REG-Rights and Issues Investment Trust PLC Rights and Issues Investment Trust PLC: Annual Report
24/02/2020 16:00
============
Rights and Issues Investment Trust PLC (RIII)
Rights and Issues Investment Trust PLC: Annual Report
24-Feb-2020 / 15:59 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
═════════════════════════════════════════════════════════════════════════════════
RIGHTS AND ISSUES INVESTMENT TRUST PLC
Annual Report & Accounts for the full year to 31 December 2019
A copy of the Company's Annual Report for the year ended 31st December 2019 will
shortly be available to view and download from the Company's website
www.rightsandissues.co.uk.
Printed copies of the Annual Report will be sent to shareholders shortly.
Additional copies may be obtained from the Corporate Secretary - Maitland
Administration Services Limited, Hamilton Centre, Rodney Way, Chelmsford, Essex
CM1 3BY.
The Annual General Meeting of the Company will be held at The Gridiron Building,
8th Floor, Number One Pancras Square, Pancras Road, King's Cross, London N1C 4AG
on 1st April 2020 at 12 noon.
The Directors have proposed the payment of a final dividend of 21.5p per Ordinary
share which, if approved by shareholders at the forthcoming Annual General
Meeting, will be payable on 4th April 2020 to shareholders whose names appear on
the register at the close of business on 13th March 2020 (ex-dividend 12th March
2018).
The following text is copied from the Annual Report & Accounts.
INVESTMENT OBJECTIVE & POLICY
The Board's objective is to exceed the benchmark index over the long term whilst
managing risk.
The Company invests in equities with an emphasis on smaller companies. UK smaller
companies will normally constitute at least 80% of the investment portfolio. UK
smaller companies include both listed securities and those quoted on the
Alternative Investment Market ("AIM").
The investment portfolio will normally lie in the range of 80% to 100% of
shareholders' funds and therefore gearing will normally be between -20% and 0%.
As a result of the Alternative Investment Fund Managers Regulations 2013 it has
been decided that the Company will not use gearing
CAPITAL STRUCTURE
ISSUED SHARE CAPITAL (at 31st December 2019)
7,540,321 Ordinary shares of 25p each.
INCOME ENTITLEMENT
Equal entitlement to dividends and other distributions.
CAPITAL ENTITLEMENT
Equal entitlement to the surplus assets.
VOTING
One vote per share.
PRICE (mid-market) (at 31st December 2019)
2,225.00p.
DIVIDEND YIELD
1.42%.
DISCOUNT MANAGEMENT POLICY
On 7th December 2016, the Company implemented share buy-back arrangements to
encourage the level of discount to be not more than 10%.
SHARE BUY BACKS
During the year to 31st December 2019, the Company has bought back for
cancellation a total of 465,858 Ordinary shares for a total consideration of £9m,
representing 5.8% of the share capital of the Company as at 7th December 2016,
when the ability to buy back shares was introduced.
DISCOUNT
(at 31st December 2019)
2.21%.
RIGHTS AND ISSUES INVESTMENT TRUST PLC ('THE TRUST" or 'THE COMPANY") MAY
BE LIQUIDATED AT ANY TIME, BUT THE BOARD OF DIRECTORS HAS INDICATED THAT IT IS
NOT ITS PRESENT INTENTION TO DO SO PRIOR TO 25TH JULY 2021.
Note: The above is a summary of rights. For full information shareholders should
refer to the Articles of Association.
HISTORIC RECORD
Net asset FTSE All
Year to value per Net FTSE All Share
Net asset value per share Share Index
31st December share dividend (Rebased
(Index 1984 = per share Index
100) 1984 = 100)
1984 29.0p 100 3.80p 592.94 100
1990 75.4p 260 7.50p 1032.60 174
1995 175.0p 602 10.50p 1802.56 304
2000 473.9p 1631 25.50p 2983.81 503
2005 732.0p 2520 40.50p 2847.00 480
2010 776.4p 2673 25.50p 3094.41 522
2011 751.2p 2586 25.50p 2857.88 482
2012 962.0p 3312 26.75p 3093.41 522
2013 1382.5p 4759 40.00p* 3609.63 609
2014 1297.1p 4465 36.00p 3532.74 596
2015† 1595.6p 5492 36.00p 3444.26 581
2016 2002.2p 6892 52.50p* 3873.22 653
2017 2372.3p 8166 30.75p 4221.82 712
2018 2118.1p 7291 31.50p 3675.27 620
2019 2275.2p 7832 32.25p 4196.47 709
* Includes Special Dividend
† From 2015 onwards the historic record is for the Company only and not the
Group.
Note: Until 2016 net asset value per share is based on the Capital shares
adjusted for the reconstruction (four Ordinary shares for each Capital share).
Thereafter, performance is based on the Ordinary shares, formerly named the
Income shares (the only remaining share class).
DIRECTORS AND ADVISERS
DIRECTORS
Dr D. M. BRAMWELL (Chairman)
D. M. BEST
Dr A. J. HOSTY
S. J. B. KNOTT
J. B. ROPER
REGISTERED OFFICE
Hamilton Centre
Rodney Way
Chelmsford CM1 3BY
WEBSITE
1 www.maitlandgroup.com/investment-trusts/rights-and-issues-investment-trust-plc
ADMINISTRATOR/SECRETARY
MAITLAND ADMINISTRATION SERVICES LTD
Hamilton Centre
Rodney Way
Chelmsford CM1 3BY
SOLICITORS
EVERSHEDS SUTHERLAND
One Wood Street
London EC2V 7WS
AUDITOR
BEGBIES
9 Bonhill Street
London EC2A 4DJ
REGISTRARS
LINK MARKET SERVICES LTD
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
BROKERS
SHORE CAPITAL
Cassini House
57 St James's Street
London SW1A 1LD
BANKERS/CUSTODIAN
NORTHERN TRUST COMPANY
50 Bank Street
Canary Wharf
London E14 5NT
REGISTRATION DETAILS
Company Registration Number: 00736898 (Registered in England)
SEDOL number :0739207
ISIN number: GB0007392078
London Stock Exchange (EPIC) Code: RIII
Global Intermediary Identification Number (GIIN): I2ZVNY.99999.SL.826
Legal Entity Identifier (LEI): 2138002AWAM93Z6BP574
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the fifty-seventh Annual General Meeting of the
members of Rights and Issues Investment Trust Public Limited Company will be held
in the Gridiron Building, 8th Floor, Number One Pancras Square, Pancras Road,
King's Cross, London N1C 4AG, on 1st April 2020, at 12 noon, for the following
purposes:
ORDINARY BUSINESS
1. To receive the audited financial statements and Reports of the Directors and
Auditor for the year ended 31st December 2019.
2. To approve the Annual Report on Directors' Remuneration, set out on pages 24
to 29 (excluding the Remuneration Policy on pages 27 and 28), for the
financial year ended 31st December 2019.
3. To approve the payment of a final dividend of 21.5 pence per Ordinary share
for the financial year ended 31st December 2019.
4. To re-elect Dr D. M. Bramwell as a Director.
5. To re-elect D. M. Best as a Director.
6. To re-elect Dr A. J. Hosty as a Director.
7. To re-elect S. J. B. Knott as a Director.
8. To re-elect J. B. Roper as a Director.
9. To reappoint Begbies as Auditor and authorise the Directors to determine the
Auditor's remuneration.
SPECIAL BUSINESS
To consider and, if thought fit, pass resolution 10 as an Ordinary Resolution and
resolution 11 as a Special
Resolution:
10. To approve the Directors' Remuneration Policy set out on pages 27 and 28
of the Directors' Remuneration Report, which takes effect immediately after the
end of the Annual General Meeting.
11. THAT the Company be and is hereby generally and unconditionally authorised
in accordance with section 701 of the Companies Act 2006 to make market purchases
(within the meaning of section 693 of the Companies Act 2006) of Ordinary shares,
provided that:
11.1 the maximum aggregate number of Ordinary shares hereby authorised to be
purchased shall be 1,130,294 (representing approximately 14.99% of the Ordinary
shares in issue on 21st February 2020);
11.2 the minimum price (exclusive of expenses) which may be paid for an
Ordinary share is 25 pence;
11.3 the maximum price (exclusive of expenses) which may be paid for an
Ordinary share is not more than the higher of (i) an amount equal to 105% of the
average market value of the Ordinary shares for the five business days
immediately preceding the day on which the Ordinary share is purchased; and (ii)
the higher of the last independent bid and the highest current independent bid on
the London Stock Exchange when the purchase is carried out, or such other amount
as may be specified by the FCA from time to time;
11.4 the authority hereby conferred will expire at the conclusion of the next
Annual General Meeting of the Company unless such authority is renewed prior to
such time; and
11.5 the Company may make a contract to purchase Ordinary shares under the
authority hereby conferred prior to the expiry of such authority which will or
may be executed wholly or partly after the expiration of such authority and may
make a purchase of Ordinary shares pursuant to any such contract; provided that
all Ordinary shares purchased pursuant to this authority shall be cancelled or
transferred into treasury immediately upon completion of the purchases.
By Order of the Board,
MAITLAND ADMINISTRATION SERVICES LTD
Secretary, 21st February 2020
Notes:
1. Any shareholder entitled to attend and vote at the above meeting
is entitled to appoint one or more proxies (who need not be a shareholder of
the Company) to attend and to vote instead of the shareholder. To appoint
more than one proxy, additional proxy forms may be obtained by contacting the
Company's registrars. Please also indicate by ticking the box provided if the
proxy instructions are one of multiple instructions being given. All forms
must be signed and should be returned together in the same envelope.
Completion and return of a form of proxy will not preclude a shareholder from
attending and voting at the meeting in person, should he subsequently decide
to do so.
2. The right to appoint a proxy does not apply to persons whose
Ordinary shares in the Company (the "Shares") are held on their behalf by
another person and who have been nominated to receive communications from the
Company in accordance with section 146 of the Companies Act 2006 ("nominated
persons"). Nominated persons may have a right under an agreement with the
registered shareholder who holds the Shares on their behalf to be appointed
(or to have someone else appointed) as a proxy. Alternatively, if nominated
persons do not have such a right, or do not wish to exercise it, they may
have a right under such an agreement to give instructions to the person
holding the Shares as to the exercise of voting rights.
3. In order to be valid, a form of proxy, which is provided with
this notice, and a power of attorney or other authority under which it is
signed, or certified by a notary or office copy of such power or authority,
must reach the Company's registrars, Link Asset Services, PXS, 34 Beckenham
Road, Beckenham BR3 4TU not less than 48 hours (excluding any part of a day
which is a non-working day) before the time of the meeting or of any
adjournment of the meeting. A form of proxy is enclosed with this notice.
4. CREST members who wish to appoint a proxy or proxies by utilising
the CREST electronic proxy appointment service may do so by utilising the
procedures described in the CREST manual. CREST personal members or other
CREST sponsored members, and those CREST members who have appointed a voting
service provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on their behalf.
5. In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message must be transmitted so as to be received
by the Company's agent, Link Market Services (whose CREST ID is RA10) by the
specified latest time(s) for receipt of proxy appointments. For this purpose,
the time of receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST applications host) from which
the Company's agent is able to retrieve the message by enquiry to CREST in
the manner prescribed.
6. The Company may treat as invalid a CREST proxy instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001. A register showing the interests of each Director and their
connected persons, so far as they are aware, in the Ordinary shares will be
available for inspection at the offices of the Company Secretary, Maitland
Administration Services Limited, Hamilton Centre, Rodney Way, Chelmsford,
Essex CM1 3BY, during normal business hours every weekday except Saturdays,
from the above date to the day preceding that of the general meeting. It will
also be available for inspection at the place of the meeting for 15 minutes
prior to the general meeting and during the meeting. Apart from the
Investment Director, there are no contracts of service existing between the
Company and any of the Directors.7. Any shareholder attending the general
meeting is entitled, pursuant to section 319A of the Companies Act 2006, to
ask any question relating to the business being dealt with at the meeting.
The Company will answer any such questions unless:
i. to do so would interfere unduly with the preparation for the meeting or
involve the disclosure of confidential information;
ii. the answer has already been given on a website in the form of an answer to
a question; or
iii. it is undesirable in the interests of the Company or the good order of the
meeting that the question be answered.
