TIDMFCI
RNS Number : 3422Q
F&C Capital & Income Inv Tst PLC
28 November 2016
Date: 28 November 2016
Contact: Julian Cane
F&C Investment Business Limited
020 7628 8000
F&C Capital and Income Investment Trust PLC
Audited Statement of Results
for the year ended 30 September 2016
Highlights
-- Total dividend of 10.30 pence per share - an increase of 2%
on prior year and the 23(rd) consecutive annual increase.
-- Over the 20 years of Julian Cane's tenure as Fund Manager,
the NAV total return per share has risen by 299.1% against a
benchmark return of 269.0%
-- NAV total return for the year of 16.6% is marginally shy of the benchmark return of 16.8%
-- Share price total return for the year was also 16.6%, with an
average premium to NAV of 2.2%.
Summary of results
30 September 2016 30 September 2015 % Change
Attributable to Shareholders
-------------------------------- ------------------- ------------------- ----------
Net asset value total return 16.6% 3.5% n/a
-------------------------------- ------------------- ------------------- ----------
Share price total return 16.6% 3.1% n/a
-------------------------------- ------------------- ------------------- ----------
Benchmark* total return 16.8% (2.3)% n/a
-------------------------------- ------------------- ------------------- ----------
Net asset value per share 281.06p 250.51p +12.2
-------------------------------- ------------------- ------------------- ----------
Revenue return per share 11.26p 10.10p +11.5
-------------------------------- ------------------- ------------------- ----------
Dividends per share 10.30p 10.10p +2.0
Share price 287.00p 256.00p +12.1
-------------------------------- ------------------- ------------------- ----------
Net asset value (GBP'000s) 272,027 236,876 +14.8
-------------------------------- ------------------- ------------------- ----------
On-going charges 0.64% 0.64% 0.0
-------------------------------- ------------------- ------------------- ----------
*FTSE All-Share Index
Chairman's Statement
Dear Shareholder,
'May you live in interesting times' is supposed to be a Chinese
curse. It is apocryphal, but its nearest analogue translates as
'Better to be a dog in a peaceful time, than to be a human in a
chaotic period.' 2016 has certainly been chaotic, but whether you
view living through it as a curse or not rather depends on your
point of view.
As we looked ahead to the year just finished, it seemed likely
to offer more of the same - ultra low interest rates, but with
quantitative easing ("QE") waning in impact on markets, greater
correlation between assets, lowish growth and relatively benign
inflation. We posited that this was mildly encouraging for equity
markets. For the first several months of the year, this is how it
played out. There was a wobble at the beginning of 2016 triggered
by the start of 'tapering' - the jargon used to explain that
interest rates were beginning to rise in the US. This spooked
markets a little, despite having been long forecast, but things
soon settled. Indeed, there has still been no further 'taper',
despite lots of speculation, and QE has been rampant in Japan, the
EU and the UK. Things then jogged along until 24 June, when the
Brexit vote threw a spanner in the works.
Several months on, we still have no clear idea of what Brexit
actually means or how it can be achieved in such a way as not to
damage the UK economy. The inevitable uncertainty which flows from
this has been most visible in the collapse of Sterling, which has
fallen around 16% against the US Dollar and 11% against the Euro
since the referendum and will lead to a spike in inflation next
year as the prices of imported goods rise. Whether this will be
enough to tip the UK economy into recession remains to be seen, but
the relatively healthy economic data which we have seen since June
are beginning to fade, and it is likely that there will be some
unpleasant shocks in our near future.
As an investor in equities, of course, your experience has been
relatively benign. Up to the end of June, your Company's Net Asset
Value ("NAV") had risen by 5.5%, compared with 8.4% for the
FTSE-All Share Index. After the vote, in the last quarter of your
Company's fiscal year, the NAV rose by 10.5% while the benchmark
rose 7.8%. The rise in the market compensated by and large for the
decline in Sterling - cushioning investors from the loss of
purchasing power.
