REG-Edinburgh Inv. Trust: Half-year Report
11/12/2019 07:05
The Edinburgh Investment Trust plc
Half-yearly financial report for the six months to 30 September 2019
Performance Statistics
Six months to
30 September 2019
Total Return ((1)(3))(all with dividends reinvested) % Change
Net asset value (NAV) ((2))– debt at market value –3.1
Share price ((2)) –5.9
FTSE All-Share Index +4.6
The Company’s benchmark is the FTSE All-Share Index.
At At
30 September 31 March %
2019 2019 Change
Capital Return
Net asset value – debt at market value ((2)) 660.16p 696.91p –5.3
Share price ((1)(2)) 591.0p 644.0p –8.2
FTSE All-Share Index ((1)) 4,061.74 3,978.28 +2.1
Discount ((2)(3))– debt at market value (10.5)% (7.6)%
Gearing (debt at market value) ((2)(3))– gross gearing 9.7% 11.0%
Gearing (debt at market value) ((2)(3))– net gearing 5.0% 10.8%
Retail Price Index ((1))– annual change 2.4% 2.4%
%
Six months to 30 September 2019 2018 Change
Revenue Return
Revenue return per ordinary share 17.2p 15.6p +10.3
First interim dividend ((4)) 6.40p 6.25p +2.4
Notes:
1. Source: Invesco/Refinitiv.
2. Alternative Performance Measure (APM), see Glossary of Terms and
Alternative Performance Measures in the 2019 half-yearly financial report for
the explanation and calculation of APMs.
3. Key Performance Indicator.
4. Dividends declared in respect of the financial year.
Chairman’s Statement
Dear Shareholder
The Company achieved a net asset value (NAV) total return for the six months
to 30 September 2019 of -3.1% (with debt at market value), falling behind that
of the FTSE All-Share Index, the Company’s benchmark, which returned +4.6%.
This represents an underperformance of 7.7% against the benchmark and follows
underperformance against the benchmark in each of the past three financial
years. Indeed, over the last three years, the Company has delivered a NAV
total return of +1.6%, against the total return of the FTSE All-Share Index of
+21.7%.
The share price discount to NAV widened from 7.6% at the year end to 10.5% on
30 September 2019, reflecting a combination of general widening of discounts
across the sector and discontent with the Company’s performance. At 9
December 2019, the share price of 609.0p represented a 10.8% discount to the
NAV of 682.6p. The share price total return (share price with dividends
reinvested) for the period was -5.9%, with the Company’s share price ending
the period at 591.0p, a decrease of 8.2% from the 31 March 2019 year end share
price of 644.0p.
During the period 10,721,561 shares were bought back and held in treasury at
an average price of 564.81p per share, excluding costs. At the period end the
share capital consisted of 184,760,173 shares in circulation and 10,906,561
shares held in treasury. Subsequent to the period end, 7,021,244 additional
shares have been bought back into treasury.
Change of Investment Manager
This is another very disappointing set of results. Since 2018 your Board has
worked hard to understand the causes of this underperformance, cognisant of
the long-term investment objective of your Company and the recent trends in
the UK equity market. Following a detailed assessment and careful
consideration, including taking independent advice from Willis Towers Watson,
a firm of investment consultants, and Investec Bank, our financial adviser,
the Board has decided to replace Invesco as investment manager and has today
announced that it has entered into heads of terms for the appointment of
Majedie Asset Management (“Majedie”) as the Company’s new investment
manager. The Company remains committed to its twin objectives of capital
growth that exceeds the FTSE All-Share Index and dividend growth that at least
matches the rate of inflation.
Majedie is an independent, active equity investment management firm with
proven expertise in UK equities. Majedie takes a total return approach, where
income is an important component rather than the primary driver of investment
return, and therefore aligns with the Company’s twin objectives. James de
Uphaugh has a long-term track record, successfully co-managing Majedie’s UK
Equity strategy from launch. Majedie has recorded sub-portfolio total returns
from 31 December 2006, since when James’ sub-portfolio has outperformed the
FTSE All-Share Index by 3.0% net per annum(1). The Company’s portfolio will
be closely aligned with this sub-portfolio, which has not previously been
directly available to retail investors.
