TIDMNSI
NEW STAR INVESTMENT TRUST PLC
HALF YEAR RESULTS FOR THE SIX MONTHSED 31st DECEMBER 2017
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVE
The Company's objective is to achieve long-term capital growth.
31st 30th June %
December 2017 Change
2017
PERFORMANCE
Net assets (GBP '000) 110,144 105,056 4.8
Net asset value per Ordinary share 155.08p 147.92p 4.8
Mid-market price per Ordinary share 110.00p 105.00p 4.8
Discount of price to net asset value 29.1% 29.0% n/a
Six months Six months
ended ended
31st 31st
December December
2017 2016
Total Return* 5.38% 10.35% n/a
IA Mixed Investment 40-85% Shares 4.34% 10.37% n/a
(total return)
MSCI AC World Index (total return, 7.02% 15.55% n/a
sterling adjusted)
MSCI UK Index (total return) 6.79% 11.52% n/a
Six months Six months
ended ended
31st 31st
December December
2017 2016
REVENUE
Return (GBP'000) 438 495
Return per Ordinary share 0.61p 0.70p
Proposed dividend per Ordinary share - -
Dividend paid per Ordinary share 0.80p 0.30p
TOTAL RETURN
Return (GBP'000) 5,656 9,241
Net assets 4.8% 10.1%
Net assets (dividend added back) 5.4% 10.4%
* The total return figure for the Group represents the revenue and capital
return shown in the consolidated statement of comprehensive income before
dividends paid as a percentage of opening NAV (the alternative performance
measure).
INTERIM REPORT
CHAIRMAN'S STATEMENT
PERFORMANCE
Your Company generated a total return of 5.38% over the six months to 31st
December 2017, leaving the net asset value (NAV) per ordinary share at 155.08p.
By comparison, the Investment Association's Mixed Investment 40-85% Shares
Index rose 4.34%. The MSCI AC World Total Return Index gained 7.02% while the
MSCI UK Total Return Index gained 6.79%. Over the same period, UK government
bonds returned 1.63%. Further information is provided in the investment
manager's report.
Your Company made a revenue profit for the six months of GBP438,000 (2016: GBP
495,000).
GEARING AND DIVIDS
Your Company has no borrowings. It ended the period under review with cash
representing 11.62% of its NAV and is likely to maintain a significant cash
position. Your Company has small retained revenue reserves and your Directors
do not recommend the payment of an interim dividend (2016: nil). Your Company
paid a dividend of 0.8p per share (2016: 0.3p) in November 2017 in respect of
the previous financial year.
DISCOUNT
During the period under review, the Company's shares continued to trade at a
significant discount to their NAV. Your Board has explored ways of reducing
this discount but no satisfactory solution has been found. The position is,
however, kept under continual review.
OUTLOOK
In March 2018, economic growth looked healthy and inflation had risen modestly
from subdued levels. Equity market weakness and volatility in January and
February were signs of investor fears that stronger data would lead to more
rapid US interest rate rises. If this occurs, some investors may switch from
equities into cash and short-dated bonds. Monetary tightening increases the
importance of having a strong valuation discipline. Your Company ended the
period with a relatively low allocation to US equities, which appeared
expensive, in favour of cheaper equities in Europe excluding the UK and
emerging markets, where monetary policy was looser.
Rising inflation may also lead to rotation from high-quality "growth"
companies, which have outperformed since the credit crisis, into cyclical
"value" stocks. Some "growth" companies have suffered margin pressure as
inflation increases costs, which may not easily be recovered from consumers.
Yet their valuations have remained high and earnings disappointments may
generate share price falls.
Rising inflation and interest rates may also affect bond markets. Your Company
ended the period with no direct investments in longer-duration bonds or
commercial property, which are typically more sensitive to rising interest
rates and inflation. Diversification was instead maintained through holdings in
dollar-denominated cash, gold equities and lower-risk multi-asset funds.
NET ASSET VALUE
Your Company's unaudited NAV at 28th February 2018 was 153.03p.
