TIDMFHI TIDMFHIU TIDMFHIB
RNS Number : 8343F
F&C UK High Income Trust PLC
22 May 2017
To: RNS
From: F&C UK High Income Trust plc
Date: 22 May 2017
Results for the year ended 31 March 2017
-- A share price total return per share for the year was 21.8
per cent, compared to the FTSE All-Share Capped 5% Index total
return of 21.8 per cent.
-- B share price total return per share for the year was 19.7
per cent, compared to the FTSE All-Share Capped 5% Index total
return of 21.8 per cent.
-- Distribution yield of 4.5 per cent on A shares and B shares
at 31 March 2017, based on total distributions for the financial
year of 4.72p per share, compared to the yield on the FTSE
All-Share Capped 5% Index of 3.4 per cent. Total distributions
increased by 2.6% compared to the prior year.
-- Net asset value total return per share for the year was 20.8
per cent, compared to the FTSE All-Share Capped 5% Index total
return of 21.8 per cent.
Chairman's Statement as follows:
Performance
For the Company's financial year ended 31 March 2017, the share
price total return for the A shares and the B shares was 21.8% and
19.7% respectively.
The past year has been a good one for financial markets despite
a background of political upheaval across many developed economies.
In the UK, it quickly became evident that fears of a post-Brexit
economic rout were unfounded. After some early weakness, the UK
Equity market regained its composure and went on to end the
financial year close to all-time record high levels, supported by
improving economic news, the beneficial impact of a weak pound and
the pro-business rhetoric of the incoming US administration. The
Company's net asset value total return for both the A shares and B
shares over the financial year was 20.8%, marginally behind the
21.8% total return from the Company's benchmark, the FTSE All-Share
Capped 5% Index.
The principal contributors to the performance and additional
information is covered in more detail in the Manager's Review in
the Annual Report.
As the Company is intended as a long-term investment vehicle, it
does not have a fixed life. However, in the event that the net
asset value total return performance of the Company is less than
that of the benchmark index over the relevant five year period,
shareholders are given the opportunity to vote on whether the
Company should continue, by ordinary resolution, at the Company's
Annual General Meeting.
The latest five year period for this purpose ran from 1 April
2012 to 31 March 2017. Over this period, the Company outperformed
its benchmark index. The NAV per share total return was 62.1% which
compares favourably with the 60.2% total return from the benchmark.
Under the Company's constitution, this outperformance means that
there will not be a vote at the 2017 annual general meeting on
whether the Company should continue.
The next such performance period will run for the five years
from 1 April 2017 to 31 March 2022.
The Company's longer-term performance is shown within the Key
Performance Indicators in the Annual Report. The NAV total return
has outperformed the benchmark index over 5 years to 31 March 2017
and from launch to 31 March 2017.
Earnings, Dividends and Capital Repayments
The Company achieved net income of GBP4.6m for the year which
was in line with the previous year.
Over the past year, Sterling has fallen in value against the US
dollar which benefits the Company's revenue as over a third of the
Company's equity income comes from UK-listed companies that declare
dividends in US dollars. The majority of investee companies have
continued to generate good growth in dividends during the year.
However, against a backdrop of anaemic global economic growth and
weak commodity prices, several of the higher yielding more mature
businesses, such as HSBC and Royal Dutch Shell have seen
profitability come under pressure, dividend cover erode and have
therefore chosen to maintain, rather than increase their dividends.
A number of these higher-yielding holdings have been reduced during
the year, the overall impact of which is to maintain income at
broadly the same level as the previous year.
For each of the Company's first three quarters, the dividends
paid on the A shares and capital repayments on the B shares were
1.17p per share. A fourth quarter dividend and a capital repayment
of 1.21p per share was paid to A shareholders and B shareholders
respectively, after the year end, on 5 May 2017.
The total dividend/capital repayment in respect of the year
ended 31 March 2017 amounted to 4.72p per share, an increase of
2.6% on the previous year and ahead of the 2.3% increase in the
Consumer Price Index.
The total dividend/capital repayment for the year represents a
yield of 4.5% on both the A and B year end share prices, a premium
of around 30% to the 3.4% yield from the Company's benchmark at
that date.
After deducting the fourth quarter dividend, (which was paid
after the year-end), the Company has a revenue reserve of GBP4.7m
equivalent to approximately 115% of the current annual dividend
cost. This revenue reserve affords the Company the ability to
sustain the level of dividend payments if a more difficult
environment develops.
Borrowing
The Company currently has a GBP18 million loan facility for a
term to 28 September 2017 at a fixed rate of interest of 3.15% per
annum. The Board intends to secure further borrowing at an
appropriate level.