From the date of this notice and for the following two years the following
information will be available on the Company's website and can be accessed at
2 www.maitlandgroup.com/investment-trust/rights-and-issues-investment-trust-plc:
i. the matters set out in this notice of general meeting;
ii. the total numbers of Shares in respect of which shareholders are entitled
to exercise voting rights at the meeting; and
iii. the totals of the voting rights that shareholders are entitled to exercise
at the meeting in respect of the Shares.
8. Any shareholders' statements, shareholders' resolutions and shareholders'
matters of business received by the Company after the date of this notice will be
added to the information already available on the website as soon as reasonably
practicable and will also be made available for the following two years.
9. Where a poll is taken at the general meeting, from the date of this notice and
for the following two years the following information will be available on the
Company's website and can be accessed at
3 www.maitlandgroup.com/investment-trust/rights-and-issues-investment-trust-plc:
i. the date of the general meeting;
ii. the text of the resolution or, as the case may be, a description of the
subject matter of the poll;
iii. the number of votes validly cast;
iv. the proportion of the Company's issued share capital represented by those
votes;
v. the number of votes cast in favour;
vi. the number of votes cast against; and
vii. the number of abstentions (if counted).
10. In order to attend and vote at this meeting you must comply with the
procedures set out in notes 1 to 3 by the time specified in note 3.
11. The right of shareholders to vote at the meeting is determined by reference
to the register of shareholders. As permitted by section 360B(3) of the Companies
Act 2006 and Regulation 41 of the Uncertificated Securities Regulations 2001,
shareholders (including those who hold Shares in uncertificated form) must be
entered on the Company's share register at close of business on 30th March 2020
in order to be entitled to attend and vote at the meeting. Such shareholders may
only cast votes in respect of Shares held at such time. Changes to entries on the
relevant register after that time shall be disregarded in determining the rights
of any person to attend or vote at the meeting.
12. The total number of Ordinary shares of 25p in issue as at 21st February 2020,
the last practicable day before printing this document, was 7,540,321 Shares and
the total level of voting rights was 7,540,321.
CHAIRMAN'S STATEMENT
The resolution of Brexit in December's General Election has finally provided
clarity. The removal of uncertainty allowed the FTSE All-Share Index to increase
by 14.2% in 2019.
The UK smaller company market enjoyed a strong finish for the year with FTSE All
Small Index progressing by 13.2%.
Your Company's portfolio had a more mixed year with the net asset value rising by
7.4% to 2275.2p. The final dividend proposed is 21.5p making 32.25p for the year,
a 2.4% increase.
The share buy-back programme purchased £9.0m of shares in 2019. During the year,
the average discount to net asset value was 7.6%. The programme will again be
extended for a further twelve months to February 2021.
Economic growth looks to be subdued in the forthcoming year. Even before the
emergence of coronavirus in China, prospects for the UK and Europe were anaemic.
The corporate environment appears to be becoming tougher. Still, good companies
prosper in tougher conditions and that, as always, is where the focus will be.
Dr D. M. BRAMWELL
Chairman
21st February 2020
STRATEGIC REPORT
The Strategic Report is designed to provide information primarily about the
Company's business and results for the year ended 31st December 2019 and should
be read in conjunction with the Chairman's Statement on page 7.
STATUS
The Company is a self-managed investment trust. The Company is registered as an
investment company as defined in section 833 of the Companies Act 2006 and
operates as such. The Company is not a close company within the meaning of the
provisions of the Corporation Tax Act 2010.
The Company has been approved by the Financial Conduct Authority to be a Small
Registered Alternative Investment Fund Manager ("AIFM").
In the opinion of the Directors, the Company has conducted its affairs during the
year under review, so as to qualify as an investment trust for the purposes of
Chapter 4 of Part 24 of the Corporation Tax Act 2010 and continues to meet the
eligibility conditions set out in section 1158 of the Corporation Tax Act 2010.
The Board is directly accountable to its shareholders. The Company is listed on
the London Stock Exchange and is subject to the Listing Rules, Prospectus Rules
and Disclosure Guidance and Transparency Rules published by the Financial Conduct
Authority ("FCA"). The Company is governed by its articles of association,
amendments to which must be approved by shareholders by special resolution. The
Company is a member of the Association of Investment Companies ("AIC").
The FCA rules in relation to non-mainstream pooled investments do not apply to
the Company.
STRATEGY FOR MEETING THE OBJECTIVES
The Board's objective is to exceed the benchmark index over the long term whilst
managing risk.
To achieve this objective, the Board continues with its long-term strategy of
seeking out undervalued investments that have characteristics consistent with a
matrix of criteria developed by the Investment Director. This is supported by the
five-yearly review that addresses the above objective. The latest review was
conducted in November 2015, which concluded that the continuation of the Company
for the period until July 2021 was in the best interests of shareholders.
The Board fulfils its investment objective and policy by operating as an
investment company, enabling it to delegate operational matters to specialised
third-party service providers. The close-ended nature of the Company allows a
longer-term view on investments and means liquidity issues as a result of
redemptions are less likely to arise.
In pursuing its strategy, close attention is also paid to the control of costs.
Further information on this is contained in the Key Performance Indicators on
page 11.
INVESTMENT SELECTION
There is a rigorous process of risk analysis at the level of the individual
investment, based on the characteristics of the investee company. This controls
the overall risk profile of the investment portfolio, allowing a higher level of
concentration in the investment portfolio.
The investment portfolio is then managed on a medium-term basis with a low level
of investment turnover. This minimises transaction costs and ensures medium-term
consistency of the investment approach.
The Company's investment activities are subject to the following limitations and
restrictions:
The policy does not envisage hedging either against price or currency
fluctuations. Whilst performance is compared against major UK indices, the
composition of indices has no influence on investment decisions or the
construction of the portfolio. As a result, it is expected that the Company's
investment portfolio and performance will deviate from the comparator indices.
SUSTAINABILITY OF BUSINESS MODEL AND PROMOTING THE SUCCESS THE COMPANY'S SUCCESS
The Board is responsible for the overall strategy of the Company and decisions
regarding corporate governance, asset allocation, risk and control. The
day-to-day management of the investments is delegated to the Investment Director
and the management of the operations to specialist third-party suppliers.
The Directors are conscious of their duties under section 172 of the Companies
Act 2006 and particular the overarching duty to promote the success of the
Company for the benefit of the shareholders, with careful attention paid to wider
stakeholders' interests. The Board is aware of the importance of ensuring that
the Company has a sustainable, well-governed business model to achieve its
strategy and objectives.
As part of discharging its section 172 duties, the Company, through the
Investment Director, uses its influence, where possible, as a shareholder to
encourage the companies in which it invests to adopt best practice on
environmental, social and corporate governance ("ESG") matters. The Investment
Director, during the coming year, will also actively seek to invest in companies
that adopt good ESG practice.
The third-party service providers are a key element of ensuring the success of
the business model. The Board monitors the chosen service providers closely to
ensure that they continue to deliver the expected level of service. The Board
also receives regular reporting from them, evaluates the control environment and
governing contract in place at each service provider and formally assesses their
appointment annually.
CULTURE & VALUES
All the Directors seek to discharge their responsibilities and meet shareholder
expectations in an open and transparent manner. The Board seeks to recruit
Directors who have diverse working experience including managing the types of
companies in which the Company invests. The industry experience on the Board
ensures there is detailed knowledge and constructive challenge in the
decision-making process. This helps the Company achieve its overarching aim of
enhancing shareholder value. The Directors are mindful of costs and seek to
ensure that the best value money is achieved in managing the Company.
The Company's values of skill, knowledge and integrity are aligned to the
delivery of its investment objective and are monitored closely by the Board.
The Board seeks to employ third-party providers who share the Company's culture
and importantly will work with the Directors openly and transparently to achieve
the Company's aims. As detailed in the Business Ethics section below, the Board
expects and seeks assurance that the companies with which it works adopt working
practices that are of a very high standard.
The Responsibilities as an Institutional Shareholder section below describes the
Company's approach to managing its investments, including ESG matters.
BUSINESS ETHICS
The Company maintains a zero-tolerance policy towards the provision of illegal
services, bribery and corruption in its business activities, including the
facilitation of tax evasion. As the Company has no employees other than the
Investment Director and the Company's operations are delegated to third-party
service providers, the Board seeks assurances, at least annually, from its
suppliers that they comply with the provisions of the Modern Slavery Act 2015 and
maintain adequate safeguards in keeping with the provisions of the Bribery Act
2010 and Criminal Finances Act 2017.
As an investment vehicle the Company does not provide goods or services in the
normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not within the scope of the Modern Slavery
Act 2015.
BOARD DIVERSITY
The Company's affairs are overseen by a Board currently comprising four
non-executive Directors and one executive Director - all of whom are male. In
terms of progress in achieving diversity, the Company is committed to ensuring
that vacancies arising are filled by the best qualified candidates and recognises
the value of diversity in the composition of the Board. When the Board goes
through its next recruitment process, improving the Board's gender diversity will
be an important criterion.
The Directors have broad experience, bringing knowledge of investment markets,
business, financial services, accounting and regulatory expertise to discussions
on the Company's business. The Directors regularly consider the leadership needs
and specific skills required to achieve the Company's investment objective.
Whilst appointments are based on skills and experience, the Board is conscious of
diversity of gender, social and ethnic backgrounds, cognitive and personal
strengths and experience. All appointments are based on objective criteria and
merit, and are made following a formal, rigorous and transparent process.
RESPONSIBILITIES AS AN INSTITUTIONAL SHAREHOLDER
The Board has delegated authority to the Investment Director for monitoring the
corporate governance of investee companies. The Board has delegated to the
Investment Director responsibility for selecting the portfolio of investments
within investment guidelines established by the Board and for monitoring the
performance and activities of investee companies. On behalf of the Company the
Investment Director carries out detailed research on investee companies and
possible future investee companies through internally generated research. The
research includes an evaluation of fundamental details such as financial
strength, quality of management, market position and product differentiation.
Other aspects of research include an appraisal of social, ethical and
environmentally responsible investment policies.
The Board has delegated authority to the Investment Director to vote on behalf of
the Company in accordance with the Company's best interests. The primary aim of
the use of voting rights is to address any issues which might impinge on the
creation of a satisfactory return from investments. The Company's policy is,
where appropriate, to enter into engagement with an investee company in order to
communicate its views and allow the investee company an opportunity to respond.
In such circumstances the Company would not normally vote against investee
company management but would seek, through engagement, to achieve its aim. The
Company would vote, however, against resolutions it considers would damage its
shareholder rights or economic interests.
The Company has a procedure in place that where the Investment Director, on
behalf of the Company, has voted against an investee company resolution, it is
reported to the Board.
The Board considers that it is not appropriate for the Company, as a small
self-managed investment trust, formally to adopt the UK Stewardship Code.
However, many of the UK Stewardship Code's principles on good practice on
engagement with investee companies are used by the Company, as described above.
CORPORATE AND SOCIAL RESPONSIBILITY
When investments are made, the primary objective is to achieve the best
investment return while allowing for an acceptable degree of risk. In pursuing
this objective, various factors that may impact on the performance are considered
and these may include socially responsible investment issues.
As an investment trust, the Company's own direct environmental impact is minimal.
The Company 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' Reports) Regulations 2013 for
the year to 31st December 2019 (2018: same). All printed material, wherever
possible, is on recycled material. The Investment Director attempts to minimise
the Company's carbon footprint. The Company's indirect impact occurs through the
investments it makes.
The Company does not purchase electricity, heat, steam or cooling for its own use
nor does it have responsibility for any other emissions producing sources.
Of more importance is the conduct of the companies in the investment portfolio.
The Company does not invest in companies which have significant adverse effect on
the global environment and encourages those companies in which it has an
investment to pursue responsible environmental policies.
The Company contributes to wider society by generating returns to shareholders
whose ownership in shares in the Company affects their savings and by investing
in companies which provide employment and innovation. No investments are made in
tobacco or fossil fuel producing companies.
REVIEW OF THE BUSINESS
A review of the year and commentary on the future outlook is provided in the
Chairman's Statement on page 7.
During the year under review, the assets of the Company were invested in
accordance with the Company's investment policy.
During the year the Company's net assets have increased from £169.6m to £171.6m
and at 31st December 2019 the net asset value per Ordinary share was 2275.2p.
KEY PERFORMANCE INDICATORS
The Board is provided with detailed information on the Company's performance at
every Board meeting. Key Performance Indicators are:
• Shareholders' funds equity return compared to the FTSE All-Share Index (the
Company's benchmark index).
• Dividends per Ordinary share.