The Board is satisfied that the new investment management team, led by James,
has the experience, resources and ability to manage the portfolio to achieve
the Company’s objectives.
Under the new arrangements, the investment management fees will reduce from
the current annual rate of 0.55% of market capitalisation to a lower fee of
0.48% on the first £500 million of market capitalisation and 0.465% on
amounts above £500 million. In addition, the Company will also benefit from a
three month management fee-free period at the start of Majedie’s management.
The Board expects that the new manager will take up its role in Q1 2020. I
will update you once the new Manager is in situ when you will then also hear
from James de Uphaugh on his approach to managing the portfolio.
I would like to take this opportunity to thank Invesco, Mark Barnett and Kelly
Nice in particular, for their services to the Company, Board and shareholders
over the years.
Borrowings
The Company has in place a mixture of fixed and floating rate debt.
The former is the Company’s £100 million 7¾% debenture which matures in
2022 and the latter a £150 million, 364-day bank credit facility. During the
period under review aggregate borrowings ranged between £100 million and
£134 million, ending the period at £100 million – equivalent to gross
gearing of 9.7% (net gearing of 5.0%) based on debt at market value.
Dividend
The Board has declared a first interim dividend of 6.40p (2018: 6.25p), an
increase of 2.4%. This was paid on 29 November 2019 to shareholders on the
register on 15 November 2019, with shares quoted ex-dividend on 14 November
2019.
Outlook
This has been a disappointing period for shareholders; I would like to thank
all those who have written to me with their observations, comments and advice
and also to thank all shareholders for the patience and loyalty they have
shown the Company. I am confident that the new arrangements will position the
Company favourably for the future.
Glen Suarez
Chairman
10 December 2019
(1) Since 31 December 2006, at inception of sub-portfolio total returns
measurement. Source: Majedie/Factset. Data from James’ sub-portfolio within
the Majedie UK Equity strategy; to 30 November 2019, GBP, total return (with
gross dividends reinvested). Since this return series is only available on a
gross basis, a deduction has been made on an annual basis to provide an
estimation for costs and charges using the proposed management fee rate,
transaction costs and actual OEIC expenses.
Capital Returns (excluding dividends paid) to 30 September 2019
6 mths 1 yr 3 yr 5 yr 10 yr
NAV (debt at market value) (%) –5.3 –11.9 –9.0 5.2 81.5
Share price (%) –8.2 –12.6 –18.4 –2.7 67.7
FTSE All-Share Index (%) 2.1 –1.6 8.2 14.9 54.2
Total Returns (with dividends reinvested) to 30 September 2019
6 mths 1 yr 3 yr 5 yr 10 yr
NAV (debt at market value) (%) –3.1 –8.2 1.6 25.9 175.6
Share Price (%) –5.9 –8.5 –8.1 17.6 155.3
FTSE All-Share Index (%) 4.6 2.7 21.7 38.9 121.0
Source: Invesco/Refinitiv.
Portfolio Manager’s Report
Market Review
The UK equity market provided a positive return in the six-month period to 30
September 2019. However, this headline return masks periods of underlying
volatility. Global markets were driven by persistent concerns of a slowdown in
economic growth and the fluctuation of US-Sino trade tensions. Meanwhile a
trend noted in previous periods continued; internationally orientated sectors
within the FTSE 100 continued to lead market performance.
The UK equity market rose during April, fuelled by signs of a recovery in
global economic growth. However, a reignition of trade tensions caused a sharp
fall at the beginning of May. This pattern repeated itself over the summer
months, as the market rose strongly in June and July, before falling very
sharply at the beginning of August. The inversion of the US and UK yield
curves caused a particularly fevered debate given the historic correlation
with economic recessions. The market recovered in September to end the period
higher in aggregate.
Against this backdrop commodity prices proved volatile. Having bottomed at
US$50 per barrel at the end of 2018, the price of Brent crude oil continued
its recovery in the second quarter, reaching US$74 per barrel in April 2019.
However, by August, global political uncertainty had seen gains pared, with
the oil price breaching US$56 per barrel. Conversely, sustained global
economic uncertainty saw the price of gold rise strongly throughout the
period, as investor demand grew for this safe haven asset.