Geoffrey Howard-Spink
Chairman
29th March 2018
INVESTMENT MANAGER'S REPORT
MARKET REVIEW
Global equities gained 7.02% in sterling over the six months to 31 December
2017. Stronger-than-expected economic growth driven by buoyant manufacturing
and a modest inflation pick-up supported equities. By contrast, global bonds
fell 1.23% in sterling as the Federal Reserve raised interest rates in December
for the fifth time since 2015 and the pound rose 4.14% against the dollar.
Sterling bonds fared better although the Bank of England did raise rates in
November for the first time in more than a decade. UK government bonds and
sterling corporate bonds returned 1.63% and 2.24% respectively during the
period.
US business investment rose and consumer spending and confidence stayed strong.
Against this backdrop, Donald Trump's tax cuts and jobs act should stimulate an
already strong economy, leading to higher 2018 economic growth forecasts.
Consumers benefit from rationalised tax brackets, lower business income taxes
and changes to benefits and allowances. These measures should sustain consumer
spending, which may otherwise have faced pressure. The savings ratio fell to
historic lows, reaching 3.2% in January 2018 as investors saved less to
maintain living standards. The corporation tax cut from a 35% maximum to a flat
21% should encourage companies to invest. The cut lowers the hurdle return rate
for capital spending, increasing the number and value of viable investment
opportunities.
Fiscal stimulus so late in the cycle, with unemployment down at 4.1%, may,
however, prove inflationary and generate speedier interest rate rises. Real
wage declines and low productivity have been hallmarks of the US economy in the
wake of the credit crisis. Some commentators have conjectured that secular
trends such as technological progress and falling unionisation explain workers'
lack of bargaining power. Janet Yellen, the outgoing Fed chair, believes,
however, that low inflation will prove transitory and that the historically
strong relationship between employment and inflation will persist. In February
2018, equity markets fell and volatility rose because US wages increased more
than anticipated. In March 2018, President Trump fulfilled campaign pledges to
protect US heavy industry and imposed import tariffs on steel and aluminium of
25% and 10% respectively. Protectionist policies of this nature may also foster
inflation.
The recovery in manufacturing over the period under review was particularly
evident in the eurozone. In December, the manufacturing purchasing managers'
index, a key leading indicator, hit its highest level since its 1997 launch.
Unemployment fell while consumer spending and business investment rose. The
European Central Bank (ECB) president, Mario Draghi, commented on the "solid
and broad based growth momentum" in the region. Wage growth is likely to remain
subdued for some time because, in contrast to the US, there is still
significant excess capacity in the eurozone economy. In January 2018, eurozone
unemployment was 8.6% against 4.1% in the US. Regional variances were high,
with 16.4% unemployment in Spain compared to 3.6% in Germany. The ECB has said
asset purchases will continue until September 2018 or beyond if necessary.
Some eurozone political risks apparent in early 2017 receded after Emmanuel
Macron's new centrist En Marche! party won the French election. Macron's
programme, including about EUR50 billion of state spending and lower corporate
taxes, should soften the impact of labour market reforms.
UK equities marginally underperformed, with the stronger pound proving a
headwind. Returns were, however, buoyed by some progress in the Brexit talks,
which moved forward to issues such as trade. The Bank maintained its
ultra-loose monetary policy amid fears of a damaging "hard" Brexit, merely
reversing the emergency quarter-point cut after the Brexit vote. Unemployment
fell to historic lows and inflation rose to 3.1% in November, more than a
percentage point above the Bank's 2% target, necessitating an explanatory
letter from the governor to the chancellor. Inflation moderated, however, to
3.0% in December and January. Stronger commodity prices and imported inflation
driven by sterling's fall in 2016 generated higher retail price pressures. Wage
growth was weak but may accelerate in response to near full employment, minimum
wage increases and the removal of the 1% public sector wage rise cap and the
pound may strengthen.