Discount and buy backs
The share price of the Company's A shares and B shares ended the
year at a discount to net asset value of 6.4% and 6.1%
respectively. The average discount level at which the Company's A
and B shares traded relative to net asset value in the year was
7.4% and 7.1% respectively.
During the year, the Company bought back 2,000,000 A shares and
450,000 B shares, representing 2.2% and 1.4% of the A shares and B
shares respectively, in issue at the previous year end. The shares
were bought back in line with the Company's stated policy, which is
to repurchase shares of either class, at the Directors' discretion,
when there are net sellers and the market price stands at a
discount to net asset value of 5 per cent or more. The price paid
for these A shares and B shares represented discounts of
approximately 8.3% and 7.7% respectively, to the prevailing net
asset value at the time of purchase.
Investment Policy
In order to meet the Company's investment objective, since
launch, its investment portfolio has been managed in two parts. The
first part comprises investments in UK equities and equity related
securities (the Equities Portfolio) and the second part comprises
investments in fixed interest and other higher yielding securities
(the Higher Yield Portfolio). As referred to in my interim
statement there has been a continued reduction in assets allocated
to the Higher Yield Portfolio in light of the low level of yields
available on corporate bonds, particularly higher quality,
investment grade corporate bonds.
At 31 March 2017, 89.0% of total assets was allocated to the
Equities Portfolio and 1.9% to the Higher Yield Portfolio. The
remaining 9.1% was held in cash or cash equivalents.
Following a strategic review, the Board has concluded that it
would be beneficial to remove the Higher Yield Portfolio from the
Company's Investment Policy thereby simplifying the Company's
overall structure. The Board is proposing at the Annual General
Meeting that shareholders approve the requisite amendment to the
Investment Policy.
The Board believes that this change will enhance the
attractiveness of the Company by simplifying the Company's
structure and focusing your Manager on an all equity offering for
the benefit of all shareholders.
New Fund Manager
Shortly after the year end we announced, that having
successfully achieved the five year performance hurdle, noted
earlier, Rodger McNair, the Company's Fund Manager had indicated
his intention to step down from this role and that Philip Webster
would succeed Rodger as your Fund Manager. Philip has worked
closely with Rodger since joining F&C from Aberdeen Asset
Management in May 2016 and is a senior member of the F&C
investment team with 11 years' experience in managing investment
companies. The Board believes that he is very well suited to the
role and therefore to continue the delivery of strong investment
performance for the Company. I would like to take this opportunity
to thank Rodger for his careful stewardship of the Company's
investments since launch, which included some difficult and
turbulent markets.
I look forward to introducing Philip to Shareholders at the
forthcoming Annual General Meeting.
Name changes
The Company's investment objective is to provide an attractive
return to shareholders in the form of dividends and/or capital
repayments, together with prospects for capital growth.
As such, with effect from 31 January 2017, the Board resolved to
change the name of the Company to F&C UK High Income Trust plc.
The Board considers that this name more clearly reflects the
Company's investment objective, enabling both current and
prospective shareholders to identify more easily with the
Company.
The Board is also proposing to change the name of the Company's
A shares to Ordinary shares to clarify their nature and a
resolution to amend the Company's Articles to implement this change
will be proposed at the Annual General Meeting.
Board changes
Mr Kenneth Shand will retire as a Director of the Company
following the conclusion of the Annual General Meeting on Thursday
29 June 2017. He has served as a Director since the Company's
launch in 2007 and was a Director of the predecessor company, the
original Investors Capital Trust plc. I would like to thank Kenneth
for the contribution he has provided as a Director over many
years.
The Board has begun the process of recruiting a new Director to
replace Kenneth and an announcement in this regard will be made in
due course.
Following the retirement of Kenneth Shand, James Williams will
become Senior Independent Director and chairman of the Remuneration
Committee.
Annual General Meeting ("AGM")
The AGM will be held at 2pm on Thursday 29 June 2017 in the
offices of BMO Global Asset Management, Exchange House, Primrose
Street, London. It will be followed by a presentation from our new
Fund Manager Philip Webster. This is a good opportunity for
shareholders to meet the Board and the Fund Manager and I would
encourage you to attend.
Outlook
The past year has been witness to some profound political
developments. The surge in populist, nationalist and
anti-establishment sentiment has disrupted the political order
across many western developed economies. Despite a series of
shocks, not least Brexit and a Donald Trump presidency, the health
of the global economy appears to be improving, possibly signaling
that the era of unconventional central bank policy stimulus may be
drawing to a close. Against a background of elevated political and
policy uncertainty, it is encouraging that corporate sector
fundamentals remain reasonably sound. Stock selection will remain
especially important in the year ahead.
