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.
DIVID 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
GBP9m, 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
Year to Net asset Net asset Net FTSE All FTSE All
value per value per Share Share
share share Index
(Rebased
31st dividend
December per share Index
(Index
1984 = 1984 =
100) 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
www.maitlandgroup.com/investment-trusts/
[1]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
www.maitlandgroup.com/investment-trust/rights-and-issues-investment-trust-pl
c: [2]
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
www.maitlandgroup.com/investment-trust/rights-and-issues-investment-trust-pl
c: [2]
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 GBP9.0m 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 GBP169.6m to
GBP171.6m 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
Investors Shareholders play an important role in
monitoring and 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.
Suppliers Key suppliers are required to report to the
Board on a regular basis. The Company employs
a collaborative approach and looks to build
long term partnerships based on open terms of
business and fair payment terms.
Investee Companies The Investment Director meets with the
management of companies in which the Company
has a significant interest and reports on
findings to the Board on a quarterly basis.
Regulators The Board ensures compliance with the
necessary rules and 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.
Principal Decision 1 Dividend Policy
The Board continues to operate a
progressive dividend policy.
Principal Decision 2 Share buy back programme
Since the start of the programme, 16.4% of
the issued share capital has been
repurchased at a cost of approximately
GBP29.5m. The discount on the Company's
shares has reduced which supports the
Company's decision to continue the buyback
policy.
Principal Decision 3 New Investments
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.
Principal Decision 4 Remuneration
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.
DIVIDS
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:
Ordinary shares % of voting
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 (www.theaic.co.uk [3]). 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:
Directors Role Audit and Nominations Board Committee
Compliance and meeti meetings
Committee Remuneratio ngs attended
n Committee atten
ded
Dr D. M. Chairman, Yes Yes 6 5
Bramwell non-executive
S. J. B. Chief No No 6 0
Knott Executive and
Investment
Director
D. M. Best Non-executive Chairman Yes 6 5
Dr A. J. Non-executive Yes Yes 6 5
Hosty
J. B. Non-executive Yes Chairman 5 5
Roper
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.
INDEPENCE 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 INDEPENCE
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 GBP16,500 (2018: GBP16,500).
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 GBP5,400 (2018: GBP5,400). 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.
INDEPENCE
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)
Director Salary and Annual Salary and Annual
fees 2019 GBP fees 2018 GBP
bonuses Total bonuses
for Total for
2019 2019 2018 2018
GBP GBP GBP GBP
D. M. Best 22,000 - 22,000 21,000 - 21,000
Dr D. M. 28,000 - 28,000 27,000 - 27,000
Bramwell
(Chairman)
Dr A. J. 22,000 - 22,000 21,000 - 21,000
Hosty
S. J. B. 319,500 - 319,500 319,500 - 319,500
Knott
(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 GBP28,000 (GBP28,000),
other non-executive Directors GBP22,000 (GBP22,000) and Investment Director/CEO
(base salary excluding discretionary bonus) GBP319,500 (GBP319,500).
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 Annual Bonus Paid Out GBP
Remuneration GBP
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 SP ON PAY
Directors' remuneration GBP Shareholder distribution GBP
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 GBP150,000
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
Base salary The Investment Director is paid an annual
salary linked to the net assets of the
Company at the end of the previous year 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
Chairman and non-executive The fees paid to the Chairman
Directors' fees and the other non-executive
Directors aim to be competitive
with other investment trusts of
equivalent size and complexity.
Fees are fixed annual sums and
reviewed 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
INDEPENT 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 GBP1.72 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 GBP230,000 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 GBP1 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 GBP200,000.