Equities in Asia excluding Japan and emerging markets posted strong gains as
trade expanded, the dollar weakened and the prices of some industrial
commodities rose significantly. Oil and copper, for example, gained 23.08% and
16.42% respectively in sterling. Russian and Chinese equities did particularly
well, rising 19.06% and 18.59% respectively in sterling. Indian equities gained
10.55% in sterling despite the impact of higher oil prices on this
energy-importing nation. The latest World Bank ease-of-doing-business survey
lifted India 30 places thanks to Narendra Modi's reforms. It is now easier to
start a company, obtain building permits and bank loans, trade across regions,
enforce contracts and resolve insolvencies. During the period, Modi announced a
road-building programme and Indian sovereign debt was upgraded.
PORTFOLIO REVIEW
Your Company's total return over the period under review was 5.38%. By
comparison, the Investment Association's Mixed Investment 40-85% Shares Index,
which measures a peer group of funds with a multi-asset approach to investing
and a typical investment in global equities in the 40-85% range, rose 4.34%.
The MSCI AC World Total Return Index gained 7.02% in sterling terms while the
MSCI UK Total Return Index rose 6.79%. Your Company benefited from its high
allocation to equity funds during the period but could not keep pace with the
strong gains from equity indices given the diversified nature of the portfolio,
whose holdings include cash in dollars, gold equities and lower-risk
multi-asset funds such as EF Brompton Global Conservative and Trojan. The
weakness of the dollar, which fell 3.98% against sterling, and a 0.71% fall by
BlackRock Gold & General detracted from performance. These investments may,
however, prove defensive in less buoyant equity markets.
During the period, profits were taken from a number of holdings and reinvested
in equity income funds, a high-yielding local-currency emerging market
sovereign bond fund and in modest additional investments in the Embark Group
and another private UK company. The increased bias towards income funds should
enhance your Company's capacity to pay dividends.
Your Company has a significant investment in funds investing in equities in
Europe excluding the UK, including FP Crux European Special Situations, its
largest holding. Equities in Europe ex-UK lagged, rising 3.73% in sterling as
the euro strengthened 1.10% against the pound. FP Crux European Special
Situations outperformed, rising 5.02%. The smaller Standard Life European
Income holding marginally outperformed, rising 3.75%. The investment in Europe
ex-UK equities increased through the purchase of BlackRock Continental European
Income. Aquilus Inflection, which takes both long and short positions in
European equities, rose 3.71%.
Amongst your Company's global equity funds, Fundsmith Equity and Artemis Global
Income outperformed, rising 7.61% and 7.16% respectively. Partial profits were
taken in Fundsmith Equity. Newton Global Income, which is more defensively
positioned, underperformed, rising 2.42%, but Polar Capital Global Technology
gained 11.96% as technology shares outperformed.
Equities in Asia excluding Japan and emerging markets gained 10.98% and 11.53%
respectively in sterling. Your Company benefited from a significant allocation
to these markets although fund selection detracted from performance. Liontrust
Asia Income and Stewart Investors Indian Subcontinent lagged, rising 8.48% and
8.15% respectively. Wells Fargo China and Neptune Russia & Greater Russia were
sold in November following strong gains for Chinese and Russian equities and
the proceeds reinvested in the JP Morgan Emerging Markets Income Trust and the
HSBC Russia Capped exchange-traded fund (ETF).
UK equities marginally underperformed, rising 6.79%, with sterling's strength
proving a headwind despite some progress in Brexit negotiations. Man GLG UK
Income outperformed, rising 10.30%, but Trojan Income rose just 0.89%. The Man
GLG UK Income manager has a "value" investment approach, which may generate
outperformance as inflation and interest rates rise. By contrast, Trojan
Income's manager typically invests in high-quality growth stocks. Since the
credit crisis, "bond proxies" or companies with dependable business models and
strong cash flows have been in demand because of strong bond markets. Some of
these companies ended the period on high valuations relative to the market and
history. UK smaller companies outperformed larger peers, rising 8.50% and
contributing to a 8.07% gain for MI Brompton UK Recovery.