Iain McLaren
Chairman
19 May 2017
For further information, please contact:
Philip Webster
Fund Manager to F&C UK High Income Trust plc Tel: 0207 628 8000
Ian Ridge
For F&C Investment Business Limited
Company Secretary to F&C UK High Income Trust plc Tel: 0207 628 8000
Consolidated Statement of Comprehensive Income (audited)
Year to 31 March
2017
Note Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------ ----- -------- --------- ---------
Capital gains on investments
Gains on investments held
at fair value through
profit or loss - 20,184 20,184
Exchange differences - (545) (545)
Revenue
Investment income 5,447 - 5,447
Total income 5,447 19,639 25,086
------------------------------ ----- -------- --------- ---------
Expenditure
Investment management
fee (287) (670) (957)
Other expenses (397) - (397)
Total expenditure (684) (670) (1,354)
------------------------------ ----- -------- --------- ---------
Profit before finance
costs and tax 4,763 18,969 23,732
Finance costs
Interest on bank loan (178) (415) (593)
Total finance costs (178) (415) (593)
------------------------------ ----- -------- --------- ---------
Profit before tax 4,585 18,554 23,139
Tax - - -
------------------------------ ----- -------- --------- ---------
Profit for the year 4,585 18,554 23,139
------------------------------ ----- -------- --------- ---------
Total comprehensive income
for the year 4,585 18,554 23,139
------------------------------ ----- -------- --------- ---------
Earnings per share 2 3.82p 15.48p 19.30p
------------------------------ ----- -------- --------- ---------
Consolidated Statement of Comprehensive Income (audited)
Year to 31 March
2016
Note Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------- ----- -------- ---------- ----------
Capital losses on investments
Losses on investments
held at fair value through
profit or loss - (6,640) (6,640)
Exchange differences - (325) (325)
Revenue
Investment income 5,424 - 5,424
Total income 5,424 (6,965) (1,541)
------------------------------- ----- -------- ---------- ----------
Expenditure
Investment management
fee (267) (623) (890)
Other expenses (408) - (408)
Total expenditure (675) (623) (1,298)
------------------------------- ----- -------- ---------- ----------
Profit/(loss) before finance
costs and tax 4,749 (7,588) (2,839)
Finance costs
Interest on bank loan (178) (416) (594)
Total finance costs (178) (416) (594)
------------------------------- ----- -------- ---------- ----------
Profit/(loss) before tax 4,571 (8,004) (3,433)
Tax - - -
------------------------------- ----- -------- ---------- ----------
Profit/(loss) for the
year 4,571 (8,004) (3,433)
------------------------------- ----- -------- ---------- ----------
Total comprehensive income
for the year 4,571 (8,004) (3,433)
------------------------------- ----- -------- ---------- ----------
Earnings per share 2 3.74p (6.55)p (2.81)p
------------------------------- ----- -------- ---------- ----------
Balance Sheets (audited)
as at 31 March
2017 2016
Company Group Company Group
Note GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----- ---------- ---------- ---------- ----------
Non-current assets
Investments held
at fair value through
profit or loss 136,291 136,041 127,855 127,605
--------------------------- ----- ---------- ---------- ---------- ----------
Current assets
Receivables 979 979 1,690 1,690
Cash and cash equivalents 12,982 12,982 7,264 7,264
--------------------------- ----- ---------- ---------- ---------- ----------
13,961 13,961 8,954 8,954
--------------------------- ----- ---------- ---------- ---------- ----------
Total assets 150,252 150,002 136,809 136,559
--------------------------- ----- ---------- ---------- ---------- ----------
Current liabilities
Payables (603) (353) (2,281) (2,031)
Bank loan (18,000) (18,000) - -
--------------------------- ----- ---------- ---------- ---------- ----------
(18,603) (18,353) (2,281) (2,031)
--------------------------- ----- ---------- ---------- ---------- ----------
Non-current liabilities
Bank loan - - (18,000) (18,000)
- - (18,000) (18,000)
--------------------------- ----- ---------- ---------- ---------- ----------
Total liabilities (18,603) (18,353) (20,281) (20,031)
--------------------------- ----- ---------- ---------- ---------- ----------
Net assets 131,649 131,649 116,528 116,528
--------------------------- ----- ---------- ---------- ---------- ----------
Share capital 134 134 134 134
Share premium 153 153 153 153
Capital redemption
reserve 5 5 5 5
Buy back reserve 82,711 82,711 85,092 85,092
Special capital
reserve 19,589 19,589 21,058 21,058
Capital reserves 23,273 23,273 4,719 4,719
Revenue reserve 5,784 5,784 5,367 5,367
--------------------------- ----- ---------- ---------- ---------- ----------
Equity shareholders'
funds 131,649 131,649 116,528 116,528
--------------------------- ----- ---------- ---------- ---------- ----------
Net asset value
per A share 7 111.19p 111.19p 96.42p 96.42p
Net asset value
per B share 7 111.19p 111.19p 96.42p 96.42p
The Company's profit for 2017 was GBP23,139,000 (2016: loss
GBP3,433,000).