Of course, much of the UK stock market is made up of
multinational businesses which are not especially sensitive to the
currency (or indeed to the risks of Brexit) and it is notable that
these have fared better in the 'new' world than those companies,
often at the smaller end of the scale, which are exposed mostly to
the domestic economy. Julian Cane, your portfolio manager, explains
this in greater detail in his Manager's Review.
Performance
This year, the NAV per share on a total return basis rose by
16.6%. Our primary benchmark rose by 16.8%. This is a handsome
absolute return in an uncertain time, even if marginally shy of the
benchmark. It is important to point out, though, that as a
Shareholder, you are more likely to be interested in the longer
term numbers, and here I am pleased to report that the news is
good. Over three years, , the NAV per share is up by 25.3%,
compared with 21.1% for the benchmark; over five years, it is up
75.5% compared with 68.9%; and over 20 years, it has risen by
299.1% against a benchmark return of 269.0%. Over all these periods
the share price has more or less kept pace with the NAV although,
over the longest run period, the share price total return was
313.7%. This is what you will have made had you held the shares and
reinvested your dividends throughout.
The Manager's Review has a more detailed commentary on market
movements and where our returns have come from, but although a good
number of our investments reported strong results and impressive
increases in their share prices, these weren't sufficient to beat
the benchmark overall. In summary, some of the decisions that were
good in the previous year, proved less good this year. For example,
the Oil and Mining sectors had been very weak in the year to
September 2015 and this had been positive for us as we had fairly
little exposure to those areas. However, their subsequent rebound
has been painful for our returns relative to the benchmark in
this
latest year. It wasn't that our investments did poorly, just that we didn't have enough of them.
Your Company has been geared throughout the year, with the debt
level varying between GBP20m and GBP25m. The returns generated on
the assets bought with the borrowed money have been far in excess
of the cost of the borrowing, so the gearing has been positive for
Shareholder returns over the year.
I would like to digress here for a moment to explain that I have
used the 20 year data as the start of that period corresponds
closely to the point at which Julian Cane took over as your
portfolio manager. Investment is a peculiar business and that
stretch of time encompasses booms, busts, crises and various
manifestations of market insanity. Not many managers stick to the
last in the way Julian has, and even fewer can point to a record of
adding value to what is a notorious task master of a benchmark.
Boards have come and gone as have the owners of the F&C
business. Julian has been a constant steward of the assets
throughout and it seems to me that sometimes long tenure does not
generate the respect it deserves. On the occasion of his twentieth
anniversary, therefore, I would like to record formally the
gratitude of the Board (and, I hope, the Shareholders) for a job
well done.
Income account
The Company's revenue return per share was 11.26 pence, up by
11.5% from last year. Downward pressure on corporate profits has
been a feature of the last year and has been the case for a while
now. Earnings from the FTSE All-Share Index have fallen 38.6% over
the year to September 2016, with much of this driven by the Oil and
Mining sectors. Despite this unhelpful backdrop, dividends have
remained quite robust, perhaps surprisingly, and pay-out ratios
have risen. Julian's analysis and forecasts take account of
potential cuts in dividend at a number of major UK companies, but
the effect on our portfolio is not significant. Brexit is a further
complicating factor, as many UK businesses earn their profits in US
Dollars or Euros and so have benefited from Sterling's devaluation
when reporting earnings and dividends. We expect that this will be
a rather welcome support for dividends in the year ahead.
Nevertheless, I will repeat last year's mantra, which is that many
high yielding stocks are fully valued because income is in such
short supply, and the search for sustainable and growing dividends
has become more difficult.
You might have thought that all the 'events' of the past year
would lead to spikes in market volatility, but in fact that has not
been the case. This is relevant for us because elevated volatility
has in the past allowed us to generate income from our option
writing strategy. Low volatility makes this an uphill battle as
options are cheap, meaning that writing them rarely justifies the
risks of so doing.