With interest rates rising, relatively-high US equity valuations were a concern
over the period. In isolation, high valuations may not precipitate a fall but
when fundamental circumstances do, however, deteriorate, Wall Street may fall
substantially before cheaper valuations support share prices. Your Company
began the period with a relatively low US equity allocation, which reduced
further through the sale of the iShares S&P 500 ETF. The iShares S&P 500
Financials ETF was, however, retained because financial companies should
benefit from higher long-term interest rates and President Trump's deregulation
plans. US equities rose 6.99% in sterling and the iShares S&P Financials ETF
outperformed, rising 10.78%.
All six EF Brompton Global funds outperformed their respective benchmarks over
the period under review. EF Brompton Global Equity did best, rising 7.94%. EF
Brompton Global Conservative, up 2.86%, delivered the lowest return as a result
of its low-risk mandate.
Within your Company's private equity allocation, one company is due to make a
capital distribution to its shareholders of 500p per share after the
period-end. This will result in a GBP2.8 million distribution to your Company.
Shares in this long-held investment were purchased at an average price of 205p
and were previously valued at 225p. Your Company retains its investment in the
core business of this company.
OUTLOOK
In March 2018, global economic prospects were positive; growth remained steady
and inflation had recovered modestly from subdued levels. Equity market
weakness and increased volatility in January and February were, however,
evidence of investor fears that stronger economic data would lead to a more
rapid tightening of US monetary conditions. After recent Fed rate rises and
reductions in the size of its balance sheet, further monetary tightening is
expected in 2018. President Trump's newly signed tax cuts and jobs act should
stimulate consumer spending and business investment but may also encourage Fed
policy makers to tighten monetary conditions more rapidly. There were few signs
in early spring 2018 that monetary policy had become restrictive. Increasing
real interest rates may, however, lead some investors to sell equities in
favour of safer assets such as cash and short-dated bonds.
The gradual withdrawal of liquidity introduces a greater degree of moral hazard
for investors and increases the importance of investing in accordance with a
strong valuation discipline. Your Company ended the period with a relatively
low allocation to US equities, which appeared expensive, in favour of equities
in Europe ex-UK and some emerging markets, where valuations were lower and
where monetary policy remained more accommodative.
The rise in inflation and interest rates may lead to a change in equity market
leadership. High-quality "growth" companies have outperformed more cyclical
"value" stocks since the credit crisis as investors have sought out companies
with strong and relatively dependable cash flows and dividends. Some of these
companies have been experiencing margin pressure as rising inflation leads to
increased costs, which may not easily be passed on to consumers. The high
valuations of some of these stocks means that any disappointment in earnings
expectations may lead to sharp falls in share prices.
Rising inflation and interest rates may also lead to falls in bond markets.
Your Company ended the period with no direct investments in longer-duration
bonds or other long-duration assets such as commercial property, which are
typically more sensitive to increases in longer-term interest rates and
inflation expectations. Diversification was instead maintained through
allocations to cash held in dollars, gold equities and lower-risk multi-asset
funds.
Brompton Asset Management LLP
29th March 2018
DIRECTORS' REPORT
PERFORMANCE
In the six months to 31st December 2017 the total return per Ordinary share
increased by 5.4% and the NAV increased to 155.08p, whilst the share price
increased by 4.8% to 110.00p. This compares to an increase of 4.3% in the IA
Mixed Investment 40-85% Shares Index.
INVESTMENT OBJECTIVE
The Company's investment objective is to achieve long-term capital growth.
INVESTMENT POLICY
The Company's investment policy is to allocate assets to global investment
opportunities through investment in equity, bond, commodity, real estate,
currency and other markets. The Company's assets may have significant
weightings to any one asset class or market, including cash.
The Company will invest in pooled investment vehicles, exchange traded funds,
futures, options, limited partnerships and direct investments in relevant
markets. The Company may invest up to 15% of its net assets in direct
investments in relevant markets.