Consolidated and Company Cash Flow Statement (audited)
for the year to 31 March
Year to Year to
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------- ----------- ----------
Cash flows from operating
activities
Profit/(loss) before tax 23,139 (3,433)
Adjustments for:
(Gains)/losses on investments
held at fair value through
profit or loss (20,184) 6,640
Exchange differences 545 325
Interest income (21) (29)
Interest received 21 29
Investment interest (426) (761)
Investment interest received 587 806
Dividend income (5,000) (4,626)
Dividend income received 4,958 4,565
Increase in receivables (10) (2)
Increase in payables 15 1
Purchases of investments (25,097) (17,540)
Sales of investments 36,456 20,510
Finance costs 593 594
--------------------------------- ----------- ----------
Net cash inflow from operating
activities 15,576 7,079
--------------------------------- ----------- ----------
Cash flows from financing
activities
Dividends paid on A shares (4,168) (4,126)
Capital returns paid on B
shares (1,469) (1,466)
Interest on bank loan (593) (594)
Shares purchased for treasury (3,056) (658)
Net cash outflow from financing
activities (9,286) (6,844)
--------------------------------- ----------- ----------
Net increase in cash and
cash equivalents 6,290 235
Currency losses (572) (280)
Opening net cash and cash
equivalents 7,264 7,309
--------------------------------- ----------- ----------
Closing net cash and cash
equivalents 12,982 7,264
--------------------------------- ----------- ----------
Consolidated and Company Statement of Changes in Equity
(audited)
for the year to 31 March 2017
Capital Capital
Capital Buy Special Reserve Reserve
Share Share Redemption Back Capital - - Revenue
Capital Premium Reserve Reserve Reserve Investments Investments Reserve Total
sold held
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
Balance as at
1
April 2016 134 153 5 85,092 21,058 (14,777) 19,496 5,367 116,528
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
Total
comprehensive
income for the
year
Profit for the
year - - - - - 4,867 13,687 4,585 23,139
Total
comprehensive
income for
the year - - - - - 4,867 13,687 4,585 23,139
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
Transactions
with
owners of the
Company
recognised
directly
in equity
Shares bought
back
for treasury - - - (2,381) - - - - (2,381)
Dividends paid
on
A shares - - - - - - - (4,168) (4,168)
Capital
returns
paid on B
shares - - - - (1,469) - - - (1,469)
Balance as at
31
March 2017 134 153 5 82,711 19,589 (9,910) 33,183 5,784 131,649
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
Consolidated and Company Statement of Changes in Equity
(audited)
for the year to 31 March 2016
Capital Capital
Capital Buy Special Reserve Reserve
Share Share Redemption Back Capital - - Revenue
Capital Premium Reserve Reserve Reserve Investments Investments Reserve Total
sold held
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
Balance as at
1
April 2015 134 153 5 86,425 22,524 (15,844) 28,567 4,922 126,886
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
Total
comprehensive
income for the
year
Profit/(loss)
for
the year - - - - - 1,067 (9,071) 4,571 (3,433)
Total
comprehensive
income for
the year - - - - - 1,067 (9,071) 4,571 (3,433)
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
Transactions
with
owners of the
Company
recognised
directly
in equity
Shares bought
back
for treasury - - - (1,333) - - - - (1,333)
Dividends paid
on
A shares - - - - - - - (4,126) (4,126)
Capital
returns
paid on B
shares - - - - (1,466) - - - (1,466)
Balance as at
31
March 2016 134 153 5 85,092 21,058 (14,777) 19,496 5,367 116,528
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
F&C UK High Income Trust plc
Principal Risks and Viability Statement
In accordance with the Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting, issued by the
Financial Reporting Council, the Board has established an ongoing
process for identifying, evaluating and managing the significant
risks faced by the Company. It has also regularly reviewed the
effectiveness of the Company's risk management and internal control
systems for the period.