• Ongoing Charge (formerly titled the Total Expense Ratio).
Shareholders' funds equity return
In reviewing the performance of the Company, the Board monitors shareholders'
funds in relation to the FTSE All-Share Index. During the year shareholders'
funds increased by 1.2% compared to an increase of 14.2% by the FTSE All-Share
Index. Over the five years ended 31st December 2019 shareholders' funds increased
by 47.5% compared with a rise of 18.8% by the FTSE All-Share Index.
Dividends per Ordinary share
The total dividend per Ordinary share paid and proposed is 32.25p (2018: 31.50p).
Ongoing Charge
The Ongoing Charge shows the efficiency of control of management costs. The
Ongoing Charge for the
year ended 31st December 2019 was 0.47% (2018: 0.48%).
PRINCIPAL RISKS
The Board of Directors has a process for identifying, evaluating and managing the
key risks of the Company. This process operated during the year and has continued
to the date of this report. The Directors confirm that they have carried out a
robust assessment of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency or liquidity. The
Directors describe below those risks and how they are being managed or mitigated.
Investment in an individual smaller company inherently carries a higher risk than
investment in an individual large company. In a diversified portfolio, the
portfolio risk of a smaller company portfolio is only slightly greater than the
portfolio risk of a large company portfolio. The Company manages a diversified
portfolio. Additionally, the Company invests overwhelmingly in smaller UK listed
and AIM traded companies and has no exposure to derivatives. The principal risks
are therefore market price risk and liquidity risk. Further details on these
risks and how they are managed may be found in Note 18 to the financial
statements on page 49.
Additional key risks identified by the Company, together with the Board's
approach in dealing with them are as follows:
Investment performance - The performance of the investment portfolio will deviate
from the performance of the benchmark index. The Board's objective is to exceed
the benchmark index over the long term whilst managing risk. The Board ensures
that the Investment Director is managing the portfolio within the scope of the
investment policy; the Board monitors the Company's performance against the
benchmark; and the Board also receives detailed portfolio attribution analysis.
The Board has a clearly defined investment philosophy and operates a diversified
portfolio.
Share price discount - Investment trust shares often trade at discounts to their
underlying net asset values. The Board monitors the level of the discount of the
Ordinary shares. On 7th December 2016, the Company implemented share buy-back
arrangements to mitigate the risk of the discount increasing.
Loss of key personnel - The Investment Director is crucial to performance and the
loss of the Investment Director could adversely affect performance in the medium
term. The Board reviews its strategy for this risk annually.
Regulatory risk - The Company must abide by section 1158 of the Corporation Tax
Act 2010 to maintain its investment trust status. This is achieved by the
consistent investment policy and is monitored by the Board. The Board seeks
assurance from the Administrator that the investment trust status is being
maintained. The Board also reviews a schedule of regulatory risk items at its
Board meetings in order to monitor and take action to address any regulatory
changes.
Protection of assets - The Company's assets are protected by the use of an
independent custodian, Northern Trust Company, and the Board monitors the
custodian to ensure assets remain protected. In addition, the Company operates
clear internal controls to safeguard all assets.
Future trading relationships - The risk associated with the decision of a
majority of the UK electorate to leave EU membership could be considerable for
the UK and also for continental European countries. The links between the UK and
the EU are wide-ranging and the future trading relationship remains unclear,
creating conditions that could mean that markets react unpredictably to the
uncertainty created. This risk is challenging to mitigate but the Investment
Director is considering the risk of leaving the EU for each investment in the
portfolio based on its individual circumstances.
These and other risks facing the Company are reviewed regularly by the Audit and
Compliance Committee and the Board.
SECTION 172 STATEMENT
The Board seeks to promote the success of the Company for the benefit of its
shareholders, giving consideration to the likely long term consequences of any
decision with regard to the interests of its business relationships and the
environment in which it operates. The Company has one employee, the Investment
Director.
Stakeholder Group Engagement in the year and their material issues
Shareholders play an important role in monitoring and
Investors safeguarding the governance of the Company and have access to
the Board via the Company Secretary throughout the year and
are encouraged to attend the Annual General Meeting.
Key suppliers are required to report to the Board on a regular
Suppliers basis. The Company employs a collaborative approach and looks
to build long term partnerships based on open terms of
business and fair payment terms.
The Investment Director meets with the management of companies
Investee Companies in which the Company has a significant interest and reports on
findings to the Board on a quarterly basis.
The Board ensures compliance with the necessary rules and
Regulators regulations relevant to the Company in order to build trust
and reputation in the market.
Factoring Stakeholders into Principal Decisions
The Board defines principal decisions as both those that are material to the
Company but also those that are significant to any of the Company's key
stakeholders as identified above. In making the following principal decisions,
the Board considered the outcome from its stakeholder engagement as well as the
need to maintain a reputation for high standards of business conduct and the need
to act fairly between the members of the Company.
Dividend Policy
Principal Decision 1
The Board continues to operate a progressive dividend
policy.
Share buy back programme
Since the start of the programme, 16.4% of the issued share
Principal Decision 2 capital has been repurchased at a cost of approximately
£29.5m. The discount on the Company's shares has reduced
which supports the Company's decision to continue the
buyback policy.
New Investments
Principal Decision 3 The Investor Director is required to report at each board
meeting on the merits of individual investment opportunities
in accordance with the established risk analysis.
Remuneration
Principal Decision 4 After reviewing the performance in 2019, all Directors
salaries remain unchanged and no bonus was awarded to the
Investment Director.
VIABILITY STATEMENT
The Board reviews the performance and progress of the Company over five-year
periods and uses these assessments, regular investment performance updates from
the Investment Director and a continuing programme of monitoring risk to assess
the future viability of the Company. The Directors consider that a period of five
years is a reasonable time horizon to consider the viability of the Company. The
Company also uses this period for its strategic planning. The following facts
support the Directors' view of the viability of the Company:
• The Company has a liquid investment portfolio invested predominantly in
readily realisable smaller UK-listed and AIM traded securities and has some
short-term cash on deposit.
• The Company does not use gearing.
• Expenses of the Company are covered almost four times by investment income.
In order to maintain viability, the Company has a robust risk control framework
for the identification and mitigation of risk which is reviewed regularly by
Board. The Directors also seek reassurance from suppliers that their operations
are well managed and that they are taking appropriate action to monitor and
mitigate risk.
SHAREHOLDER COMMUNICATION
The Board is committed to maintaining open channels of communication with
shareholders in a manner which they find most meaningful. It is the Chairman's
role to ensure effective communication with the Company's shareholders and it is
the responsibility of the Board to ensure that satisfactory dialogue takes place,
based on the mutual understanding of objectives.The Investment Director maintains
a regular dialogue with major shareholders and reports to the Board. In the event
shareholders wish to raise issues or concerns with the Directors, they are
welcome to do so at any time by writing to the Chairman at the registered office.
The Annual Report and half-year results are circulated to shareholders wishing to
receive them and made available on the Company's website. These provide
shareholders with a clear understanding of the Company's portfolio and financial
position. This information is supplemented by the daily calculation and
publication of the NAV per share. The Investment Director attends the AGM and
provides a presentation on the Company's performance and the future outlook. We
encourage shareholders to attend and participate in the AGM. Shareholders have
the opportunity to address questions to the Chairman of the Board, the Investment
Director and all other Directors.
COMPANY'S DIRECTORS AND EMPLOYEES
The number of directors and employees during the year was 5 (2018: 5).
2019 2018
Male Female Male Female
Directors (non-executive) 4 0 4 0
Directors (executive) 1 0 1 0
Employees 0 0 0 0
The Directors have considered the Strategic Report and believe that taken as a
whole it is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance and strategy.
The Strategic Report was approved by the Board and signed on its behalf by:
S. J. B. Knott, Director
21st February 2020
REPORT OF THE DIRECTORS
The Directors have pleasure in submitting their fifty-seventh Annual Report,
together with audited financial statements in respect of the year ended 31st
December 2019.
DIRECTORS
The Directors who served during the year were as follows:
Dr David Bramwell
David is a Chartered Engineer and during his career has worked in a wide range of
industries in senior executive and management consultancy roles. He was appointed
Chief Executive of Peterhouse Group PLC in 1997 and thereafter Chairman of
Intelek PLC. During his career he has represented several private equity and
investment institutions as chairman and independent non-executive director of
many private companies operating in wide range of industries. His prime role was
the strategic and tactical development in order to achieve growth in stakeholder
value.
David Best
David is a Chartered Accountant and is a director of a number of private
companies. He was previously Group Finance Director of Peterhouse Group PLC and a
Managing Director of YFM Group, a private equity business. He has over 30 years
of investment experience across a number of businesses; since 2011 he has been
involved with Mercia Asset Managers and its predecessor operations advising on a
number of portfolio companies. His involvement in operating companies allows him
to share insights with the Board on the issues businesses face across a number of
varied sectors.
Dr Andrew Hosty
Andrew is a Chartered Engineer and Fellow of the Royal Academy of Engineers. He
is an international business leader with over 15 years of Non-executive board
experience and 30 years of executive and management experience, spanning private
equity, UK Plc and global blue-chip corporates. From 2016 to 2018 Andrew was the
CEO of the Sir Henry Royce Institute, the UK's home of advanced materials
research and innovation. Andrew was Chief Operating Officer of Morgan Advanced
Materials, and served on the Plc Board as an Executive Director from 2010 to
2016. These experiences and his current work with other operating companies mean
that Andrew can contribute to a range of business matters over a wide spectrum of
end markets.
Jonathan Roper
Jonathan is a solicitor and until his retirement from practice was a partner in
Eversheds Sutherland (formerly Eversheds LLP.) He has more than 35 years'
experience of commercial practice in the City, advising primarily on public and
private company mergers and acquisitions, joint ventures and equity and other
financing arrangements for UK and overseas clients, including many in the
financial services sector, and often at a strategic board level. He is a member
of the Council of the London School of Hygiene & Tropical Medicine and chair of
its Audit & Risk Committee.
Simon Knott
Simon has served as Investment Manager of the Company since 1983 focusing on UK
smaller companies.
DIVIDENDS
The Board is recommending a final dividend of 21.5p per Ordinary share (2018:
21.00p). If approved, taken together with the interim dividend of 10.75p per
Ordinary share (2018: 10.50p) this will result in a total dividend to the holders
of Ordinary shares for the year of 32.25p per Ordinary share (2018: 31.50p).
SUBSTANTIAL SHAREHOLDINGS
The Company has received notification to 18th February 2020, in accordance with
Chapter 5 of the Disclosure and Transparency Rules, of the following voting
rights:
% of voting
Ordinary shares
rights*
Dartmoor Investment Trust 742,892 9.85%
S. J. B. Knott 488,111 6.47%
J. Knott 482,185 6.39%
Rathbone Brothers PLC 437,361 5.80%
P & J Allen 323,511 4.29%
H. J. D. Knott 314,504 4.17%
* The percentage of voting rights is as at the time
of the notification.
DISCLOSURE OF SECTION 414C (11) SCHEDULE 7
INFORMATION
The Company has chosen to set out in the Strategic Report all information
relating to the above. SECTION 992 COMPANIES ACT 2006 DISCLOSURES
Details of the Company's capital structure and voting rights are given on page 1
of this document and in Note 14 on page 47 of the financial statements.
CORPORATE GOVERNANCE
Full details are given in the Corporate Governance Statement on pages 18 to 20.
The Corporate Governance Statement forms part of this Directors' Report.
SPECIAL BUSINESS AT THE ANNUAL GENERAL MEETING
The Notice of the Annual General Meeting to be held on 1st April 2020 is set out
on pages 4 to 6.
Remuneration Policy (resolution 10): The proposed Policy is set out on pages 27
and 28 of the Directors' Remuneration Report, which if approved, shall take
effect immediately after the end of the Annual General Meeting. There are no
substantive changes to the Policy that is already in place.
Share Buy Back Facility (resolution 11): The Board is seeking to renew the
authority granted at the Annual General Meeting held on 2nd April 2019 that
authorises the Company to make market purchases of Ordinary shares for
cancellation. At the forthcoming Annual General Meeting the Directors will seek
to renew this authority to buy back for cancellation up to 14.99% of Ordinary
shares in issue, representing 1,130,294 Ordinary shares as at 21st February 2020.