Political uncertainty surrounding the new Prime Minister in the UK and
negotiations for the exit from the EU dominated the domestic agenda. During
the period sterling served as the bellwether for the perceived likelihood of a
“no-deal” exit. The value of sterling versus international currencies
remained weak, with the prorogation of Parliament in August pushing the pound
to just US$1.20.
Amid this persistent domestic uncertainty, the Bank of England’s Monetary
Policy Committee voted unanimously on four occasions to hold the UK base
interest rate at 0.75%. Latterly, officials signalled the potential for a
future interest rate cut following the UK’s exit from the EU. Economic data
released during the period showed a slowdown in economic growth during the
first half of 2019, a result of weaker business investment and slowing global
economic growth. Yet employment data remains robust, with the unemployment
rate below 4% and more than 800,000 labour market vacancies.
Portfolio review
The Company’s investments have continued to generate meaningful growth in
income that has supported the growth in dividends. However, the capital
returns have been disappointing as a consequence of the challenging backdrop
facing UK domestically orientated companies, some particular stock specific
challenges, and also the consequences of a large forced seller in the UK
equity market. The Company’s net asset value, including reinvested
dividends, provided a return of –3.1% during the period under review,
compared with a return of +4.6% (£ total return) by the FTSE All-Share Index.
The portfolio’s core themes have remained consistent over the past six
months. The tilt towards UK domestic companies has been maintained, as
persistent negativity towards domestic sectors continues to present compelling
opportunities. Exposure to selective global industries, namely oil & tobacco,
remains prominent whilst a significant proportion of the portfolio is also
invested in non-correlated financials. The low correlation of investments held
by the Company with the FTSE All-Share Index affords two important benefits to
the portfolio; business risk diversification and income diversification. This
is especially important given the concentration of dividend income in the UK
stock market.
The portfolio’s exposure to UK domestic opportunities still supported
positive absolute returns over the period. BCA Marketplace and KCOM were among
the portfolio’s top contributors, as both companies received private equity
bids during the period under review. KCOM’s board of directors recommended a
bid in April, but later abandoned it in favour of an enhanced all cash offer
from a European infrastructure fund. Meanwhile, BCA Marketplace confirmed in
June that it was in advanced discussions with a private equity firm, following
an all cash offer for the company. Elsewhere within the portfolio’s domestic
theme, Next provided a positive contribution to performance. The company
released a strong trading statement in July, which confirmed
better-than-expected full price sales for the second quarter. Half-year
results released in September confirmed double-digit growth in online sales,
whilst management reaffirmed its full-year guidance.
The portfolio’s absolute performance was also supported by its exposure to
international growth opportunities. Stock selection within this theme proved
decisive, as holdings in BAE Systems and HomeServe were amongst the
portfolio’s best performing stocks over the period. HomeServe released full
year results in May, which were ahead of market expectations. The company
delivered another year of strong organic revenue growth and confirmed a double
digit increase in the annual dividend. Meanwhile, BAE Systems traded well over
much of the period. The company released supportive half-year results in July
that showed double-digit profit growth, fuelled by an increase in US defence
spending.
Relative performance also benefitted from the portfolio’s zero weighting in
the metals & mining sector, which proved highly volatile amid geopolitical
tensions. Conversely, the non-inclusion of several highly rated,
internationally focussed FTSE 100 stocks proved to be a drag to relative
performance.
Tobacco remains a prominent theme, with investments in Altria, British
American Tobacco and Imperial Brands, which have delivered exceptional returns
for shareholders over the long term. However, the sector continued to prove
challenging for performance. Investor sentiment towards the tobacco sector was
impacted by revived fears around regulation, whilst the release of
underwhelming sales data for Imperial Brands’ next generation technology
reignited concerns around the outlook for future revenues. The portfolio’s
significant weighting in the sector proved challenging for relative
performance, with the impact of negative returns from non-UK index stock
Altria a significant detractor to relative returns. Despite these persistent
concerns, the manager remains confident in the outlook for the sector,
particularly given his view that the headwinds outlined are reflected in
depressed valuations across the sector.
The portfolio’s final theme proved the most substantive driver of weakness
during the period. Burford Capital was the standout detractor to returns.
