592,447 At fair value through profit or loss 15,777,113 9,747,882 15,775,016 9,747,882 Total investments designated at fair value 15,777,113 16,340,329 15,775,016 16,340,329 Investments available for sale Opening book cost 5,211,124 6,562,916 5,266,743 6,618,535 Opening net investment holding gains 1,381,323 2,025,591 1,325,704 1,969,972 Re-classification to fair value through profit or loss upon transition to IFRS 9 (6,592,447) - (6,592,447) - Total investments designated as available for sale - 8,588,507 - 8,588,507 Movements in the year: Purchases at cost - - - - Sales - proceeds - (1,923,800) - (1,923,800) - gains on sales - 572,008 - 572,008 Decrease in investment holding gains - (644,268) - (644,268) Closing valuation - 6,592,447 - 6,592,447 Closing book cost - 5,211,124 - 5,266,743 Closing net investment holding gains - 1,381,323 - 1,325,704 - 6,592,447 - 6,592,447 Analysis of changed in investment holding gains Movement in impairment provision - (3,745) - (11,707) Recognised in equity - 30,134 - 41,318 Recognised in return after taxation - (670,657) - (673,879) Losses on investments - (644,268) - (644,268) Group Company 2019 2018 2019 2018 £ £ £ £ Opening book cost 14,827,617 8,301,661 14,883,235 8,301,661 Opening net investment holding gains/(losses) 1,514,789 (601,039) 1,457,094 (601,039) Total investments designated as held at fair value 16,342,406 7,700,622 16,340,329 7,700,622 Movements in the year: Purchases at cost 6,497,746 5,655,702 6,497,746 5,655,702 Sales - proceeds (6,465,917) (3,848,048) (6,457,917) (3,848,048) - gains (losses) on sales 267,049 (492,823) 288,915 (492,823) (Decrease)/increase in investment holding gains (864,171) 732,429 (886,057) 732,429 Closing valuation 15,777,113 9,747,882 15,775,016 9,747,882 Closing bookcost 15,126,495 9,616,492 15,203,979 9,616,492 Closing net investment holding gains 650,618 131,390 571,037 131,390 15,777,113 9,747,882 15,775,016 9,747,882 This includes re-classified available for sale assets. Group Company Year ended Year ended 2019 2018 2019 2018 £ £ £ £ Transaction costs Costs on acquisitions 30,438 28,265 30,438 28,265 Costs on disposals 9,165 8,020 9,165 8,020 39,603 36,285 39,603 36,285 Group Company Year ended Year ended 2019 2018 2019 2018 £ £ £ £ Analysis of capital gains Gains on sale of investments 267,049 79,185 288,915 79,185 Movement in investment holding gains (864,171) 88,161 (886,057) 88,161 (597,122) 167,346 (597,142) 167,346 Fair Value Hierarchy The Group is required to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in measuring the fair value of each asset. The fair value as the amount at which the asset could be sold or the liability transferred in an orderly transaction between market participants, at the measurement date, other than a forced or liquidation sale. 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 asset as follows: Level 1 - valued using quoted prices, unadjusted in active markets for identical assets or liabilities. Level 2 -valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in level 1. Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data or the asset or liability. The table below sets out fair value measurements of financial instruments by the level in the fair value hierarchy into which the fair value measurement is categorised. At 30 June 2019 Level 1 Level 2 Level 3 Total £ £ £ £ Financial assets at fair value through profit or loss Equities 8,803,036 300,353 2,250,165 11,353,554 Fixed Interest bearing securities 3,721,476 - 702,083 4,423,559 12,524,512 300,353 2,952,248 15,777,113 At 30 June 2018 Level 1 Level 2 Level 3 Total £ £ £ £ Financial assets at fair value through profit or loss Equities 7,770,314 - - 7,770,314 Fixed Interest bearing securities 471,448 - 1,506,120 1,977,568 Financial assets available for sale Equities 800,000 413,559 2,889,789 4,103,348 Fixed Interest bearing securities 2,061,228 - 427,871 2,489,099 Current asset investments held by a trading subsidiary 2,077 - - 2,077 11,105,067 413,559 4,823,780 16,342,406 There were no transfers between level 1 and 2 during the current or prior year. The valuation techniques used by the Group are set out in the Accounting Policies in Note 1. Valuation process for Level 2 investments The valuations are provided by an independent third party broker. The values are determined using observable inputs including prevailing interest rates, the maturity and redemption dates of the investment. The equity securities of the issuing company of the investments held are or have been publicly listed. The information includes reported results, commentary on current trading and, third party research. Valuation process for Level 3 investments Investments classified within Level 3 have significant unobservable inputs. Level 3 investments can typically include unlisted equity and corporate debt securities. As observable prices are not available for these securities, the Group has used valuation