The authority will expire at the conclusion of the next Annual General Meeting of
the Company in 2021 unless the authority is renewed. The Board considers this
authority an important part of the Company's discount management policy. Shore
Capital, the Company's brokers, will be asked to continue the facilitation of
these buy backs on the Company's behalf and in accordance with the relevant
provisions of the Companies Act 2006 and Listing Rules.
Recommendation: The Directors recommend that shareholders vote in favour of the
resolutions to be proposed at the Annual General Meeting, as they intend to do in
respect of their own beneficial holdings; all resolutions are considered to be in
the best interests of the Company and its members.
DIRECTORS' REMUNERATION REPORT
The Annual Report on Directors' Remuneration on pages 24 to 29 provides
information on the Directors' remuneration and their interests in the share
capital of the Company, together with details of their letters of appointment and
memoranda of service.
ADMINISTRATION & SECRETARIAL AGREEMENT
The accounting, company secretarial and administrative services are provided by
Maitland Administration Services Limited ("Maitland") under an agreement
terminable by either party on not less than six months' notice. The services
provided by Maitland are reviewed regularly by the Board.
DISCLOSURE OF INFORMATION TO AUDITOR
So far as each Director at the date of approval of this report is aware:
• there is no relevant audit information of which the Company's Auditor is
unaware; and
• the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
Auditor is aware of that information.
GOING CONCERN
The Company's assets comprise mainly readily realisable equity securities and
cash and the value of its assets is greater than its liabilities. Additionally,
after reviewing the Company's budget including the current financial resources
and projected expenses for the next 12 months and its medium-term plans, the
Directors believe that the Company's resources are adequate for continuing in
business for the foreseeable future. Accordingly, it is appropriate to continue
to prepare the financial statements on a going concern basis.
GENERAL
No political contributions have been made during the year.
The Company purchases liability insurance covering the Directors and Officers of
the Company.
In accordance with section 489 of the Companies Act 2006, a resolution proposing
the reappointment of Begbies as Auditor of the Company will be put to the Annual
General Meeting.
The Directors' Report was approved by the Board and signed on its behalf by:
Dr D. M. Bramwell, Chairman
21st February 2020
CORPORATE GOVERNANCE STATEMENT
AIC CODE
The Board has considered the Principles and Provisions of the AIC Code of
Corporate Governance, published in February 2019 (AIC Code). The AIC Code
addresses the Principles and Provisions set out in the UK Corporate Governance
Code (the UK Code), as well as setting out additional provisions on issues that
are of specific relevance to investment companies.
The Board considers that reporting against the Principles and Provisions of the
AIC Code, which has been endorsed by the Financial Reporting Council provides
more relevant information to shareholders.
The Company has complied with the Principles and Provisions of the AIC Code but
the Board has not elected to designate a senior independent non-executive
Director, as it considers that each Director has different strengths and
qualities on which they may provide leadership.
The AIC Code is available on the AIC website ( 4 www.theaic.co.uk). It includes
an explanation of how the AIC Code adapts the Principles and Provisions set out
in the UK Code to make them relevant for investment companies.
OPERATION OF THE BOARD OF DIRECTORS
The Directors of the Company, as shown on page 3, are Dr D. M. Bramwell, Mr D. M.
Best, Dr A. J. Hosty, Mr S. J. B. Knott and Mr J. B. Roper. All Directors served
throughout the year under review. Their biographical details, also set out on
page 15, demonstrate a breadth of investment, commercial and professional
experience.
The Board is collectively responsible for promoting the success of the Company.
It deals with the important aspects of the Company's affairs, including the
setting of parameters for, and the monitoring of investment strategy and the
review of, investment performance. It reviews the share price and the discount or
premium to net asset value. The Board sets limits on the size and concentration
of new investments. The application of these and other restrictions, including
those which govern the Company's tax status as an investment trust, are reviewed
regularly at meetings of the Board.
The Board delegates all investment matters to the Investment Director but
reserves to itself all decisions concerning unquoted investments. The Investment
Director takes decisions as to the purchase and sale of individual investments
and is responsible for effecting those decisions on the best available terms in
accordance with the investment policy as stated on page 1.
The Chairman leads the Board and ensures that it deals effectively with all the
aspects of its role. In particular, he ensures that the Administrator provides
the Directors, in a timely manner, with management, regulatory and financial
information that is clear, accurate and relevant. Representatives of the
Administrator attend each Board meeting, enabling the Directors to seek
clarification on specific issues or to probe further on matters of concern.
Matters specifically reserved for decision by the full Board have been defined
and there is an agreed procedure for Directors, in the furtherance of their
duties, to take independent professional advice, if necessary, at the Company's
expense.
The Directors, their roles and attendance records are as follows:
Audit and Nominations and Board Committee
Directors Role Compliance Remuneration meetings meetings
Committee Committee attended attended
Dr D. M. Chairman, non-executive Yes Yes 6 5
Bramwell
S. J. B. Chief Executive and No No 6 0
Knott Investment Director
D. M. Best Non-executive Chairman Yes 6 5
Dr A. J. Non-executive Yes Yes 6 5
Hosty
J. B. Roper Non-executive Yes Chairman 5 5
In the year, there were 6 board meetings and 2 board committee meetings. Mr Knott
is not a member of either committee but does attend meetings when appropriate.
INDEPENDENCE OF THE DIRECTORS
The Board of Directors, which includes four non-executive Directors, all of whom
are considered to be independent, normally meets six times a year to review the
affairs of the Company. The Directors have reviewed their independence by
reference to the AIC Code. The Directors have had no material connection other
than as Directors of the Company. The Board is of the opinion that each of the
non-executive Directors is independent in character and judgment and that there
are no relationships or circumstances that are likely to affect their judgment.
Dr D. M. Bramwell has now served on the Board for more than nine years and (along
with the other Directors) will stand for election by the shareholders each year.
The Board is firmly of the view, however, that length of service does not of
itself impair a Director's ability to act independently. As such, the Board
considers Dr D. M. Bramwell to be independent but, in accordance with the Code,
his role and contribution will be subject to particularly rigorous review.
CONFLICTS OF INTEREST
The Articles of Association reflect the codification of certain Directors' duties
arising from the Companies Act 2006 and in particular the duty for Directors to
avoid conflicts of interest. The Board has put in place a framework in order for
Directors to report conflicts of interest or potential conflicts of interest.
All Directors are required to notify the Company Secretary of any situations, or
potential situations, where they consider that they have or may have a direct or
indirect interest or duty that conflicts or may possibly conflict with the
interests of the Company. The Board has considered that the framework worked
effectively throughout the period since its adoption. Directors were also made
aware that there remains a continuing obligation to notify the Company Secretary
of any new situation that may arise, or any change to a situation previously
notified. It is the Board's intention to continue to review all notified
situations on a regular basis.
NOMINATIONS AND REMUNERATION COMMITTEE
The Committee oversees a formal review procedure and evaluates the overall
composition of the Board from time to time, taking into account the existing
balance of skills and knowledge. Its chairman is an independent non-executive
Director. There are procedures for a new Director to receive relevant information
on the Company together with appropriate induction. The Committee is satisfied
that the Board and its Committees function effectively, both collectively and
individually, and contain the appropriate balance of skills and experience to
provide effective management. The Board uses a skills matrix in order to identify
any gaps in the current Board's knowledge and experience which will be used to
support future evaluations and succession planning.
The remuneration of the Investment Director is recommended to the Board by the
Nomination and Remuneration Committee. The Board considers that the interests of
the Investment Director, who is himself a shareholder (see page 24), are aligned
with those of other shareholders. This Committee also reviews the composition of
the Board and manages the recruitment process for new Directors.
Further details of the work of the Committee are given on page 24.
BOARD AND DIRECTOR EVALUATION
The Board reviews its performance on an annual basis; this does not involve an
external third party. The review covers an assessment of how cohesively the
Board, Audit and Compliance Committee and Nominations and Remuneration Committee
work as a whole, as well as the performance of the individuals within them.
The Chairman is responsible for performing this review. Mr D. M. Best, Dr A. J.
Hosty and Mr J. B. Roper perform a similar role in respect of the performance of
the Chairman. The evaluation confirmed that all Directors continue to be
effective on behalf of the Company and committed to the role.
The Nominations and Remuneration Committee conducts an annual review of the
Investment Director's performance. The review of the Investment Director's
performance in 2019 was output-based, but had regard to all other relevant
factors.
In order to prevent "overboarding", any significant external commitments require
the prior consent of the Board.
TENURE OF DIRECTORS
As in previous years, all Directors retire at each Annual General Meeting and, if
appropriate, seek re-election. Being eligible, all Directors offer themselves for
re-election. The Board considers that the Directors should be re-elected because
they bring wide, current and relevant business experience that allows them to
contribute effectively to the leadership of the Company. Following performance
evaluation their performance continues to be effective and committed to the role.
Each non-executive Director has signed a letter of appointment to formalise the
terms of his engagement as a non-executive Director (or there is a memorandum of
such terms), copies of which are available on request and at the Company's Annual
General Meeting. No Director is or was materially interested in any contract
subsisting during or at the end of the year that was significant in relation to
the Company's business.
No Director, apart from the Investment Director, has, or during the financial
year had, a contract of service with the Company. The terms of the Investment
Director's current basis of remuneration are detailed in the Directors' Annual
Remuneration Report on pages 24 to 29.
The Company is committed to ensuring that vacancies arising are filled by the
best qualified candidates and recognises the value of diversity in the
composition of the Board.
RISK MANAGEMENT AND INTERNAL CONTROL
The Board is fully aware of its duty to present a balanced and understandable
assessment of the Company's position. It acknowledges its responsibility for the
Company's system of internal financial controls and their effectiveness. The
Board meets regularly and reviews performance against approved plans and
forecasts. In addition, the day-to-day administration and accounting functions
are carried out by the Administrator and reports are submitted regularly to the
Board.
As part of the system of internal control, there is a process to identify,
evaluate and manage the significant risks faced by the Company, which has been in
place during the year under review and up to the date of approval of the
financial statements. This has been reviewed by the Board, is in accordance with
the guidelines in the AIC Code and is considered by the Board to be effective and
fit for purpose. The system of risk analysis adopted by the Board is designed to
manage rather than eliminate the risk of failure to achieve the investment
objectives of the Company. It must be stressed that undertaking an acceptable
degree of controlled risk is always necessary in the conduct of any investment
trust if above average performance is to be achieved. For this reason, the
process can only provide reasonable and not absolute assurance against loss.
AUDIT AND COMPLIANCE COMMITTEE
The Audit and Compliance Committee is a formally constituted committee of the
Board with defined terms of reference, which include its role and the authority
delegated to it by the Board, and which are available at the Company's registered
office and on the Company's website. Its specific responsibilities include
reviewing the Company's annual and half yearly results, together with the
supporting documentation.
This Committee also reviews the performance of key suppliers and therefore the
Board has decided not to establish a separate Management Engagement Committee.
Further details are given in the Report of the Audit and Compliance Committee on
pages 21 to 23. STATEMENT OF COMPLIANCE
The Directors consider that during the year ended 31st December 2019 the Company
has complied with all the relevant provisions set out in the AIC Code.
This Corporate Governance Statement was approved by the Board and signed on its
behalf:
Dr D. M. Bramwell, Chairman
21st February 2020
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE
ROLE OF THE AUDIT AND COMPLIANCE COMMITTEE
The Audit and Compliance Committee's main functions are as follows:
* To monitor the internal financial control and risk management systems on which
the Company is reliant.
• To monitor the integrity of the half-year and annual financial statements of
the Company by reviewing and challenging, where necessary, the actions and
judgements of the Investment Director.
• To meet the Auditor to review its proposed audit programme and the subsequent
Audit Report, to review the effectiveness of the audit process and the levels
of fees paid in respect of both audit and non-audit work.
• To make recommendations to the Board in relation to the appointment,
reappointment or removal of the Auditor and to negotiate its remuneration and
terms of engagement on audit and non-audit work.
• To monitor and review annually the Auditor's independence, objectivity,
effectiveness, resources and qualification.
• To monitor the performance of key suppliers.
The Audit and Compliance Committee meets at least twice each year and operates
within defined terms of reference which are available at the Company's registered
office and on the Company's website.
COMPOSITION OF THE AUDIT AND COMPLIANCE COMMITTEE
The Audit and Compliance Committee comprises four independent non-executive
Directors, at least one of whom has recent and relevant financial experience. The
Company's Chairman, David Bramwell is a member of the Audit and Compliance
Committee. This is considered to be appropriate given his financial and markets'
experience and the fact that he was independent on appointment.