So far this year, the Company has paid three interim dividends
to Shareholders of 2.35 pence each, amounting to a total of 7.05
pence per share. We are proposing to pay a fourth dividend of 3.25
pence to bring the total for the year to 10.3 pence, an increase of
2.0 % on the year ago, and the 23(rd) consecutive dividend
increase. This dividend is fully covered by the revenue earnings of
11.26 pence per share.
I would emphasise the intention of the Board to offer
Shareholders a stable and growing dividend over time and that we
will use our revenue reserve, which currently stands at GBP11
million or 11.4 pence per share, to ensure that we continue to meet
this objective in circumstances where the revenue account comes
under pressure. In the year ahead, our preliminary expectations are
that our revenue account will show a similar outcome to the year
just completed.
As to costs, we have achieved an ongoing charges ratio of 0.64%,
the same as last year. We keep a very close eye on expenses as we
are conscious that for many of you, the alternative to an
investment in your Company might well be a purchase of a unit
trust, and that our charges must remain competitive with such other
forms of investment vehicle. I hope that you share the Board's view
that your Company remains a competitively priced, well managed
investment product.
Discount/Premium
Over the fiscal year, the shares have traded at an average
premium to NAV of 2.2%, in a range of +7.5% to -2.8%. This is very
similar to the relationship which has characterised the last five
years, with an average of a 2.3% premium within a range of +8.6% to
-2.8%. In order to control the level of the premium, we have issued
2,225,000 shares this year, and taken in GBP5.8 million of new
capital as a result. It is worth reiterating why this is positive
for all Shareholders: first, issuing shares at a premium is mildly
accretive for existing Shareholders (or at the very least not
dilutive); and, second, it allows the fixed costs to be spread over
a larger base and, finally, it gives the shares greater liquidity.
It also ensures those buying the shares don't pay too great a
premium to invest in your Company.
In an environment where banks offer zero interest and gilt
markets look a little threadbare, equities have increasingly been
seen by investors as a reliable source of income. Companies like
ours have benefited from this trend and the shares have traded
consistently at a premium for several years now. Nevertheless,
should this happy state end and the shares trade at a discount, we
would of course adopt the alternative policy of buying them back so
as to try to limit this.
At the Annual General Meeting in February, we will as usual be
asking for authority to issue further shares without pre-emption
rights equal to 10% of the shares in issue at the date of this
report. These can only be issued at a premium which takes into
account the need not to dilute existing Shareholders. We will also
be seeking authority to renew our authorities to buy back shares.
The Board believes these resolutions are in your interests and
urges you to support them.
Governance matters
In recent years, this has been a long section. I am pleased to
report that this year it is short. We have not faced any
significant new regulatory developments (although there are some in
the pipeline), we haven't changed the Board and your Company's even
keel has been in contrast to the seismic political developments we
have been suffering.
The Annual General Meeting will take place on 14 February 2017
in Exchange House at 11.30 am. Details are given in the annual
report. Julian will be making his customary presentation on the
investment scene, and all the Directors will be present to answer
any questions you may have.
Outlook
Normally, it is quite amusing to speculate about what might
happen in the year ahead. This year, I have to confess that I have
no idea how the economic and political chips will fall not least
given the recent election result in the US. In the world of stock
market prognostication, the gurus who hit the headlines are
invariably those who take extreme positions, while the outcome is
almost always a form of 'muddling through'. Today we face a series
of political choices which might affect the economic outlook for
the UK for many years to come. I hope that what we end up with is a
'muddle through' but it is hard to hold that view with great
confidence.
Equity markets in this country, though, will continue to benefit
from low real interest rates and a devalued currency, even as they
struggle to adjust to the likelihood of temporarily higher
inflation. It is likely to be a better environment for an investor
than for a consumer and as Julian embarks on his 21(st) year at the
helm, I wish him a fair wind and a firm hand on the tiller.