Having been a strong contributor to fund performance over many years, Burford
Capital provided the portfolio’s largest negative return over the period. In
August 2019, the litigation financer was the subject of a highly critical
report from a US firm that specialises in publishing research for
short-sellers. This caused a very material fall in the company’s share
price. Burford Capital robustly defended itself against the accusations and
later announced a series of corporate governance enhancements. Whilst the
share price recovered some losses during September, the value of this holding
remained significantly lower at period end.
Elsewhere within the non-correlated financials holdings, Amigo also provided a
negative contribution to returns. The share price was weak towards the end of
the period, as concerns grew around the regulatory focus for the guarantor
backed loan sector. The share price fell sharply at the end of August on the
release of results for the first quarter, when the company cut its full year
guidance and announced a change in lending strategy to prioritise new customer
lending, over repeat customer lending. Despite these specific challenges,
there were a number of holdings within this area that performed well over the
period, notably Beazley and Hiscox.
It should also be noted that a small number of holdings saw persistently weak
share prices in the absence of any meaningful company news. This cohort
comprised a number of stocks in which there was a cross holding with a forced
seller, which further compounded the already depressed market sentiment.
Whilst this short-term share price disruption was not isolated to the
portfolio of The Edinburgh Investment Trust plc, it has proven extremely
frustrating. We maintain the view that the long-term outlook and inherent
value of those companies impacted is unchanged.
Portfolio manager outlook
The performance of the UK stock market is likely to be determined by the same
macroeconomic and political forces which have dominated sentiment for the past
few years. The political uncertainty in many regions has been especially
difficult to navigate recently and has been a major headwind to portfolio
performance given the extreme polarisation of company valuations that has
emerged. It has been commented here previously that this differential between
highly rated global non-cyclical stocks and depressed domestic economically
sensitive shares is substantial. This differential sits at a multi-year high
and offers the most glaring opportunities within the UK stock market. The
portfolio is positioned to take advantage of this perceived mispricing and
retains large portfolio weightings in insurance, real estate, retail and
support services.
The extent of this mispricing is perhaps most clearly highlighted by the
spread between dividend yields and corporate bond yields over the past ten
years. Over this period, dividend yields have remained broadly flat, whilst
corporate bond yields have declined markedly. A 650bp shift in the yield
differential over the period is notable and represents another strong
endorsement of the attraction of equities to an asset neutral investor at the
moment. It is also very likely a significant factor behind the strong
re-emergence of merger and acquisition activity in recent months. The range
and breadth of deals witnessed from industrial and especially financial buyers
is clear evidence that there is value available in UK listed companies
financed by accessing the debt markets at very attractive yields. The
portfolio has been a beneficiary of two such deals (BCA Marketplace and KCOM)
that have been announced since the year end and I am confident that there will
be more to follow in the coming months.
There had, over the past six years, been a modest increase in the number of
holdings in the portfolio. However, more recently this trend has started to
reverse, accelerating in the period due to two factors: the extreme
opportunities present within the market and the removal of three holdings due
to completed acquisition activity. As a result of these changes the portfolio
has become slightly more biased towards large companies although the themes
expressed in the portfolio namely UK domestic value, selective international
industries and non correlated financial companies has remained broadly similar
to previously. The emphasis on cash generative businesses paying sustainable
and growing dividends is resolutely unchanged.
In recent weeks sentiment within the market has been extremely volatile as
perceptions around a political deal have shifted. This has resulted in a
marked change in the composition of the stock and sector leadership, which has
favoured the current positioning within the portfolio. A sense of relief and
clarity regarding the outcome of the negotiations with Brussels is clearly a
benefit to the performance of the UK stock market and especially this
portfolio. The level of pessimism which is discounted in the valuations of
many holdings is anticipated to result in material revaluation opportunities
from current levels as and when the political fog clears.
