REG-Miton Global Opp Plc: Preliminary Announcement of Annual Results
14/07/2020 18:20
Miton Global Opportunities plc
Annual Report
for the year ended 30 April 2020
Preliminary Announcement
Miton Global Opportunities plc (the “Company”) today announces
results for the year ended 30 April 2020
The financial information set out below does not constitute the Company’s
statutory accounts for the years ended 30 April 2020 or 2019, but is derived
from those accounts. Statutory accounts for 2019 have been delivered to the
Registrar of Companies, and those for 2020 will be delivered in due course.
The Auditor has reported on those accounts; their reports were (1)
unqualified; (2) did not include any reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report; and
(3) did not contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
Financial Highlights
30 April 2020 30 April 2019 % change
Net asset value per Ordinary share 223.1p 275.6p (19.0%)
Share price 214.0p 276.5p (22.6%)
(Discount)/premium to net asset value (4.1%) 0.3%
Total net assets 62.6m 77.2m (18.9%)
Net asset value volatility* 8.3% 5.6%
Gearing* 0.0% 0.0%
Ongoing charges* 1.3% 1.4%
* Alternative Performance Measure, see Glossary.
For commentary in respect of the above figures and Company’s performance
during the year please see the Chairman’s Statement, the Manager’s Report
and the overview of the key performance indicators.
Total Return Performance to 30 April 2020
1 Year 3 Years 5 Years Since launch*
% % % %
Net asset value (19.0%) (10.3%) 22.8% 129.2%
Share price (22.6%) (11.7%) 31.5% 108.8%
3-month SONIA +2% 2.6% 7.8% 13.0% 82.3%
* 6 April 2004.
Source: Morningstar.
Chairman’s Statement
Introduction
This is the sixteenth annual report for Miton Global Opportunities plc and
covers the year ended 30 April 2020, the last couple of months of which were
heavily impacted by the Covid-19 related market volatility.
Performance and Covid-19
During the year under review, your Company’s net asset value per share
(“NAV”) fell to 223.1p (2019: 275.6p), a total NAV per share return of
-19.0% (2019: -0.3%) with the share price ending at 214.0p (2019: 276.5p),
giving a total share price return of -22.6% (2019: 1.3%). The total return
performance chart on page 1 gives a longer term picture, showing the NAV
return per share over 5 years as +22.8% and the share price return over the
same period as +31.5%. The volatility of the Company’s NAV was roughly one
third of UK equity indices during the financial year.
We believe the strategy of the Trust is best measured against a “cash
plus” benchmark, accordingly the Company does not have a formal equity
benchmark against which the Board reviews long-term performance and our
Investment Manager does not invest by reference to an index. The Company’s
formal cash benchmark, 3-month SONIA +2%, rose by +2.6% (2019: +2.7%).
Performance in the final weeks of the financial year was of course adversely
affected by the significant falls in markets as the reality of Covid-19 made
itself felt. Up until February, the Company’s share price and NAV had been
on course for a positive full year performance, but then the unfolding of a
global health crisis impacted the Company’s share price and the value of its
portfolio. The UK’s move from a “containment” to a “delay” phase of
dealing with the outbreak, and growing concerns over the spread of Covid-19,
led to the FTSE 100 Index falling by more than 8% on 9 March, its largest
intraday fall since 2008. Then, on 23 March when the Government declared a
general lockdown in order to reduce the spread of the virus, the Company’s
share price reached its lowest point at 187.5p. Since then, and up to the time
of writing, markets have improved with corresponding recovery for the
Company’s share price and NAV which at the time of writing stand at 230.0p
and 241.0p respectively.
Our Investment Managers, Nick Greenwood and Charlotte Cuthbertson, provide a
comprehensive appraisal of the performance of, and developments within, your
portfolio during the year under review and since 30 April 2020 in their
report. The report includes an analysis of our sector’s evolution, portfolio
themes including contributors and detractors, and the outlook.
Share issues and share buy backs
At the year-end, the Company’s shares traded at a 4.1% discount to net asset
value per share, having traded at a 0.3% premium at the 2019 year-end. In
comparison, the weighted average discount across the whole investment
companies universe was -15.9% and -5.5% respectively (source: Numis Securities
Limited). The Company’s premium management strategy led to the issue of
300,000 shares during the year, raising £0.7 million of new funds. These new
funds were invested in accordance with the Company’s investment objective
and policy. Towards the end of the year the Company’s share price moved to a
small discount and during the year as a whole 250,000 shares were repurchased
in order to restrict any undue widening in the Company’s share price
discount to NAV per share. While the Company does not target any particular
share price or discount level for buybacks, the buybacks conducted during the
year were at an average 4.9% discount. As at the date of this report, the
discount stands at 4.0% and 250,000 more shares have been repurchased.
Dividend
The Board has not recommended a dividend this year and does not expect to do
so in the future as the portfolio continues to generate a modest yield. The
Manager’s style is one that focuses on uncovering long-term value, much of
which will be realised through capital gains or distributions and as such the
Company will pay a dividend only if the need arises in order to comply with
investment trust status.
The Board
There were no changes to the Board during the year. In line with good
Corporate Governance practice, an annual review of the effectiveness of the
Board and its Committees was performed. The Board also pays close attention to
the capacity of individual directors to carry out their work on behalf of the
Company. To this end, all proposed external appointments are submitted to the
Board for scrutiny and approval.
In accordance with our policy of all Directors standing for re-election
annually, you will find the appropriate resolutions in the Notice of the AGM.
In recommending individual Directors to shareholders for re-election, we
considered their other Board positions and their time commitments and are
satisfied that each Director has the capacity to be fully engaged with the
Company’s business.
The AIFM and Investment Manager
During the year under review, in November 2020, Miton Group plc merged with
Premier Asset Management Group. In order to streamline the business of the
resultant Premier Miton Group, the Company’s Alternative Investment Fund
Manager (AIFM) was changed from Miton Trust Managers Limited to Premier
Portfolio Managers Limited on 24 April 2020. In addition, the new AIFM then
appointed Premier Fund Managers Limited in place of Miton Asset Management
Limited as the Investment Manager under an amendment to the original
delegation agreement. Details about the services provided by the AIFM and the
Investment Manager can be found in the Business Review.
The Board is satisfied that the appointment of a new AIFM and Investment
Manager will not lead to substantial changes to the provision of services to
the Company. Shareholders should also be reassured that there was no change to
the individual investment managers in charge of the Company’s investment
portfolio and that Nick Greenwood and Charlotte Cuthbertson are continuing in
their roles.
Gearing
Due to the Company’s large cash holding, brought about by realisations and
tenders in the underlying portfolio, the level of borrowing remained at zero
during the year under review. However, the Board decided to renew the loan
facility with the Royal Bank of Scotland for another two years, giving our
investment managers the option to draw up to £9.0 million. Our managers are
therefore well positioned to take advantage of opportunities as they arise and
cash has slowly been deployed at the lower price levels caused by Covid?19 and
the ensuing market volatility. Current areas of interest are discussed in the
commentary of the investment managers.
Annual General Meeting
The Annual General Meeting (“AGM”) of the Company this year will be held
at 25 Southampton Buildings, London WC2A 1AL on Thursday, 24 September 2020 at
12 noon. The notice convening the AGM can be found below and an explanation of
the proposed special business resolutions can be found in the Report of the
Directors.
In the meantime, the Board will keep the impact of the Covid-19 pandemic under
review and might make changes to the arrangements for the AGM should infection
levels or government restrictions re-intensify. In that case, the Board may
decide to hold a truncated meeting or postpone the meeting to a later date.
The situation will be kept under review and any changes to the AGM
arrangements will be communicated on the Company’s website. Shareholders are
encouraged to consult the website at www.premiermiton.com/migo for final
arrangements before travelling to attend the AGM.
The Board strongly encourages all shareholders to exercise their votes in
respect of the meeting in advance and to submit any questions they may have to
the Company Secretary. Shareholders can vote online by visiting
www.signalshares.com and following the instructions. However, any shareholders
who require a hard copy form of proxy may request one from the registrar, Link
Asset Services. Voting by proxy will ensure that your votes are registered in
the event that attendance at the AGM is not possible or restricted, or if the
meeting is postponed (your votes will be valid when the meeting is eventually
held). The Board will continue to monitor the Government’s advice and urges
all shareholders to comply with any restrictions in place at the time of the
AGM.
Of course, we all hope that we will be able to hold the meeting with full
participation from the Board and the Investment Managers. We will keep
shareholders updated via the Company’s website, www.premiermiton.com/migo.
Communications with Shareholders
As already communicated in the last annual report, the Board has decided to
offer shareholders the option to receive all Company information
electronically. This has led to a 60% reduction in the number of hard copy
annual reports printed this year, further reducing the Company’s own,
already minimal, impact on the environment, as well as producing a small cost
saving. Shareholders who elect to receive Company communication electronically
still have the right to request (at no extra charge) hard copy versions of the
documents sent or supplied via the website. Shareholders who have elected to
continue receiving hard copies may be reassured to know that this year, the
annual report is printed on 100% recycled and recyclable paper.
Outlook
Asset prices almost everywhere have been impacted by Covid-19 and the
de-rating of markets reflects uncertainty over future profits, credit defaults
and the timing of the peak of the crisis. Even at this point, it is still too
early to assess the long-term economic impact and the resilience of the
Company’s portfolio, although signs are cautiously positive.
General change within the sector continues to accelerate and the ongoing
consolidation of wealth managers is continuing to lead to changes in
Investment Company shareholder registers. In addition, as interest rates have
just reached their lowest point in history, the attractiveness of alternative
assets in the investment trust world has increased further with the investment
trust structure remaining the ideal vehicle to gain exposure to such assets.
Despite the effects of Covid-19, the Company is on a strong footing and your
Board continues to believe that the long-term investor will be well rewarded.
Richard Davidson
Chairman
14 July 2020
Investment Manager’s Report
Performance
During the year under review, our net asset value declined from 275.6p to
223.1p. This represents a fall of 19%, in comparison the FTSE 100 Index ended
the period 17.1% lower on a total return basis. Subsequently, as at close on 6
July 2020, our net asset value had rallied to 241.41p. Our portfolio made
steady progress until a few weeks before the end of our financial year. From
late February markets were overwhelmed by the effects of the coronavirus
pandemic. The global economy moved into lockdown, the medium and longer term
effects of which are yet to be fully understood. A significant contributor
behind the decline in our net asset value was the widening in the discounts
that our investee trusts trade on. At the end of April, the average for our
largest twelve holdings was 28.3%.
Evolution of the Sector
In recent years, the closed end sector has continued to evolve into a natural
home for alternatives offering investors access to asset classes that are just
not available via open-ended funds. This means that Miton Global Opportunities
plc increasingly provides a route for investors to increase the
diversification within their portfolios. Asset classes newly included in the
portfolio this year were Ground Rents, Shipping and Fintech.
Portfolio Strategy
It was notable that none of the six new arrivals was a conventional equity
fund. Some of these acquisitions were opportunistic as at the onset of crisis,
alternative funds fell just as heavily as equity funds despite offering very
different return profiles. This was particularly true of Tufton Oceanic and
Ground Rents Income. Tufton owns a fleet of vessels ranging from tankers and
bulkers to containerships. They are leased to multinationals on long-term
contracts which insulates the trust from current short term disruptions. In
the event, lack of storage space for crude oil led to demand for tankers.
Despite the hardship being felt amid widespread furloughing of the population,
we believed that it was unlikely that many leaseholders would fail to pay
ground rents thereby risking losing their home. The sums involved are modest,
typically £250 a year. Nevertheless, Ground Rent Income shares slumped during
March offering us an ideal entry point. Amongst remaining arrivals, Yellowcake
owns physical uranium and Augmentum specialises in privately owned FinTech
companies. Oakley Capital is a private equity specialist owning a concentrated
portfolio of businesses focussed on the consumer, education and TMT sectors
whilst Third Point provides access to the high profile Wall Street hedge fund.
There were four departures. Ecofin Global Utilities was acquired when the
trust was perceived poorly, the reasons for this lay well into the past. The
portfolio had become sensibly managed at a time when investors were starved of
yield. Most of the shares were acquired during 2018 and the holding was
completed in March 2019. This investment proved to be a textbook case of
benefitting from the powerful combination of a rising net asset value and a
narrowing discount. Once this process was complete, we crystallised our gain.
Establishment Trust which had been in the portfolio for over a decade finally
departed. We had identified the fact that generational change within the
controlling family would lead to the demise of the vehicle. Whilst our thesis
eventually proved correct, the process proved long and drawn out. Our
experience with Establishment is a useful reminder of the defensive buffer
offered by a wide discount. Whilst the underlying portfolio underperformed,
much of this was offset by the share price moving into line with the net asset
value.
Rights and Issues, another stalwart was also sold during the year. This trust
has been a sterling performer for us during a period when the extremely wide
discount it traditionally traded on evaporated. In the event we felt that
building the existing position in River and Mercantile Micro Cap trading on a
discount well in excess of 30% would be a better use of the funds. We did not
wish to build our exposure to UK smaller companies further.
The final disposal was LMS Capital. We had taken a toehold position when the
management of this family controlled trust was outsourced to an external
manager. Unfortunately, the situation changed as the family took the
retrograde step of taking back control. The story had changed so we swiftly
decided to bite the bullet and take our loss.
Winners and Losers
Despite the widespread falls in markets, there were a number of our positions
that generated positive returns. These were Baker Steel Resources, Life
Settlements Assets, Gresham Strategic, Alpha Real and Biotech Growth. Core
holdings which held up much better than mainstream indices included Dunedin
Enterprise and Stenprop. Some of our “winners” performed strongly at
portfolio level but suffered widening discounts over the period.
Baker Steel Resources owns a portfolio of mining prospects. The team uses its
intellectual capital to develop projects to the point where they can be sold
to a mining house who will then build the mine. These disposals will usually
trigger a material uplift in valuation. A number of Baker Steel’s
investments are approaching maturity. Unfortunately disposals are inevitably
being delayed as carrying out due diligence on a mine is impossible due to
lockdown. It is likely that there will be a bulge in realisations and
associated uplifts once the pandemic abates. Despite our positive view on the
outlook, the shares traded on a 29% discount at the end of April.
Alpha Real continued its transition from property owner to property lender.
Fortuitously when Covid struck, significant disposals had been completed but
the proceeds were yet to be committed to the lending programme. Therefore,
Alpha ended the year with over half of its market valuation represented by
cash. This was insufficient to prevent the shares from also trading at a 29%
discount. Once Alpha’s transition is complete, the shares will offer a high
yield which should trigger a narrowing of the discount.
Dunedin Enterprise is another holding that ended our year trading at a wide
discount despite sitting on substantial cash balances. This private equity
specialist is in the process of an orderly wind down. Over time, the proceeds
of disposals will be handed back to shareholders at net asset value.
Conversely, detractors included Phoenix Spree Deutschland, Macau Property
Opportunities, Duke Royalty, Georgia Capital and India Capital Growth.
Phoenix Spree has been consistently hurt by negative newsflow from Berlin. In
June, the state government announced a rent freeze which has now been
implemented. This move may well be rejected by the federal constitutional
court. Nevertheless, developments have frightened off UK investors. Despite
Phoenix Spree being small and flexible allowing it to adapt better to the new
environment than Berlin focussed property giants such as Deutsche Wohnen, its
shares were harshly treated. Phoenix Spree languished at a 38% discount at the
end of April whereas Deutsche Wohnen barely fell during the period.
Duke Royalty offers what it describes as corporate mortgages. These are long
term business loans, typically on 25 year terms. The model is well established
in Canada but unknown in the UK. Duke is unique and as a result is poorly
understood. The market has categorised the trust amongst the new breed of
alternative lenders. Some of these have suffered high default rates during
benign conditions so investors are fearful of what might come to light now
that economic growth has gone into reverse. Given the small number of loans
Duke approves, the due diligence they undertake is far more intensive than,
say, peer-to-peer lenders. Therefore, their credit experience is likely to be
happier. Post the year end, Duke shares rallied sharply in response to a
trading update.