The Company will not follow any index with reference to asset classes,
countries, sectors or stocks. Aggregate asset class exposure to any one of the
United States, the United Kingdom, Europe ex UK, Asia ex Japan, Japan or
Emerging Markets and to any individual industry sector will be limited to 50%
of the Company's net assets, such values being assessed at the time of
investment and for funds by reference to their published investment policy or,
where appropriate, their underlying investment exposure.
The Company may invest up to 20% of its net asset value in unlisted securities
(excluding unquoted pooled investment vehicles) such values being assessed at
the time of investment.
The Company will not invest more than 15% of its net assets in any single
investment, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used for
the purposes of efficient portfolio management and currency hedging.
Derivatives may also be used outside of efficient portfolio management to meet
the Company's investment objective. The Company may take outright short
positions in relation to up to 30% of its net assets, with a limit on short
sales of individual stocks of up to 5% of its net assets, such values being
assessed at the time of investment. The Company may borrow up to 30% of net
assets for short-term funding or long-term investment purposes. No more than
10%, in aggregate, of the value of the Company's total assets may be invested
in other closed-ended investment funds except where such funds have themselves
published investment policies to invest no more than 15% of their total assets
in other listed closed-ended investment funds.
SHARE CAPITAL
The Company's share capital comprises 305,000,000 Ordinary shares of 1p each,
of which 71,023,695 (2016: 71,023,695) have been issued and fully paid. No
Ordinary shares are held in treasury, and none were bought back or issued
during the six months to 31st December 2017.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks identified by the Board, and the steps the Board takes to
mitigate them, are as follows:
Investment strategy: Inappropriate long-term strategy, asset allocation and
manager selection could lead to underperformance. The Board discusses
investment performance at each of its meetings and the Directors receive
reports detailing asset allocation, investment selection and performance.
Business conditions and general economy: The Company's future performance is
heavily dependent on the performance of different equity and currency markets.
The Board cannot mitigate the risks arising from adverse market movements.
However, diversification within the portfolio will reduce the impact. Further
information is given in portfolio risks below.
Portfolio risks - market price, foreign currency and interest rate risks:
Investment returns will be influenced by interest rates, inflation, investor
sentiment, availability/cost of credit and general economic conditions in the
UK and globally. A proportion of the portfolio is in investments denominated
in foreign currencies and movements in exchange rates could significantly
affect their sterling value. The Investment Manager takes all these factors
into account when making investment decisions but the Company does not normally
hedge against foreign currency movements. The Board's policy is to hold a
spread of investments in order to reduce the impact of the risks arising from
the above factors by investing in a spread of asset classes and geographic
regions.
Net asset value discount: The discount in the price at which the Company's
shares trade to net asset value means that shareholders cannot realise the real
underlying value of their investment. Over the last few years the Company's
share price has been at a significant discount to the Company's net asset
value. The Directors review regularly the level of discount, however given the
investor base of the Company, the Board is very restricted in its ability to
control the discount to net asset value.
Investment Manager: The quality of the team employed by the Investment Manager
is an important factor in delivering good performance and the loss of key staff
could adversely affect returns. A representative of the Investment Manager
attends each Board meeting and the Board is informed if any changes to the
investment team employed by the Investment Manager are proposed.
Tax and regulatory risks: A breach of The Investment Trust (Approved Company)
(Tax) Regulations 2011 (the 'Regulations') could lead to capital gains realised
within the portfolio becoming subject to UK capital gains tax. A breach of the
UKLA Listing Rules could result in suspension of the Company's shares, while a
breach of company law could lead to criminal proceedings, financial and/or
reputational damage. The Board employs Brompton Asset Management LLP as
Investment Manager, and Maitland Administration Services Limited as Secretary
and Administrator, to help manage the Company's legal and regulatory
obligations.
Operational: disruption to, or failure of, the Investment Manager's or
Administrator's accounting, dealing or payment systems or the Custodian's
records could prevent the accurate reporting and monitoring of the Company's
financial position. The Company is also exposed to the operational risk that
one or more of its suppliers may not provide the required level of service.