Steven Bates
Chairman
28 November 2016
Income Statement
for the year ended 30 September 2016 2015
Revenue Capital Total Revenue Capital Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------------------- --------- --------- --------- --------- --------- ---------
Gains/(losses) on investments and derivatives - 29,310 29,310 - (586) (586)
Foreign exchange gains/(losses) 31 (4) 27 (4) (48) (52)
Income 12,155 - 12,155 10,848 - 10,848
Management fee (555) (555) (1,110) (520) (520) (1,040)
Other expenses (511) (7) (518) (576) (12) (588)
--------------------------------------------------- --------- --------- --------- --------- --------- ---------
Net return before finance costs and taxation 11,120 28,744 39,864 9,748 (1,166) 8,582
Finance costs (330) (330) (660) (272) (272) (544)
--------------------------------------------------- --------- --------- --------- --------- --------- ---------
Net return on ordinary activities before taxation 10,790 28,414 39,204 9,476 (1,438) 8,038
Taxation on ordinary activities (5) - (5) (1) - (1)
--------------------------------------------------- --------- --------- --------- --------- --------- ---------
Net return attributable to Shareholders 10,785 28,414 39,199 9,475 (1,438) 8,037
--------------------------------------------------- --------- --------- --------- --------- --------- ---------
Return per share - pence 11.26 29.66 40.92 10.10 (1.53) 8.57
--------------------------------------------------- --------- --------- --------- --------- --------- ---------
The total column of this statement is the profit and loss
account of the Company.
The revenue return and capital return columns are supplementary
to this and are prepared under guidance published by the
Association of Investment Companies.
A statement of Comprehensive Income is not required as all gains
and losses of the Company have been reflected in the above
statement.
Statement of Changes in Equity
for the year
ended
30 September
2016
Share Capital Total
Share premium redemption Special Capital Revenue Shareholders'
capital account reserve reserve reserves reserve funds
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------- --------- --------- ----------- --------- --------- ---------- --------------
Balance at 30
September 2015 23,640 107,785 4,146 4,434 86,791 10,080 236,876
Movements during
the year
ended 30 September
2016
Dividends paid - - - - - (9,816) (9,816)
Ordinary shares
issued 556 5,212 - - - - 5,768
Net return attributable
to
Shareholders - - - - 28,414 10,785 39,199
------------------------- --------- --------- ----------- --------- --------- ---------- --------------
Balance at 30
September 2016 24,196 112,997 4,146 4,434 115,205 11,049 272,027
------------------------- --------- --------- ----------- --------- --------- ---------- --------------
for the year
ended
30 September
2015
Share Capital Total
Share premium redemption Special Capital Revenue Shareholders'
capital account reserve reserve reserves reserve funds
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------- --------- --------- ----------- --------- --------- ---------- --------------
Balance at 30
September 2014 22,977 101,615 4,146 4,434 88,229 9,986 231,387
Movements during
the year
ended 30 September
2015
Dividends paid - - - - - (9,381) (9,381)
Ordinary shares
issued 663 6,170 - - - - 6,833
Net return attributable
to
Shareholders - - - - (1,438) 9,475 8,037
------------------------- --------- --------- ----------- --------- --------- ---------- --------------
Balance at 30
September 2015 23,640 107,785 4,146 4,434 86,791 10,080 236,876
------------------------- --------- --------- ----------- --------- --------- ---------- --------------
Balance Sheet
at 30 September 2016 2015
GBP'000s GBP'000s
------------------------------------------------------ --------- ---------
Fixed assets
Investments 296,594 260,898
Current assets
Debtors 1,193 1,704
Creditors: amounts falling due within one
year (760) (5,726)
Net current assets/(liabilities) 433 (4,022)
------------------------------------------------------ --------- ---------
Total assets less current liabilities 297,027 256,876
------------------------------------------------------
Creditors: amounts falling due in more than one year
Loans (25,000) (20,000)
------------------------------------------------------ --------- ---------
Net assets 272,027 236,876
------------------------------------------------------ --------- ---------
Capital and reserves
Share capital 24,196 23,640
Share premium account 112,997 107,785