Macau Property Opportunities continued to suffer as the result of Chinese anti
speculation measures. These require buyers of luxury apartments to pay cash
for the majority of the purchase. The rules have placed the very top end of
the Macanese residential market into hibernation. The trust’s problems have
been compounded by the closure of the borders with Hong Kong and mainland
China. Until these reopen, the tourism reliant economy will continue to
suffer. Nevertheless these problems seem to be already reflected in the price
given the latest net asset value is 183p whereas the shares ended the year at
60.5p.
India Capital Growth was our greatest disappointment during the period. The
Indian economy faced increasing headwinds. This was particularly felt by
smaller and medium sized companies, this trust’s specialist area. A number
of unfortunate investments, particularly owning smaller lenders, proved
painful. However, our greatest concern was that the discount was allowed to
widen to 42% at one point. Now this has been allowed to happen, investors will
no longer have confidence that such an unravelling will not happen again.
Therefore, the shares would have been destined to always trade at a wide
discount. Shareholders intervened approving continuation once directors agreed
to offer an exit at a modest discount at the end of 2021. The adoption of this
new capital structure triggered a sharp rally in India Capital Growth shares
post our year end.
Outlook
Inevitably, the outlook will be dominated by how well the economy recovers
from its enforced hibernation. A second wave of infections would represent a
setback. The market does not appear to take a second spike of infections into
account. Nevertheless, we are hopeful that towards the end of this year
economic activity will return to pre Covid levels. Should that be the case, we
are mindful that some of the liquidity injected via ground breaking monetary
and fiscal stimulus may remain in the financial system. A combination of
recovery and central bank support could push asset prices sharply higher. In
recent months, the authorities have moved closer to adopting Modern Monetary
Theory, they may be reluctant to give up some of their newly acquired tools.
Given that policy remains experimental, we are alert to the risk that some of
the measures recently taken may lead to instability in the longer term;
however for the moment we remain fairly fully invested.
Equity markets have recovered from the March lows. It is reassuring to note
that there appears to be little in the way of permanent destruction of capital
within our portfolio. The share prices of many smaller and medium sized trusts
have lagged this rally. The result is that discounts have become extremely
wide at that end of the market. For many of our investee trusts, there is now
a disconnect between the portfolio value and the price that we are carrying
these holdings within our own net asset value. This situation represents our
greatest challenge but also the greatest opportunity. There is scope for our
net asset value to rise sharply simply through the narrowing of discounts back
to historical norms. Certainly coming out of the Global Financial Crisis,
Miton Global Opportunities plc generated strong returns against a background
of static equity indices during the first half of 2009.
In many walks of life the Covid crisis has speeded up structural trends.
Greater acceptance of internet shopping is an example. Within the closed ended
world the crisis has accelerated the departure of traditional investors from
the register of many trusts. It is likely that wide discounts will not narrow
on their own and the situation will undermine investors’ confidence that
these funds will ever trade close to net asset value. It is ironic that at the
very moment when the closed ended structure’s protection from inflows and
outflows is most valuable, industry trends mean that many trusts cannot
attract a following. We doubt whether maintaining an evergreen structure is
appropriate in many cases.
We have had to adjust our focus to take a greater interest in managers’ and
boards’ attitudes towards their discounts. The subject will form a greater
part of our regular updates with funds that we own or are considering a
position in. There are tools at their disposal. We would like to see wider use
of capital structures similar to Miton Global Opportunities plc’s own where
closed end protection is largely retained but provides visibility as to an
investor’s eventual exit. The ability to enter and exit in reasonable size
is the major concern for potential users of investment trusts. Rapid
consolidation has led to the wealth management chains managing large sums of
money. There now needs to be a pretty liquid market in a particular trust’s
shares if the adviser is going to be able to buy sufficient shares to allocate
across all their clients using the normal market mechanism. Over time this
situation, assuming consolidation continues, will become a more general
problem and not simply an issue for smaller trusts.
We hope that boards will refresh their approach to marketing. Simply talking
to the major chains of wealth managers will be increasingly less productive.
Nevertheless, there are audiences that do not face the liquidity challenge
which are ideal customers for the sector. Some of our trusts have strong
stories to tell, but remain relatively unknown compared to weaker peers.
Over time, a portfolio will have “planting” phases and “harvesting”
phases. Between the middle of 2016 and the end of 2017, a significant
proportion of our investments reached maturity and were harvested. Our share
price appreciated nearly 80% during that short period, it often follows a
different path to that of mainstream indices. We are optimistic that the
rebuilding phase is complete and the latest generation of investments are
approaching maturity.
Nick Greenwood
Charlotte Cuthbertson
Premier Fund Managers Limited
14 July 2020
10 Year Record
Year ended 30 April 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Net asset value per Ordinary share 223.1p 275.6p 276.4p 248.7p 182.4p 181.6p 167.4p 157.8p 141.8p 153.2p
Share price 214.0p 276.5p 273.0p 242.3p 164.3p 162.8p 149.5p 143.3p 127.5p 139.6p
(Discount)/Premium to net asset value (4.1%) 0.3% (1.2%) (2.6%) (9.9%) (10.4%) (10.7%) (9.2%) (10.1%) (8.9%)
Net assets £62.6m £77.2m £75.2m £62.9m £46.1m £45.9m £42.3m £39.9m £35.8m £38.7m
Gearing 0.0% 0.0% 6.7% 8.0% 10.8% 6.5% 7.1% 2.5% 0.0% 7.8%
Portfolio Valuation
as at 30 April 2020
Valuation
Investment 2020 % of
Company Sector Region £’000 portfolio
Dunedin Enterprise Investment Trust (†) Private Equity Global 4,334 7.2
Alpha Real Trust Real Estate Global 4,263 7.1
Baker Steel Resources Trust Mining Global 4,144 6.9
Phoenix Spree Deutschland Real Estate Germany 3,845 6.4
Artemis Alpha Trust Equity UK 3,200 5.3
VinaCapital Vietnam Opportunity Fund Private Equity Vietnam 2,720 4.5
Real Estate Investors* Real Estate UK 2,569 4.3
Henderson Opportunities Trust Equity UK 2,490 4.1
EPE Special Opportunities* Private Equity UK 2,342 3.9
New Star Investment Trust Equity Global 2,333 3.9
Top ten investments 32,240 53.6
Atlantis Japan Growth Fund Equity Japan 2,260 3.8
Life Settlement Assets Life Policies North America 1,695 2.8
CQS Natural Resources Growth and Income Mining Global 1,685 2.8
River and Mercantile UK Micro Cap Investment Company Small Cap Equity UK 1,547 2.6
Stenprop Real Estate UK 1,472 2.5
Merian Chrysalis Investment Company Private Equity Global 1,448 2.4
India Capital Growth Fund* Equity India 1,367 2.3
Macau Property Opportunities Fund (†) Real Estate China 1,255 2.1
Oakley Capital Investments Private Equity Global 1,218 2.0
Downing Strategic Micro-Cap Investment Trust Small Cap Equity UK 1,182 2.0
Top twenty investments 47,369 78.9
Geiger Counter^ Uranium Global 1,109 1.8
Gresham House Strategic Small Cap Equity UK 1,103 1.8
Duke Royalty* Alternative Lender Global 1,055 1.8
Third Point Offshore Investors Equity Global 992 1.7
Marwyn Value Investors Equity UK 934 1.6
Ground Rent Income Fund Real Estate UK 871 1.4
RENN Universal Growth Investment Trust (†) Equity North America 828 1.4
Georgia Capital Private Equity Georgia 735 1.2
Ashoka India Equity Investment Trust Equity India 662 1.1
Vietnam Enterprise Investments Equity Vietnam 657 1.1
Top thirty investments 56,315 93.8
Rights & Issues Investment Trust Small Cap Equity UK 538 0.9
Augmentum Fintech Private Equity Global 527 0.9
Biotech Growth Trust Equity North America 457 0.8
Aseana Properties (†) Real Estate Asia Pacific 452 0.8
Terra Catalyst Fund* (†) Real Estate Europe 339 0.6
Yellow Cake* Uranium Global 330 0.5
Cambium Global Timberland* (†) Forestry Global 246 0.4
Tufton Oceanic Assets Shipping Global 243 0.4
Chelverton Growth Trust Equity UK 180 0.3
Better Capital PCC (†) Private Equity UK 147 0.2
Reconstruction Capital II* (†) Equity Europe 127 0.2
Temple Bar Investment Trust Equity UK 67 0.1
Origo Partners* (†) Equity Global 54 0.1
Auctus Growth Private Equity Emerging Markets 30 0.0
St Peter Port Capital* (†) Mining Global 19 0.0
Global Resources Investment Trust Mining Global 5 0.0
Total investments in the portfolio 60,076 100.0
* AIM/NEX Listed
(† ) In liquidation, in a process of realisation or has a fixed
life.
(^) Includes both Ordinary and Subscription share holdings.
Portfolio Analysis
as at 30 April 2020
Portfolio by geographical exposure*
*
Global 36.0% (2019: 28.1%)
*
UK 32.1% (2019: 29.5%)
*
Asia Pacific (ex-Japan) 8.1% (2019 12.4%)
*
Europe 8.1% (2019: 8.4%)
*
North America 4.8% (2019: 6.0%)
*
Cash 4.0% (2019: 6.6%)
*
Japan 3.6% (2019:2.8%)
*
India 3.2% (2019:6.1%)
*
Emerging Markets 0.1% (2019: 0.1%)
Portfolio by asset type*
*
Equity 37.0% (2019: 42.9%)
*
Real Estate 24.1% (2019: 25.5%)
*
Private Equity 18.1% (2019: 12.5%)
*
Mining 11.7% (2019: 9.6%)
*
Other 4.7% (2019: 2.4%)
*
Cash 4.0% (2019: 6.6%)
*
Forestry 0.4% (2019: 0.5%)
* Calculated on a ‘look through’ basis based on the mandates of
the investments held by the Company.
Source: Premier Fund Managers Limited
Business Review
The Strategic Report contains a review of the Company’s business model and
strategy, an analysis of its performance during the year and its future
developments, and details of the principal risks and challenges it faces. Its
purpose is to inform the shareholders of the Company and help them to assess
how the Directors have performed their duty to promote the success of the
Company.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the time of their approval of this report and such
statements should be treated with caution due to the inherent uncertainties,
including both economic and business risk factors, underlying any such
forward-looking information.
Business Model
The Company is an externally managed investment trust and its shares are
premium listed on the Official List and traded on the main market of the
London Stock Exchange.
The Company is an Alternative Investment Fund (“AIF”) under the European
Union’s Alternative Investment Fund Manager’s Directive (“AIFMD”) and
has appointed Premier Portfolio Managers Limited as its Alternative Investment
Fund Manager (“AIFM”).
The purpose of the Company is to provide a vehicle for investors to gain
exposure to a portfolio of companies which have been undervalued by the
markets in which they are traded, through a single investment.
The Company’s strategy is to create value for shareholders by addressing its
investment objective, which is set out below.
As an externally managed investment trust, all of the Company’s day to day
management and administrative functions are outsourced to service providers.
As a result, the Company has no executive directors, employees or internal
operations.
The Board has retained responsibility for risk management and has appointed
Premier Portfolio Managers Limited to manage its investment portfolio. Company
management, company secretarial and administrative services are outsourced to
Frostrow Capital LLP (see below for further information).
The Board remains responsible for all aspects of the Company’s affairs,
including setting the parameters for monitoring the investment strategy and
the review of investment performance and policy. It also has responsibility
for all strategic policy issues, including share issuance and buybacks, share
price and discount/premium monitoring, corporate governance matters, dividends
and gearing.
Further information on the Board’s role and the topics it discusses with the
Investment Managers is provided in the Corporate Governance Report.
Investment Objective
The objective of the Company is to outperform 3-month SONIA plus 2% (the
‘Benchmark’) over the longer term, principally through exploiting
inefficiencies in the pricing of closed-end funds. SONIA being the Sterling
Overnight Index Average, the Sterling Risk-Free Reference Rate preferred by
the Bank of England for use in Sterling derivatives and relevant financial
contracts. This is intended to reflect the aim of providing a better return to
shareholders over the longer term than they would get by placing money on
deposit.
The Benchmark is a target only and should not be treated as a guarantee of the
performance of the Company or its portfolio.
Investment Policy
The Company invests in closed-end investment funds traded on the London Stock
Exchange’s main market, but has the flexibility to invest in investment
funds listed or dealt on other recognised stock exchanges, in unlisted
closed-end funds (including, but not limited to, funds traded on AIM) and in
open-ended investment funds. The funds in which the Company invests may
include all types of investment trusts, companies and funds established
onshore or offshore. The Company has the flexibility to invest in any class of
security issued by investment funds including, without limitation, equity,
debt, warrants or other convertible securities. In addition, the Company may
invest in other securities, such as non-investment fund debt, if deemed to be
appropriate to produce the desired returns to shareholders.
The Company is unrestricted in the number of funds it holds. However, at the
time of acquisition, no investment will have an aggregated value totalling
more than 15% of the gross assets of the Company. Furthermore, the Company
will not invest more than 10%, in aggregate, of the value of its gross assets
at the time of acquisition in other listed closed-end investment funds,
although this restriction does not apply to investments in any such funds
which themselves have stated investment policies to invest no more than 15% of
their gross assets in other listed closed-end investment funds. In addition,
the Company will not invest more than 25%, in aggregate, of the value of its
gross assets at the time of acquisition in open-ended funds.
There are no prescriptive limits on allocation of assets in terms of asset
class or geography.
There are no limits imposed on the size of hedging contracts, save that their
aggregated value will not exceed 20% of the portfolio’s gross assets at the
time they are entered into.
The Board permits borrowings of up to 20% of the Company’s net asset value
(measured at the time new borrowings are incurred).
The Company’s investment objective may lead, on occasions, to a significant
amount of cash or near cash being held.
Dividend Policy
It is the Company’s policy to pursue capital growth for shareholders with
income being a secondary consideration. This means that the Company’s
Investment Manager is frequently drawn to companies whose future growth
profile is more important than the generation of dividend income for
shareholders.
The Company complies with the United Kingdom’s investment trust rules
regarding distributable income which require investment trusts to retain no
more than 15% of their income from shares and securities each year. The
Company’s dividend policy is that the Company will pay the minimum dividend
required to maintain investment trust status.
The Board
At the date of this report, the Board of the Company comprises Richard
Davidson (Chairman), Ekaterina (Katya) Thomson, Michael Phillips and Hugh van
Cutsem. All of these Directors are non-executive, independent Directors.
All of the Directors served throughout the year and up to the signing of this
report, and they will stand for re-election at the forthcoming Annual General
Meeting.
Further information on the Directors can be found below.
Board Focus and Responsibilities
With the day to day management of the Company outsourced to service providers
the Board’s primary focus at each Board meeting is reviewing the investment
performance and associated matters such as, inter alia, future outlook and
strategy, gearing, asset allocation, investor relations, marketing, and
industry issues.
In line with its primary focus, the Board retains responsibility for all the
key elements of the Company’s strategy and business model, including:
*
investment objective and policy, incorporating the investment guidelines and
limits, and changes to these;
*
whether the manager should be authorised to gear the portfolio up to a
pre-determined limit;
*
review of performance against the Company’s KPIs;
*
consideration of share issuance and buy backs and premium/discount management;
*
review of the performance and continuing appointment of service providers; and
*
maintenance of an effective system of oversight, risk management and corporate
governance.
Details of the principal Key Performance Indicators (“KPIs”), along with
details of the principal risks, and how they are managed, follow within this
business review.