The Company receives regular reports from its contracted third parties.
INVESTMENT MANAGEMENT ARRANGEMENT AND RELATED PARTY TRANSACTIONS
In common with most investment trusts the Company does not have any executive
directors or employees. The day-to-day management and administration of the
Company, including investment management, accounting and company secretarial
matters, and custodian arrangements are delegated to specialist third party
service providers.
Details of related party transactions are contained in the Annual Report.
There have been no material transactions with related parties during the period
which have had a significant impact on the performance of the Company.
GOING CONCERN
The Directors believe that it is appropriate to continue to adopt the going
concern basis in preparing the accounts as the assets of the Company consist
mainly of securities that are readily realisable or cash and it has no
significant liabilities. Investment income exceeds annual expenditure and
current liquid net assets cover current annual expenses for many years.
Accordingly, the Company is of the opinion that it has adequate financial
resources to continue in operational existence for the foreseeable future which
is considered to be in excess of five years. Five years is considered a
reasonable time for investors when making their investment decisions. In
reaching this view the Directors reviewed the anticipated level of annual
expenditure against the cash and liquid assets within the portfolio. The
Directors have also considered the risks the Company faces.
AUDITORS
The half year financial report has been reviewed, but not audited, by Ernst &
Young LLP pursuant to the Auditing Practices Board guidance on the Review of
Interim Financial Information.
RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
* The financial statements contained within the half year financial report to
31st December 2017 has been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting';
* The Chairman's statement, Directors' report or the Investment Manager's
report include a fair review of important events that have occurred during
the first six months of the financial year and their impact on the
financial statements;
* The Chairman's statement, Directors' report or the Investment Manager's
report include a fair review of the potential risks and uncertainties for
the remaining six months of the year;
* The Director's report and note 8 to the half year financial report include
a fair review of the information concerning transactions with the
investment manager and changes since the last annual report.
By order of the Board
Maitland Administration Services Limited
29th March 2018
SCHEDULE OF TOP TWENTY INVESTMENTS at 31st December 2017
Holding Activity Bid-market % of Net
value Assets
GBP '000
FP Crux European Special Situations Investment Fund 11,466 10.41
Fund
Newton Global Income Fund Investment Fund 5,560 5.05
Fundsmith Equity Fund Investment Fund 4,850 4.40
Aberforth Split Level Income Trust Investment Company 4,800 4.36
Polar Capital Global Technology Fund Investment Fund 4,758 4.32
EF Brompton Global Conservative Fund Investment Fund 4,129 3.75
Artemis Global Income Fund Investment Fund 4,101 3.72
BlackRock Continental European Investment Fund 3,929 3.57
Income Fund
Aquilus Inflection Fund Investment Fund 3,527 3.20
Embark Group Unquoted 3,268 2.97
investment
BlackRock Gold & General Fund Investment Fund 3,200 2.91
Liontrust Asia Income Fund Investment Fund 2,935 2.66
Man GLG UK Income Fund Investment Fund 2,906 2.64
Lindsell Train Japanese Equity Fund Investment Fund 2,886 2.62
All Star Leisure Unquoted 2,843 2.58
investment
EF Brompton Global Opportunities Investment Fund 2,833 2.57
Fund