The principal risks and uncertainties faced by the Company, and
the Board's mitigation approach are described below.
Financial Risk.
The Company's assets consist mainly of listed equity and fixed
interest securities and its principal risks are therefore
market-related and include market risk (comprising currency risk,
interest rate risk and other price risk), liquidity risk and credit
risk.
Mitigation:
An explanation of these risks and the way in which they are
managed are contained in the notes to the accounts. The Board
regularly considers the composition and diversification of the
Equity and Higher Yield Portfolios together with purchases and
sales of investments. Investments and markets are discussed with
the Manager and a Strategy meeting is held annually.
Investment and strategic risk.
Incorrect strategy, asset allocation, stock selection,
inappropriate capital structure, insufficient monitoring of costs,
failure to maintain an appropriate level of discount/premium and
the use of gearing could all lead to poor returns for
shareholders.
Mitigation:
The Equity and Higher Yield Portfolios are diversified and
comprise listed securities and their composition are reviewed
regularly with the Board. The investment policy and performance
against peers and benchmark are considered by the Board at each
meeting. A separate Board meeting is also held each year to
consider strategic issues. Marketing intelligence is maintained via
the Company's Broker and the effectiveness of the marketing
strategy is also reviewed at each meeting. The Manager also meets
with major shareholders. The Board regularly considers operating
costs combined with underlying dividend income from portfolio
companies and the consequent dividend paying capacity of the
Company.
Regulatory.
Breach of regulatory rules could lead to the suspension of the
Company's Stock Exchange listing, financial penalties, or a
qualified audit report. Breach of section 1158 of the Corporation
Tax Act 2010 could lead to the Company being subject to tax on
capital gains. Changes to tax regulations could alter the market
competitiveness of the Company's B Shares.
Mitigation:
The Board liaises with advisors to ensure compliance with laws
or regulations. F&C's Business Risk department provide regular
reports to the Board and Audit Committee on their monitoring and
oversight. The Board has access to F&C's Head of Business Risk
and requires any significant issues directly relevant to the
Company to be reported immediately.
Operational.
Failure of the Manager's systems or disruption to its business,
or that of an outsourced or third party service provider, could
lead to an inability to provide accurate reporting and monitoring
or a misappropriation of assets leading to a potential breach of
the Company's investment mandate or loss of shareholders'
confidence. External cyber attacks could cause such failure or
could lead to the loss or sabotage of data.
Mitigation:
The Board meets regularly with the management of F&C and
meets their Risk Management team to review internal control and
risk reports which includes oversight of third party service
providers. The Manager's appointment is reviewed annually. The
contract can be terminated with six months' notice. The Manager now
benefits from the long-term financial strength and policies of its
new owner, Bank of Montreal, and through its stated commitment to
the future of F&C's investment trust management business. The
Manager continues to strengthen and develop its Risk, Compliance
and Internal Control functions as part of the integration of its
operations with Bank of Montreal including IT security. Supervision
of third party service providers has been maintained by F&C and
includes the review of IT security and cyber threat.
Custody Risk.
Safe custody of the Company's assets may be compromised through
control failures by the custodian.
Mitigation:
The Board receives quarterly reports from the Depositary
confirming safe custody of the Company's assets and cash and
holdings are reconciled to the Custodian's records. The Custodian's
internal controls reports are also reviewed by the Manager and key
points reported to the Audit Committee. The Depositary is
specifically liable for loss of any of the Company's securities and
cash held in custody.
Viability assessment and statement
In accordance with the UK Corporate Governance Code, the Board
is required to assess the future prospects for the Company, and has
considered that a number of characteristics of its business model
and strategy were relevant to this assessment:
-- The Board looks to long-term outperformance rather than short-term opportunities.
-- The Company's investment objective, strategy and policy,
which are subject to regular Board monitoring, mean that the
Company is invested mainly in liquid listed securities and that the
level of borrowing is restricted.
-- The Company is a closed-end investment trust, whose shares
are not subject to redemptions by shareholders.
-- Subject to shareholder continuation votes, in the event that
the net asset value total return performance of the Company is less
than that of the FTSE All-Share Capped 5% Index over the relevant
five year period, the Company's business model and strategy is not
time limited.
Also relevant were a number of aspects of the Company's
operational arrangements:
-- The Company retains title to all assets held by the Custodian
under the terms of the formal agreement with the Custodian and
Depositary.
-- The borrowing facility, which remains available until
September 2017, is also subject to a formal agreement, including
financial covenants with which the Company complied in full during
the year.
-- Revenue and expenditure forecasts are reviewed by the Directors at each Board Meeting.