Key Performance Indicators
The Company’s Board of Directors meets at least four times a year. At each
quarterly meeting it reviews performance against a number of key performance
measures, as below:
NAV and the movement of the NAV compared to the notional returns available for cash – defined as 3-month SONIA plus 2%, the Company’s Benchmark The Directors regard the Company’s net asset value (‘NAV’) per share as being the overall measure of value delivered to shareholders over the long term, as opposed to returns available for cash holdings. A full description of performance during the year
under review and the investment portfolio are contained in the Investment Manager’s Review . The NAV total return per Ordinary share for the year to 30 April 2020 was -19.0% (2019: -0.3%), compared to the Benchmark return of 2.6% (2019: 2.7%).
NAV volatility^ The Company aims to deliver its performance with a lower level of volatility in the NAV than equity markets. For the year to 30 April 2020, the Company’s NAV had a volatility of 8.3% (2019: 5.6%)*, compared to the volatility of the FTSE All-Share Index of
FTSE All-Share Index of 25.4% (2019: 11.8%)*.
The movement in the Company’s share price One of the most immediate measures of the value of the Company’s Ordinary shares is their price. The Board regularly considers the Company’s investment performance and other ways in which share price performance may be enhanced, including the effectiveness
of marketing. The Ordinary share price decreased by 22.6% (2019: increased by 1.3%) over the year. Both the NAV per share and the share price were heavily impacted by the effects of the Covid-19 pandemic. Further details are in the Chairman’s Statement and
the Investment Manager’s Review.
Share price in relation to The Board believes that an important driver of an investment trust’s discount or premium over the long term is investment performance together with a proactive marketing strategy. However, there can be volatility in the discount or premium during the year.
the NAV per share Therefore, the Board requests authority each year to buy back and issue shares with a view to limiting the volatility of the share price discount or premium. During the year under review, 300,000 new shares were issued by the Company. New shares will only
be issued at a premium to the Company’s cum-income net asset value per share at the time of issue. 250,000 shares were bought back during the year, and another 250,000 after the year-end. Covid-19 significantly widened the range of premium and discount of
the Company’s ordinary share price in relation to the NAV per share. This has ranged from a premium of 8.3% (pre Covid-19: 1.4%) to a discount of ?5.5% (pre Covid-19: -4.3%). At the year-end, the discount stood at -4.1% (2019: premium of 0.3%). In
comparison, the weighted average discount across the whole investment companies universe was -15.9% and -5.5% respectively. (#)
* Source: Frostrow Capital LLP.
^ See Glossary for definition and calculation methodology.
# Source: Numis Securities Limited.
Principal Risks and Uncertainties
The Board is responsible for the ongoing identification, evaluation and
management of the principal risks faced by the Company. The Audit Committee on
behalf of the Board regularly reviews these risks and how risk is managed and,
during the year under review, has again undertaken a robust assessment of the
principal risks and uncertainties facing the Company including those that
would threaten its business model, future performance, solvency and liquidity.
Mitigation of these risks is sought and achieved in a number of ways, although
it is important to note that the systems in place cannot eliminate the risk of
failure to achieve the Company’s investment objective. Information regarding
the Company’s risk assessment and internal control procedures is provided in
the Audit Committee Report.
The principal risks are categorised under the following broad headings:
*
investment risks;
*
strategic risks; and
*
operational risks.
Principal Risk Mitigation
Investment risks
Market and discount risk
The Company aims to capitalise on the opportunities that exist due to inefficiencies in the pricing of closed-end funds and is exposed to fluctuations in the market prices of those funds and their underlying assets. Additionally the Company is exposed to the risk that the market price of its investments differs from that of their NAV per share – purchasing funds whose market price is at a discount to NAV per share can result in significant gains on the upside, but can also lead to exposure to poorly performing companies. The Company may use borrowing, the effect of which would be to amplify the gains or losses the Company experiences. Investors should be aware that by investing in the Company they are exposing themselves to the market risks associated with owning publicly traded shares, and the additional discount risks specific to investing in closed-end funds. To manage this risk the Board and the AIFM have appointed the Investment Manager to manage the portfolio within the remit of the investment objective and policy and borrowing limits. Compliance with the investment policy and borrowing limits is monitored
on a daily basis by the AIFM and reported to the Board monthly. During the year the Company had net cash, rather than borrowings, which helped to mitigate market risks. The Investment Manager monitors the volatility, discount, quality of underlying assets,
and level of gearing within the portfolio holdings and potential investments. The results of this feed into the stock selection process and consideration of the portfolio constituents. In addition, the Investment Manager reports at each Board meeting on
the performance of the portfolio, encompassing, inter alia , rationale for stock selection decisions, the make-up of the portfolio, and portfolio company updates.
Macro risk
Significant political and economic change in the UK and abroad might lead to volatile markets impacting the Company’s performance and reduced investor appetite for the Company’s shares. Political and economic developments both in the UK and world-wide are being monitored and discussed, where relevant, between the Board and the Investment Manager as part of the portfolio review at every Board meeting. Further details in respect of Brexit
and the Covid-19 pandemic are set out below.
Liquidity, cash and foreign exchange risk
The market in closed-end funds can often be illiquid. As such the Company is exposed to the risk that it will not be able to sell an investment at the current market value, or on a timely basis, when the Investment Manager chooses or it is required to do so to meet financial liabilities. A proportion of the Company’s investments might also be denominated in foreign currencies which might be subject to fluctuations in valuation and, at times, a proportion of the portfolio may be held in cash, preventing the Company from benefiting from positive movements in the market. The Investment Manager monitors volume and price based trade measures and looks to ensure that a proportion of the portfolio is invested in readily realisable funds. The Board also receives an update on the liquidity of the portfolio and the current level
of liquidity of the Company on a regular basis as well as the Company’s cash position and any foreign exchange valuations.
Further details on market, liquidity and other financial risks can be found in
note 15 to the Financial Statements.
Interest rate risk
The Company finances its operations through existing reserves and a revolving credit facility and may be exposed to fluctuations in interest rates. The Board monitors the effect of interest rate movements on the Company’s finances and reviews the Company’s ongoing compliance with the loan covenants on a monthly basis.
Strategic risks
Shareholder relations and share price performance
The Company and its shareholders are exposed to the risk, particularly if the investment strategy and approach are unsuccessful, that the Company may be viewed unfavourably resulting in a widening of the share price discount to NAV per share. In managing this risk the Board reviews the Company’s investment objective in relation to market and economic conditions and the performance of its peers and discusses at each Board meeting the Company’s future development and strategy. The Board does not
seek to manage the discount on a day to day basis but does monitor the trend over longer periods and considers how share price performance may be enhanced, including the effectiveness of marketing and the possibility of share buybacks. Given the size of
the Company the Board is conscious of the impact of share buybacks on liquidity and the ongoing charges of the Company. During the year, the Company bought back 250,000 ordinary shares and a further 250,000 ordinary shares up to the time of writing, in
order to keep the discount under control and prevent it from widening.
Key person risk
The loss of a key employee of the Investment Manager could result in the deterioration of the performance of the Company. The Board considers the make-up of the team supporting the lead investment manager as part of its annual review. During the year under review, the Board also considered the impact of the merger of Premier and Miton on the company’s individual investment
managers. The Investment Manager also reports regularly to the Board on developments in their team and succession planning, where appropriate.
Company duration risk
Every three years, the Company’s shareholders are offered a realisation opportunity. Depending on the structure of the realisation opportunity and the level of take-up, amounts available to shareholders will depend on the valuation of the portfolio and its liquidity and may be lower than expected, especially in adverse market conditions. The Board has implemented, with shareholder approval, a realisation opportunity which will be offered to shareholders every three years. Further details are set out in the Report of the Directors. The Board will formulate the appropriate realisation
opportunity based on feedback from the relevant service providers. In particular, the investor sentiment prior to the next realisation opportunity in 2021 will be monitored by the Investment Manager and the Company’s Brokers. Further details are set out in
the Report of the Directors.
Operational risks
Service provider risk
The Board is reliant on the systems of the Company’s service providers and as such a disruption to, or a failure of, those systems could lead to a failure to comply with law and regulations leading to reputational damage to the Company and/or financial loss. To manage these risks the Board: receives reports from the AIFM and Frostrow on compliance with applicable laws and regulations; reviews internal control reports and key policies of the AIFM, Investment Manager, Custodian and Frostrow; reviews reports from
the Depositary; maintains a risk matrix which details the risks to which the Company is exposed and the controls relied upon to manage those risks; and receives updates on pending changes to the legal and regulatory environment and progress towards the
Company’s compliance with any relevant future changes. In view of the Covid-19 pandemic and the ensuing restrictions on human interactions, from strict lockdown to ongoing social distancing, the service providers of the Company have confirmed that they
have all necessary business continuity procedures in place including enabling to work from home, increased IT and Cyber security awareness as well as team and client meetings via video conference calls.
Other risks
In addition to the above, the global Covid-19 pandemic and Brexit are also
recognised as principal risks and uncertainties with a possible impact on the
investment performance of the Company as well as on the operations of the
Company and its service providers. These risks are discussed further below.
Management Arrangements
AIFM and Investment Manager
Premier Portfolio Managers Limited is the Alternative Investment Fund Manager
(“AIFM”) for the Company pursuant to an Investment Management Agreement
dated 22 July 2014 (the “IMA”), as amended on 9 September 2015, 10
September 2018 and 24 April 2020.
During the year, on 24 April 2020, the IMA was amended following the merger of
Miton Group with the Premier Asset Management Group, which took place in
November 2019. In order to streamline the business of the resultant Premier
Miton Group, the Company’s AIFM was changed from Miton Trust Managers
Limited to Premier Portfolio Managers Limited.
With the exception of some small operational changes, all the main provisions
of the original IMA remained unaffected.
Under the terms of the IMA, the AIFM provides, inter alia, the following
services:
*
risk management services;
*
monitoring the Investment Manager’s compliance with the Company’s
investment objective and investment policy and reporting any non-compliance in
a timely manner to the Investment Manager and the Board;
*
determining the net asset value per share on a daily basis;
*
maintaining professional indemnity insurance at the level required under the
AIFM Rules;
*
preparing the monthly factsheets for the Company; and
* upholding compliance with applicable tax, legal and regulatory requirements.
In addition to the changes noted above, the new AIFM then appointed Premier
Fund Managers Limited in place of Miton Asset Management Limited as the
Investment Manager pursuant to an amendment to the Delegation Agreement dated
24 April 2020. There was no change to the individual investment managers
running the Company’s portfolio.
Under the terms of the Delegation Agreement, the Investment Manager provides,
inter alia, the following services:
*
seeking out and evaluating investment opportunities;
*
deciding the manner by which monies should be invested, divested, retained or
realised;
*
deciding how rights conferred by the investments should be exercised;
*
analysing the performance of investments made; and
* advising the Company in relation to trends, market movements and other
matters which may affect the investment objective and policy of the Company.
The management fee payable to the AIFM is calculated at an annual rate of
0.65% of the adjusted market capitalisation of the Ordinary Shares and 0.5% of
the adjusted market capitalisation of any Realisation Shares in issue at the
time. If the Company as a whole moves to a realisation basis then the AIFM
will be paid 0.5% of the adjusted market capitalisation of the Company as a
whole. Following the realisation opportunity in 2018, there are no Realisation
Shares in issue. The management fee accrues daily and is payable in arrears
monthly.
A performance fee is only payable in the future by the Company in respect of
the realisation of assets in any Realisation Pool or the realisation of assets
where the Company as a whole moves to a realisation basis. In such cases the
performance fee will be 15% of all cash realised and returned to shareholders
in excess of a hurdle of 3-month SONIA plus 5%. No performance fee was payable
for the years ended 30 April 2020 and 2019.
The IMA and Delegation Agreement may be terminated by six months’ written
notice subject to the provisions for earlier termination as set out therein.
There are no specific provisions contained within the IMA relating to
compensation payable in the event of termination of the agreement other than
the entitlement to fees which would be payable within any notice period.
Continuing Appointment of the AIFM
The Board, through the Management Engagement Committee, keeps the performance
of the AIFM under review. It is the opinion of the Directors that the
continuing appointment of the AIFM is in the interests of shareholders as a
whole. In coming to this decision, the Board took into consideration, inter
alia, the following: that Nick Greenwood has been the Company’s lead
portfolio manager since launch; the investment performance of the Company is
satisfactory relative to that of the markets in which the Company invests; and
the remuneration of the AIFM is reasonable. The Directors continue to believe
that by paying the management fee calculated on a market capitalisation basis,
rather than a percentage of assets basis, the interests of the AIFM are more
closely aligned with those of shareholders.
Company Secretary, Marketing and Administration
Company secretarial, marketing, and administrative services are provided by
Frostrow Capital LLP (“Frostrow”) under an agreement dated 1 February 2016
and novated with the new AIFM on 24 April 2020. An annual management services
fee of 25 basis points of the market capitalisation of the Company, charged
quarterly in arrears, is payable, subject to a minimum annual fee of
£120,000. Frostrow’s fees will reduce from 25 basis points to 20 basis
points on market capitalisation of the Company in excess of £100 million. The
agreement may be terminated by either party on six months’ written notice.
Frostrow provides the following services, inter alia, under its agreement with
the Company:
*
marketing and shareholder services;
*
administrative and company secretarial services;
*
advice and guidance in respect of corporate governance requirements;
*
maintenance of the Company’s accounting records;
*
preparation of the annual and half yearly reports; and
* ensuring compliance with applicable legal and regulatory requirements.
In light of the high level of service provided by Frostrow in these areas, it
is the opinion of the Directors that the continuing appointment of Frostrow is
in the best interest of shareholders.
Details of the fees paid to Frostrow for their services during the year are
set out in note 4 to the Financial Statements.
Depositary and Custodian
The Bank of New York Mellon (International) Limited (“BNYMIL”) was
appointed by the Board as Depositary and Custodian to the Company with effect
from 2 July 2018, taking over from BNY Mellon Trust & Depositary (UK) Limited
following an internal reorganisation within the Bank of New York Mellon Group.
The Depositary Agreement was novated by the new AIFM on 24 April 2020.
Under the Depositary Agreement, an annual fee of 0.025% of the gross asset
value of the Company, subject to a minimum annual fee of £15,000, is payable
to the Depositary monthly in arrears. The Company and the Depositary may
terminate the Depositary Agreement with three months’ written notice.
The Depositary provides the following services, inter alia, under the
Depositary Agreement:
*
safekeeping and custody of the Company’s custodial investments and cash;
*
processing of transactions; and
* foreign exchange services.
Environmental, Human Rights and Social Issues
The Company has no employees and the Board consists entirely of non-executive
Directors. Day-to-day management of the Company’s business is delegated to
the Investment Manager. As an investment trust that invests in other funds,
the Company has very limited impact on the community or the environment and
therefore the Company itself has no environmental, human rights, social or
community policies. In carrying out its activities and in relationships with
suppliers, the Company aims to conduct itself responsibly, ethically and
fairly.
As an investment company, the Company does not provide goods or services in
the normal course of business and does not have customers. All its operational
functions are outsourced to third party service providers. Accordingly, the
Company falls outside the scope of the Modern Slavery Act 2015. The
Company’s suppliers are typically professional advisers and the Company’s
supply chains are considered low risk in this regard.
The Directors, through the Investment Manager, encourage companies in which
investments are made to adhere to best practice with regard to corporate
governance.
Impact of Brexit
The Board has considered whether the United Kingdom’s exit from the European
Union (‘Brexit’) poses a discrete risk to the Company. At the date of this
report, the UK has entered into a “transition period” while it negotiates
new arrangements with the EU. There is, therefore, still considerable
uncertainty about the effects of Brexit.