Mark Barnett James Goldstone
Portfolio Manager Deputy Portfolio Manager
10 December 2019
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be summarised as
follows:
• Market Risk – a fall in the stock market as a whole will affect
the performance of the portfolio, as well as the performance of individual
portfolio investments; it also includes interest rate and currency risks;
market risk may be impacted by increased volatility during the period of
uncertainty arising from the Brexit negotiations;
• Investment Performance Risk – this is the stock specific risk that
the stock selection process may not achieve the Company’s published
objectives;
• Gearing and Borrowing Risk – in addition to the debenture in
issue, the Company may also borrow money for investment purposes. If the
investments fall in value, the gearing will have an adverse impact on
performance. If the borrowing facility could not be renewed, the Company might
have to sell investments to repay this;
• Income/Dividend Risk – investment income may fail to reach the
level required to meet the Company’s income objective;
• Share Price Risk – the Company’s prospects and NAV may not be
fully reflected in the share price;
• Control Systems Risk – the Board relies on the effectiveness of
the Manager’s control systems which include control activities in fund
management operations, financial controls, meeting regulatory requirements and
managing relations with third parties;
• Reliance on Manager and other Third Party Providers Risk – the
Company has no employees, so is reliant upon the performance of third party
service providers for it to function, particularly the Manager, depositary,
custodian and registrar; and
• Other Risks – the Company may be affected by other risks such as
business, cyber security, strategic, policy and political risks, as well as
regulatory risks (such as an adverse change in the tax treatment of investment
companies) and the perceived impact of the Manager ceasing to be involved with
the Company.
A detailed explanation of these principal risks and uncertainties can be found
on pages 14 to 16 of the 2019 annual financial report, which is available on
the Company’s section of the Manager’s website at
www.invesco.co.uk/edinburgh.
In the view of the Board, these principal risks and uncertainties are
substantially unchanged from the previous year end and are as much applicable
to the remaining six months of the financial year, as they were to the six
months under review.
As highlighted in the annual financial report, the Manager’s style may
result in a concentrated portfolio. In addition, the Manager manages other
portfolios holding many of the same stocks as the Company which reflects the
Manager’s high conviction style of investment management. This could
potentially increase liquidity risk under certain scenarios and market
conditions.
Investments in Order of Valuation at 30 September 2019
UK listed ordinary shares unless otherwise stated.
Market
value % of
Investment Sector £’000 Portfolio
BP Oil & Gas Producers 89,500 7.0
British American Tobacco Tobacco 87,535 6.9
Legal & General Life Insurance 57,957 4.6
Royal Dutch Shell – A shares Oil & Gas Producers 56,864 4.5
Next General Retailers 55,618 4.4
Tesco Food & Drug Retailers 54,412 4.3
BAE Systems Aerospace & Defence 48,747 3.8
Roche – Swiss Listed Pharmaceuticals & Biotechnology 47,646 3.8
Derwent London Real Estate Investment Trusts 45,026 3.5
Novartis – Swiss Listed Pharmaceuticals & Biotechnology 41,176 3.2
Top Ten Holdings 584,481 46.0
British Land Real Estate Investment Trusts 40,609 3.2
Altria – US Listed Tobacco 39,708 3.1
Aviva Life Insurance 39,182 3.1
HomeServe Support Services 38,523 3.0
Imperial Brands Tobacco 34,737 2.8
BT Fixed Line Telecommunications 33,839 2.7
easyJet Travel & Leisure 33,015 2.6
Capita Support Services 32,784 2.6
G4S Support Services 28,084 2.2
Burford Capital (AIM) Financial Services 28,050 2.2
Top Twenty Holdings 933,012 73.5
Beazley Non-life Insurance 27,498 2.2
Total – French Listed Oil & Gas Producers 27,395 2.1
Hiscox Non-life Insurance 25,790 2.0
Royal Bank of Scotland Banks 25,166 2.0
Babcock International Aerospace & Defence 24,325 1.9
Whitbread Travel & Leisure 23,424 1.8
International Airlines Group Travel & Leisure 22,920 1.8
CLS Real Estate Investment & Services 19,982 1.6
Newriver REIT Real Estate Investment Trusts 18,846 1.5
Novo-Nordisk – B Shares – Danish listed Pharmaceuticals & Biotechnology 18,598 1.5
Top Thirty Holdings 1,166,956 91.9
Honeycomb Investment Trust Equity Investment Instruments 18,280 1.4
Secure Income REIT (AIM) Real Estate Investment Trusts 16,441 1.3
Plus500 Financial Services 14,100 1.1
Vectura Pharmaceuticals & Biotechnology 12,438 1.0