-- Cash is held with banks approved and regularly reviewed by the Manager.
In considering the viability of the Company, the Directors
carried out a robust assessment of the principal risks and
uncertainties which could threaten the Company's objectives and
strategy, future performance, liquidity and solvency. These risks,
their mitigations and the processes for monitoring them are set out
above within Principal Risks and in the Report of the Audit
Committee and in Note 21 on the accounts within the Annual
Report.
The Directors have also considered:
-- the level of ongoing charges incurred by the Company which
are modest and predictable and total 1.11% of average net
assets,
-- future revenue and expenditure projections,
-- the Company's borrowing and liquidity in the context of the
fixed rate loan which is due to mature in September 2017 and that
the Board does not anticipate any difficulty either extending or
replacing this with an appropriate level of borrowing,
-- its ability to meet liquidity requirements given the
Company's investment portfolio consists mainly of listed equity and
fixed interest securities which can be realised to meet liquidity
requirements if required,
-- the ability to undertake share buybacks if required,
-- the effect of significant future falls in investment values
and the ability to maintain dividends and capital repayments.
These matters were assessed over a five year period to May 2022,
and the Board will continue to assess viability over five year
rolling periods, taking account of severe but plausible scenarios.
A rolling five year period represents the horizon over which the
Directors believe they can form a reasonable expectation of the
Company's prospects, balancing the Company's financial flexibility
and scope with the current outlook for longer-term economic
conditions affecting the Company and its shareholders.
Based on their assessment, and in the context of the Company's
business model, strategy and operational arrangements set out
above, the Directors have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the five year period to May 2022.
Statement of Directors' Responsibilities in Respect of the
Financial Statements
In accordance with Chapter 4 of the Disclosure and Transparency
Rules, the Directors confirm, in respect of the Annual Report and
accounts for the year ended 31 March 2017 of which this statement
of results is an extract, that to the best of their knowledge:
-- the financial statements contained within the Annual Report
have been prepared in accordance with applicable International
Financial Reporting Standards as adopted by the European Union, and
give a true and fair view of the assets, liabilities, financial
position and return of the Group and the undertakings included in
the consolidation taken as a whole;
-- the Strategic Report (comprising the Chairman's Statement,
Business Model, Strategy and Policies, Key Performance Indicators,
Manager's Review, Classification of Investments, Equities Portfolio
and Principal Risks and Viability Statement) and the Report of the
Directors include a fair review of the development and performance
of the business and the position of the Group and the undertakings
included in the consolidation taken as a whole together with a
description of the principal risks that they face;
-- taken as a whole, the annual report and accounts are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the performance, business model and
strategy of the Group;
-- the financial statements include details on related party transactions; and
-- having assessed the principal risks and other matters
discussed in connection with the Viability Statement, it is
appropriate to adopt the going concern basis in preparing the
financial statements.
On behalf of the Board
Iain McLaren
Chairman
19 May 2017
Notes (audited)
1. The financial statements of the Group which are the
responsibility of, and were approved by, the Board on 19 May 2017,
have been prepared in accordance with the Companies Act 2006,
International Financial Reporting Standards ("IFRS"), which
comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB"), and
International Accounting Standards 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.
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment trusts issued by the
Association of Investment Companies ("AIC") in November 2014 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.
2. The Company's earnings per share are based on the profit for
the year of GBP23,139,000 (year to 31 March 2016 loss:
GBP3,443,000) and on 88,644,856 A shares (2016: 90,263,253) and
31,262,045 B shares (2016: 31,887,076), being the weighted average
number of shares in issue of each share class during the year.
The Company's revenue earnings per share are based on the
revenue profit for the year of GBP4,585,000 (year to 31 March 2016:
GBP4,571,000) and on the weighted average number of shares in issue
as above.
The Company's capital earnings per share are based on the
capital profit for the year of GBP18,554,000 (year to 31 March 2016
loss: GBP8,004,000) and on the weighted average number of shares in
issue as above.
3. The Group results comprise those of the Company and those of
Investors Securities Company Limited, a wholly owned subsidiary
which is dormant.
4. The fourth interim dividend of 1.21p per A share, was paid on
5 May 2017 to A shareholders on the register at close of business
on 7 April 2017, having an ex-dividend date of 6 April 2017. The
fourth capital repayment of 1.21p per B share was paid on 5 May
2017 to B shareholders on the register on 7 April 2017.