The effect of Brexit is likely to be limited to those of our investee
companies that have an exposure to the UK market. However, as the Company’s
shares are priced in sterling, sharp movements in exchange rates can affect
the net asset value. This is clearly not a reflection of the underlying value
of the investee companies in their base currencies, but may lead to an
increase or decrease in the Company’s net asset value simply because of
movements in sterling.
Furthermore, whilst the Company’s shareholders are predominantly UK based,
sharp or unexpected changes in investor sentiment, or tax or regulatory
changes, could lead to short-term selling pressure on the Company’s shares
which potentially could lead to the shares trading at a discount to the net
asset value per share.
Overall however, the Board believes that, over the longer term, Brexit is
unlikely to affect the Company’s business model or whether the Company’s
shares trade at a premium or discount to the net asset value per share. The
Board will continue to monitor developments as they occur.
The Board had discussed the possibility of a sterling hedge and leaves this at
the Investment Manager’s discretion.
Impact of Covid-19
The Board recognises that the emergence and spread of the new coronavirus
(Covid-19) represents a new area of risk, both to the Company’s investment
performance and to its operations. In recent months the Board has stayed in
close contact with the investment managers and has been continuously
monitoring portfolio and share price developments. The Board has also received
assurances from all of the Company’s service providers in respect of:
*
their business continuity plans and the steps being taken to guarantee the
ongoing efficiency of their operations while ensuring the safety and
well-being of their employees;
*
their cyber security measures including improved user-access controls, safe
remote working and evading malicious attacks; and
* any increased risks of fraud as a result of decreased operations and
possible employee terminations and weakness in user-access controls resulting
in the potential for management overrides.
The Board will continue to monitor developments as they occur.
For further details in respect of the impact on investment performance please
see the Chairman’s Statement and the Investment Manager’s Report. For a
discussion of the impact on operational matters, please see the Audit
Committee Report.
Stakeholder Interests and Board Decision-Making (Section 172 Statement)
Under new reporting regulations and the new AIC Code, the Directors must now
explain more fully how they have discharged their duties under Section 172 of
the Companies Act 2006 in promoting the success of the Company for the benefit
of the members as a whole. This includes the likely consequences of the
Directors’ decisions in the long term and how they have taken wider
stakeholders’ needs into account.
The Directors aim to treat all of the Company’s shareholders fairly. The
Board’s approach to shareholder relations is summarised in the Corporate
Governance Report. The Chairman’s Statement provides an explanation of
actions taken by the Directors during the year to achieve the Board’s
long-term aim of ensuring that the Company’s shares trade at a price close
to the NAV per share.
As an externally managed investment trust, the Company has no employees,
customers, operations, or premises. Therefore, the Company’s key
stakeholders (other than its shareholders) are considered to be its service
providers. The need to foster strong business relationships with the service
providers and maintain a reputation for high standards of business conduct are
central to the Directors’ decision-making as the Board of an externally
managed investment trust. The Directors believe that fostering constructive
and collaborative relationships with the Company’s service providers will
assist in their promotion of the success of the Company for the benefit of all
shareholders.
The Board engages with representatives from its service providers throughout
the year. Representatives from Premier Miton and Frostrow are in attendance at
each Board meeting. As the Investment Manager and the Company Secretary and
Administrator respectively, the services they provide are fundamental to the
long-term success of the Company.
The Chairman’s Statement and the Report of the Directors describe relevant
decisions taken during the year relating to Premier Miton. In particular, they
describe changes to the AIFM and Investment Manager.
Other issues dealt with during the year included the negotiation of a new loan
agreement with the Royal Bank of Scotland which all parties believe will be of
benefit to all shareholders over the longer term.
Further details about the matters discussed in Board meetings and the
relationship between Premier Miton and the Board are set out in the Corporate
Governance Report.
Representatives from other service providers are asked to attend Board and
Audit Committee meetings when deemed appropriate. Further information about
the work of the Audit Committee is provided below.
In the wake of the global Covid-19 pandemic, the Board sought, and received,
assurances from its key service providers Premier Miton and Frostrow, that all
necessary steps had been taken to ensure the well?being of employees and
continued operational efficiency whilst working from home. Furthermore, the
dialogue with key investors and investee companies continued via telephone and
video conference calls with the Investment Manager and Frostrow.
Performance and Future Developments
The Board concentrates its attention on the Company’s investment
performance, Premier Miton’s investment approach and on factors that may
have an effect on this approach.
The Board monitors the performance of the Company’s investment portfolio in
relation to the Investment Objective and also its peer group.
The Board is regularly updated by Frostrow on wider investment trust industry
issues and regular discussions are held concerning the Company’s future
development and strategy.
A review of the Company’s year, its performance and the outlook for the
Company can be found in the Chairman’s Statement and in the Investment
Manager’s Review.
The Company’s overall strategy remains unchanged.
On behalf of the Board
Richard Davidson
Chairman
14 July 2020
Board of Directors
Richard Davidson
Independent Non-Executive Chairman
Joined the Board on 18 December 2017 and became Chairman on 5 October 2018
Richard is also the Chairman of the Management Engagement Committee
Shareholding in the Company:
60,000
Skills and Experience
Formerly, he was a partner and manager of the Macro Fund at Lansdowne
Partners. Prior to that, he was a managing director and No. 1 ranked
investment strategist at Morgan Stanley, where he worked for 15 years.
Other Appointments
Richard is currently Chairman of Aberforth Smaller Companies Trust plc, Chair
of the University of Edinburgh’s Investment Committee, and a Trustee of
their staff pension scheme.
Standing for re-election
Yes
Michael Phillips
Independent Non-Executive Director
Joined the Board on 23 February 2004
Michael is the Senior Independent Director
Shareholding in the Company:
200,000
Skills and Experience
He founded Iimia Investment Group plc in 2001 (which became MAM Funds plc in
2010 and is now part of Premier Miton Group plc) and in a period of seven
years built it into a group with funds under management and advice of over
£2.8 billion. As Chief Executive he was responsible for the day to day
operations of the Group until September 2008 when he left to pursue other
interests.
He is a Fellow of the Chartered Institute for Securities & Investment.
Other Appointments
Michael is currently a director of Rockford Capital Limited and Zestec Asset
Management Limited.
Standing for re-election
Yes
Ekaterina (Katya) Thomson
Independent Non-Executive Director
Joined the Board on 18 December 2017
Katya is the Chairman of the Audit Committee
Shareholding in the Company:
14,000
Skills and Experience
Katya is a corporate finance, strategy and business development professional
with over 25 years of experience with UK and European blue chip companies.
She is a member of the Institute of Chartered Accountants in England and
Wales.
Other Appointments
She is a non-executive director of Henderson EuroTrust plc and AVI Japan
Opportunity Trust plc (in both trusts she is also chairman of the Audit
Committee) and The New Carnival Company CIC.
Standing for re-election
Yes
Hugh van Cutsem
Independent Non-Executive Director
Joined the Board on 31 March 2010
Shareholding in the Company:
12,348
Skills and Experience
Hugh has worked in the investment company sector for over 20 years, starting
his career at Cazenove.
He co-founded Kepler Partners LLP 14 years ago and continues to lead the
investment company business there. It specialises both in the marketing of
closed end funds and the production of research on them.
Other Appointments
He is a founding partner of Kepler Partners LLP, and a director of the
Cotswold Brewing Company. He is also a Trustee Director of the British Deer
Society with responsibility for investments.
Standing for re-election
Yes
Report of the Directors
The Directors present this annual report on the affairs of the Company
together with the audited financial statements and the Independent Auditors’
Report for the year ended 30 April 2020. Disclosures relating to performance,
future developments and risk management can be found within the Strategic
Report. The Corporate Governance Report forms part of this report.
Business and Status of the Company
The Company is registered in England as a public limited company (registration
number 5020752) and is an investment company as defined under Section 833 of
the Companies Act 2006 (the ‘Act’). Its shares are premium listed on the
Official List of the UK Listing Authority and traded on the main market of the
London Stock Exchange, which is a regulated market as defined in Section 1173
of the Act.
The principal activity of the Company is to carry on business as an investment
trust. The Company has been granted approval from HM Revenue & Customs as an
investment trust under Section 1158 of the Corporation Tax Act 2010. The
Company will be treated as an investment trust company subject to the
Company’s continued compliance with applicable laws and regulations. The
Directors do not envisage any change in this activity in the future.
The Company is a member of the Association of Investment Companies
(“AIC”).
Results and Dividends
The results attributable to shareholders for the year are shown in the
Statement of Financial Position below. No dividends were declared during the
year and the Directors have not recommended a final dividend for the year
(2019: no dividends declared or recommended). Information on the Company’s
dividend policy is given in the Chairman’s Statement.
Alternative Performance Measures
The financial statements set out the required statutory reporting measures of
the Company’s financial performance. In addition, the Board assesses the
Company’s performance against a range of criteria which are viewed as
particularly relevant for the Company and investment trusts, which are
summarised on page 1 and explained in greater detail in the Strategic Report,
under the heading ‘Key Performance Indicators’.
The Directors believe that these measures enhance the comparability of
information between reporting periods and aid investors in understanding the
Company’s performance. The measures used for the year under review have
remained consistent with the prior year.
Definitions of the terms used and the basis of calculation adopted are set out
in the Glossary.
Directors
The Directors in office during the year and up to the date of this report are
Richard Davidson, Michael Phillips, Katya Thomson and Hugh van Cutsem. Their
biographical details as well as interests in the Company can be found above.
None of the Directors nor any persons closely associated with them had a
material interest in the transactions, arrangements and agreements of the AIFM
or the Investment Manager during the year. For information on Related Parties
please see note 16 to the Financial Statements.
The Board has adopted a policy whereby all Directors are required to stand for
re-election annually, regardless of their length of tenure.
Michael Phillips has been on the Board since the inception of the Company and
Hugh van Cutsem has been on the Board for over 10 years and is connected to
Kepler Partners LLP, which provides research on the Company. The Board has
discussed these issues and is satisfied that Michael’s and Hugh’s long
service does not impact their independence and that their knowledge of the
Company’s history is extremely valuable. Furthermore, Hugh has no
involvement in Kepler’s work for the Company, he recuses himself from all
Board discussions in respect of Kepler Partners and he has no influence on
their appointment on behalf of the Company. Both Michael and Hugh are
knowledgeable and lively contributors to the Board’s discussions with the
Investment Manager and are invaluable assets to the Company.
The Board has concluded, following formal performance evaluation, that each of
the Directors continues to demonstrate effectiveness, a high level of
commitment to the Company, independence from the Investment Manager and a keen
desire to act in the best interests of the shareholders as a whole.
Furthermore, the Board considers that the experience, expertise and knowledge
contributed by each Director is of notable benefit to the Company.
Accordingly, the Board recommends the re-election of each of the Directors at
the forthcoming Annual General Meeting, details of which are set out below.
Directors’ and Officers’ Liability Insurance Cover
Directors’ and Officers’ liability insurance cover was maintained by the
Board during the year ended 30 April 2020. It is intended that this policy
will continue for the year ending 30 April 2021 and subsequent years.
There are no qualifying third party indemnity provisions in place.
Articles of Association
Any amendment of the Company’s Articles of Association requires a special
resolution to be passed by shareholders.
Substantial Interests in the Company’s Share Capital
The Directors have been informed of the following substantial interests in the
Company’s voting rights as at 30 April and 31 May 2020, the latter being the
latest practicable date before publication of the Annual Report:
As at 30 April 2020 Number of ordinary shares held % of voting rights
Seven Investment Management 2,441,780 8.70
Hargreaves Lansdown, stockbrokers (EO) 2,100,716 7.49
A J Bell, stockbrokers (EO) 2,055,059 7.33
Investec Wealth & Investment 1,811,637 6.46
Interactive Investor (EO) 1,388,612 4.95
Transact (EO) 1,349,656 4.81
Charles Stanley 1,308,887 4.67
Winterflood Platform Services 1,106,054 3.94
Rathbones 1,068,139 3.81
Smith & Williamson Wealth Management 973,515 3.47
EFG Harris Allday, stockbrokers 971,625 3.46
Philip J Milton, stockbrokers 887,273 3.16
M&G Investment Management 861,976 3.07
(EO = Execution only)
As at 30 June 2020 Number of ordinary shares held % of voting rights
Seven Investment Management 2,375,314 8.52
Hargreaves Lansdown, stockbrokers (EO) 2,143,169 7.70
A J Bell, stockbrokers (EO) 2,021,437 7.25
Investec Wealth & Investment 1,735,867 6.23
Charles Stanley 1,343,631 4.82
Transact (EO) 1,338,768 4.81
Interactive Investor (EO) 1,205,537 4.32
Rathbones 1,044,480 3.75
Winterflood Platform Services 1,036,487 3.72
EFG Harris Allday, stockbrokers 985,625 3.54
Smith & Williamson Wealth Management 951,115 3.41
Philip J Milton, stockbrokers 908,989 3.26
M&G Investment Management 863,926 3.10
(EO = Execution only)
Beneficial Owners of Shares – Information Rights
The beneficial owners of shares who have been nominated by the registered
holder of those shares to receive information rights under Section 146 of the
Companies Act 2006 are required to direct all communications to the registered
holder of their shares rather than to the Company’s registrar, Link Asset
Services, or to the Company directly.
Securities Carrying Voting Rights
There are no restrictions concerning the transfer of securities in the
Company; no special rights with regard to control attached to securities; no
arrangements known to the Company between holders of securities that may
restrict the transfer of securities; and no agreements to which the Company is
party that might affect its control following a successful takeover bid.
Capital Structure and Continuation of the Company
As at the date of this report, the Company’s share capital comprises
27,804,985 Ordinary shares of 1p each with one vote per share. The Company’s
Articles of Association contain provisions enabling shareholders to elect at
three-year intervals for the realisation of all or part of their shareholding
(the ‘Realisation Opportunity’). At the discretion of the Company,
shareholders may request that all or part of the Ordinary shares they hold be
placed, repurchased, or purchased out of the proceeds of an issue of new
ordinary shares, or purchased under a tender offer or by a market maker. If
realisation elections cannot be satisfied in their entirety through the
placing and/or repurchase mechanism, all remaining Elected shares shall be
converted into Realisation shares.
Also in the event that the Company does not make available to members an
opportunity to effect such a realisation at the appointed time, shareholders
may serve a realisation election requesting that all or part of their Ordinary
shares be converted into Realisation shares.
The portfolio would then be split into two separate and distinct pools pro
rata as between the Continuing Ordinary shares (the ‘Continuation Pool’)
and the Realisation shares (the ‘Realisation Pool’). The Continuation Pool
would be managed in accordance with the Company’s investment objective and
policy, while the assets comprising the Realisation Pool would be managed in
accordance with an orderly realisation programme with the aim of making
progressive returns of cash to holders of Realisation shares as soon as
practicable. The precise mechanism for any return of cash to holders of
Realisation shares would depend upon the relevant factors prevailing at the
time and would be at the discretion of the Board. If the net asset value of
the Company’s Continuing Ordinary shares is more than £30 million, then the
Company would continue in operation.
There are currently no Realisation Shares in issue. The next Realisation
Opportunity will be offered to shareholders in 2021. The Board intends to put
forward tailored proposals in relation to each Realisation Opportunity to
ensure that it can be delivered efficiently and in accordance with the best
interests of the Company, at the relevant point in time.
Share Issues and Buybacks
The Directors have the authority to issue shares up to an aggregate nominal
amount equal to one-third of the issued share capital of the Company. They
also have authority to issue shares, or sell Treasury shares, up to an
aggregate nominal amount equal to 10% of the issued share capital for cash,
without pre-emption rights applying. Furthermore, at the last Annual General
Meeting held on 12 September 2019, the Directors were granted the authority to
repurchase up to 4,220,432 Ordinary shares, being 14.99% of the Company’s
issued share capital. These authorities will expire at the Annual General
Meeting to be held on 24 September 2020, when resolutions to renew them will
be proposed.