Zegona Communications Non Equity Investment Instruments 10,111 0.8
TalkTalk Telecom Fixed Line Telecommunications 9,747 0.8
Raven Property Group – Ordinary Real Estate Investment & Services 4,339
Raven Property Group – Preference 3,699
8,038 0.6
SME Credit Realisation (formerly Funding Circle SME) Equity Investment Instruments 5,910 0.5
Amigo Financial Services 4,559 0.4
Hadrian’s Wall Secured Investments Equity Investment Instruments 1,815 0.1
Top Forty Holdings 1,268,395 99.9
Eddie Stobart Logistics (AIM)– Suspended Industrial Transportation 966 0.1
Eurovestech (UQ) Financial Services 246 0.0
Total Holdings 42 (31 March 2019: 57) 1,269,607 100.0
(AIM) Investments quoted on AIM
(UQ) Unquoted investment
Going Concern
These financial statements have been prepared on a going concern basis. The
Directors consider this is the appropriate basis as the Company has adequate
resources to continue in operational existence for the foreseeable future
being at least 12 months after the date of approval of these half year
financial statements. In considering this, the Directors took into account the
diversified portfolio of readily realisable securities which can be used to
meet funding commitments, and the ability of the Company to meet all its
liabilities and ongoing expenses from its assets and revenue. The Directors
also considered the revenue forecasts for the forthcoming year and future
dividend payments in concluding that the going concern basis is appropriate.
Related Party Transactions
Under UK Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law), the Company has identified the Directors as related parties.
No other related parties have been identified. No transactions with related
parties have taken place which have materially affected the financial position
or the performance of the Company.
Directors’ Responsibility Statement
In respect of the preparation of the half-yearly financial report
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that to the best of their knowledge:
• the condensed set of financial statements has been prepared in
accordance with the FRS 104 Interim Financial Reporting; and
• the interim management report includes a fair review of the
information required by Disclosure Guidance and Transparency Rules (DTR):
(a) DTR 4.2.7R, being an indication of important events that have
occurred during the first six months of the financial year and their impact on
the condensed set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R, being related party transactions that have taken
place in the first six months of the current financial year and that have
materially affected the financial position or performance of the Company
during that period; and any changes in the related party transactions
described in the last annual report that could do so.
The half-yearly financial report has not been audited or reviewed by the
Company’s auditor.
Signed on behalf of the Board of Directors.
Glen Suarez
Chairman
10 December 2019
Condensed Income Statement
Six Months To 30 September 2019 (Unaudited) Six Months To 30 September 2018 (Unaudited)
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments held at fair value – (81,584) (81,584) – 90,325 90,325
Gains on foreign exchange – 5 5 – 1 1
Income – note 2 36,568 590 37,158 33,821 1,002 34,823
36,568 (80,989) (44,421) 33,821 91,328 125,149
Investment management fee – note 3 (938) (2,188) (3,126) (1,106) (2,580) (3,686)
Other expenses (569) – (569) (443) – (443)
Net return before finance costs and taxation 35,061 (83,177) (48,116) 32,272 88,748 121,020
Finance costs – note 3 (1,255) (2,931) (4,186) (1,329) (3,102) (4,431)
Return on ordinary activities before taxation 33,806 (86,108) (52,302) 30,943 85,646 116,589
Taxation on ordinary activities – note 4 (630) – (630) (358) — (358)
Return on ordinary activities after taxation for the financial period 33,176 (86,108) (52,932) 30,585 85,646 116,231
Return per ordinary share – basic 17.2p (44.6)p (27.4)p 15.6p 43.8p 59.4p
Weighted average number of ordinary shares in issue during the period 193,015,167 195,557,086
The total column of this statement represents the Company’s profit and loss
account, prepared in accordance with UK Accounting Standards. The return on
ordinary activities after taxation is the total comprehensive income and
therefore no additional statement of other comprehensive income is presented.
The supplementary revenue and capital columns are presented for information
purposes in accordance with the Statement of Recommended Practice issued by
the Association of Investment Companies. All items in the above statement
derive from continuing operations of the Company. No operations were acquired
or discontinued in the period.