5. The Company has drawn down an GBP18 million term loan
facility with a five year term to 28 September 2017. The term loan
with JPMorgan Chase Bank is currently secured on investments and
cash held by JPMorgan Chase Bank as custodian which constitutes the
majority of the assets of the Company. The term loan carries
interest at a fixed rate of 3.15 per cent per annum payable
quarterly in arrears. An administration fee of GBP18,000 is payable
annually in addition.
The term loan contains certain financial covenants with which
the Company must comply. These include a financial covenant to the
effect that the percentage of the total amounts drawn down under
the term loan (together with any other borrowings) should not
exceed 45 per cent of the Company's Eligible Total Secured Assets.
The Company complied with the required financial covenants
throughout the period since drawdown.
The fair value of the fixed rate GBP18 million term loan, on a
marked to market basis, was GBP18,078,000 at 31 March 2017 (2016:
GBP18,156,000).
6. During the year the Company bought back 2,000,000 (2016:
850,000) A Shares to hold in treasury at a cost of GBP1,941,000
(2016: GBP758,000) and 450,000 (2016: 650,000) B Shares to hold in
treasury at a cost of GBP440,000 (2016: GBP575,000). The Company
did not buy back any shares for cancellation during the year (2016:
nil).
At 31 March 2017 the Company held 14,639,000 (2016: 12,639,000)
A Shares and 1,100,000 (2016: 650,000) B Shares in treasury.
7. The Company's basic net asset value per share of 111.19p
(2016: 96.42p) is based on the equity shareholders' funds of
GBP131,649,000 (2016: GBP116,528,000) and on 118,404,847 equity
shares, consisting of 87,428,144 A Shares and 30,976,703 B Shares
(2016: 120,854,847 equity shares, consisting of 89,428,144 A Shares
and 31,426,703 B Shares), being the number of shares in issue at
the year end.
The Company's shares may also be traded as units, each unit
consisting of three A Shares and one B Share. The basic net asset
value per unit as at 31 March 2017 was therefore 444.76p (2016:
385.68p).
The Company's treasury net asset value per share, incorporating
the 14,639,000 A Shares and 1,100,000 B Shares held in treasury at
the year end (2016: 12,639,000 A Shares and 650,000 B Shares), was
110.54p (2016: 95.95p). The Company's treasury net asset value per
unit at the end of the year was 442.15p (2016: 383.80p). The
Company's policy is to only re-sell shares held in treasury at a
price representing a discount of not more than 5 per cent to net
asset value at the time of sale, together with other conditions.
Accordingly, for the purpose of the calculation, such treasury
shares are valued at the higher of net asset value less 5 per cent
and the mid market share price at each year end.
8. Financial Instruments
The Company's financial instruments comprise equity and fixed
interest investments, cash balances, receivables and payables that
arise directly from its operations and borrowings. As an investment
trust the Company holds a portfolio of financial assets in pursuit
of its investment objective. The Company makes use of borrowings to
achieve enhanced returns. The downside risk of borrowings can be
mitigated by raising the level of cash balances held.
The Company may use derivatives for efficient portfolio
management from time to time. The only derivatives used in the year
were forward foreign exchange currency contracts to hedge currency
movements. These were also used in the prior year. The Company may
also write call options over some investments held in the Equities
Portfolio. There were no call options written during the current
year or prior year.
Apart from the fair value of the fixed-rate term loan as
disclosed in note 5, the fair value of the financial assets and
liabilities of the Company at 31 March 2017 is not materially
different from their carrying value in the financial
statements.
The Company is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, market price risk, liquidity risk, interest rate risk
and foreign currency risk.
The Board reviews and agrees policies for managing its risk
exposure. These policies are summarised below and have remained
unchanged for the year under review.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company.
The Company's principal financial assets are bank balances and
cash, other receivables and fixed interest investments, whose
carrying amounts in the balance sheet represent the Company's
maximum exposure to credit risk in relation to financial assets.
The Company did not have any exposure to any financial assets which
were past due or impaired at the current or prior year end.
The Company is exposed to potential failure by counterparties to
deliver securities for which the Company has paid, or to pay for
securities which the Company has delivered. A list of pre-approved
counterparties used in such transactions is maintained and
regularly reviewed by the Manager, and transactions must be settled
on a basis of delivery against payment. Broker counterparties are
selected based on a combination of criteria, including credit
rating, balance sheet strength and membership of a relevant
regulatory body. Risk relating to unsettled transactions is
considered to be small due to the short settlement period involved
and the acceptable quality of the brokers used. The rate of default
in the past has been insignificant.