At 30 April 2020, the number of Ordinary shares in issue was 28,054,985.
300,000 shares have been issued during the year, but no further shares were
issued after the year-end. During the year, 250,000 shares were repurchased
and a further 250,000 shares were repurchased after the year-end and up to the
date of this report.
Treasury Shares
The Company may make market purchases of its own shares for cancellation or
for holding in Treasury where it is considered by the Board to be cost
effective and positive for the management of the Company’s capital base to
do so. During the year, and since the year end, no shares were purchased for,
or held in, Treasury. All shares bought back during the financial year and
since the year end were cancelled.
Viability Statement
The Directors have carefully assessed the Company’s current position and
prospects as described in the Chairman’s Statement and the Investment
Manager’s Report, as well as the Principal Risks and Uncertainties outlined
above and have formed a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they fall due over the
next three financial years.
The particular factors the Directors have considered in assessing the
prospects of the Company, its ability to liquidate its portfolio, and in
selecting a suitable period for this assessment are as follows:
*
the Board and the Investment Manager will continue to adopt a long-term view
when making investments;
*
the majority of the portfolio consists of investments traded on major
international stock exchanges;
*
the Company’s expenses are predictable and modest in comparison with its
assets and there are no capital commitments foreseen which would alter that
position;
*
the Company has no employees, only non-executive Directors, and consequently
does not have employment related liabilities or responsibilities; and
* shareholders were offered a realisation opportunity in 2018 with the option
to either retain or realise their investment. Elections to realise investments
were received in respect of only 1.55% of shares in issue and these shares
were subsequently placed in the market.
The Company is intended to operate over the long-term, however due to the
limitations and uncertainties inherent in predicting market conditions the
Directors have determined that three years is the longest period for which it
is reasonable to make this assessment.
In carrying out their assessment, and after considering market conditions as
at the date of the assessment, including the impact of Covid-19, the Directors
made the following assumptions:
*
investors will wish to continue to have exposure to the type of companies that
the Company invests in, namely closed-end investment funds;
*
the performance of the Company will continue to be satisfactory;
*
the threats to the Company’s solvency or liquidity incorporated in the
Principal Risks will be managed or mitigated as outlined above; and
* following the next realisation opportunity in 2021, the net asset value of
the Ordinary shares will again be more than £30 million, allowing the Company
to continue in operation.
Based on the results of this review, the Directors have formed a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the next three financial years.
Global Greenhouse Gas Emissions
The Company has very low usage of energy and has no greenhouse gas emissions
to report from its operations, nor does it have responsibility for any other
emissions producing sources under The Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013, including those within the underlying
investment portfolio or the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include certain information in a
single identifiable section of the Annual Report or a cross reference table
indicating where the information is set out. The Directors confirm that there
are no disclosures to be made under Listing Rule 9.8.4.
Modern Slavery Act 2015
The Company does not provide goods or services in the normal course of
business, and as a financial investment vehicle, does not have customers.
Therefore, the Directors do not consider that the Company is required to make
a statement under the Modern Slavery Act 2015 in relation to slavery or human
trafficking. The Company’s suppliers are typically professional advisers and
the Company’s supply chains are considered to be low risk in this regard.
Anti-Bribery and Corruption Policy
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly, it expressly prohibits any Director or associated
persons when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit for
themselves or for the Company.
The Board applies the same standards to its service providers in their
activities for the Company.
A copy of the Company’s Anti Bribery and Corruption Policy can be found on
its website at www.premiermiton.com/migo. This policy is reviewed annually by
the Audit Committee.
Prevention of the Facilitation of Tax Evasion
In response to the implementation of the Criminal Finances Act 2017, the Board
adopted a zero-tolerance approach to the criminal facilitation of tax evasion.
A copy of the Company’s policy on preventing the facilitation of tax evasion
can be found on the Company’s website at www.premiermiton.com/migo. The
policy is reviewed annually by the Audit Committee.
Political Donations
The Company has not made and does not intend to make any political donations.
Corporate Governance
The Corporate Governance report, which includes the Company’s corporate
governance policies is set out below.
Common Reporting Standard (CRS)
CRS is a global standard for the automatic exchange of information
commissioned by the Organisation for Economic Cooperation and Development and
incorporated into UK law by the International Tax Compliance Regulations 2015.
CRS requires the Company to provide certain additional details to HMRC in
relation to certain shareholders. The reporting obligation began in 2016 and
is an annual requirement. The Company’s Registrars, Link Asset Services,
have been engaged to collate such information and file the reports with HMRC
on behalf of the Company.
Annual General Meeting
The Notice of the Annual General Meeting is set out below. In addition to the
ordinary business of the meeting, the following resolutions will be proposed
as special business:
An Ordinary Resolution to renew the Directors’ authority to allot shares up
to an aggregate nominal amount of £92,683 representing approximately
one-third of the Company’s issued share capital at the date of this report,
will be proposed as Resolution 10.
A Special Resolution to authorise the Directors to issue new shares or sell
shares from Treasury for cash, up to an aggregate nominal amount of £27,804,
which is equivalent to approximately 10% of the Company’s issued share
capital at the date of this report, at a price per share not less than the net
asset value per share, and to disapply pre-emption rights in respect of such
shares, will be proposed as Resolution 11.
A Special Resolution to renew for a further year the Company’s authority to
purchase (either for cancellation or for placing into Treasury, at the
discretion of the Directors) up to 14.99% of the Ordinary shares in
circulation will be put to shareholders as Resolution 12. Purchases will be
made on the open market and prices will be in accordance with the terms set
out in Resolution 12.
The Directors will exercise the authorities granted to them by the passing of
Resolutions 10 to 12 only if, in their opinion, it would be in the best
interests of the shareholders as a whole. If passed, these authorities will
expire at the Annual General Meeting to be held in 2021, when resolutions for
their renewal will be proposed.
A Special Resolution that will allow the Directors to convene general
meetings, other than Annual General Meetings, on a minimum of 14 clear days’
notice, will be proposed as Resolution 13. The minimum notice period for
Annual General Meetings will remain at 21 clear days. This approval would be
effective until the Company’s Annual General Meeting to be held in 2021, at
which it is intended that renewal will be sought. The Company will have to
offer facilities for all shareholders to vote by electronic means for any
general meeting convened on 14 days’ notice. The Directors will only call a
general meeting on 14 days’ notice where they consider it to be in the
interests of shareholders to do so and the relevant matter is required to be
dealt with expediently.
Recommendation
Full details of the above resolutions are contained in the Notice of Annual
General Meeting. Ordinary resolutions require that more than 50% of the votes
cast at the relevant meeting must be in favour of the resolutions. Special
resolutions require that at least 75% of the votes cast must be in favour of
the resolution to be passed.
The Directors consider that all the resolutions to be proposed at the AGM are
in the best interests of the Company and its members as a whole. The Directors
unanimously recommend that shareholders vote in favour of all the resolutions,
as they intend to do in respect of their own beneficial holdings.
AGM Arrangements
The Board very much hopes that it will be possible to hold a physical AGM on
24 September 2020 and looks forward to meeting shareholders then. However,
shareholders should note. that at the time of writing this annual report, it
is not yet clear whether it will be possible to hold a physical AGM or whether
further social distancing rules will necessitate a much pared-down AGM in
order to guarantee everyone’s safety and well-being in view of Covid-19. In
case the decision is made that the Board will only conduct the minimal
statutory business at the AGM, without a live presentation from the Investment
Managers and without the opportunity for shareholders to meet with the Board,
then arrangements will be made on the Company’s website for shareholders to
view the Managers’ presentation and to ask questions.
As also noted in the Chairman’s Statement, shareholders are strongly
encouraged to exercise their votes in respect of the meeting in advance by
visiting www.signalshares.com and following the instructions. Any shareholders
who require a form of proxy in hard copy may request one from the registrars,
Link Asset Services. Voting by proxy will ensure that all shareholders’
votes are registered in the event that attendance at the AGM is not possible
or restricted or if the meeting is postponed. Further details about the voting
process can be found in the Notice of Meeting.
Going Concern
The content of the Company’s portfolio, trading activity, the Company’s
cash balances and revenue forecasts, and the trends and factors likely to
affect the Company’s performance are reviewed and discussed at each Board
meeting. Of course, for the year ended 30 April 2020, the emergence of
Covid-19 has added the factor of a global pandemic and its effect on the
investment management and general operations of the Company to the
deliberations of the Board, which will also remain an influencing factor for
the year ending 30 April 2021.
The Board has considered a detailed assessment of the Company’s ability to
meet its liabilities as they fall due, including tests which modelled the
effects of further substantial falls in markets and significant reductions in
market liquidity to that experienced to date in connection with the
coronavirus pandemic, on the Company’s NAV, its cash flows and its expenses.
Further information is provided in the Audit Committee report.
Based on the information available to the Directors at the date of this
report, including the results of these stress tests, the conclusions drawn in
the Viability Statement, the Company’s cash balances, and the liquidity of
the Company’s listed investments, the Directors are satisfied that the
Company has adequate financial resources to continue in operation for at least
the next 12 months and that, accordingly, it is appropriate to continue to
adopt the going concern basis in preparing the financial statements.
Audit Information
The Directors who held office at the date of this report confirm that, so far
as they are aware, there is no relevant audit information of which the
Company’s Auditors are unaware and each Director has taken all the steps
that he/she ought to have taken as a Director to make himself/herself aware of
any relevant audit information and to establish that the Company’s Auditors
are aware of that information. This information should be interpreted in
accordance with the provisions of section 418 of the Companies Act 2006.
On behalf of the Board
Richard Davidson
Chairman
14 July 2020
Audit Committee Report
I am pleased to present the Audit Committee (the “Committee”) Report for
the year ended 30 April 2020. The Committee met three times during the year
under review and once following the year end.
Composition
Due to the small size of the Board, the Audit Committee comprises all the
Directors whose biographies are set out above, including the Chairman. In
accordance with the terms of reference of the Committee, the Chairman of the
Board may be a member provided he or she was independent on his appointment as
chairman, but may not act as the Committee Chairman. All Directors are
non-executive and are considered independent, as discussed in the Report of
the Directors. The Committee considers that at least one member has recent and
relevant experience in accounting or auditing and that the Committee as a
whole has experience relevant to the investment trust industry.
The Company’s Auditors are invited to attend meetings as necessary.
Representatives of the AIFM and Investment Manager may also be invited. The
Company Secretary acts as the Secretary to the Audit Committee.
Responsibilities of the Committee
The Committee’s responsibilities are set out in formal terms of reference
which are available on the Company’s website www.premiermiton.com/migo and
which are reviewed annually. The Committee’s primary responsibilities are:
*
to monitor the integrity of the financial statements of the Company, including
its Annual and Half-Yearly Reports and any other formal announcements of the
Company relating to its financial performance, and to review and to report to
the Board on significant financial reporting issues and judgements which those
statements contain having regard to matters communicated to it by the
Auditors;
*
to review the effectiveness of the Company’s internal financial controls and
of the internal control and risk management systems of the company and its
third-party service providers;
*
to receive and consider reports from the Compliance Officer of the Investment
Manager and AIFM;
*
to consider the accounting policies of the Company;
*
to monitor adherence to best practice in corporate governance;
*
to make recommendations to the Board in relation to the re-appointment of the
Auditors, their terms of engagement and their remuneration;
*
to review the scope, results, cost effectiveness, independence and objectivity
of the external Auditors;
*
to review the policy on the engagement of the external Auditors to supply
non-audit services and considering relevant guidance regarding the provision
of non-audit services by the external audit firm; and
*
to consider the need for an internal audit function.
Matters Considered in the Year
During the year, the Committee has:
*
reviewed the internal controls and risk management systems of the Company and
its third party service providers;
*
received and discussed with PricewaterhouseCoopers LLP (“PwC”) their
report on the results of the 2019 audit;
*
agreed the audit plan and fee for the 2020 audit with PwC, including the
principal areas of focus;
*
considered the implications of Covid-19 for the Company’s investment
performance viability as well as for the Company’s service providers; and
* reviewed the Company’s financial statements and advised the Board
accordingly.
Subsequent to the year end, the Committee received and discussed with PwC
their report on the results of the 2020 audit.
Significant Reporting Matters
The significant reporting matters considered by the Committee during the year
were:
1. Verification of ownership and valuation of the Company’s holdings.
The valuation of investments is undertaken in accordance with the accounting
policies in note 1 to the financial statements. Controls are in place to
ensure that valuations are appropriate and existence is verified through
reconciliations with the Custodian. The Committee discussed the controls and
process with Frostrow and the AIFM. Having reviewed the process controls, the
Committee confirmed that they were satisfied that the investments had been
valued correctly and the Company’s ownership was appropriately documented.
The portfolio contains a significant number of holdings where the investee
company is in a process of realisation/liquidation. As at 30 April 2020, 10
out of 46 holdings (2019: 10 out of 41 holdings) were in a process of
realisation, representing 13.0% (2019: 12.4%) of the portfolio. The Investment
Manager provides comprehensive updates on investee companies at each Board
meeting and the Directors have regular discussions with the Investment Manager
about the impact of this ‘tail’ on the Company and its performance.
Recognition of Revenue from Investments
The Committee took steps to gain an understanding of the processes in place to
record investment income and transactions. The Committee sought confirmation
that all dividends receivable have been accounted for correctly.
Other Reporting Matters
Accounting Policies
The current accounting policies, as set out in note 1 to the Financial
Statements, have been applied consistently throughout the year and the prior
period where applicable.
Going Concern
Having reviewed the Company’s financial position and liabilities, the
Committee is satisfied that it is appropriate for the Board to prepare the
financial statements on the going concern basis. Further detail is provided in
the Report of the Directors.
Viability Statement
The Audit Committee also considered the Company’s financial position and
principal risks in connection with the Board’s statement on the longer term
viability of the Company, which is set out in the Report of the Directors.
The Committee reviewed the Company’s financial position (including its cash
flows and liquidity position), the principal risks and uncertainties and the
results of stress tests and scenarios which considered the impact of severe
stock market volatility on shareholders’ funds. This included modelling
further substantial market falls, and significantly reduced market liquidity,
to that experienced recently in connection with the coronavirus pandemic. The
scenarios assumed that there would be no recovery in asset prices and that
listed portfolio companies which have cut or cancelled their dividends since
the coronavirus outbreak would not reinstate them.
The results demonstrated the impact on the Company’s NAV, its expenses, its
cash flows and its ability to meet its liabilities. In even the most stressed
scenario, the Company was shown to have sufficient cash, or to be able to
liquidate a sufficient portion of its listed holdings, in order to be able to
meet its liabilities as they fall due. Based on the information available to
the Directors at the time, the Committee therefore concluded it was reasonable
for the Board to expect that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next three financial years.
Financial Statements
The Board has asked the Committee to confirm that in its opinion the Board can
make the statement that the Annual Report taken as a whole is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company’s position, performance, business model and strategy. The
Committee has given this confirmation on the basis of its review of the whole
document, underpinned by involvement in the planning for its preparation and
review of the processes to assure the accuracy of factual content.
The Committee is satisfied that it is appropriate for the Board to prepare the
financial statements on the going concern basis. The financial statements can
be found below.
The Committee also reviewed the financial position and principal risks of the
Company in connection with the Board’s statement on the long-term viability
of the Company, which is set out in the Report of the Directors.
Internal Controls and Risk Management
The Board has overall responsibility for the risk assessment and review of the
internal controls of the Company, undertaken in the context of its investment
objective.
The review covers the key business, operational, compliance and financial
risks facing the Company. In arriving at its judgement of what risks the
Company faces, the Board has considered the Company’s operations in light of
the following factors:
*
the nature of the Company, with all management functions outsourced to third
party service providers;
*
the nature and extent of risk which it regards as acceptable for the Company
to bear within its overall investment objective;
*
the threat of such risks becoming a reality; and
* the Company’s ability to reduce the incidence and impact of risk on its
performance.