Condensed Statement of Changes in Equity
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
For the six months ended 30 September 2019 (Unaudited)
At 31 March 2019 48,917 10,394 24,676 1,215,237 83,213 1,382,437
Return on ordinary activities – – – (86,108) 33,176 (52,932)
Dividends paid – note 5 – – – – (30,246) (30,246)
Shares bought back and held in treasury – – – (60,980) – (60,980)
At 30 September 2019 48,917 10,394 24,676 1,068,149 86,143 1,238,279
For the six months ended 30 September 2018 (Unaudited)
At 31 March 2018 48,917 10,394 24,676 1,235,091 80,791 1,399,869
Return on ordinary activities – – – 85,646 30,585 116,231
Dividends paid – note 5 – – – – (29,200) (29,200)
Shares bought back and held in treasury – – – (1,252) – (1,252)
At 30 September 2018 48,917 10,394 24,676 1,319,485 82,176 1,485,648
Condensed Balance Sheet
Registered number SC1836
At At
30 September 31 March
2019 2019
(Unaudited) (Audited)
£’000 £’000
Fixed assets
Investments held at fair value through profit or loss 1,269,607 1,501,151
Current assets
Amounts due from brokers 9,621 2,219
Tax recoverable 2,682 2,437
Prepayments and accrued income 2,268 4,331
Cash and cash equivalents 57,274 3,114
71,845 12,101
Creditors: amounts falling due within one year
Bank facility – (30,800)
Share buybacks awaiting settlement (3,178) -
Accruals (746) (894)
(3,924) (31,694)
Net current assets/(liabilities) 67,921 (19,593)
Total assets less current liabilities 1,337,528 1,481,558
Creditors: amounts falling due after more than one year
7 (3/4)% Debenture Stock 30 Sep 2022 (99,249) (99,121)
Net assets 1,238,279 1,382,437
Capital and reserves
Share capital – note 6 48,917 48,917
Share premium 10,394 10,394
Capital redemption reserve 24,676 24,676
Capital reserve 1,068,149 1,215,237
Revenue reserve 86,143 83,213
Shareholders’ funds 1,238,279 1,382,437
Net asset value per ordinary share – note 7
Basic – debt at par 669.80p 706.75p
Basic – debt at market value 660.16p 696.91p
Number of 25p ordinary shares in issue at the period end – note 6 184,760,173 195,481,734
Notes to the Condensed Financial Statements
1. Accounting Policies
The condensed financial statements have been prepared in accordance with
applicable United Kingdom Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice), including FRS 102 The Financial
Reporting Standard applicable in the UK and Republic of Ireland, FRS 104
Interim Financial Reporting and the Statement of Recommended Practice
Financial Statements of Investment Trust Companies and Venture Capital Trusts,
issued by the Association of Investment Companies in October 2019. The
financial statements are issued on a going concern basis.
The accounting policies applied to these condensed financial statements are
consistent with those applied in the financial statements for the year ended
31 March 2019.
2. Income
Six Months to Six Months to
30 Sept 2019 30 Sept 2018
(Unaudited) (Unaudited)
£’000 £’000
Income from listed investments:
UK dividends – ordinary 28,209 27,809
UK dividends – special 534 –
Overseas dividends – ordinary 6,195 4,703
Overseas dividends – special 475 –
Unfranked investment income 1,154 1,307
Other income:
Deposit interest 1 2
Total income 36,568 33,821
Special dividends of £590,000 were recognised in capital (2018: £1,002,000).
3. Management fee and finance costs
The management fee arrangements are as reported in the 2019 annual financial
report, being a flat fee of 0.0458333% of the market capitalisation of the
Company’s ordinary shares at each month end and paid monthly in arrears
(equivalent to an annual fee of 0.55%). The management fee and finance costs
are allocated 30% to revenue and 70% to capital.
4. Tax
Owing to the Company’s status as an investment company no tax liability
arises on capital gains. The tax charge represents withholding tax suffered on
overseas income. A deferred tax asset is not recognised in respect of surplus
management expenses since the Directors believe that there will be no taxable
profits in the future against which these can be offset.