SIGNIFICANT ISSUES AND RISKS
In planning its own work and reviewing the audit plan of the Auditor, the Audit
and Compliance Committee takes account of the most significant issues and risks,
both operational and financial, likely to impact upon the Company's Financial
Statements.
The valuation of the investment portfolio is a significant risk factor; however,
all investments can be verified against daily market prices.
A further significant risk control issue is to ensure that the investment
portfolio accounted for in the financial statements reflects physical ownership
of the relevant securities. The Company uses the services of an independent
custodian, Northern Trust Company, to hold the assets of the Company. The
investment portfolio is regularly reconciled to the custodian's records and that
reconciliation is also reviewed by the Auditor.
The incomplete or inaccurate recognition of income in the financial statements
are risks. Internal control systems, including frequent reconciliations, are in
place to ensure income is fully accounted for. The Board is provided with
information on the Company's income account at each meeting.
Financial statements issued by the Company need to be fair, balanced and
understandable. The Audit and Compliance Committee reviews the Annual Report as a
whole and makes suitable recommendations to the Board.
The Company's half-yearly report is approved by the Audit and Compliance
Committee prior to publication and is also reviewed by the Auditor.
The Audit and Compliance Committee assesses whether it is appropriate to prepare
the Company's financial statements on a going concern basis and makes
recommendations to the Board. The Board's conclusions are set out in the Report
of the Directors.
INTERNAL CONTROLS
The Audit and Compliance Committee is responsible for ensuring that suitable
internal control systems to prevent and detect fraud and error are designed and
implemented and is also responsible for reviewing the effectiveness of such
controls. The Board confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the Company. This process
has been in place for the year under review and up to the date of approval of
this Report and is regularly reviewed. In particular it has reviewed and updated
the process for identifying and evaluating the significant risks affecting the
Company and the policies by which these are managed. The risks of failure of any
such controls are identified in a risk assessment which identifies the likelihood
and severity of the impact of such risks and the controls in place to minimise
the probability of such risks occurring; the risk management process and systems
of internal control are designed to manage rather than eliminate the risk of
failure to achieve the Company's objectives. It should be recognised that such
systems can only provide reasonable, but not absolute, assurance against material
misstatement or loss. Equally, it must be stressed that undertaking an acceptable
degree of controlled risk is always necessary in the conduct of any investment
trust if above average performance is to be achieved.
The following are the key components which the Company has in place to provide
effective internal control:
• The Board has agreed clearly defined investment criteria; reports on
compliance therewith are regularly reviewed by the Board.
• The Board has a procedure to ensure that the Company can continue to be
approved as an investment company by complying with section 1158 of the
Corporation Tax Act 2010.
• The Administrator prepares forecasts and management accounts which allow the
Board to assess the Company's activities and review its performance.
• The performance of the Investment Director and any contractual agreements
with other third party service providers, and adherence to them, are
regularly reviewed.
• The Company does not itself have a whistleblowing policy in place. The
Company delegates its administration to third party providers who have such
policies in place.
The Audit and Compliance Committee has reviewed the need for an internal audit
function, but has concluded that, given the size of the organisation and the
clear segregation of investment management and control of the assets, there is no
need for such a function at the current time. The Audit and Compliance Committee
has also agreed to keep such a requirement under review.
EXTERNAL AUDIT PROCESS
The Audit and Compliance Committee meets at least twice a year with the Auditor.
The Auditor provides a planning report in advance of the annual audit, a report
on the annual audit, and a report of its review of the half-year financial
statements. The Committee has an opportunity to question and challenge the
Auditor in respect of each of these reports; it also agrees the level and scope
of materiality to be adopted in respect of the annual audit.
In addition, at least once a year, the Audit and Compliance Committee has an
opportunity to discuss any aspect of the Auditor's work with the Auditor in the
absence of the Investment Director.
After each audit, the Audit and Compliance Committee will review the audit
process and consider its effectiveness.
AUDITOR ASSESSMENT AND INDEPENDENCE
The Company's Auditor is Begbies, which has been the Company's Auditor since
2006. Rotation of the Audit Partner takes place in accordance with Ethical
Standard 3; "Long Association with the Audit Engagement" of the Auditing
Practices Board ("APB").
The fees for audit purposes were £16,500 (2018: £16,500).
The Audit Committee has approved and implemented a policy on the engagement of
the Auditor to supply non-audit services, taking into account the recommendations
of the APB, and does not believe there is any impediment to the Auditor's
objectivity and independence. All non-audit work to be carried out by the Auditor
must be approved by the Audit Committee in advance.
The cost of non-audit services provided by the Auditor for the financial year
ended 31st December 2019 was £5,400 (2018: £5,400). These non-audit services are
related to the review of the interim accounts and tax compliance. The Committee
believes Begbies is best placed to provide them on a cost-effective basis. The
fees for non-audit services are not considered material in the context of the
financial statements as a whole.
INDEPENDENCE
During the year the Committee reviewed the independence policies and procedures
of Begbies, including quality assurance procedures. It was considered that those
policies and procedures remained fit for purpose.
DISCLOSURE OF INFORMATION TO THE AUDITOR
It is the Company's policy to allow the Auditor unlimited access to its records.
The Directors confirm that, so far as each of them is aware, there is no relevant
audit information of which the Company's Auditor is unaware and they have taken
all the steps which they should have taken as Directors in order to make
themselves aware of any relevant audit information and to establish that the
Auditor is aware of that information. This confirmation is given and should be
interpreted in accordance with the provisions of section 418 of the Companies Act
2006.
CONCLUSION
The Audit Committee has reviewed the matters within its terms of reference and
reports as follows:
• it has approved the financial statements for the year ended 31st December
2019;
• it has reviewed the effectiveness of the Company's internal controls and risk
management;
• it has reviewed the need for a separate internal audit function;
• it has recommended to the Board that a resolution be proposed at the Annual
General Meeting for the reappointment of the Auditor and it has considered
the proposed terms of its engagement;
• it has satisfied itself as to the independence of the Auditor; and
• it has satisfied itself that the contents of the Annual Report are consistent
with the financial statements.
D. M. Best, Director
Chairman, Audit and Compliance Committee
21st February 2020
DIRECTORS' ANNUAL REMUNERATION REPORT
INTRODUCTION
This Report is submitted in accordance with the requirements of sections 420 to
422 of the Companies Act 2006 in respect of the year ended 31st December 2019. An
ordinary resolution to approve this Report will be put to members at the
forthcoming Annual General Meeting, but the Directors' remuneration is not
conditional upon the resolution being passed.
The Company has a Nominations and Remuneration Committee, the terms of reference
of which include annually reviewing and recommending to the Board the level of
Directors' fees and remuneration. The full terms of reference are available at
the Company's registered office and on the Company's website. The Committee is
chaired by J. B. Roper and the other members are Dr D. M. Bramwell, D. M. Best
and Dr A. J. Hosty.
DIRECTORS' REMUNERATION AS A SINGLE FIGURE (AUDITED)
Annual Annual
Salary and bonuses Total for Salary and bonuses Total for
Director fees 2019 £ fees 2018 £
2019 2019 2018 2018
£ £ £ £
D. M. Best 22,000 - 22,000 21,000 - 21,000
Dr D. M. Bramwell 28,000 - 28,000 27,000 - 27,000
(Chairman)
Dr A. J. Hosty 22,000 - 22,000 21,000 - 21,000
S. J. B. Knott 319,500 - 319,500 319,500 - 319,500
(Executive)
J. B. Roper 22,000 - 22,000 21,000 - 21,000
Total 413,500 - 413,500 409,500 - 409,500
No payments of other types prescribed in the relevant regulations such as
Long-term Incentive Plans ("LTIPs") or pensions and pension-related benefits were
made.
No other remuneration or compensation was paid or payable by the Company during
the year to any current or former Directors.
With effect from 1st January 2020 the fees payable to the Directors are as
follows (previous rates are shown in brackets): Chairman £28,000 (£28,000), other
non-executive Directors £22,000 (£22,000) and Investment Director/CEO (base
salary excluding discretionary bonus) £319,500 (£319,500).
STATEMENT OF DIRECTORS' SHAREHOLDINGS AND SHARE INTERESTS (AUDITED)
The Company has not set any requirements or guidelines for the Directors to own
Ordinary shares in the Company. The beneficial interests of the Directors and
their connected persons in the Ordinary shares of the Company are shown in the
table below.
31st December 2019 31 December 2018
D. M. Best 480 -
Dr D. M. Bramwell (Chairman) 22,625 22,625
Dr A. J. Hosty - -
S. J. B. Knott (Executive) 488,111 488,111
J. B. Roper - -
No changes in the Directors' interests shown above have occurred since 31st
December 2019.
PERFORMANCE GRAPH AND CEO REMUNERATION TABLE
The graph below illustrates the total shareholder return for the Ordinary shares
relative to the FTSE All-Share Index. This has been used as the appropriate index
as it is the Company's benchmark index.
CEO REMUNERATION TABLE
CEO Single Figure of Total Remuneration £ Annual Bonus Paid Out £
2015 184,000 30,000
2016 213,000 40,000
2017 268,500 45,000
2018 319,500 -
2019 319,500 -
Total 1,304,500 115,000
The above bonuses were of a discretionary nature and so no percentage against a
maximum payable has been shown.
The table below shows the percentage change in the remuneration of the Director
undertaking the role of CEO (the Investment Director) between the years 2018 and
2019. During the same period the Company had no other employees.
Percentage change in salary Percentage change in annual bonus
CEO 0% 0%
Workforce N/A N/A
SIGNIFICANCE OF SPEND ON PAY
Directors' remuneration £ Shareholder distribution £
2019 413,500 2,501,000
2018 409,500 2,537,000
Difference 4,000 36,000
% Change 1% (1.4%)
SERVICE CONTRACTS AND LETTERS OF APPOINTMENT
Except as set out below, there are no written service contracts or contract for
services in respect of any Director. Except as set out below, there are no
written service contracts or contract for services in respect of any Director.
There are no share options, LTIPs, pension or profit-related pay arrangements
with any of the Directors.
There are letters of appointment for four non-executive Directors:
Director Date
Dr D. M. Bramwell (Chairman) 5th April 2016
D. M. Best 5th April 2016
Dr A. J. Hosty 1st July 2017
J. B. Roper 5th April 2016
There is a written memorandum setting out the terms of the contract of service
for S. J. B. Knott; there are also subsequent memoranda varying the letters of
appointment and this memorandum.
No terms or notice periods are set out in any terms of appointment of any of the
Directors; all Directors are subject to annual re-election at the Company's
Annual General Meeting.
There are no provisions for the payment of compensation for loss of office, early
termination or wrongful termination by the Company. Any payment on termination of
their appointments would be calculated in accordance with their strict legal
entitlements.
THE COMPANY'S POLICY ON DIRECTORS' REMUNERATION
The following is the Company's policy for Directors' remuneration which was last
approved by shareholders at the Annual General Meeting held on 30th March 2017.
The shareholders will be asked to reconsider the Remuneration Policy at the next
Annual General Meeting to be held on 1st April 2020. No changes to the policy are
proposed and the policy is restated in full below.
INTRODUCTION
The Company's policy as regards non-executive Directors is that fees payable to
them should reflect their expertise, responsibilities and time spent on Company
matters. In determining the level of non-executive remuneration, market
equivalents should be considered with regard being had to the overall activities
and size of the Company.
The maximum aggregate level of fees payable to the Directors is fixed by the
Company's Articles of Association, amendment of which is by way of an ordinary
resolution. The level aggregate fees should not exceed is £150,000 per annum. The
Investment Director is not paid a fee for acting as a Director of the Company but
is remunerated separately in respect of his executive roles.
The Company's policy as regards S. J. B. Knott, the Investment Director and only
executive Director of the Company, is to align his remuneration to the principal
investment benchmark of the Company. However, it also has regard to his executive
duties as effective chief executive officer of the Company and the time required
of him for the effective fulfilment of his duties, but with provision for
discretionary bonuses to recognise significant outperformance of the Company's
investment portfolio. As noted on page 16, he is a significant shareholder in the
Company.
The Company does not confer any share options, long-term incentives or retirement
benefits on any Director, nor does it make a contribution to any pension scheme
on behalf of the Directors. The Company has not included any performance-related
elements in the remuneration package of the Executive Director except as noted
above. The Company also provides Directors' liability insurance.
FUTURE POLICY TABLE
The tables below summarise the various elements of the remuneration packages of
the Directors.