Against this background, a risk matrix has been developed which covers key
risks that the Company faces, the likelihood of their occurrence and their
potential impact, how these risks are monitored and the mitigating controls
put in place. The Board has delegated to the Committee the responsibility for
the review and maintenance of the risk matrix. It reviews, in detail, the risk
matrix each time it meets, bearing in mind any changes to the Company, its
environment or service providers since the last review. The Committee
considers whether any new risks are emerging as a result of any such changes
and any significant changes to the risk matrix are discussed with the Board.
The main new risk which has emerged since the start of 2020, is the risk posed
by the coronavirus pandemic and the risk matrix has been amended to take
account of the impact of Covid-19 on various aspects of the Company’s
operations and investment management. There were no other fundamental changes
to the Company’s risk management processes during the year and no
significant failings or weaknesses were identified from the Committee’s most
recent risk review.
The Committee acknowledges that the Company is reliant on the systems utilised
by its service providers. The Committee receives internal controls reports
from, and reviews the internal controls in place at, the Investment Manager
and AIFM twice annually. The internal controls reports from its other
principal service providers – from Frostrow Capital LLP, the Company’s
Administrator and Company Secretary; from the Custodian, The Bank of New York
Mellon (International) Limited; and from Link Asset Services, the Registrars -
are reviewed on an annual basis. In view of Covid-19, in particular, all of
the Company’s service providers were asked about their post-covid business
continuity resilience, cyber security and fraud prevention procedures.
Following this review, the Committee concluded that there were no significant
control weaknesses or other issues that needed to be brought to the attention
of the Board.
The Committee members confirm that they have carried out a review of the
effectiveness of the system of internal financial control and risk management
during the year, as set out above and that:
(a) an ongoing procedure for identifying, evaluating and managing
significant risks faced by the Company was in place for the year under review
and up to the date of this report. This procedure is regularly reviewed by the
Board; and
(b) they are responsible for the Company’s system of internal controls
and for reviewing its effectiveness and that it is designed to manage the risk
of failure to achieve business objectives. This can only provide reasonable
not absolute assurance against material misstatement or loss.
Internal Audit
The Company does not have an internal audit function as all of its day-to-day
operations are delegated to third parties, all of whom have their own internal
control procedures. The Committee discussed whether it would be appropriate to
establish an internal audit function, and agreed that the existing system of
monitoring and reporting by third parties remains appropriate and sufficient.
External Auditors
The Audit
The nature and scope of the audit for the year under review, together with
PwC’s audit plan, were considered by the Committee on 5 March 2020 and
subsequently discussed with PwC by the Audit Committee chairman prior to the
commencement of audit field work. The Committee then met PwC on 7 July 2020 to
formally review the outcome of the audit and to discuss the limited issues
that arose. The Committee also discussed the presentation of the Annual Report
with the Auditors and sought their perspective.
Independence and Effectiveness
In order to fulfil the Committee’s responsibility regarding the independence
of the Auditors, the Committee reviewed:
*
the senior audit personnel in the audit plan for the year;
*
the Auditors’ arrangements concerning any conflicts of interest;
*
the extent of any non-audit services;
*
the statement by the Auditors that they remain independent within the meaning
of the regulations and their professional standards; and
* the Auditors’ independence.
In order to consider the effectiveness of the Audit process, the Committee
reviewed:
*
the Auditors’ fulfilment of the agreed audit plan;
*
the report arising from the audit itself; and
* feedback from Frostrow.
A summary of the Company’s policy on the provision by the Auditors of
non-audit services to the Company can be found below.
The Committee is satisfied with the Auditors’ independence and the
effectiveness of the audit process, together with the degree of diligence and
professional scepticism brought to bear.
The audit fee for the year ended 30 April 2020 was £27,935 (2019: £23,650).
Appointment and Tenure
PricewaterhouseCoopers LLP (“PwC”) were appointed in September 2016 to
audit the financial statements for the year ended 30 April 2017 and subsequent
financial periods. The period of total uninterrupted engagement is four years.
Ms Felicity Rees is the Engagement Leader allocated to the Company by PwC.
In accordance with current legislation, the Company is required to conduct an
audit tender process at least every 10 years and will have to change its
auditor after a maximum of 20 years. In addition, the nominated Engagement
Leader will be required to rotate after serving a maximum of five years with
the Company; it is therefore anticipated that Ms Rees will serve as Engagement
Leader for one more year until completion of the audit process in 2021. The
Company has complied throughout the year ended 30 April 2020 with the
provisions of the Statutory Audit Services Order 2014, issued by the
Competition and Markets Authority.
The re-appointment of PricewaterhouseCoopers LLP as Auditors to the Company
will be submitted for shareholder approval, together with a separate
resolution to authorise the Committee to reconfirm the remuneration of the
Auditors, at the AGM to be held on 24 September 2020.
Non-Audit Services
The Company operates on the basis whereby the provision of all non-audit
services by the Auditors has to be pre-approved by the Audit Committee. Such
services are only permissible where no conflicts of interest arise, the
service is not expressly prohibited by audit legislation, where the
independence of the Auditors is not likely to be impinged by undertaking the
work and the quality and the objectivity of both the non-audit work and audit
work will not be compromised. In particular, non-audit services may be
provided by the Auditors if they are inconsequential or would have no direct
effect on the Company’s financial statements and the audit firm would not
place significant reliance on the work for the purposes of the statutory
audit.
During the year under review and up to the date of this report, no non-audit
services were undertaken by PwC.
Effectiveness of the Committee
A formal internal Board review which included reference to the Audit
Committee’s effectiveness was undertaken by the Chairman of the Company
during the year. As part of the evaluation, the Committee reviewed the
following:
*
the composition of the Committee;
*
the leadership of the Committee Chairman;
*
the Committee’s monitoring of compliance with corporate governance
requirements;
*
the Committee’s review of the quality and appropriateness of financial
accounting and reporting;
*
the Committee’s review of significant risks and internal controls; and
* the Committee’s assessment of the independence, competence and
effectiveness of the Company’s external Auditors.
It was concluded that the Committee was performing satisfactorily and there
were no formal recommendations made to the Board.
Katya Thomson
Audit Committee Chairman
14 July 2020
Directors’ Remuneration Report
for the year ended 30 April 2020
Statement from the Chairman
I am pleased to present the Directors’ Remuneration Report for the year
ended 30 April 2020. An ordinary resolution for the approval of this report
will be put to shareholders at the forthcoming Annual General Meeting. The law
requires the Company’s Auditor, PricewaterhouseCoopers LLP, to audit certain
of the disclosures provided. Where disclosures have been audited, they are
indicated as such. The Auditors’ opinion is included in the Independent
Auditors’ Report.
The Board considers the framework for the remuneration of the Directors on an
annual basis. It reviews the ongoing appropriateness of the Company’s
remuneration policy and the individual remuneration of Directors by reference
to the activities of the Company and comparison with other companies of a
similar structure and size. This is in line with the AIC Code.
The Board consists entirely of independent non-executive Directors and the
Company has no employees.
We have not, therefore, reported on those aspects of remuneration that relate
to executive directors. Due to the small size and nature of the Board, it is
not considered appropriate for the Company to establish a separate
remuneration committee and the remuneration of the Directors is therefore
dealt with by the Board as a whole.
During the year ended 30 April 2020, the fees were set at the rate of £27,500
per annum for the Chairman, £20,000 per annum for other non-executive
Directors, and an additional £4,000 per annum for the Chairman of the Audit
Committee.
With effect from 1 May 2020, all Directors’ fees were increased by £2,000
each, in order to bring them more in line with the market. Prior to that, the
Directors’ fees were last increased with effect from 1 May 2015. All levels
of remuneration reflect both the time commitment and responsibility of the
role.
Directors’ Fees for the Year (audited)
The Directors who served during the year received the following emoluments:
Fees Expenses* Total
Year to Year to Year to Year to Year to Year to
30 April 30 April 30 April 30 April 30 April 30 April
2020 2019 2020 2019 2020 2019
£ £ £ £ £ £
Richard Davidson (Chairman) 27,500 24,231 – – 27,500 24,231
Michael Phillips 20,000 20,000 1,025 892 21,025 20,892
Katya Thomson (Audit Committee Chairman) 24,000 22,256 – – 24,000 22,256
Hugh van Cutsem 20,000 20,000 – – 20,000 20,000
James Fox (#) – 10,462 – 411 – 10,873
Anthony Townsend (#) – 11,987 – – – 11,987
91,500 108,936 1,025 1,303 92,525 110,239
* travel expenses for attendance at Board meetings, which under HMRC
rules are treated as taxable expenses. The amounts shown in the table are the
expenses plus the associated tax liability.
# Retired after the AGM on 5 October 2018.
The Directors’ fees set out in the table above exclude any employers’
national insurance contributions, if applicable. No other forms of
remuneration were received by the Directors and therefore, the fees represent
the total remuneration of each Director.
No payments were made to former directors of the Company during the year other
than set out in the table above.
Other Benefits
The Company’s Articles of Association provide that Directors are entitled to
be reimbursed for reasonable expenses incurred by them in connection with the
performance of their duties and attendance at Board and General Meetings. The
claims for taxable expenses are set out in the table above.
No pension schemes or other similar arrangements have been established for the
Directors and no Director is entitled to any pension or similar benefits
pursuant to their Letters of Appointment.
Loss of Office
Directors do not have service contracts with the Company but are engaged under
Letters of Appointment. These specifically exclude any entitlement to
compensation upon leaving office for whatever reason.
Performance
The graph below compares the total return (assuming all dividends are sterling
reinvested) to Ordinary shareholders, compared to the FTSE All-Share Index and
the Company’s Benchmark of 3-month SONIA plus 2%.
Relative Importance of Spend on Pay
This report is required to include a table showing actual expenditure by the
Company on remuneration and distributions to shareholders for the current and
prior year. However, as the Company has not declared any dividends, there is
no such analysis to present.
Directors’ Beneficial Interests (audited)
The interests of the Directors and persons closely associated with them, in
the Ordinary shares of the Company are set out below:
At 30 April 2020 At 30 April 2019
Number of shares Number of shares
Richard Davidson 60,000 27,025
Michael Phillips 200,000 107,795
Katya Thomson 14,000 6,000
Hugh van Cutsem 12,348 12,348
There have been no changes to any of the above holdings between 30 April 2020
and the date of this report.
There is no requirement under the Company’s Articles of Association for
Directors to hold shares in the Company.
The interests of the Investment Manager in the Ordinary shares of the Company
are set out below:
At 30 April 2020 At 30 April 2019
Number of shares Number of shares
Nick Greenwood 166,500 162,000
Since the year-end, Mr Greenwood purchased a further 4,000 Ordinary Shares.
Statement of Voting at Annual General Meeting
The Directors’ Remuneration Report for the year ended 30 April 2019 was
approved by shareholders at the Annual General Meeting held on 12 September
2019.
4,082,758 votes (100.0%) were in favour, with no votes against and no votes
withheld. Any proxy votes which were at the discretion of the Chairman were
included in the “for” total.
Approval
The Directors’ Remuneration Report was approved by the Board of Directors on
14 July 2020 and signed on its behalf by:
Richard Davidson
Chairman
Directors’ Remuneration Policy
The Board’s policy is that the remuneration of the Directors should reflect
the experience of the Board as a whole, and is determined with reference to
comparable organisations and appointments. The level of remuneration has been
set in order to attract individuals of a calibre appropriate to the future
development of the Company. The remuneration of the Directors will take into
account the duties and responsibilities of the Directors and the expected time
commitment to the Company’s affairs.
The fees of the Directors are determined within the limits set out in the
Company’s Articles of Association, which stipulate that the aggregate amount
of Directors’ fees shall not exceed £150,000 in any financial year or any
greater sum that may be determined from time to time by ordinary resolution of
the Company. The Directors are not eligible for bonuses, pension benefits,
share options, long-term incentive schemes or other benefits. There are no
performance conditions attaching to the remuneration of the Directors as the
Board does not believe this to be appropriate for non-executive Directors.
As set out in the Company’s Articles of Association, Directors are entitled
to be paid all reasonable travel, hotel or other expenses properly incurred in
or about the performance of their duties as Directors, including expenses
incurred in attending Board or shareholder meetings. In certain circumstances,
under HMRC rules, travel and other out of pocket expenses reimbursed to the
Directors may be considered as taxable benefits. Where expenses are classed as
taxable under HMRC guidance, they are shown in the expenses column of the
Directors’ remuneration table along with the associated tax liability.
Expected fees Fees for year to
for year to
30 April 2021 30 April 2020
£ £
Chairman 29,500 27,500
Audit Committee Chairman 26,000 24,000
Non-executive Director 22,000 20,000
Total aggregate annual fees that may be paid 150,000 150,000
Fees for any new Director appointed will be on the above basis. Fees payable
in respect of subsequent periods will be determined following an annual
review. No communications have been received from shareholders regarding
Directors’ remuneration. The Board will consider any comments received from
shareholders on the Directors’ Remuneration Policy.
None of the Directors has a contract of service with the Company, but letters
of appointment setting out the terms of their appointment as non-executive
Directors are in place and are available on request from the Company Secretary
and will be available at the Company’s Annual General Meeting. All Directors
stand for re-election annually. Compensation will not be paid upon loss of
office.
This policy was last approved by shareholders at the Annual General Meeting
held in 2018. 3,977,324 (99.95%) of votes were received in favour, 2,175
(0.05%) were against and no votes were withheld.
In accordance with the regulations, an ordinary resolution to approve the
Directors’ Remuneration Policy will be put to shareholders at least once
every three years, if there have been no proposed changes in the meantime.
Therefore, as the Directors’ fees for the year to 30 April 2021 have been
increased in order to bring the fees more in line with the market, a
resolution proposing to approve the amended Directors’ Remuneration Policy
will be considered by shareholders at the forthcoming Annual General Meeting
to be held on 24 September 2020.
Statement of Directors' Responsibilities in respect of the Financial
Statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102 “The
Financial Reporting Standard applicable in the UK and Republic of Ireland”,
and applicable law). Under Company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or loss of the
Company for that period. In preparing the financial statements, the Directors
are required to:
*
select suitable accounting policies and then apply them consistently;
*
state whether applicable United Kingdom Accounting Standards, comprising FRS
102, have been followed, subject to any material departures disclosed and
explained in the financial statements;
*
make judgements and accounting estimates that are reasonable and prudent; and
*
prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors 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 Company and
enable them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Company’s position and performance, business
model and strategy.
Each of the Directors, whose names and functions are listed in the Board of
Directors section confirm that, to the best of their knowledge:
*
the Company’s financial statements, which have been prepared in accordance
with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland”, and applicable law), give a
true and fair view of the assets, liabilities, financial position and loss of
the Company; and
*
the Strategic Report includes a fair review of the development and performance
of the business and the position of the Company, together with a description
of the principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors’ Report is
approved:
*
so far as the Director is aware, there is no relevant audit information of
which the Company’s auditors are unaware; and
*
they have taken all the steps that they ought to have taken as a Director in
order to make themselves aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.
On behalf of the Board
Richard Davidson
Chairman
14 July 2020
Financial Statements
Income Statement
for the year ended 30 April 2020
Year ended Year ended
30 April 2020 30 April 2019
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Losses on investments 8 – (15,059) (15,059) – (140) (140)
Exchange losses on capital items – (1) (1) – (8) (8)
Income 2 1,467 – 1,467 1,237 – 1,237
Investment management fee 3 (477) – (477) (493) – (493)
Other expenses 4 (521) – (521) (789) – (789)
Return/(loss) before finance costs and taxation 469 (15,060) (14,591) (45) (148) (193)
Finance costs 5 (50) – (50) (95) – (95)
Return/(loss) before taxation 419 (15,060) (14,641) (140) (148) (288)
Taxation 6 – – – 12 – 12
Return/(loss) after taxation 419 (15,060) (14,641) (128) (148) (276)
Basic and diluted return/(loss) per Ordinary share (pence) 7 1.5 (53.7) (52.2) (0.5) (0.5) (1.0)
The total column of this statement is the Income Statement of the Company. The
supplementary revenue and capital columns have been prepared in accordance
with guidance issued by the AIC.