5. Dividends paid on Ordinary Shares
Six Months to 30 Sept 2019 (Unaudited) Six Months to 30 Sept 2018 (Unaudited)
Pence £’000 Pence £’000
Third interim 6.25 12,218 5.80 11,349
Final 9.25 18,028 9.20 18,001
15.50 30,246 15.00 29,350
Return of unclaimed dividends from previous years – (150)
30,246 29,200
The first interim dividend of 6.40p per ordinary share for the year ended 31
March 2020 (2019: 6.25p) has been paid on 29 November 2019 to shareholders on
the register on 15 November 2019.
6. Share Capital, including Movements
Six Months to Year to
30 Sept 2019 31 Mar 2019
(Unaudited) (Audited)
Share capital:
Ordinary shares of 25p each £46,190,044 £48,870,434
Treasury shares of 25p each £2,726,640 £46,250
£48,916,684 £48,916,684
Number of ordinary shares in issue:
Brought forward 195,481,734 195,666,734
Shares bought back into treasury (10,721,561) (185,000)
Carried forward 184,760,173 195,481,734
Number of treasury shares held:
Brought forward 185,000 —
Shares brought back in treasury 10,721,561 185,000
Carried forward 10,906,561 185,000
Total ordinary shares 195,666,734 195,666,734
Subsequent to the period end 7,021,244 ordinary shares were bought back to
treasury at an average price of 595p.
7. Net asset value (NAV) per ordinary share
(a) NAV – debt at par
The shareholders’ funds in the balance sheet are accounted for in accordance
with accounting standards, however this does not reflect the rights of
shareholders on a return of assets under the Articles of Association. These
rights are reflected in the net assets with debt at par and the corresponding
NAV per share.
30 Sept 2019 31 Mar 2019
(Unaudited) (Audited)
Pence per Pence per
share share
Shareholders’ funds 670.21 707.20
Less: unamortised discount and expenses arising from debenture issue (0.41) (0.45)
NAV – debt at par 669.80 706.75
NAV – debt at par £’000 1,237,528 1,381,558
(b) NAV – debt at market value
The market value of the debenture stock is determined by reference to the
daily closing price, and is subject to review against various data providers
to ensure consistency between data providers and against the reference gilt.
30 Sept 2019 31 Mar 2019
(Unaudited) (Audited)
Pence per Pence per
share share
NAV – debt at par 669.80 706.75
Debenture stock – debt at par 54.12 51.15
Debenture stock – debt at market value (63.76) (60.99)
NAV – debt at market value 660.16 696.91
NAV – debt at market value £’000 1,219,722 1,362,338
Debenture Stock at market value £’000 117,806 119,220
8. Classification Under Fair Value Hierarchy
The fair value hierarchy analysis for investments held at fair value at the
period end is as follows:
30 Sept 2019 31 Mar 2019
(Unaudited) (Audited)
£’000 £’000
Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date 1,250,115 1,481,205
Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly 18,280 19,700
Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability 1,212 246
1,269,607 1,501,151
The level 2 investment consists of one holding in Honeycomb Investment Trust
of £18,280,000 (31 March 2019: £19,700,000) on the basis that, although it
is listed and an unadjusted quoted price is available, its shares have low
trading volumes.
The level 3 investments consist of two holdings, Eurovestech and Eddie Stobart
Logistics (ESL) (31 March 2019: Eurovestech only). During the period, ESL was
suspended from AIM and transferred from level 1 to level 3. Subsequent to
the period end, the valuation for ESL as at 30 September 2019 has been
adjusted to £966,000 (31 March 2019: £11,901,000).
9. Investment Trust Status
It is the intention of the Directors to conduct the affairs of the Company so
that it satisfies the conditions for approval as an investment trust company
within the meaning of section 1159 of the Corporation Tax Act 2010.
10. Status of Half-Yearly Financial Report
The financial information contained within the financial statements in this
half-yearly financial report does not constitute statutory accounts within the
meaning of section 434 of the Companies Act 2006. The financial information
for the half years ended 30 September 2019 and 30 September 2018 has not been
audited. The figures and financial information for the year ended 31 March
2019 are extracted and abridged from the latest audited accounts and do not
constitute the statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the Independent
Auditor’s Report which was unqualified and did not contain a statement under
section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
10 December 2019
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