Capital redemption reserve 4,146 4,146
Special reserve 4,434 4,434
Capital reserves 115,205 86,791
Revenue reserve 11,049 10,080
------------------------------------------------------ --------- ---------
Total Shareholders' funds 272,027 236,876
------------------------------------------------------ --------- ---------
Net asset value per ordinary share - pence 281.06 250.51
------------------------------------------------------ --------- ---------
Statement of Cash Flows
for the year ended 30 September
2016 2015
GBP'000s GBP'000s
--------- ---------
Net cash inflow from operating
activities 10,295 9,283
Investing activities
Purchase of investments (42,272) (51,056)
Sales of investments 34,720 32,958
Other capital charges (2) (17)
--------- ---------
Cash flows from investing activities (7,554) (18,115)
--------- ---------
Cash flows before financing activities 2,741 (8,832)
--------- ---------
Financing activities
Equity dividends paid (9,816) (9,381)
Net proceeds from issuance of
new shares 5,768 6,833
Interest paid (784) (409)
Increase in loans 5,000 -
--------- ---------
Cash flows from financing activities 168 (2,957)
--------- ---------
Net movement in cash and cash
equivalents 2,909 (11,789)
Cash and cash equivalents at
the beginning of the year (3,276) 8,561
Effect of movement in foreign
exchange 27 (48)
Cash and cash equivalents at
the end of the year (340) (3,276)
--------- ---------
Represented by:
Bank overdraft (340) (3,276)
Notes
1 Return per ordinary share
Revenue return
The revenue return per share of 11.26p (2015: 10.10p) is based
on the revenue return attributable to Shareholders of GBP10,785,000
profit (2015: GBP9,475,000 profit).
Capital return
The capital return per share of 29.66p (2015: (1.53p) is based
on the capital return attributable to Shareholders of GBP28,414,000
profit (2015: GBP1,438,000 loss).
Total return
The total return per share of 40.92p (2015: 8.57p) is based on
the total return attributable to Shareholders of GBP39,199,000
profit (2015: GBP8,037,000 profit).
Weighted average ordinary shares in issue
Both the revenue and capital returns per share are based on a
weighted average of 95,807,560 (2015: 93,820,364) ordinary shares
in issue during the year.
2 Dividends
The Directors have declared a fourth interim dividend in respect
of the year ended 30 September 2016 of 3.25 pence per share,
payable on 30 December 2016 to all Shareholders on the register at
close of business on 9 December 2016.
3 Financial risk management
The Company is an investment company, listed on the London Stock
Exchange, and conducts its affairs so as to qualify in the United
Kingdom ("UK") as an investment trust under the provisions of
section 1158 of the Corporation Tax Act 2010 ("CTA"). In so
qualifying, the Company is exempted in the UK from corporation tax
on capital gains on its portfolio of investments.
The Company's investment objective is to secure long term
capital and income growth from a portfolio consisting mainly of
FTSE All-Share companies. The Company can also have exposure to
leading overseas companies, with the value of the non-UK portfolio
not exceeding 10% of the Company's gross assets. In pursuing this
objective, the Company is exposed to financial risks which could
result in a reduction of either or both of the value of the net
assets and the profits available for distribution by way of
dividend. These financial risks are principally related to the
market (currency movements, interest rate changes and security
price movements), liquidity and credit. The Board, together with
F&C Investment Business Limited ("F&C"), is responsible for
the Company's risk management. The Directors' policies and
processes for managing the financial risks are set out in (a), (b)
and (c) below.
The accounting policies which govern the reported Balance Sheet
carrying values of the underlying financial assets and liabilities,
as well as the related income and expenditure, are in compliance
with UK accounting standards and best practice. The Company does
not make use of hedge accounting rules.
(a) Market risks
The fair value of equity and other financial securities
including derivatives 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. The Board
sets policies for managing these risks within the Company's
objective and meets regularly to review full, timely and relevant
information on investment performance and financial results.
F&C assesses exposure to market risks when making each
investment decision and monitors ongoing market risk within the
portfolio.