Investment Director
Element Purpose and link to strategy
The Investment Director is paid an annual salary linked to
the net assets of the Company at the end of the previous year
Base salary to reflect the aim of long-term growth which is the principal
benchmark measurement criterion of the Company and, in
addition, to have regard to his other executive duties.
Discretionary bonus To motivate the Investment Director to achieve measured
outperformance.
Chairman and non-executive Directors' fees
Element Purpose and link to strategy
The fees paid to the Chairman and the other
non-executive Directors aim to be competitive with
other investment trusts of equivalent size and
Chairman and non-executive complexity. Fees are fixed annual sums and reviewed
Directors' fees periodically by the Board (for non-executive
Directors) and the Committee (for the Chairman).
Neither the Chairman nor the other non-executive
Directors receive any incentive payment.
Notes:
No Director is entitled to receive any pension provision.
There is no maximum or minimum applicable to either element of the Investment
Director's remuneration package.
The policy on remuneration for employees generally is to incentivise them to
perform effectively and to recognise market comparators, but remuneration
packages are structurally different from that of the only executive Director, the
Investment Director. The Company currently has no other employees.
APPROACH TO RECRUITMENT REMUNERATION
The principles the Company would apply in setting remuneration for new Board
members would be in line with the Remuneration Policy. Fees and salary for new
appointees would therefore be commensurate with existing Board members and their
relevant peer group.
STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE COMPANY
As the Company has no employees, other than the Investment Director, there was no
consultation when setting the Directors' Remuneration Policy and no remuneration
comparison measurement with employees was used.
It is intended that the Directors' Remuneration Policy will continue to apply
from its approval at the 2020 Annual General Meeting until the Annual General
Meeting in 2023.
ILLUSTRATION OF APPLICATION OF REMUNERATION POLICY
It is expected that no bonus will be payable for performance in line with
expectations and a maximum bonus of 20% of salary would be payable.
VOTING AT ANNUAL GENERAL MEETING
A binding Ordinary Resolution approving the Directors' Remuneration Policy was
approved on 30th March 2017. The votes cast were as follows:
Remuneration Policy
For - % of votes cast 99.65%
Against - % of votes cast 0.15%
At Chairman's discretion - % of votes cast 0.20%
Total votes cast 2,435,109
Number of votes withheld 3,180
A non-binding Ordinary Resolution adopting the Annual Report on Directors'
Remuneration for the year ended 31st December 2018 was approved by shareholders
at the Annual General Meeting held on 2nd April 2019. The votes cast by proxy
were as follows:
Annual Report on Directors' Remuneration
For - % of votes cast 99.21%
Against - % of votes cast 0.33%
At Chairman's discretion - % of votes cast 0.46%
Total votes cast 2,479,618
Number of votes withheld 5,538
ANNUAL STATEMENT
On behalf of the Board and in accordance with Part 2 of Schedule 8 to the Large
and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013, I confirm that the above Report (which has been agreed by the
Board) summarises, as applicable, for the year ended 31st December 2019:
• the major decisions on Directors' remuneration;
• any substantial changes relating to Directors' remuneration made during the
year; and
• the context in which the changes occurred and decisions that have been taken.
J. B. Roper, Director
Chairman, Nominations and Remuneration Committee
21st February 2020
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable United Kingdom law and International
Financial Reporting Standards ("IFRS") as adopted by the European Union.
The Directors are required to prepare the financial statements for each financial
year which present fairly the financial position, the financial performance and
cash flows of the Company for that period. In preparing those financial
statements the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements
of IFRS is insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the Company's
financial position and financial performance;
• state that the Company has complied with IFRS subject to any material
departures disclosed and explained in the financial statements; 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 responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies Act 2006 and Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, Strategic Report and Directors' Remuneration
Report that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Visitors to the
website need to be aware that legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
The Directors consider that the Annual Report and financial statements taken as a
whole are fair, balanced and understandable and provide shareholders with the
information necessary to assess the Company's performance, business model and
strategy.
The Directors confirm that to the best of their knowledge:
• the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
• the Annual 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.
Dr D. M. Bramwell, Director
S. J. B. Knott, Director
21st February 2020
INDEPENDENT AUDITOR'S REPORT
To the Members of Rights and Issues Investment Trust PLC
OPINION
We have audited the financial statements of Rights and Issues Investment Trust
PLC for the year ended 31st December 2019 which comprise the Statement of
Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity, the
Statement of Cash Flows and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and International
Financial Reporting Standards ("IFRSs") as adopted by the European Union.
In our opinion the financial statements:
• give a true and fair view of the state of the Company's affairs as at 31st
December 2019 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the
European Union; and
• have been prepared in accordance with the requirements of the Companies Act
2006.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities under those standards
are further described in the Auditor's Responsibilities for the audit of the
financial statements section of our report. We are independent of the Company in
accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council's
("FRC") Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion. Our audit opinion is consistent with our
report to the Audit Committee.
CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENT
We have nothing to report in respect of the following information in the Annual
Report, in relation to which the ISAs (UK) require us to report to you whether we
have anything material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 11 and 12 that describe
the principal risks and explain how they are being managed or mitigated;
• the Directors' confirmation set out on page 11 in the Annual Report that they
have carried out a robust assessment of the principal risks facing the
Company, including those that would threaten its business model, future
performance, solvency or liquidity;
• the Directors' statement set out on page 17 in the Annual Report about
whether the Directors considered it appropriate to adopt the going concern
basis of accounting in preparing the Annual Report and the Directors'
identification of any material uncertainties to the Company's ability to
continue to do so over a period of at least 12 months from the date of
approval of the financial statements;
• whether the Directors' statement relating to going concern required under the
Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit; or
• the Directors' explanation set out on page 13 in the Annual Report as to how
they have assessed the prospects of the Company, over what period they have
done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current period
and include the most significant assessed risks of material misstatement (whether
or not due to fraud) we identified, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
The purpose of the Company is to invest in equities with a view to achieving
capital appreciation and a dividend income stream. Consequently we have
identified the following risks of material misstatements that have the greatest
effect on the overall audit strategy, the allocation of resources in the audit
and directing the efforts of the engagement team:
• the incorrect valuation of the investment portfolio held by the Company;
• the ownership of the investments and the risk of the misappropriation of
those assets;
• the incomplete or inaccurate recognition of the Company's investment income.
The risks we have identified are consistent with those risks that were
identified in the prior year.
Therefore particular emphasis was placed in examining and testing the processes
of measuring and recognising investments including ownership of those investments
together with the testing of its income. We obtained confirmation of investments
held at the year end from the custodian, testing this to the records maintained
by the Company. We tested a selection of investment additions and disposals shown
in the Company's records to supporting documentation and agreed the valuation of
quoted investments. We also tested dividends receivable and confirmed that the
income was recorded in accordance with the Company's accounting policy.
Based on the work we performed, we had no matters to report to the Audit
Committee. OVERVIEW OF THE SCOPE OF OUR AUDIT
Our assessment of audit risk and our evaluation of materiality determine our
audit scope for the Company. This enables us to form an opinion on the financial
statements. We take into account size, risk profile, the organisation of the
Company and effectiveness of controls, including controls and changes in the
business environment, when assessing the level of work to be performed. There are
no significant changes in our approach from the previous year.
OUR APPLICATION OF MATERIALITY
We determined our planning materiality to be £1.72 million which is 1% of net
assets. Given the importance of the distinction between revenue and capital for
the company, we also decided on a separate testing materiality of £230,000 for
the revenue column of the Income Statement which is 10% of the net return.
The Audit and Compliance Committee requested our materiality to be set at the
lower level of £1 million for the financial statements as a whole. Due to the
significance of the Company's net assets compared with the amounts in the revenue
column of the Income Statement, they asked us to set a separate materiality level
for the revenue column of £200,000.
We have also agreed with the Audit and Compliance Committee that we would report
to them all audit differences in excess of £50,000 as well as any other
differences below that threshold which in our view should be reported to them
because of their nature, relevance and prominence in the Financial Statements.
OTHER INFORMATION
The Directors are responsible for the other information. The other information
comprises the information included in the annual report (including the Strategic
Report and the Directors' Report), other than the financial statements and our
auditor's report thereon.
Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We
have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility
to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information where we
conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on page 30 - the statement given by
the Directors that they consider the Annual Report and financial statements
taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's performance,
business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
• Audit and Compliance Committee reporting - the section describing the work of
the Audit Committee does not appropriately address matters communicated by us
to the Audit Committee; or
• Directors' statement of compliance with the UK Corporate Governance Code set
out on page 20 - the parts of the directors' statement required under the
Listing Rules relating to the Company's compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure
from a relevant provision of the UK Corporate Governance Code.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors' Report for
the financial year for which the financial statements are prepared is
consistent with the financial statements; and
• the Strategic Report and the Directors' Report have been prepared in
accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the Company and its
environment obtained in the course of the audit, we have not identified material
misstatements in the Strategic Report or the Directors' Report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our
audit have not been received from branches not visited by us; or
• the financial statements and the part of the Directors' Remuneration Report
to be audited are not in agreement with the accounting records and returns;
or
• certain disclosures of directors' remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Statement of Directors' Responsibilities set out
on page 30, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for
such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these
financial statements.
In respect of fraud the objectives of our audit were to identify and assess the
risks of material misstatement of the financial statements due to fraud and to
obtain appropriate and sufficient audit evidence regarding those assessed risks
of material misstatement due to fraud. However, the primary responsibility for
the prevention and detection of fraud rests with those charged with the
governance and management of the entity.
EXPLANATION AS TO WHAT EXTENT THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING
IRREGULARITIES INCLUDING FRAUD
The objectives of our audit, in respect to fraud, are; to identify and assess the
risks of material misstatement of the financial statements due to fraud; to
obtain sufficient appropriate audit evidence regarding the assessed risks of
material misstatement due to fraud, through designing and implementing
appropriate responses; and to respond appropriately to fraud or suspected fraud
identified during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both those charged with governance
of the entity and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are
applicable to the Company and determined that the most significant are IFRSs,
the Companies Act 2006, the Listing Rules, the UK Corporate Governance Code,
the AIC Code and section 1158 of the Corporation Tax Act 2010.
• We understood how the Company is complying with those frameworks through
discussions with the Audit and Compliance Committee and the Company Secretary
and a review of the Company's documented policies and procedures.
• We assessed the susceptibility of the Company's financial statements to
material misstatement, including how fraud might occur by considering the key
risks impacting the financial statements. We identified a risk with respect
to incomplete or inaccurate revenue recognition through incorrect
classification of special dividends as revenue or capital items in the
Statement of Comprehensive Income. Further discussion of our approach is set
out in the section on key audit matters above.
• Based on this understanding we designed our audit procedures to identify
non-compliance with such laws and regulations. Our procedures involved review
of the reporting to the Directors with respect to the application of the
documented policies and procedures and review of the financial statements to
ensure compliance with the reporting requirements of the Company.
• We have reviewed that the Company's control environment is adequate for the
size and operating model of such a listed investment company.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
5 www.frc.org.uk/auditorsreposibilities. This description forms part of our
auditor's report.
USE OF THIS REPORT
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body, for our audit
work, for this report, or for the opinions we have formed.
OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS
We were appointed by the Board of Directors to audit the financial statements for
the year ended 31st December 2006. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 14 years.
The non-audit services prohibited by the FRC's Ethical Standard were not provided
to the Company and we remain independent of the Company in conducting our audit.
Jeremy Staines (Senior Statutory Auditor)
For and on behalf of Begbies
9 Bonhill Street
London
Chartered Accountants and Statutory Auditor
21st February 2020
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st December 2019
Year ended 31st Year ended 31st
December 2019 December 2018
Revenue Capital Total Revenue Capital Total
Notes
£'000 £'000 £'000 £'000 £'000 £'000
Investment income 2 3,150 - 3,150 3,599 - 3,599
Other operating income 2 9 - 9 20 - 20
Total income 3,159 - 3,159 3,619 - 3,619
Gains/(losses) on
fair value through 9 - 11,188 11,188 - (21,459) (21,459)
profit or loss assets
Gains on subsidiary 9 - 52 52 - - -
holding
3,159 11,240 14,399 3,619 (21,459) (17,840)
Expenses
Investment management fee - - - - - -
Other expenses 3 803 68 871 813 59 872
803 68 871 813 59 872
Profit/(loss) before tax 2,356 11,172 13,528 2,806 (21,518) (18,712)
Tax 5 - - - - - -
Profit/(loss) for the 2,356 11,172 13,528 2,806 (21,518) (18,712)
year
Earnings per share
Return per Ordinary 7 30.2p 143.3p 173.5p 34.5p (264.8)p (230.3)p
share
The total column of this statement represents the Statement of Comprehensive
Income prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The supplementary revenue return and capital return columns
are both prepared under guidance published by the Association of Investment
Companies.