techniques to derive the fair value using recognised valuation methodologies, in accordance with International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines including discounted cash flow modelling where relevant. The Level 3 investments held by the Group currently consist of fixed interest bearing securities and certain equity securities. These are valued by the Investment Manager with valuation confirmations provided to the Board on a regular basis. The equity securities of the issuing company of the Level 3 investments held have been formerly listed and, therefore, detailed public information is available to substantiate the future prospects of the issuing company. The fixed interest bearing securities anticipated future cash returns and cash-flows. This information includes reported results, commentary on current trading, and third party research. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs. Unobservable inputs are not provided by the Group but provided by a third party pricing vendor, these prices that are provided by the pricing vendor are not adjusted. The following stocks, each having no independent source of pricing, have been assessed by the Directors as having the following values: Nil value: 600 Group Warrants, Fairpoint Group Ordinary shares, Gable Holdings 7.35% Loan Note and Whitnash 6.5% 2nd Preference shares. Par value: Intercede Group 8% Secured Convertible Loan notes. Written down value: Liberty Limited 6% Cumulative Non Redeemable Preference shares and Liberty Retail Limited 9.5% Cumulative Non Redeemable Preference shares have each been marked down to reflect expectations of discounted value. If the value of the level 2 and 3 investments were to increase or decrease by 10%, while all the other variables remained constant, the net assets and net profit available to shareholders would have increased/decreased by £325,260 (2018: £523,734). The table below presents the movement in Level 3 investments that were accounted for at fair value for the year ending 30 June 2019. Year ended 30 June 2019 Group Financial assets at fair value through profit or loss £ Opening balance 4,823,780 Transfer to level 1 (1,056,120) Movement in unrealised gains/(losses) on investments at fair value through profit or loss 206,423 Realised gain 45,398 Sales proceeds (1,067,233) Closing balance 2,952,248 Company Financial assets at fair value through profit or loss £ Opening balance 4,823,780 Transfer to level 1 (1,056,120) Movement in unrealised gains/(losses) on investments at fair value through profit or loss 171,292 Realised gain 80,529 Sales proceeds (1,067,233) Closing balance 2,952,248 During the year one investment converted to equity and another listed on an exchange, and had a quoted price as at 30 June 2019. Year ended 30 June 2018 Group Financial assets at fair value through profit or loss Available for sale Total £ £ £ Opening balance 1,664,286 3,816,982 5,481,268 Movement in impairment provision on investments available for sale - (99,952) (99,952) Movement in unrealised appreciation on investments available for sale recognised in equity - (20,156) (20,156) Movement in unrealised appreciation on investments available for sale recognised in return after taxation - 3,865 3,865 Purchases at cost - - Movement in unrealised gains/(losses) on investments at fair value through profit or loss (158,165) - (158,165) Realised loss - 16,930 16,930 Sales proceeds - (400,010) (400,010) Closing balance 1,506,121 3,317,659 4,823,780 Company Financial assets at fair value through profit or loss Available for sale Total £ £ £ Opening balance 1,664,286 3,816,982 5,481,268 Movement in impairment provision on investments available for sale - (99,952) (99,952) Movement in unrealised appreciation on investments available for sale recognised in equity - (20,156) (20,156) Movement in unrealised appreciation on investments available for sale recognised in return after taxation - 3,865 3,865 Purchases at cost - - Movement in unrealised gains/(losses) on investments at fair value through profit or loss (158,165) - (158,165) Realised loss - 16,930 16,930 Sales proceeds - (400,010) (400,010) Closing balance 1,506,121 3,317,659 4,823,780 During the year there were four significant disposals: Stock Proceeds Cost Valuation@ 30.06.2018 £ £ £ Charles Taylor 514,317 334,592 595,814 Direct Line 341,909 354,049 362,174 Lloyds 7.625% Perp 308,051 204,360 522,301 Lloyds 7.875% Perp 423,809 245,997 419,721 12.Derivative Contracts The derivative contracts serve as components of the Company's investment strategy and are utilised primarily to structure and hedge investments, to enhance performance and reduce risk to the Group (the Company does not designate any derivative as a hedging instrument for hedge accounting purposes). The derivative contracts that the Company may hold from time to time or issue include: index-linked notes, contracts for differences, covered options and