EF Brompton Global Equity Fund Investment Fund 2,707 2.46
MI Brompton UK Recovery Unit Trust Investment Fund 2,698 2.45
EF Brompton Global Growth Fund Investment Fund 2,667 2.42
Stewart Investors Indian Investment Fund 2,634 2.39
Subcontinent Fund
78,697 71.45
Balance held in 19 investments 18,748 17.02
Total investments (excluding cash) 97,445 88.47
Net current assets (including cash) 12,699 11.53
Net Assets 110,144 100.00
The investment portfolio can be further analysed as follows: cash
GBP'000
Investment funds 80,729
Investment companies and ETFs 9,475
Unquoted investments, including loans of GBP250,000 6,550
Other quoted investments 691
The Company's investments are either unlisted or are 97,445
unit trust/OEIC funds with the exception of Aberforth
Split Level Income Trust, JP Morgan Emerging Markets
Income Trust, Miton Group, Immedia Group, iShares S&P
500 Financials Sector UCITS and HSBC MSCI Russia
Capped UCITS ETF.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the six months ended 31st
December 2017 (unaudited)
Six months ended
31st December 2017
(unaudited)
Revenue Capital Total
Return Return Return
Notes GBP '000 GBP '000 GBP '000
INCOME
Investment income 856 - 856
Other operating income 37 - 37
Total income 2 893 - 893
GAINS AND LOSSES ON INVESTMENTS
Gains on investments at fair value 5 - 5,601 5,601
through profit or loss
Other exchange (losses)/gains - (386) (386)
Trail rebates - 3 3
893 5,218 6,111
EXPENSES
Management fees 3 (331) - (331)
Other expenses (122) - (122)
(453) - (453)
PROFIT BEFORE FINANCE COSTS AND TAX 440 5,218 5,658
Finance costs - - -
PROFIT BEFORE TAX 440 5,218 5,658
Tax (2) - (2)
PROFIT FOR THE PERIOD 438 5,218 5,656
EARNINGS PER SHARE
Ordinary shares (pence) 4 0.61p 7.35p 7.96p
The total return column of this statement represents the Group's profit and
loss account, prepared in accordance with IFRS. The supplementary Revenue
Return and Capital Return columns are both prepared under guidance published by
the Association of Investment Companies. All items in the above statement
derive from continuing operations. No operations were acquired or discontinued
during the period.
All income is attributable to the equity holders of the parent company. There
are no minority interests.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31st December 2016 and the year ended 30th June 2017
Six months ended Year ended
31st December 2016 30th June 2017
(unaudited) (audited)
Notes Revenue Capital Total Revenue Capital Total
Return Return Return Return Return Return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
INCOME
Investment income 942 - 942 1,686 - 1,686
Other operating income 9 - 9 29 - 29
Total income 2 951 - 951 1,715 - 1,715
GAINS AND LOSSES ON
INVESTMENTS
Gains on investments at - 7,899 7,899 - 14,814 14,814
fair value through profit 5
or loss
Other exchange (losses)/ - 845 845 - 367 367
gains
Trail rebates - 2 2 - 4 4
951 8,746 9,697 1,715 15,185 16,900
EXPENSES
Management fees 3 (300) - (300) (622) - (622)
Other expenses (150) - (150) (276) - (276)
(450) - (450) (898) - (898)
PROFIT BEFORE FINANCE
COSTS AND TAX 501 8,746 9,247 817 15,185 16,002
Finance costs - - - - - -
PROFIT BEFORE TAX 501 8,746 9,247 817 15,185 16,002
Tax (6) - (6) (7) - (7)
PROFIT FOR THE PERIOD 495 8,746 9,241 810 15,185 15,995
EARNINGS PER SHARE
Ordinary shares (pence) 4 0.70p 12.31p 13.01p 1.14p 21.38p 22.52p
The total return column of this statement represents the Group's profit and
loss account, prepared in accordance with IFRS. The supplementary Revenue
Return and Capital Return columns are both prepared under guidance published by
the Association of Investment Companies. All items in the above statement
derive from continuing operations. No operations were acquired or discontinued
during the periods.