The profit for the year disclosed above represents the Company's total
Comprehensive Income. The Company does not have any other Comprehensive Income.
All items in the above statement are those of the single entity and derive from
continuing operations. No operations were acquired or discontinued during the
year.
The notes on pages 40 to 50 form part of these financial statements.
BALANCE SHEET
as at 31st December 2019
Non-current assets 2019 2018
Notes
Investments - fair value through profit £'000 £'000
or loss 9 155,701 155,647
155,701 155,647
Current assets
Trade and other receivables 12 534 621
Amounts due from Group undertakings 78 78
Cash and cash equivalents 15,322 13,310
15,934 14,009
Total assets 171,635 169,656
Current liabilities
Trade and other payables 13 80 81
80 81
Total assets less current liabilities 171,555 169,575
Net assets 171,555 169,575
Equity
Called up share capital 14 1,885 2,002
Capital redemption reserve 15 370 253
Retained reserves:
Capital reserve 15 64,742 61,984
Revaluation reserve 15 101,584 102,217
Revenue reserve 15 2,974 3,119
Total equity 171,555 169,575
Net asset value per share
Ordinary shares 16 2275.2p 2118.1p
The notes on pages 40 to 50 form part of these financial statements.
The financial statements were approved by the Board and authorised for issue on
21st February 2020. They were signed on its behalf by:
Dr D. M. Bramwell, Director
S. J. B. Knott, Director
Company Registration Number: 00736898
STATEMENT OF CHANGES IN EQUITY
for the year ended 31st December 2019
Capital
Share Redemption Capital Revaluation Revenue Total
Balance at capital reserve reserve reserve
reserve £'000
£'000 £'000 £'000 £'000
£'000
31st December 2017 2,094 161 65,434 128,151 2,850 198,690
Changes in equity for
2018
Loss for the year - - 4,416 (25,934) 2,806 (18,712)
Total recognised income 2,094 161 69,850 102,217 5,656 179,978
and expense
Ordinary shares bought (92) 92 (7,866) - - (7,866)
back and cancelled
Dividends 6 - - - - (2,537) (2,537)
As at 31st December 2,002 253 61,984 102,217 3,119 169,575
2018
Capital
Share Redemption Capital Revaluation Revenue Total
Balance at capital reserve reserve reserve
reserve £'000
£'000 £'000 £'000 £'000
£'000
31st December 2018 2,002 253 61,984 102,217 3,119 169,575
Changes in equity for
2019
Profit for the year - - 11,805 (633) 2,356 13,528
Total recognised income 2,002 253 73,789 101,584 5,475 183,103
and expense
Ordinary shares bought (117) 117 (9,047) - - (9,047)
back and cancelled
Dividends 6 - - - - (2,501) (2,501)
As at 31st December 2019 1,885 370 64,742 101,584 2,974 171,555
The notes on pages 40 to 50 form part of these financial statements.
STATEMENT OF CASH FLOWS
for the year ended 31st December 2019
Notes 2019 2018
Cashflows from operating activities £'000 £'000
Profit/(loss) before tax 13,528 (18,712)
Adjustments for:
(Gains)/losses on investments (11,188) 21,460
(Gains)/losses on revaluation of subsidiary (52) -
Purchases of investments 9 (8,671) (4,018)
Proceeds on disposal of investments 9 19,857 6,055
Operating cash flows before movements in working capital 13,474 4,785
Decrease/(increase) in receivables 87 (42)
Decrease in payables (1) (17)
Net cash from operating activities before income taxes 13,560 4,726
Net cash from operating activities 13,560 4,726
Cash flows from financing activities
Ordinary shares bought back and cancelled (9,047) (7,948)
Dividends paid (2,501) (2,537)
Net cash used in financing activities (11,548) (10,485)
Net Increase/(decrease) in cash and cash equivalents 2,012 (5,759)
Cash and cash equivalents at beginning of year 13,310 19,069
Cash and cash equivalents at end of year 15,322 13,310
The notes on pages 40 to 50 form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31st December 2019
1. ACCOUNTING POLICIES
Basis of Accounting
The financial statements of the Company have been prepared in accordance with the
International Financial Reporting Standards ("IFRS"), which comprise standards
and interpretations approved by the International Accounting Standards Board
("IASB"), and International Accounting Standards ("IAS") and Standing
Interpretations Committee interpretations approved by the International
Accounting Standards Committee ("IASC") that remain in effect, and to the extent
that they have been adopted by the European Union ("EU").
The financial statements have been prepared on a going concern basis under the
historical cost convention to include the revaluation of investments. The
principal accounting policies are set out below. Where presentational guidance
set out in the Statement of Recommended Practice ("SORP") for "financial
statements of Investment Trust Companies and Venture Capital Trusts" issued by
the Association of Investment Companies ("AIC") in October 2019 is consistent
with the requirements of IFRS, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the SORP.
In accordance with IFRS 10 (Investment Entities Amendments), the Company measures
its subsidiary at fair value through profit and loss and does not consolidate it.
The following new and amended standards are effective this year and have been
adopted although they have no material impact on the financial statements.
IFRS 16 (Leases) and IFRIC 23 (Uncertainty Over Income Tax Treatment) were
effective for annual periods beginning on or after 1st January 2019 and have not
had any material impact on the financial statements.
Income
Dividend income is included in the financial statements on the ex-dividend date.
All other income is included
on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged through
the revenue account
except as follows:
• Expenses which are incidental to the acquisition of an investment are
included within the cost of the investment.
• Expenses which are incidental to the disposal of an investment are deducted
from the disposal proceeds of the investment.
Taxation
The charge for taxation is based on the net revenue for the year. Deferred
taxation is recognised in respect of all timing differences that have originated
but not reversed at the balance sheet date. Investment trusts which have approval
under section 1158 of the Corporation Tax Act 2010 are not liable for taxation on
capital gains.
Dividends
Dividends payable to shareholders are recognised when they are paid.
Cash and cash equivalents
Cash comprises cash in hand and deposits payable on demand. Cash equivalents are
short-term highly liquid
investments that are readily convertible to known amounts of cash.
Investments
Investments are classified as fair value through profit or loss as the Company's
business is investing in financial
assets with a view to profiting from their total return in the form of interest,
dividends or capital growth.
Changes in the value of investments held at fair value through profit or loss and
gains and losses on disposal are recognised in the Income Statement as "Gains or
losses of investments held at fair value through profit or loss". Also included
within this heading are transaction costs in relation to the purchase or sale of
investments.
All investments, classified as fair value through profit or loss, are further
categorised into the following fair value hierarchy:
Level 1 - Unadjusted prices quoted in active markets for identical assets and
liabilities.
Level 2 - Having inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (ie as prices) or
indirectly (ie derived from prices).
Level 3 - Having inputs for the asset or liability that are not based on
observable data.
Investments traded in organised markets are valued at their fair value, which is
determined by the quoted market bid price at the close of business at the Balance
Sheet date. Where trading in a security is suspended, the investment is valued at
the Board's estimate of its fair value.
Unquoted investments are valued by the Board at fair value using the
International Private Equity and Venture Capital Valuation Guidelines.
2019 2018
2. INCOME £'000 £'000
Income from investments
Franked investment income 3,150 3,599
Other operating income
Deposit interest 9 20
Total income 3,159 3,619
Income from investments
UK equity listed 2,689 3,226
AIM traded 461 373
Delisted stock - -
Dividend from subsidiary - -
3,150 3,599
3. OTHER EXPENSES
2019 2018
£'000 £'000
Staff costs (note 4) 368 374
Non-executive Directors' fees 94 90
Administration fees 119 136
Auditor's remuneration
- Audit 17 17
- Review of the half yearly report 4 4
- Other services to the Company and its subsidiaries 6 1
Secretarial services 42 42
Other 153 149
803 813
Capital expenses 68 59
871 872
Auditor's other services are comprised of tax compliance services and the
Directors do not consider that the provision of this non-audit work affects the
independence of the Auditor.
4. STAFF COSTS
2019 2018
£'000 £'000
Wages and salaries 320 320
Social security costs 48 54
368 374
Number Number
The average number of staff employed by the Company was 1 1
£'000 £'000
Directors' emoluments 414 410
414 410
The highest paid Director received total emoluments of £320,000 (2018: £320,000).
5. TAX ON ORDINARY ACTIVITIES
2019 2018
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
UK corporation tax at 19.00% (2018: 19.00%) - - - - - -
Tax receivable - - - - - -
- - - - - -
Profit before tax 2,356 11,172 13,528 2,806 (21,518) (18,712)
Tax on profit at standard rate 448 2,123 2,571 533 (4,088) (3,555)
Factors affecting the recovery/charge for the year:
Income not taxable (599) - (599) (684) - (684)
Capital items not taxable - (2,136) (2,136) - 4,077 4,077
Unutilised losses carried forward 151 13 164 151 11 162
- - - - - -
No provision for deferred taxation has been made in the current year or in the
prior year. The Company has not provided for deferred tax on capital gains or
losses arising on the revaluation or disposal of investments as it is exempt from
tax on these items because of its status as an investment trust company.
Factors that may affect future tax charges
The Company has not recognised any deferred tax asset arising as a result of
having unutilised management expenses. These expenses will only be utilised if
the tax treatment of the Company's income and capital gains changes or if the
Company's investment profile changes.
6. DIVIDENDS
Amounts recognised as distributions to equity holders in the year: 2019 2018
Ordinary (Paid) £'000 £'000
Final dividend for the year ended 31st December 2018 of 21.00p per
share
(year ended 31st December 2017: 20.50p) 1,676 1,694
Interim dividend for the year ended 31st December 2019 of 10.75p per 825 843
share (year ended 31st December 2018: 10.50p)
2,501 2,537
2019 2018
£'000 £'000
Ordinary
Proposed final dividend payable for the year ended 31st December 2019 of 21.5p
per share (year ended 31st December 2018: 21.00p) 1,621 1,677
The final dividends payable are subject to approval by shareholders at the Annual
General Meeting and have not been included as a liability in these financial
statements.
Set out below is the total dividend paid and payable in respect of the financial
year, which is the basis on which the requirements of section 1158 of the
Corporation Tax Act 2010 are considered.
2019 2018
£'000 £'000
Revenue available for distribution by way of dividend for the year 2,356 2,806
Ordinary
Interim dividend for the year ended 31st December 2019 of 10.75p per share
(year ended 31st December 2018: 10.50p) (825) (843)
Proposed final dividend for the year ended 31st December 2019 of 21.5p per share
(year ended 31st December 2018: 21.00p) (1,621) (1,677)
Net addition to Revenue reserve (90) 286
7. RETURN PER SHARE
2019 2018
Income Income
£'000 £'000
Return attributable to equity shareholders:
Revenue return 2,356 2,806
Capital return 11,172 (21,518)
13,528 (18,712)
p p
Revenue return 30.2 34.5
Capital return 143.3 (264.8)
173.5 (230.3)
Return per share is calculated using the weighted average number of Ordinary
shares in issue during the year of 7,797,775.
8. INVESTMENTS
Analysis of the investments
The number of companies or institutions in which equities, convertibles or fixed
interest securities were held
was 28 (2018: 26).