other equity-related derivative instruments. These instruments can involve a high degree of leverage and are very volatile. A relatively small movement in the underlying value of a derivative contract may have a significant impact on the profit and loss and net assets of the Group. The Company's investment objective sets limits on investments in derivatives with a high risk profile. The Investment Manager is instructed to closely monitor the Company's exposure under derivative contracts and any use of the derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments. The Company will not enter into uncovered short positions. As at 30 June 2019, the Group had no positions in the following type of derivative: Options Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period. The Company purchases either Put or Call options through regulated exchanges and OTC markets. Options purchased by the Company provide the Company with the opportunity to purchase (Call options) or sell (Put options) the underlying asset at an agreed-upon value either on or before the expiration of the option. The Company is exposed to credit risk on purchased options only to the extent of their carrying value, which is their fair value. During the year ended 30 June 2018, the FTSE 100 March 2018 6,000 Put option expired. Group Company 2019 2018 2019 2018 £ £ £ £ Movements in the period: Opening valuation - 63,640 - 63,640 Purchases at cost - - - - Sales proceeds - - - - Losses on sales - (339,853) - (339,853) Movements in unrealised loss - 276,213 - 276,213 Closing valuation - - - - Closing bookcost - - - - Closing unrealised loss - - - - - - - - Group Company 2019 2018 2019 2018 £ £ £ £ Analysis of capital gains Losses on sale of investments - (339,853) - (339,853) Movement in investment holding losses - 276,213 - 276,213 - (63,640) - (63,640) 13. Investment in Subsidiaries Company 2019 2018 £ £ At cost 5,410,552 5,410,552 Provision for diminution in value (4,547,896) (4,547,896) At cost 862,656 862,656 At 30 June 2019, the Company held interests in the following subsidiary companies: Country of Incorporation % share of capital held % share of voting rights Nature of business Abport Limited England 100% 100% Investment dealing company New Centurion Trust Limited England 100% 100% Investment holding company The registered office for both companies above is: Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY 14. Substantial Share Interests The Company has no notified interests in 3% or more of the voting rights of any companies at 30 June 2019. 15. Trade and Other Receivables Group Company 2019 2018 2019 2018 £ £ £ £ Amounts due from subsidiaries - - 25,395 20,489 Accrued income 35,577 15,998 35,577 15,998 Due from brokers - - - - Dividends receivable 146,804 215,804 146,804 215,804 Taxation recoverable 6,064 3,182 6,064 3,182 Other receivables 4,513 30,357 4,513 30,357 192,958 265,341 218,353 285,830 The carrying amount of trade receivables approximates to their fair value. Trade and other receivables are not past due at 30 June 2019. 16. Trade and Other Payables Group Company 2019 2018 2019 2018 £ £ £ £ Preference dividends payable to the Company's wholly owned subsidiary - - 1,033 861 Amount due to subsidiaries - - 101,533 101,533 Investment management fees 10,402 7,500 10,402 7,500 Other trade payables and accruals 125,061 109,587 113,522 104,761 135,463 117,087 226,490 214,655 17. Financial Instruments and Associated Risks The Groups financial instruments comprise securities, cash balances, receivables and payables. They are classified in the following categories: · those to be measured subsequently at fair value through profit or loss; and · those to be measured at and amortised cost. The financial assets held at amortised cost include trade and other receivables, cash and cash equivalents. Investment Objective and Policy The Group's investment objective is to provide shareholders with an attractive level of dividends coupled with capital growth over the long-term. The investing activities in pursuit of its investment objective involve certain inherent risks. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Group's direct investments, as described below. Risks The risks identified arising from the Group's financial instruments are market risk (which comprises market price risk and interest rate risk, liquidity risk and credit and counterparty risk). The Group may enter into derivative contracts to manage risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. Market Risk Market risk arises mainly from uncertainty about future prices of financial instruments used in the Group's business. It represents the potential loss the Group might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Group assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager. Market price risk Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments. The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Investment Manager. Investment performance and exposure are reviewed at each Board meeting. The Group's exposure to changes in market values was £15,777,113 (2018: £16,342,406). The direct impact of a 5% movement in the value of investments amounts to £788,856 (2018: £817,120). An equal change in the opposite direction would have decreased the net assets and net profit available to shareholders by an equal and opposite amount. The analysis is based on closing balances only and is not representative of the year as a whole. The market value of the option may move in a different direction to Securities. 