As up to 10% of the Company's gross assets can be invested in
non-UK assets, other assets and liabilities may be denominated in
currencies other than sterling and may also be exposed to interest
rate risks. F&C and the Board regularly monitor these risks.
The Company does not normally hold significant cash balances. It is
not the Board's general policy to borrow in currencies other than
sterling and euros, any such borrowings would be limited to amounts
and currencies commensurate with the portfolio's exposure to those
currencies, thereby limiting the Company's exposure to future
changes in foreign exchange rates.
A description of derivative positions, which are also exposed to
market price changes, together with F&C's and Board's
strategies for using these positions for efficient portfolio
management, is contained in this note under "Other market risk
exposures". The exposure on the Company's positions at 30 September
2016 amounted to GBPnil (30 September 2015 - GBPnil).
Gearing may be short or long-term in foreign currencies and
enables the Company to take a long-term view of the countries and
markets in which it is invested without having to be concerned
about short-term volatility.
Income earned in foreign currencies is converted to sterling on
receipt. The Board regularly monitors the effects on net revenue of
interest earned on deposits and paid on gearing.
Other market risk exposures
The portfolio of investments, valued at GBP296,594,000 at 30
September 2016 (2015: GBP260,898,000) is exposed to market price
changes. F&C assesses these exposures at the time of making
each investment decision. The Board reviews the overall exposures
at each meeting against indices and other relevant information.
(b) Liquidity risk
The Company is required to raise funds to meet commitments
associated with financial instruments and share buybacks. These
funds may be raised either through the realisation of assets or
through increased borrowing. The risk of the Company not having
sufficient liquidity at any time is not considered by the Board to
be significant, given: the number of quoted investments held in the
Company's portfolio (76 at 30 September 2016 and 80 at 30 September
2015); the liquid nature of the portfolio of investments; the
industrial and geographical diversity of the portfolio; and the
existence of an ongoing loan and overdraft facility agreement. Cash
balances are held with approved banks, usually on overnight
deposit. F&C reviews liquidity at the time of making each
investment decision. The Board reviews liquidity exposure at each
meeting.
The Company has a loan facility with State Street Bank and Trust
Company of GBP35 million.
(c) Credit risk and counterparty exposure
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. Such transactions must
be settled on the basis of delivery against payment (except where
local market conditions do not permit).
Responsibility for the approval, limit setting and monitoring of
counterparties is delegated to F&C and a list of approved
counterparties is periodically reviewed by the Board. Broker
counterparties are selected based on a combination of criteria,
including credit rating, balance sheet strength and membership of a
relevant regulatory body. The rate of default in the past has been
negligible. Cash and deposits are held with approved banks.
The Company has an ongoing contract with its custodian for the
provision of custody services. The contract is reviewed regularly.
Details of securities held in custody on behalf of the Company are
received and reconciled monthly. The Company's Depositary, JP
Morgan Europe Limited, has regulatory responsibilities relating to
segregation and safe keeping of the Company's financial assets,
amongst other duties. The Board has direct access to the Depositary
and receives regular reports from it via F&C.
To the extent that F&C carries out management and
administrative duties (or causes similar duties to be carried out
by third parties) on the Company's behalf, the Company is exposed
to counterparty risk. The Board assesses this risk through regular
meetings with the management of F&C (including the Fund
Manager) and with F&C's Risk Management function. In reaching
its conclusions, the Board also reviews the F&C's parent
group's annual audit and assurance faculty report.
None of the Company's financial liabilities are past their due
date or impaired.
4 Annual general meeting
The Annual General Meeting will be held at the registered office
of the Company, Exchange House, Primrose Street, London EC2A 2NY on
Tuesday 14 February 2017 at 11.30 a.m.
5 Report and accounts
The report and accounts for the year ended 30 September 2016
will be posted to Shareholders and made available on the website
www.fandccit.com shortly. Copies may also be obtained from the
Company's registered office, Exchange House, Primrose Street,
London EC2A 2NY.