EQUITY GROUPS 2019 2018
Basic Materials £'000 % £'000 %
Chemicals 19,125 12.28 17,680 11.36
Industrial Metals & Mining 1,640 1.05 - -
Industrials
General Industrials 18,922 12.15 28,697 18.44
Electronic & Electrical Equipment 2,932 1.88 952 0.61
Industrial Engineering 36,138 23.21 38,511 24.74
Support Services 29,849 19.17 28,005 17.99
Consumer Goods
Household Goods & Home Construction 3,046 1.96 - -
Food Producers 532 0.34 - -
Healthcare
Pharmaceuticals & Biotechnology 1,245 0.80 1,044 0.67
Utilities
Gas, Water & Multiutilities 1,298 0.84 1,051 0.68
AIM Traded Stocks 39,546 25.40 38,395 24.67
Delisted 2 - 2 -
Subsidiary 758 0.49 706 0.45
FIXED INTEREST
Preference 668 0.43 604 0.39
Total UK 155,701 100.00 155,647 100.00
9. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS 2019 2018
Investments listed on a recognised £'000 £'000
investment exchange
UK equity listed investments at fair value 115,395 116,544
AIM traded stocks 39,546 38,395
Delisted stock 2 2
Subsidiary undertakings (note 10) 758 706
155,701 155,647
Listed Unlisted Subsidiary Total
undertakings
2019 2019 2019
2019
£'000 £'000 £'000
£'000
Opening book cost 44,513 8,506 411 53,430
Opening unrealised appreciation 72,031 29,891 295 102,217
Opening valuation 116,544 38,397 706 155,647
Movements in the year
Transfer stock from listed to unlisted (8,407) 8,407 - -
Purchases at cost 5,134 3,537 - 8,671
Sales - proceeds (19,032) (825) - (19,857)
Sales - realised gains on sales 11,256 617 - 11,873
Increase/(decrease) in unrealised 9,900 (10,585) 52 (633)
appreciation
Closing valuation 115,395 39,548 758 155,701
Closing book cost 33,464 20,242 411 54,117
Closing unrealised appreciation 81,931 19,306 347 101,584
115,395 39,548 758 155,701
Realised gains on sales 11,256 617 - 11,873
Increase/(decrease) in unrealised 9,900 (10,585) 52 (633)
appreciation
Gains on investments 21,156 (9,968) 52 11,240
With the exception of the subsidiary and the delisted stocks, the Company's
investments are Level 1 assets under the definition of IFRS 7 and comprise equity
listed and AIM traded investments classified as held at fair value through profit
or loss.
During the year transaction costs of £53,483 were incurred on the acquisition of
investments (2018: £32,888). Costs relating to disposals of investments during
the year amounted to £nil (2018: £12,794). All transaction costs have been
included within the capital column of the Income Statement.
10. SUBSIDIARY UNDERTAKINGS
The Company has one wholly owned subsidiary undertaking:
Country of Proportion of
Name Principal incorporation and Description of nominal value of
activity operation shares held issued shares and
voting rights held
Discretionary Unit Fund
Fund Managers management England Ordinary 100%
Limited
Proportion of nominal value
Country of of issued shares
Principal incorporation Description of and voting
Name activity and operation shares held rights held
Discretionary Unit Fund Fund management England Ordinary 100%
Managers Limited
Discretionary Unit Fund Managers Limited had capital and reserves of £758,462 and
a loss of £183 for the year ended 31st December 2019.
11. SIGNIFICANT INTERESTS
The Company has a holding of 3% or more that is material in the context of the
financial statements in the
following investments as at 31st December 2019:
Name % holding
Colefax Group 23.28%
Renold 13.31%
Chamberlin 12.57%
Titon Holdings 11.41%
Macfarlane Group 10.93%
Treatt 7.17%
Elecosoft 5.50%
Scapa Group 5.15%
LPA Group 5.13%
Vp 4.48%
12. TRADE AND OTHER RECEIVABLES
2019 2018
£'000 £'000
Prepayments and accrued income 534 621
534 621
13. TRADE AND OTHER PAYABLES
2019 2018
£'000 £'000
Accruals 80 81
80 81
14. SHARE CAPITAL
2019 2018
Allotted, Called Up and Fully Paid % £'000 £'000
7,540,321 Ordinary shares of 25p each 100.0 1,885 2,002
(2018: 8,006,179)
Number of Ordinary shares 2019
Balance at beginning of year 8,006,179
Ordinary shares bought back and cancelled (465,858)
Balance at end of year 7,540,321
15. RESERVES
Capital Revaluation Revenue
Capital redemption reserve reserve reserve
reserve £'000
£'000 £'000 £'000
Beginning of year 253 61,984 102,217 3,119
Ordinary shares bought back and 117 (9,047) - -
cancelled
Decrease in unrealised - - (633) -
appreciation
Net gains on realisation of - 11,873 - -
investments
Capital expenses - (68) - -
Profit for year - - - 2,356
Dividends - - - (2,501)
End of year 370 64,742 101,584 2,974
The capital reserve represents those realised profits and losses arising on the
disposal of investments. The
revaluation reserve represents unrealised profits and losses arising on the
revaluation of investments held.
16. NET ASSET VALUE PER SHARE
The net asset value per Ordinary share calculated in accordance with the Articles
of Association was as follows:
Net asset value per Net asset value
Ordinary share attributable attributable
2019 2018 2019 2018
p p £'000 £'000
Ordinary shares 2275.2 2118.1 171,555 169,575
The movements during the year were as follows:
Ordinary
shares
£'000
Total net assets attributable at beginning of 169,575
year
Ordinary shares bought back and cancelled (9,047)
Total recognised gains for the year 11,172
Transfer to reserves (145)
Total net assets attributable at end of year 171,555
Number of Ordinary shares in issue 7,540,321
The Company may repurchase its own shares and then cancel them, reducing the
freely traded shares ranking for dividends and enhancing returns and earnings per
Ordinary Share to the remaining Shareholders. When the Company repurchases its
shares, it does so at a total cost below the prevailing NAV per share.
The estimated percentage added to the NAV per share from buybacks of 0.6% (2018:
0.5%) is derived from the repurchase of shares in the market at a discount to the
prevailing NAV at the point of repurchase. The shares were bought back at a
weighted average discount of 9.4% (2018: 10.8%).
2019 2018
Weighted average discount of buybacks 9.4% 10.8% a
Percentage of shares bought back 5.8% 4.4% b
NAV accretion from buyback 0.6% 0.5% (a*b)/(100%-b)
17. RELATED PARTY TRANSACTIONS
During the year the Company had the following transactions with Discretionary
Unit Fund Managers Limited,
its subsidiary undertaking:
2019 2018
£'000 £'000
Dividends received - -
- -
Amounts owed by subsidiary undertaking 78 78
18. FINANCIAL ASSETS AND LIABILITIES
The Company's financial instruments comprise securities, cash balances and
debtors and creditors that arise from its operations, for example, in respect of
sales and purchases awaiting settlement and debtors for accrued income.
The investment policy and objectives of the Company is stated on page 1.
As an investment trust, the Company invests in securities for the long term.
Accordingly it is, and has been, throughout the year under review, the Company's
policy that no short-term trading in investments or other financial instruments
shall be undertaken.
The main risks arising from the Company's financial instruments are market price
risk, liquidity risk and credit risk. The Board's policy for managing these risks
is summarised below. These policies have remained unchanged since the beginning
of the year to which these financial statements relate.
Market price risk
Market risk arises from uncertainty about future prices of financial instruments
held. It represents the potential loss the Company might suffer through holding
market positions in the face of price movements. The Board meets at least
quarterly to consider the asset allocation of the portfolio in order to minimise
the risk associated with industry sectors. The Investment Director has
responsibility for monitoring the existing portfolio selected in accordance with
the Company's investment objectives and seeks to ensure that individual stocks
meet an acceptable risk-reward profile.
The Company's exposure to changes in market prices at 31st December 2019 on its
quoted equity investments was £154,941,000 (2018: £154,939,000).
Liquidity risk
Liquidity risk is the possibility of the Company having difficulties in realising
sufficient assets to meet its financial obligations. All investments are made in
quoted securities, which are normally listed on the London Stock Exchange or AIM.
Transactions in these securities may be subject to some short-term liquidity
constraint, in common with other smaller and medium sized listed securities, but
subject to that they are considered to be reasonably realisable.
Credit risk
Credit risk is the failure of the counterparty to a transaction to discharge its
obligations which could result in the Company suffering a loss. At the year end
the Company's maximum exposure to credit risk was as follows:
2019 2018
£'000 £'000
Trade and other receivables 534 621
Cash and cash equivalents 15,322 13,310
15,856 13,931
The risk is managed by dealing only with brokers and banks who have satisfactory
credit ratings and are approved by the Audit and Compliance Committee.
Financial assets and liabilities
All assets and liabilities are included at fair value.
Valuation of financial instruments
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of inputs used in making the
measurements. The valuation techniques used by the Company are explained in the
accounting policies note 1 Investments.
The fair value hierarchy has the following levels:
Level 1 - Unadjusted prices quoted in active markets for identical assets and
liabilities.
Level 2 - Having inputs other than quoted prices included within Level 1 that are
observable for the asset or
liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3 - Having inputs for the asset or liability that are not based on
observable data.
31st December 2019 Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or £'000 £'000 £'000 £'000
loss
UK Equity Listed 115,395 - - 115,395
AIM traded stocks 39,546 - - 39,546
Delisted stock - 2 - 2
Investment in subsidiary - - 758 758
Net fair value 154,941 2 758 155,701
31st December 2018 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or
loss
UK Equity Listed 116,544 - - 116,544
AIM traded stocks 38,395 - - 38,395
Delisted stock - 2 - 2
Investment in subsidiary - - 706 706
Net fair value 154,939 2 706 155,647
There were no transfers between Level 1 and Level 2 during the
period.
A reconciliation of fair value measurements in Level 3 is set out in
the following table.
2019 2018
£'000 £'000
Opening Balance 706 706
Purchases - -
Sales - -
Total gains or losses included in gains on investments in the income
statement:
- on assets sold - -
- on assets held at year end 52 -
Closing Balance 758 706
The Level 3 investment relates to the Company's subsidiary, Discretionary Unit
Fund Managers Limited, which has been valued based of the most recent estimated
NAV.
APPENDIX - PORTFOLIO STATEMENT
Details of the 20 largest investments as at 31st December 2019 are given below by
market value:
Holdings Market Value
UK Investments 2019 2018
2019 2018
£'000 £'000
Hill & Smith Holdings 1,434,230 1,434,230 21,126 17,196
Scapa Group 8,000,000 6,250,000 19,520 19,150
Treatt 4,250,000 4,250,000 19,125 17,680
Macfarlane Group 17,250,000 17,250,000 18,199 12,248
Vp 1,800,000 1,800,000 16,920 16,920
Spirax-Sarco Engineering 120,714 120,714 10,731 7,514
Colefax Group 2,100,000 2,250,000 8,820 12,375
Electrocomponents 1,300,000 1,300,000 8,757 6,586
Renold 30,000,000 27,000,000 5,100 7,560
Vitec Group 400,000 400,000 4,280 4,740
Menzies (John) 882,142 882,142 4,173 4,499
Elecosoft 4,520,781 4,520,781 3,526 3,029
Bellway 80,000 - 3,046 -
Morgan Advanced Materials 750,000 - 2,377 -
Castings 400,000 400,000 1,640 1,500
Titon Holdings 1,265,000 1,265,000 1,518 2,277
National Grid 137,500 137,500 1,298 1,051
GlaxoSmithKline 70,000 70,000 1,245 1,044
Discretionary Unit Fund Managers 93,600 93,600 758 706
Low & Bonar 6,000,000 6,000,000 723 816
152,882 136,891
Balance held in other investments 2,819 18,756
155,701 155,647
Unless otherwise specified, the actual holdings are, in each case, of ordinary
shares or stock units and of the nominal value for which listing has been
granted.
END
═════════════════════════════════════════════════════════════════════════════════
ISIN: GB0007392078
Category Code: ACS
TIDM: RIII
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 48444
EQS News ID: 982163
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
6 fncls.ssp?fn=show_t_gif&application_id=982163&application_name=news&site_id=reuters8
References
Visible links
1. https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=e6c6ebf4890a652b5a7cd36a140bd9ea&application_id=982163&site_id=reuters8&application_name=news
2. https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=dcf67e2212e6e0184a3b611390636426&application_id=982163&site_id=reuters8&application_name=news
3. https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=dcf67e2212e6e0184a3b611390636426&application_id=982163&site_id=reuters8&application_name=news
4. https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=8e43113e6044d5daa5f26220575fb5c0&application_id=982163&site_id=reuters8&application_name=news
5. https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=2a8b2b2dde1a303e74ceee7106f45d38&application_id=982163&site_id=reuters8&application_name=news
============Recent news on Rights and Issues Investment Trust
See all newsREG - Rights and Issues IT - Net Asset Value(s)
AnnouncementREG - Rights and Issues IT - Transaction in Own Shares
AnnouncementREG - Rights and Issues IT - Net Asset Value(s)
AnnouncementREG - Rights and Issues IT - Net Asset Value(s)
AnnouncementREG - Rights and Issues IT - Net Asset Value(s)
Announcement