We have also agreed with the Audit and Compliance Committee that we would
report to them all audit differences in excess of GBP50,000 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:
www.frc.org.uk/auditorsreposibilities [4]. 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 Year ended 31st
31st December December 2018
2019
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment 2 3,150 - 3,150 3,599 - 3,599
income
Other 2 9 - 9 20 - 20
operating
income
Total income 3,159 - 3,159 3,619 - 3,619
Gains/(losses) 9 - 11,188 11,188 - (21,459) (21,459)
on
fair value
through
profit or loss
assets
Gains on 9 - 52 52 - - -
subsidiary
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) 2,356 11,172 13,528 2,806 (21,518) (18,712)
before tax
Tax 5 - - - - - -
Profit/(loss) 2,356 11,172 13,528 2,806 (21,518) (18,712)
for the year
Earnings per
share
Return per 7 30.2p 143.3p 173.5p 34.5p (264.8)p (230.3)p
Ordinary
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 Notes 2019 2018
Investments - fair value through profit GBP'000 GBP'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
Balance at Share Capital Capital Revaluation Revenue Total
capit Redempti reserve reserve reserve
al on
GBP'000
GBP'000 GBP'000 GBP'000
GBP'000 reserve
GBP'000
31st 2,094 161 65,434 128,151 2,850 198,690
December
2017
Changes in
equity for
2018
Loss for - - 4,416 (25,934) 2,806 (18,712
the year )
Total 2,094 161 69,850 102,217 5,656 179,978
recognised
income and
expense
Ordinary (92) 92 (7,866) - - (7,866)
shares
bought
back and
cancelled
Dividends 6 - - - - (2,537) (2,537)
As at 31st 2,002 253 61,984 102,217 3,119 169,575
December
2018
Balance at Share Capital Capital Revaluation Revenue Total
capita Redempt reserve reserve reserve
l ion
GBP'000
GBP'000 GBP'000 GBP'000
GBP'000 reserve
GBP'000
31st 2,002 253 61,984 102,217 3,119 169,575
December
2018
Changes in
equity for
2019
Profit for - - 11,805 (633) 2,356 13,528
the year
Total 2,002 253 73,789 101,584 5,475 183,103
recognised
income and
expense
Ordinary (117) 117 (9,047) - - (9,047)
shares
bought
back and
cancelled
Dividends 6 - - - - (2,501) (2,501)
As at 31st 1,885 370 64,742 101,584 2,974 171,555
December
2019
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 GBP'000 GBP'000
Profit/(loss) before tax 13,528 (18,712)
Adjustments for:
(Gains)/losses on investments (11,188) 21,460
(Gains)/losses on revaluation (52) -
of subsidiary
Purchases of investments 9 (8,671) (4,018)
Proceeds on disposal of 9 19,857 6,055
investments
Operating cash flows before 13,474 4,785
movements in working capital
Decrease/(increase) in 87 (42)
receivables
Decrease in payables (1) (17)
Net cash from operating 13,560 4,726
activities before income taxes
Net cash from operating 13,560 4,726
activities
Cash flows from financing
activities
Ordinary shares bought back and (9,047) (7,948)
cancelled
Dividends paid (2,501) (2,537)
Net cash used in financing (11,548) (10,485)
activities
Net Increase/(decrease) in cash 2,012 (5,759)
and cash equivalents
Cash and cash equivalents at 13,310 19,069
beginning of year
Cash and cash equivalents at 15,322 13,310
end of year
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 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'000
Directors' emoluments 414 410
414 410
The highest paid Director received total emoluments of GBP320,000 (2018:
GBP320,000).
5) TAX ON ORDINARY ACTIVITIES
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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.