All revenue and capital items in the above statement derive from continuing
operations. There is no other comprehensive income other than that passing
through the Income Statement and therefore no Statement of Total Comprehensive
Income has been presented.
Statement of Changes in Equity
for the year ended 30 April 2020
Called up Capital Share Total
share redemption premium Special Capital Revenue shareholders’
capital reserve account reserve reserve reserve funds
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance at 30 April 2018 272 60 22,139 10,008 43,366 (661) 75,184
Movement for the year
New issue of shares 12 8 – 2,255 – – – 2,263
Loss for the year – – – – (148) (128) (276)
Balance at 30 April 2019 280 60 24,394 10,008 43,218 (789) 77,171
Movement for the year
New issue of shares 12 3 – 711 – – – 714
Buyback of shares for cancellation 12 (2) 2 – (652) – – (652)
(Loss)/return for the year – – – – (15,060) 419 (14,641)
Balance at 30 April 2020 281 62 25,105 9,356 28,158 (370) 62,592
The notes form part of these financial statements.
Statement of Financial Position
as at 30 April 2020
30 April 2020 30 April 2019
Note £’000 £’000
Fixed assets
Investments 8 60,076 72,278
Current assets
Debtors 10 357 117
Cash 2,286 5,113
2,643 5,230
Creditors: amounts falling due within one year 11 (127) (337)
(127) (337)
Net current assets 2,516 4,893
Net assets 62,592 77,171
Share capital and reserves:
Called up share capital 12 281 280
Capital redemption reserve 62 60
Share premium account 25,105 24,394
Special reserve 9,356 10,008
Capital reserve 28,158 43,218
Revenue reserve (370) (789)
Total shareholders’ funds 62,592 77,171
Net asset value per Ordinary share (pence) 13 223.1 275.6
Number of shares in issue 28,054,985 28,004,985
These financial statements were approved by the Board of Directors and
authorised for issue on 14 July 2020, and signed on its behalf by:
Richard Davidson
Chairman
Company No. 5020752
The notes form part of these financial statements.
Statement of Cash Flow
for the year ended 30 April 2020
Year ended Year ended
30 April 2020 30 April 2019
Note £’000 £’000
Net cash inflow from operating activities 14 280 146
Investing activities
Purchases of investments (18,234) (18,651)
Sales of investments 15,128 16,847
Net cash outflow from investing activities (3,106) (1,804)
Financing activities
New issue of shares 714 2,263
Buyback of shares for cancellation (652) –
Revolving credit facility repaid – (5,000)
Finance costs paid (58) (83)
Net cash inflow/(outflow) from financing activities 4 (2,820)
Decrease in cash (2,822) (4,478)
Reconciliation of net cash flow movement in funds:
Cash at beginning of year 5,113 9,591
Exchange rate movements (5) –
Decrease in cash (2,822) (4,478)
Decrease in net cash (2,827) (4,478)
Cash at end of year 2,286 5,113
The notes form part of these financial statements.
Notes to the Financial Statements
for the year ended 30 April 2020
1 Accounting policies
The Company is a public limited company (PLC) limited by shares, incorporated
in England and Wales, with its registered office at 6th Floor, Paternoster
House, 65 St Paul’s Churchyard, London, EC4M 8AB.
The principal accounting policies, all of which have been applied consistently
throughout the year and in the preparation of the Financial Statements, are
set out below:
Accounting convention
The financial statements are prepared on a going concern basis, under the
historical cost convention, modified by the valuation of investments at fair
value, in accordance with the Companies Act 2006, FRS102 ‘The Financial
Reporting Standard applicable in the UK and Ireland’ and the Statement of
Recommended Practice regarding the Financial Statements of Investment Trust
Companies and Venture Capital Trusts (“SORP”) updated in October 2019.
The Company’s financial statements are presented in sterling, being the
functional and presentational currency of the Company. All values are rounded
to the nearest thousand pounds (£’000) except where otherwise indicated.
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and
in accordance with the SORP, supplementary information which analyses the
Income Statement between items of a revenue and capital nature has been
presented alongside the Income Statement. The net revenue return is the
measure the Directors believe appropriate in assessing the Company’s
compliance with certain requirements set out in Sections 1158 and 1159 of the
Corporation Tax Act 2010.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used
in preparing the financial information are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting estimates will, by
definition, seldom equal the related actual results. There are no critical
accounting judgements made in preparing the financial statements.
The key sources of estimation and uncertainty, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities relate to the valuation of the Company’s unquoted (Level 3)
investments. 1.9% (2019: 1.5%) of the Company’s portfolio is comprised of
unquoted investments. These are all valued in line with accounting policy for
investments starting on the following page.
Going concern
The Directors have made an assessment of the Company’s ability to continue
as a going concern and having taken into account the liquidity of the
Company’s portfolio and the Company’s financial position in respect of its
cash flows and borrowing facilities, are satisfied that the Company has the
resources to continue in business for 12 months from the date of approval of
this report. The Company, therefore, continues to adopt the going concern
basis in preparing its financial statements. Further information on the
Company’s borrowing facility is given in note 11.
Income recognition
Dividends receivable are recognised when the investments concerned are quoted
‘ex-dividend’. Where no ex-dividend date is quoted dividends are
recognised when the Company’s right to receive payment is established.
Special dividends of a revenue nature are recognised through the revenue
column of the Income Statement. Special dividends of a capital nature are
recognised through the capital column of the Income Statement.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the Income Statement except for transaction
costs which are incidental to the acquisition or disposal of an investment,
which are included within gains/ (losses) on investments and disclosed in note
8.
Foreign currency transactions
Transactions denominated in foreign currencies are translated into sterling at
the rates of exchange ruling at the date of the transaction.
Investments are converted to sterling at the rates of exchange ruling at the
Statement of Financial Position date. Any gains or losses on the
re-translation of assets or liabilities are taken to the revenue or capital
column of the Income Statement, depending on whether the gain or loss is of a
capital or revenue nature.
Investments
In accordance with FRS 102 Section 11: Basic Financial Investments and Section
12: Other Financial Investment Issues, investments are measured initially, and
at subsequent reporting dates, at fair value, and are recognised and
de-recognised at trade date where a purchase or sale is under a contract whose
terms require delivery within the time frame established by the market
concerned.
For quoted securities fair value is either bid price or the closing price
where the security is primarily traded via a trading service that provides an
end of day closing auction with guaranteed liquidity to investors.
The valuation of unquoted securities is carried out in accordance with the
International Private Equity and Venture Capital Association valuation
guidelines. Unquoted securities are valued using either:
*
the last published net asset value of the security after adjustment for
factors that the AIFM and Board believe would affect the amount of cash that
the Company would receive if the security were realised as at the Statement of
Financial Position date; or
*
the estimated, discounted cash distribution based on information provided by
the management, or liquidators of the security. The discount applied will take
account of various factors, including expected timings of the cash flow and
the level of certainty on the estimate.
Changes in fair value and gains or losses on disposal are included in the
Income Statement as a capital item.
Cash
Cash comprises solely of cash at bank.
Bank Borrowingand Finance Costs
Bank borrowings are initially recognised at cost, being the fair value of the
consideration received less issue costs where applicable. After initial
recognition, bank borrowings are recognised at amortised cost using the
effective interest rate method, with the interest expense recognised on an
effective yield basis.
Taxation
The charge for taxation is based on net revenue for the year.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue as set out in note 6 to the financial
statements. The standard rate of corporation tax is applied to taxable net
revenue. Any adjustment resulting from relief for overseas tax is allocated to
the revenue reserve.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the Statement of Financial Position date where
transactions or events that result in an obligation to pay more, or right to
pay less, tax in future have occurred at the Statement of Financial Position
date. This is subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits from which
the future reversal of the underlying timing differences can be deducted.
Timing differences are differences arising between the Company’s taxable
profits and its results as stated in the accounts which are capable of
reversal in one or more subsequent periods. Deferred tax is measured without
discounting and based on enacted tax rates. Due to the Company’s status as
an investment trust, and the intention to meet the conditions required to
obtain approval under Sections 1158 and 1159 of the Corporation Tax Act 2010
the Company has not provided for deferred tax on any capital gains and losses
arising on the revaluation or disposal of investments.
Capital Reserve
Gains or losses on disposal of investments and changes in fair values of
investments (investment holding gains) are charged to the capital column of
the Income Statement and taken to the capital reserve.
Certain expenses net of any related taxation effects are charged to this
reserve in accordance with the expenses policy set out above. The amounts
within the Capital Reserve less unrealised gains (those on investments not
readily convertible to cash) are available for distribution.
Revenue Reserve
The revenue reserve is distributable by way of dividends, when positive. While
the reserve is negative no dividends can be distributed by way of dividend
from this reserve.
SpecialReserve
The special reserve arose following court approval in 2004 to cancel the share
premium account. This reserve is distributable and was historically used to
fund any share buy-backs by the Company.
Capital RedemptionReserve
This reserve arose when shares were bought back by the Company and
subsequently cancelled at which point an amount equal to the par value of the
shares was transferred from share capital to this reserve. This reserve is not
distributable.
Financial Assetsand Liabilities
The only financial assets measured at fair value through profit or loss are
the investments held by the Company, refer to note 8. All other financial
assets (being Debtors and Cash) are measured at amortised cost. All financial
liabilities (being Borrowings and Creditors) are measured at amortised cost.
2 Income
Year ended Year ended
30 April 2020 30 April 2019
£’000 £’000
Income from investments:
UK dividends 711 746
Unfranked dividend income 504 371
Property income dividends 250 120
1,465 1,237
Other income:
Bank deposit interest 2 0
Total income 1,467 1,237
3 Investment management fee
Year ended Year ended
30 April 2020 30 April 2019
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 477 – 477 493 – 493
Further details on the investment management fee arrangements can be found in
the Strategic Report.
4 Other expenses
Year ended Year ended
30 April 2020 30 April 2019
£’000 £’000
Management services 180 189
Auditors’ remuneration for:
Audit services (exclusive of VAT) 28 24
Directors’ remuneration* 93 110
Employers NIC on directors’ remuneration 5 6
Legal and professional fees 8 191
Broker fees 42 42
Other expenses 165 227
521 789
* See Directors’ Remuneration Report for analysis.
5 Finance costs
Year ended 30 April 2020 Year ended 30 April 2019
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Finance costs payable 50 – 50 95 – 95
Relates to interest charged, commitment fees and arrangement fees on the
revolving loan facility, details of which are disclosed in note 11.
6 Taxation
Year ended 30 April 2020 Year ended 30 April 2019
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Corporation tax at 19.0% (2019: 19.0%) – – – – – –
Overseas taxation – – – (12) – (12)
The tax charge for the year is in line with (2019: lower than) the standard
rate of Corporation Tax in the UK. The differences are explained below:
Year ended Year ended
30 April 2020 30 April 2019
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Return/(loss) before taxation 419 (15,060) (14,641) (140) (148) (288)
Theoretical tax at UK corporation tax rate of 19.0% (2019: 19.0%) 80 (2,861) (2,781) (27) (28) (55)
Effects of:
– Non taxable dividends (231) – (231) (212) – (212)
– Overseas taxation – – – (12) – (12)
– Losses on investment and exchange losses on capital items – 2,861 2,861 – 28 28
– Expenses not deductible for tax purposes – – – 35 – 35
– Unrelieved expenses 151 – 151 204 – 204
Total tax charge/(credit) for the year – – – (12) – (12)
Factors that mayaffect future tax charges
Based on current estimates and including the accumulation of net allowable
losses, the Company has unrelieved losses of £9,654,569 (2019: £8,859,000)
that are available to offset future taxable revenue. A deferred tax asset has
not been recognised because the Company is not expected to generate sufficient
taxable income in the near future periods in excess of the available
deductible expenses and accordingly, the Company is unlikely to be able to
reduce future tax liabilities through the use of existing surplus losses.
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.
7 (Loss)/return per Ordinary share
The Capital, Revenue and Total Return per Ordinary share are based on the net
(loss)/return shown in the Income Statement and the weighted average number of
Ordinary shares in issue 28,033,264 (2019: 27,776,150).
There are no dilutive instruments issued by the Company.
8 Investments
Year ended Year ended
30 April 2020 30 April 2019
£’000 £’000
Investment portfolio summary
Opening book cost 63,016 58,435
Opening investment holding gains 9,262 12,321
72,278 70,756
Analysis of investment portfolio movements
Opening valuation 72,278 70,756
Movements in the year:
Purchases at cost 18,108 18,555
Sales – proceeds (15,251) (16,893)
Net movement in investment holding losses (15,059) (140)
Valuation at 30 April 60,076 72,278
Cost at 30 April 68,708 63,016
Investment holding (losses)/gains at 30 April (8,632) 9,262
60,076 72,278
A list of the portfolio holdings by their fair value is given in the Portfolio
Valuation.
Transaction costs incidental to the acquisitions of investments totalled
£65,000 (2019: £79,000) and disposals of investments totalled £18,000
(2019: £16,000) for the year. These are included in gains on investments in
the Income Statement.
Fair value hierarchy
FRS 102 requires financial companies to disclose the fair value hierarchy that
classifies financial instruments measured at fair value at one of three levels
based on the degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value measurement in
its entirety, which are described as follows:
Classification Input
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 other than quoted prices included within Level 1; and
Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market?data.
The valuation techniques used by the Company are explained in the accounting
policies in note 1. The table below sets out the Company’s fair value
hierarchy measurements as at 30 April 2020 and 30 April 2019.
30 April 2020 30 April 2019
£’000 £’000
Level 1
Quoted equities 58,857 71,053
Preference shares 52 100
Total Level 1 58,909 71,153
Level 3
Equities 1,167 1,125
Total Level 3 1,167 1,125
Total 60,076 72,278
Level 1 financial assets are valued at the closing prices quoted by Thomson
Reuters as at 30 April 2020 and the Company does not adjust the quoted prices
of Level 1 instruments.
The Company held no Level 2 financial assets as at 30 April 2020 or 30 April
2019.
Level 3 financial assets include RENN Universal and Terra Catalyst (2019: RENN
Universal and Terra Catalyst) both of which are valued on discounted NAV
basis. In addition to the above level 3 investments shown in the portfolio,
the Company holds a number of other investments that are valued at nil.
Analysis of movements in Level 3 investments
Year ended Year ended
30 April 2020 30 April 2019
Level 3 Level 3
£’000 £’000
Opening fair value of investments 1,125 1,857
Sale proceeds – (845)
Realised loss on sales – (188)
Movement in investment holding gains 42 301
Closing fair value of investments 1,167 1,125
Level 3 holdings (with value)
30 April 2020 30 April 2019
£’000 £’000
RENN Universal 828 809
Terra Catalyst 339 316
Closing fair value of investments 1,167 1,125
A 5% increase on the NAV of Level 3 investments will decrease losses on
investments in the Income Statement by £58,000 (2019: £56,000) and vice
versa.