2019 £ 2018 £ Securities available for sale - 6,592,447 Securities at fair value through profit or loss 15,777,113 9,747,882 Total investment 15,777,113 16,340,829 2019 2018 £ £ Securities available for sale - 329,622 Securities at fair value through profit or loss 788,856 487,394 Effect on post-tax profit for the year and on equity 788,856 817,016 Interest Rate Risk Interest rate movements may affect the level of income receivable on cash deposits. The Group's financial assets and liabilities, excluding short-term debtors and creditors, may include investment in fixed interest securities, such as UK corporate debt stock, whose fair value may be affected by movements in interest rates. The majority of the Group's financial assets and liabilities, however, are non-interest bearing. As a result, the Group's financial assets and liabilities are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. The possible effects on the 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 Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions. Cash flow interest rate risk No interest rate risk Total Cash flow interest rate risk No interest rate risk Total 2019 2019 2019 2018 2018 2018 £ £ £ £ £ £ Investments available for sale - - - 2,489,099 4,103,348 6,592,447 Investments at fair value through profit or loss 3,957,341 11,817,675 15,775,016 1,506,120 8,241,762 9,747,882 Investment in Subsidiary - 2,097 2,097 - 2,077 2,077 Other receivables* - 188,445 188,445 - 234,984 234,984 Cash at bank 785,703 - 785,703 843,433 - 843,433 Current liabilities - (135,463) (135,463) - (117,087) (117,087) 4,743,044 11,872,754 16,615,798 4,838,652 12,465,084 17,303,736 * The above table doesn't include prepayments of £4,513 (2018: £30,357). Interest rate movements may affect the level of income receivable on cash deposits and fixed interest bearing securities. The impact of a 1% movement in interest rates would move net assets and net profit available to shareholders by the following amounts: 2019 2018 £ £ Fixed interest bearing securities 2,599 3,469 Bank interest - 1 2,599 3,470 Liquidity Risk The Group's assets mainly comprise readily realisable quoted and unquoted securities that can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the ability to liquidate listed securities. The Group's liquidity risk is managed by the Investment Manager in accordance with established policies and procedures in place. Cash flow forecasting is performed in the operating entities of the Group and aggregated by the Investment Manager. The Investment Manager monitors the rolling forecasts of the group's liquidity requirements to ensure it has sufficient cash to meet obligations as they fall due. The maturity profile of the Group's financial liabilities £135,463 (2018: £117,087) are all due in one year or less. Credit and Counterparty Risk Credit risk is the risk of financial loss to the Group if the contractual party to a financial instrument fails to meet its contractual obligations. The maximum exposure to credit risk as at 30 June 2019 was £978,661 (2018: £1,108,774). The calculation is based on the Group's credit risk exposure as at 30 June 2019 and this may not be representative for the whole year. The Group's quoted investments are held on its behalf by Fiske plc acting as the Group's custodian. Bankruptcy or insolvency of the custodian may cause the Group's rights with respect to securities held by the custodian to be delayed. Where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Group of default. Investment transactions are carried out with a number of brokers where creditworthiness is reviewed by the Investment Manager. Cash is only held at banks that have been identified by the Board as reputable and of high credit quality. Foreign Currency Risk Although the Group's performance is measured in sterling, a proportion of the Group's assets may be either denominated in other currencies, investments with currency exposure or the trading activities of its investee companies. At 30 June, the Group held £1,285 (2018: £1,502) of investments held for sale denominated in Australian Dollars. This is not material to the Group. Derivatives The Investment Manager may use derivative instruments in order to "hedge" the market risk of part of the portfolio. The Investment Manager reviews the risks associated with individual investments and, where they believe it appropriate, may use derivatives to mitigate the risk of adverse market (or currency) movements. The Investment Manager discusses regularly the hedging strategy with the Board. At the year end, there were no derivative contracts open (2018: none). Capital Management Policies Capital is managed so as to maximise the return to shareholders while maintaining a capital base to allow the Group to operate effectively. Capital is managed on a consolidated basis and to ensure that it will be able to continue as a going concern. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell securities to reduce debt. The Board, with the assistance of the Investment Manager, monitors and reviews the capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings' as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as "equity" as shown in the consolidated balance sheet plus net debt. The gearing ratios at 30 June 2019 and 2018 were as follows: 2019 2018 £ £ Cash and bank balances 785,703 843,433 Net cash 785,703 843,433 Ordinary shareholders' funds 16,620,311 17,568,224 Gearing (net debt/ordinary shareholders' funds) nil nil 18. Related Party Transactions Details of the relationship between the Company/Group and the Investment Manager, Fiske plc are disclosed in the Strategic Report. The amounts paid to the Investment Manager, together with details of the Investment Management Agreement, are disclosed in note 3. Investment Management fees for the year amounted to £98,697 (2018: £88,259). In addition, £6,141 was paid to Fiske plc pursuant to a custody agreement (2018: £5,079). As at the year end, the following amounts were outstanding payable to Fiske plc: £13,670 (2018: £12,579). Key Management Personnel The Board consists of three non-executive Directors all of whom, with the exception of Mr Perrin who is a non-executive Director of Fiske plc, are considered to be independent by the Board. For the year ended 30 June 2019 all Directors including, the Chairman, received an annual fee of £15,000. The Directors did not receive any other form of renumeration. Controlling Party The Director's consider that there is no controlling party. At the year end, there were no outstanding fees payable to Directors (2018: nil). Expenses outstanding to Directors at the year end consists of £nil (2018: £nil). No interest is charged on the balance and consists of reimbursement of expenses incurred. There were no other related party transactions during the current or previous year. 19. Transition to IFRS 9 Financial Instruments IFRS 9 'Financial Instruments' is effective for periods beginning on or after 1 January 2018 and has been adopted by the Group in the year. IFRS 9 sets out requirements for recognising and measuring financial assets and financial liabilities and replaces IAS 39 'Financial Instruments: Recognition and Measurement'. The impact on the consolidated financial statements of the Group is detailed below. Classification of financial assets IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and the cash flow characteristics of the assets. IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income and fair value through profit or loss. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. The new classification requirements do impact the accounting for the Group's financial assets and all investments previously classified as available for sale have been reclassified to fair value through profit or loss. Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking 'expected credit loss' model. The new impairment model will apply to financial assets measured at amortised cost. There is no impact on the values reported in the financial statements from adopting IFRS 9 in respect of expected credit losses. Cash and cash equivalents Cash and cash equivalents are held at banks with a strong credit rating and are not subject to any period of notice. The Group typically maintains a low value of cash and cash equivalents and often a net overdrawn cash position as part of its RCF funding arrangement. There is no impact on the values reported in the financial statements from adopting IFRS 9 in respect of expected credit losses. Classification of financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The classification requirements of IFRS 9 do not impact the financial statements. Transition The impact on the financial statements from the adoption of IFRS 9 is detailed below. The Group and Company has applied the simplified approach and therefore adjustments on transition to IFRS 9 are presented as an adjustment to opening reserves at 1 July 2018. Opening Reserves Adjustment Year ended 30 June 2018 £ Consolidated Balance Sheet and Consolidated Statement of Changes in Equity Capital and reserves Revaluation Reserve (1,917,418) Capital Reserve 1,917,418 - This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com. END FR URABRKBAKUAR