2019 2018
6) DIVIDS
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders in the year:
Ordinary (Paid)
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 825 843
2019 of 10.75p per share (year ended 31st December
2018: 10.50p)
2,501 2,537
2019 2018
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 % GBP'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 3,046 1.96 - -
Construction
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 2019 2018
OR LOSS
GBP'000 GBP'000
Investments listed on a recognised
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
GBP'000 GBP'000 GBP'000
GBP'000
Opening book cost 44,513 8,506 411 53,430
Opening unrealised 72,031 29,891 295 102,217
appreciation
Opening valuation 116,544 38,397 706 155,647
Movements in the year
Transfer stock from (8,407) 8,407 - -
listed to unlisted
Purchases at cost 5,134 3,537 - 8,671
Sales - proceeds (19,032 (825) - (19,857
) )
Sales - realised gains 11,256 617 - 11,873
on sales
Increase/(decrease) in 9,900 (10,585) 52 (633)
unrealised appreciation
Closing valuation 115,395 39,548 758 155,701
Closing book cost 33,464 20,242 411 54,117
Closing unrealised 81,931 19,306 347 101,584
appreciation
115,395 39,548 758 155,701
Realised gains on sales 11,256 617 - 11,873
Increase/(decrease) in 9,900 (10,585) 52 (633)
unrealised 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 GBP53,483 were incurred on the
acquisition of investments (2018: GBP32,888). Costs relating to disposals of
investments during the year amounted to GBPnil (2018: GBP12,794). 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:
Name Principal Country Description Proportion
activity of of shares of nominal
incorpora held value of
tion and issued
operation shares and
voting
rights held
Discretionary Fund England Ordinary 100%
Unit Fund management
Managers
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
GBP758,462 and a loss of GBP183 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 10.93%
Group
Treatt 7.17%
Elecosoft 5.50%
Scapa Group 5.15%
LPA Group 5.13%
Vp 4.48%
12. TRADE AND
OTHER
RECEIVABLES
2019 2018
GBP'000 GBP'000
Prepayments 534 621
and accrued
income
534 621
13. TRADE AND
OTHER PAYABLES
2019 2018
GBP'000 GBP'000
Accruals 80 81
80 81
14. SHARE CAPITAL
2019 2018
Allotted, Called % GBP'000 GBP'000
Up and Fully
Paid
7,540,321 100.0 1,885 2,002
Ordinary shares
of 25p each
(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 Capital Revaluation Revenue
redemption reserve reserve reserve
reserve
GBP'000
GBP'000 GBP'000 GBP'000
Beginning of 253 61,984 102,217 3,119
year
Ordinary 117 (9,047) - -
shares bought
back and
cancelled
Decrease in - - (633) -
unrealised
appreciation
Net gains on - 11,873 - -
realisation of
investments
Capital - (68) - -
expenses
Profit for - - - 2,356
year
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 GBP'000 GBP'000
Ordinary 2275.2 2118.1 171,555 169,575
shares
The
movement
s during
the year
were as
follows:
Ordinary
shares
GBP'000
Total 169,575
net
assets
attribut
able at
beginnin
g of
year
Ordinary (9,047)
shares
bought
back and
cancelle
d
Total 11,172
recognis
ed gains
for the
year
Transfer (145)
to
reserves
Total 171,555
net
assets
attribut
able at
end of
year
Number 7,540,321
of
Ordinary
shares
in issue
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 9.4% 10.8% a
buybacks
Percentage of shares bought 5.8% 4.4% b
back
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
GBP'000 GBP'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 GBP154,941,000 (2018: GBP154,939,000).
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
GBP'000 GBP'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 Level 1 Level 2 Level 3 Total
December
2019
GBP'000 GBP'000 GBP'000 GBP'000
Financial
assets at
fair value
through
profit or
loss
UK Equity 115,395 - - 115,395
Listed
AIM traded 39,546 - - 39,546
stocks
Delisted - 2 - 2
stock
Investment - - 758 758
in
subsidiary
Net fair 154,941 2 758 155,701
value
31st Level 1 Level 2 Level 3 Total
December
2018
GBP'000 GBP'000 GBP'000 GBP'000
Financial
assets at
fair value
through
profit or
loss
UK Equity 116,544 - - 116,544
Listed
AIM traded 38,395 - - 38,395
stocks
Delisted - 2 - 2
stock
Investment - - 706 706
in
subsidiary
Net fair 154,939 2 706 155,647
value
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
GBP'000 GBP'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.
APPIX - PORTFOLIO STATEMENT
Details of the 20 largest investments as at 31st December 2019 are given
below by market value:
UK Investments Holdings Market Value
2019 2018 2019 2018
GBP'000 GBP'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 120,714 120,714 10,731 7,514
Engineering
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 750,000 - 2,377 -
Materials
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 93,600 93,600 758 706
Fund Managers
Low & Bonar 6,000,000 6,000,000 723 816
152,882 136,891
Balance held in other 2,819 18,756
investments
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.
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
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