9 Significant interests
The Company had holdings of 3% or more of the voting rights attached to shares
that are material in the context of the financial statements in the following
investments:
30 April 2020
% of voting rights
Security
Geiger Counter Subscription Shares 11.5%
Chelverton Growth Trust 11.0%
Baker Steel Resources Trust 7.9%
Geiger Counter Ordinary Shares 7.8%
Dunedin Enterprise Investment Trust 7.3%
Origo Partners Preference Shares 5.7%
EPE Special Opportunities 4.9%
Auctus Growth 4.9%
Alpha Real Trust 4.7%
Cambium Global Timberland 4.5%
Downing Strategic Micro-Cap Investment Trust 4.3%
Henderson Opportunities Trust 4.3%
CQS Natural Resources Growth and Income 3.6%
Real Estate Investors 3.6%
Macau Property Opportunities Fund 3.4%
New Star Investment Trust 3.3%
Artemis Alpha Trust 3.3%
10 Debtors
30 April 2020 30 April 2019
£’000 £’000
Amounts due from brokers 164 38
Dividends and interest receivable 150 47
Prepayments and other debtors 43 32
357 117
11 Creditors: amounts falling due within one year
30 April 2020 30 April 2019
£’000 £’000
Amounts due to brokers 7 134
Other creditors 120 203
127 337
The Company has a bank loan facility, but £nil was drawn as at 30 April 2020
(2019: £nil). The loan facility was renewed for another two years in January
2020.
A bank loan with The Royal Bank of Scotland International Limited, London
Branch (the “Bank”) was in place up until 31 January 2020 this being a
£9,000,000 revolving credit facility, bearing interest at the rate of 0.9%
over LIBOR on any drawn balance and 0.45% on any undrawn balance. It was
possible for the facility to be drawn in sterling or other currencies as
approved by the lender.
On 31 January 2020, the £9,000,000 revolving credit facility was renewed for
another two years, bearing interest at the rate of 1.1% over LIBOR on any
drawn balance and 0.55% on any undrawn balance. On 24 April 2020, the facility
was amended and novated in order to take account of the change of Alternative
Investment Fund Manager from Miton Trust Managers Limited to Premier Portfolio
Managers Limited, and of the change of investment manager from Miton Asset
Management Limited to Premier Fund Managers Limited.
The bank loan facility contains covenants which require that net borrowings
will not at any time exceed 25% of the adjusted net asset value, which shall
at all times be equal to or greater than £25,000,000. If the Company breaches
either covenant, then it is required to notify the Bank of any default and the
steps being taken to remedy it.
The facility is due for renewal on 31 January 2022.
12 Called up share capital
30 April 2020 30 April 2019
£’000 £’000
Allotted, called-up and fully paid:
28,054,985 (2019: 28,004,985) Ordinary shares of 1p each 281 280
250,000 shares were bought back in the year for cancellation and no shares
were held in Treasury during the year or at the year end (2019: nil). During
the year the Company issued 300,000 (2019: 800,000) shares, raising £714,000
(2019: £2,263,000).
Since the year end, a further 250,000 shares were bought back for
cancellation.
13 Net asset value per Ordinary share
The net asset value per Ordinary share is based on net assets at the year-end
as shown in the Statement of Financial Position of £62,592,000 (2019:
£77,171,000) and 28,054,985 (2019: 28,004,985) Ordinary shares, being the
number of Ordinary shares in issue at the year end.
14 Reconciliation of net loss before finance costs and taxation to net cash
inflow from operating activities
Year ended Year ended
30 April 2020 30 April 2019
£’000 £’000
Loss before finance costs and taxation (14,591) (193)
Adjustments for:
Losses on investments 15,059 140
Exchange losses on capital items 1 8
(Decrease)/increase in creditors (87) 67
(Increase)/decrease in debtors (102) 124
Net cash inflow from operating activities 280 146
15 Analysis of financial assets and liabilities
The Company’s financial instruments comprise investments, cash balances and
debtors and creditors that arise from its operations.
The risk management policies and procedures outlined in this note have not
changed substantially from the previous year.
The principal risks the Company faces in its portfolio management activities
are:
*
Market risk – arising from fluctuations in the fair value or future cash
flows of a financial instrument used by the Company because of changes in
market prices. Market risk comprises three types of risk: other price risk,
currency risk and interest rate risk:
*
Other price risk – arising from fluctuations in the fair value of
investments due to changes in market prices;
*
Currency risk – arising from the value of future transactions, and financial
assets and liabilities denominated in foreign currencies fluctuating due to
changes in currency rates; and
*
Interest rate risk – arising from fluctuations in the fair value or future
cash flows of a financial instrument because of changes in interest rates.
*
Liquidity risk – arising from any difficulties in meeting obligations
associated with financial liabilities.
*
Credit risk – arising
The AIFM monitors the financial risks affecting the Company on a daily basis.
The Directors receive financial information on a quarterly basis which is used
to identify and monitor risk.
The AIFM’s policies for managing these risks are summarised below and have
been applied throughout the year:
Other Price Risk
Other price risk arises mainly from uncertainty about future prices of
financial instruments. The value of shares and the income from them may fall
as well as rise and shareholders may not get back the full amount invested.
The AIFM continues to monitor the prices of financial instruments held by the
Company on a real time basis. Adherence to the Company’s investment
objective and policy shown in the Business Review mitigates the risk of
excessive exposure to one issuer or sector.
The Board manages market risk inherent in the investment portfolio by ensuring
full and timely access to relevant information from the Investment Manager.
The Board meets regularly and at each meeting reviews the investment
performance, the investment portfolio and the rationale for the current
investment positioning to ensure consistency with the Company’s investment
objective and policy. The portfolio does not seek to reproduce any index,
investments are selected based upon the merit of individual companies and
therefore the portfolio’s performance may well diverge significantly from
the benchmark.
A list of investments subject to price risk held by the Company at 30 April
2020 is shown in the Portfolio Valuation.
It is the Board’s policy to hold an appropriate spread of investments in the
portfolio in order to reduce the risk arising from factors specific to a
particular country or sector. The allocation of assets to international
markets and the stock selection process both act to reduce market risk. The
Investment Manager actively monitors market prices throughout the year and
reports to the Board, which meets regularly in order to review the investment
strategy. The investments held by the Company are listed on various stock
exchanges worldwide, but predominantly in the UK.
If the investment portfolio valuation fell by 10% from the amount detailed in
the financial statements as at 30 April 2020, it would have the effect, with
all other variables held constant, of reducing the net capital return before
taxation by £6,008,000 (2019: £7,228,000). An increase of 10% in the
investment portfolio valuation would have an equal and opposite effect on the
net capital return before taxation and equity reserves.
Currency Risk
Although the Company’s performance is measured in sterling, a proportion of
the Company’s assets may be either denominated in other currencies or are in
investments with currency exposure. The Company was not exposed to material
direct foreign currency risk during the year. At the year end, the Company
held five (2019: three) US dollar denominated investments with the sterling
equivalent of £3,436,000 (2019: £2,263,000). The Company also held one
(2019: one) investment with the sterling equivalent of £127,000 denominated
in other currencies (2019: £203,000).
An analysis of the indirect geographical exposure is shown in the Strategic
Report.
The Investment Manager reviews the risks of adverse currency movements and
where necessary may use derivatives to mitigate the risk of adverse currency
movements, although none have been used to date.
Interest Rate Risk
The Company finances its operations through existing reserves and a revolving
credit facility. The Company’s financial assets and liabilities, excluding
short-term debtors and creditors, may include investments in fixed interest
securities, whose fair value may be affected by movements in interest rates.
Details of such holdings can be found in the Portfolio Valuation.
During the year, the Company had in place a revolving credit facility of
£9,000,000 with The Royal Bank of Scotland International (London Branch) plc.
The facility matured and was renewed in January 2020 at an interest rate of
1.1% over LIBOR on any drawn down balance and 0.55% on any undrawn balance. At
30 April 2020, the facility was not drawn (2019: not drawn). The effect of a
movement of +/–100 basis points in the interest rate would result in a nil
impact to the Company’s Income Statement (2019: nil). The amount of such
borrowings and the approved levels are monitored and reviewed regularly by the
Board.
The Company’s cash earns interest at a variable rate which is subject to
fluctuations in interest rates. At the year end, the Company’s cash balances
were £2,286,000 (2019: £5,113,000). The interest received in the year
amounted to £2,000 (2019: £nil).
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting its financial liabilities as they fall due. The Investment Manager
does not invest in unquoted securities on behalf of the Company. However, the
investments held by the Company includes UK AIM quoted and NEX quoted
companies which can have limited liquidity. Short-term flexibility is achieved
through the use of bank borrowings. Liquidity risk is mitigated by the fact
that the Company has £2,286,000 (2019: £5,113,000) cash at bank which can
satisfy its creditors and that, as a closed-end fund, assets do not need to be
liquidated to meet redemptions, and sufficient liquid investments are held to
be able to meet any foreseeable liabilities.
Credit Risk
Credit risk is the risk of financial loss to the Company if a counterparty
fails to meet its obligations.
The risk is minimised by using only approved and reputable counterparties with
the main counterparty being the Company’s Depositary. Under the AIFMD the
Depositary is liable for the loss of any financial asset held by it or its
delegates and in accordance within its agreement with the Company is required
to segregate such assets from its own assets.
As at 30 April 2020, the credit risk exposure on the Company’s financial
assets is £2,643,000 (2019: £5,230,000).
Capital Management
The Company does not have any externally imposed capital requirements, other
than those relating to the revolving credit facility. The main covenants
relating to the loan facility are:
*
net borrowings will not at any time exceed 25% of the adjusted net asset
value; and
*
adjusted net asset value shall at all times be equal to or greater than
£25,000,000.
The Board considers the capital of the Company to be its issued share capital,
reserves and debt. The capital of the Company is managed in accordance with
its investment policy in pursuit of its investment objective detailed in the
Business Review.
30 April 2020 30 April 2019
£’000 £’000
The Company’s capital at 30 April comprised:
Debt
Revolving bank credit facility drawn down – –
Equity
Equity share capital 281 280
Retained earnings and other reserves 62,311 76,891
62,592 77,171
Debt as a percentage of net assets 0.0% 0.0%
Gearing
Gearing amplifies the impact of gains or losses on the net asset value of the
Company. It can be positive for a company’s performance, although it can
have negative effects on performance in falling markets. It is the Company’s
policy to determine the adequate level of gearing appropriate to its own risk
profile.
16 Related parties
The following are considered to be related parties:
*
Key management personnel
Details of the remuneration of all Directors can be found in note 4 above and
in the Directors Remuneration Report.
*
Other related parties
Hugh van Cutsem is a founding partner of Kepler Partners LLP, a firm that
issues research on Miton Global Opportunities plc for a fee of £15,000 per
annum. No amounts were due to Kepler Partners LLP at the year-end (2019: nil).
17 Transactions with management
*
Premier Portfolio Managers Limited (the ‘AIFM’) and Premier Fund Managers
Limited (the ‘Investment Manager’) are considered related parties under
the Listing Rules.
Details of the IMA with the AIFM and the Delegation Agreement with the
Investment Manager are set out in the Business Review and also in note 3
above.
Glossary
Adjusted Market Capitalisation
The average of the mid market prices for an Ordinary Share as derived from the
Daily Official List of the London Stock Exchange on each business day in the
relevant calendar month multiplied by the number of Ordinary Shares in issue
on the last business day of the relevant calendar month, adjusted by adding
the amount per Ordinary Share of all dividends declared in respect of which
Ordinary Shares have gone “ex div” in the relevant calendar month,
excluding any Ordinary Shares held in treasury.
AIFMD
The Alternative Investment Fund Managers Directive (the ‘Directive’) is a
European Union Directive that came into force on 22 July 2013. The Directive
regulates EU fund managers that manage alternative investment funds (this
includes investment trusts).
AIFM
The Alternative Investment Fund Manager of the Company is Premier Portfolio
Managers Limited (previously, up until 24 April 2020, Milton Trust Managers
Limited).
Discount/Premium
If the share price of an investment trust is lower than the NAV per share, the
shares are said to be trading at a discount. If the share price is higher than
the NAV per share, the shares are said to be trading at a premium. The size of
the discount or premium is calculated by subtracting the share price from the
NAV per share and then dividing by the NAV per share.
Gearing
Gearing amplifies the impact of gains or losses on the net asset value of the
Company. It can be positive for a company’s performance, although it can
have negative effects on performance when underlying assets fall in value. It
is the Company’s policy to determine the adequate level of gearing
appropriate to its own risk profile.
Gearing is calculated in accordance with guidance from the AIC as follows:
The amount of borrowings as a proportion of net assets, expressed as a
percentage.
Leverage
Leverage is defined in the AIFMD as any method by which the AIFM increases the
exposure of an AIF. In addition to the gearing limit the Company also has to
comply with the AIFMD leverage requirements. This limit is expressed as a %
with 100% representing no leverage or gearing in the Company. There are two
methods of calculating leverage as follows:
The Gross Method is calculated as total exposure divided by Shareholders’
Funds. Total exposure is calculated as net assets, less cash and cash
equivalents, adding back cash borrowing.
The Commitment Method is calculated as total exposure divided by
Shareholders’ Funds. In this instance total exposure is calculated as net
assets, less cash and cash equivalents, adding back cash borrowing adjusted
for netting and hedging arrangements.
Net Asset Value (“NAV”)
The NAV is shareholders’ funds expressed as an amount per individual share.
Shareholders’ funds are the total value of all the Company’s assets, at
current market value, having deducted all liabilities and prior charges at
their par value (or at their asset value).
Ongoing Charges
As recommended by the AIC in its guidance updated in October 2015, ongoing
charges are the Company’s annualised revenue and capitalised expenses
(excluding finance costs and certain non-recurring items) expressed as a
percentage of the average monthly net assets of the Company during the year.
Year ended Year ended
30 April 2020 30 April 2019
£’000 £’000
Total expenses from note 3 and note 4 998 1,282
Less non recurring expenses – (185)
Total ongoing charges 998 1,097
Average net assets 74,071 75,800
Ongoing charges 1.3% 1.4%
The ongoing charges percentage reflects the costs incurred directly by the
Company which are associated with the management of a static investment
portfolio. Consistent with the AIC guidance, the ongoing charges percentage
excludes non-recurring items. In addition, the NAV performance also includes
the costs incurred directly or indirectly in investments that are managed by
external fund managers. Many of these managers net these costs off within
their valuations, and therefore they form part of the Company’s investment
return, and it is not practical to calculate an ongoing charges percentage
from the information they provide.
Share Price Total Return
The combined effect of any dividends paid, together with the rise or fall in
the share price or NAV. Total return statistics enable the investor to make
performance comparisons between trusts with different dividend policies. Any
dividends (after tax) received by a shareholder are assumed to have been
reinvested in either additional shares of the trust at the time the shares go
ex-dividend (the share price total return) or in the assets of the trust at
its NAV per share (the NAV total return). As the Company does not currently
pay dividends the NAV and share price total return are calculated by taking
the increase in the NAV or share price during the relevant period and dividing
by the opening NAV or share price.
Volatility
Volatility is related to the degree to which NAV or prices differ from their
mean (the standard deviation). Volatility is calculated by taking the daily
NAV or closing prices over the relevant year and calculating the standard
deviation of those prices. The daily standard deviation is then multiplied by
an annualisation factor being the square root of the number of the trading
days in the year.
Annual General Meeting
The Company’s Annual General Meeting will be held at the Offices of Frostrow
Capital LLP, 25 Southampton Buildings, London WC2A 1AL on Thursday, 24
September 2020 at 12 noon.
The full notice of the Annual General Meeting will be published in the Annual
Report which will be available shortly.
The Annual Report will be posted to shareholders on or around 27 July 2020.
Further copies may be obtained from the Company Secretary, Frostrow Capital
LLP, 25 Southampton Buildings, London WC2A 1AL.
A copy of the Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report will also be available on the Company’s website at
www.premiermiton.com/migo where up to date information on the Company can also
be found.
Ends
Neither the contents of the Company’s website nor the contents of any
website accessible from hyperlinks on the Company’s website (or any other
website) is incorporated into, or forms part of, this announcement.
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