All of the assets of the Company, other than the dealing
subsidiary, are held by JPMorgan Chase Bank, the Company's
custodian. Bankruptcy or insolvency of the custodian may cause the
Company's rights with respect to the securities held by the
custodian to be delayed or limited. The Board monitors the
Company's risk by reviewing the custodian's internal control
reports.
The credit risk on liquid funds and derivative financial
instruments is limited because the counterparties are banks with
high credit ratings, normally rated A or higher, assigned by
international credit rating agencies. Bankruptcy or insolvency of
such financial institutions may cause the Company's ability to
access cash placed on deposit to be delayed, limited or lost. The
Company has no significant concentration of credit risk with
exposure spread over a number of counterparties and financial
institutions.
Market price risk
The fair value of equity and other financial securities held in
the Company's portfolio fluctuates with changes in market prices.
Prices are themselves affected by movements in currencies and
interest rates and by other financial issues, including the market
perception of future risks. Other external events such as
protectionism, inflation or deflation, economic recessions and
terrorism could also affect share prices in particular markets. The
Group's strategy for the management of market price risk is driven
by the Company's investment policy. The Board sets policies for
managing this risk and meets regularly to review full, timely and
relevant information on investment performance and financial
results. The management of market price risk is part of the fund
management process and is typical of equity and fixed interest
investment. The portfolio is managed with an awareness of the
effects of adverse price movements through detailed and continuing
analysis with an objective of maximising overall returns to
shareholders. Investment and portfolio performance are discussed in
more detail in the Manager's Review in the Annual Report.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments. The risk of the Company not having
sufficient liquidity at any time is not considered by the Board to
be significant, given the liquid nature of the portfolio of
investments and the level of cash and cash equivalents ordinarily
held. However, where there has been a deterioration in credit
quality or an event of default the Company may not be able to
liquidate quickly, at fair value, some of its investments in the
Higher Yield Portfolio. Cash balances are held with a spread of
reputable banks with a credit rating of normally A or higher,
usually on overnight deposit. The Manager reviews liquidity at the
time of making each investment decision. The Board reviews
liquidity exposure at each meeting.
In certain circumstances, the terms of the Company's bank loan
entitle the lender to demand early repayment and, in such
circumstances, the Company's ability to maintain dividend levels
and the net asset value attributable to equity shareholders could
be adversely affected. Such early repayment may be required in the
event of a change of control of the Company or on the occurrence of
certain events of default which are customary for facilities of
this type. These include events of non payment, breach of other
obligations, misrepresentations, insolvency and insolvency
proceedings, illegality and a material adverse change in the
financial condition of the Company.
Interest rate risk
Some of the Company's financial instruments are interest
bearing. They are a mix of both fixed and variable rate instruments
with differing maturities. As a consequence, the Company is exposed
to interest rate risk due to fluctuations in the prevailing market
rate. The Company's exposure to floating interest rates gives
cashflow interest rate risk and its exposure to fixed interest
rates gives fair value interest rate risk.
Floating rate
When the Company retains cash balances the majority of the cash
is held in deposit accounts. The benchmark rate which determines
the interest payments received on cash balances is the bank base
rate, which was 0.25 per cent at 31 March 2017 (2016: 0.5 per
cent).
Fixed rate
Movements in the fair value of investments held in the Higher
Yield Portfolio due to a movement in the market interest rate is
viewed to form part of the market price risk. The Company's
Equities Portfolio does not contain any fixed interest or floating
rate interest assets.
The GBP18 million term loan carries a fixed interest rate of
3.15 per cent per annum.
Foreign currency risk
In order to achieve a diversified portfolio of higher yielding
securities the Company invests partly in overseas securities which
gives rise to currency risks. In the year to 31 March 2017, the
Company entered into US Dollar and Euro foreign exchange currency
contracts with a view to hedging these currency risks.
Given the policy to hedge currency risk on non-sterling
denominated assets by entering into forward foreign exchange
currency contracts, the weakening or strengthening of Sterling
against either the US Dollar or Euro would not have had a
significant net impact on the total column of the Consolidated
Statement of Comprehensive Income for either the year or the prior
year nor the net asset value as at 31 March 2017 or 31 March
2016.
9. These are not full statutory accounts in terms of Section 434
of the Companies Act 2006. The full audited annual report and
accounts for the year ended 31 March 2017 will be sent to
shareholders in May 2017 and will be available for inspection at 80
George Street, Edinburgh, the registered office of the Company. The
full annual report and accounts will be available on the website
maintained on behalf of the Company at www.fandcukhit.co.uk .
The audited accounts for the year to 31 March 2017 will be
lodged with the Registrar of Companies following the Annual General
Meeting to be held on 29 June 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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