By order of the Board
F&C Investment Business Limited, Secretary
28 November 2016
Principal Risks and Future Prospects
The principal risks and their mitigations are described below.
Note 23 on the report and accounts details the Financial Risk
Management of the Company. The risks that affect the Company's
ongoing operations may vary in significance from time to time. The
principal risks identified as most relevant to the assessment of
the Company's future prospects and viability were those relating to
potential investment portfolio under-performance and its effect on
the share price; discount movement; dividends; and threats to
security over the Company's assets.
-- Risk description: Inappropriate business or marketing
strategy particularly in relation to investor needs giving rise to
a share price discount to net asset value per share. Unchanged
throughout the year under review.
Mitigation: The Board holds a separate meeting each year to
consider strategic issues. Market intelligence is maintained via
the Company's Broker. The effectiveness of the marketing strategy
is reviewed at each meeting. Shareholder satisfaction surveys are
conducted at least every five years ahead of the Company's
continuation vote. A share buyback policy would be employed in the
event of extensive discount volatility.
-- Risk description: Unfavourable markets or asset allocation,
sector and stock selection and use of gearing and derivatives are
inappropriate giving rise to investment under-performance as well
as impacting capacity to pay dividends. Unchanged throughout the
year under review.
Mitigation: The portfolio of quoted securities is diversified
and the Company's structure enables it to take a long-term view.
Investment policy, performance, revenue and gearing are reviewed at
each Board meeting. F&C's Performance and Risk Oversight team
provides independent oversight on investment risk. The Board
regularly considers operating costs and underlying dividend income
and the implications for the dividend paying capacity of the
Company.
-- Risk description: Failure of F&C as the Company's main
service provider to continue to operate effectively including the
loss of key staff. Unchanged throughout the year under review.
Mitigation: The Board meets regularly with the management of
F&C and meets their risk management team to review internal
control and risk reports. F&C's appointment is reviewed
annually and can be terminated at six month's notice. They
structure their recruitment and remuneration packages in order to
retain key staff and work closely with the Board on any significant
management changes.
-- Risk description: Errors, fraud or control failures at
service providers or loss of data through increasing cyber-threats
or business continuity failure could damage reputation or
investors' interests or result in losses. Risks of cyber-attacks
increased in the year under review.
Mitigation: The Board receives regular control reports from
F&C covering risk and compliance including oversight of third
party service providers. The Board has access to their Head of
Business Risk and requires any significant issues directly relevant
to the Company to be reported immediately. The Depositary is
specifically liable for loss of any of the Company's securities and
cash held in custody.
Rolling Three Year Viability Horizon
When considering the risk of under-performance, the Board
assessed and evaluated the following areas through a series of
stress tests:
-- potential illiquidity of the Company's portfolio;
-- the effects of any substantial future falls in investment
values and income receipts on the ability to repay
and re- negotiate borrowings;
-- potential breaches of loan covenants, the maintenance of
dividend payments and retention of investors; and
-- the potential need for extensive share buybacks in the event
of share price volatility and a move to a wide discount.
Based on this assessment and evaluation of the Company's future
prospects and viability, the Board has a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the coming three years; the
Company's business model, strategy and the embedded characteristics
have helped define and maintain the stability of the Company since
inception. The Board expects this to continue and will assess
viability over subsequent three year rolling periods.
Statement of Directors' Responsibilities in Respect of the
Financial Statements
In accordance with Chapter 4 of the Disclosure and Transparency
Rules the Directors confirm, that to the best of their
knowledge:
-- the financial statements, prepared in accordance with
applicable accounting standards, on a going concern basis, give a
true and fair view of the assets, liabilities, financial position
and profit of the Company;
-- the Strategic report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that they face; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's position and
performance, business model and strategy; and
-- the financial statements and the Directors' Report include
details on related party transactions.
On behalf of the Board
Steven Bates
Chairman
28 November 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FEDFIAFMSEIF
(END) Dow Jones Newswires
November 28, 2016 10:56 ET (15:56 GMT)
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