All income is attributable to the equity holders of the parent company. There
are no minority interests.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 31st
December 2017 (unaudited)
Share Share Special Retained
capital premium reserve earnings Total
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
At 30th JUNE 2017 710 21,573 56,908 25,865 105,056
Total comprehensive income for - - - 5,656 5,656
the period
Dividend paid - - - (568) (568)
At 31st DECEMBER 2017 710 21,573 56,908 30,953 110,144
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 31st
December 2016 (unaudited)
Share Share Special Retained
capital premium reserve earnings Total
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
At 30th JUNE 2016 710 21,573 56,908 10,083 89,274
Total comprehensive income for - - - 9,241 9,241
the period
Dividend paid - - - (213) (213)
At 31st DECEMBER 2016 710 21,573 56,908 19,111 98,302
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30th June 2017
(audited)
Share Share Special Retained
capital premium reserve earnings Total
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
At 30th JUNE 2016 710 21,573 56,908 10,083 89,274
Total comprehensive income for - - - 15,995 15,995
the year
Dividend paid - - - (213) (213)
At 30th JUNE 2017 710 21,573 56,908 25,865 105,056
CONSOLIDATED BALANCE SHEET at 31st December 2017
Notes 31st December 31st December 30th June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP '000 GBP '000 GBP '000
NON-CURRENT ASSETS
Investments at fair value
through profit or loss 5 97,445 83,892 91,730
CURRENT ASSETS
Other receivables 103 25 85
Cash and cash equivalents 12,804 14,580 13,451
12,907 14,605 13,536
TOTAL ASSETS 110,352 98,497 105,266
CURRENT LIABILITIES
Other payables (208) (195) (210)
TOTAL ASSETS LESS CURRENT 110,144 98,302 105,056
LIABILITIES
NET ASSETS 110,144 98,302 105,056
EQUITY ATTRIBUTABLE TO
EQUITY HOLDERS
Called-up share capital 710 710 710
Share premium 21,573 21,573 21,573
Special reserve 56,908 56,908 56,908
Retained earnings 6 30,953 19,111 25,865
TOTAL EQUITY 110,144 98,302 105,056
NET ASSET VALUE PER 7 155.08p 138.41p 147.92p
ORDINARY SHARE (PENCE)
CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31st December 2017
Six months Six months Year
ended ended ended
31st December 31st December 30th June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP '000 GBP '000 GBP '000
NET CASH INFLOW FROM OPERATING 421 536 808
ACTIVITIES
INVESTING ACTIVITIES
Purchase of investments (9,516) (5,577) (6,500)
Sale of investments 9,402 9,051 9,051
NET CASH (OUTFLOW)/ INFLOW FROM (114) 3,474 2,551
INVESTING ACTIVITIES
FINANCING
Equity dividend paid (568) (213) (213)
NET CASH (OUTFLOW)/ INFLOW AFTER (261) 3,797 3,146
FINANCING
(DECREASE)/INCREASE IN CASH (261) 3,797 3,146
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET FUNDS
(Decrease)/ increase in cash resulting (261) 3,797 3,146
from cash flows
Exchange movements (386) 845 367
Movement in net funds (647) 4,642 3,513
Net funds at start of period/year 13,451 9,938 9,938
NET FUNDS AT OF PERIOD/YEAR 12,804 14,580 13,451
RECONCILIATION OF PROFIT BEFORE FINANCE
COSTS AND TAXATION TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Profit before finance costs and 5,658 9,247 16,002
taxation *
Gains on investments (5,601) (7,899) (14,814)
Exchange differences 386 (845) (367)
Management fee rebates (3) (2) (4)
Revenue profit before finance costs and 440 501 817
taxation
(Increase)/decrease in debtors (7) 37 (18)
(Decrease)/increase in creditors (2) 9 24
Taxation (13) (13) (19)
Management fee rebates 3 2 4
NET CASH INFLOW FROM OPERATING 421 536 808
ACTIVITIES
* Includes dividends received in cash of GBP542,000 (2016: GBP646,000),
accumulation income of GBP335,000 (2016: GBP296,000) and interest income of GBP30,000
(2016: GBP9,000)
NOTES TO THE INTERIM FINANCIAL STATEMENTS for the six months ended 31st
December 2017
1. ACCOUNTING POLICIES
The condensed consolidated interim financial statements comprise the unaudited
results of the Company and its subsidiary, JIT Securities Limited (together
"the Group"), for the six months to 31st December 2017. The comparative
information for the six months to 31st December 2016 and the year to 30th June
2017 are a condensed set of accounts and do not constitute statutory accounts
under the Companies Act 2006. Full statutory accounts for the year to 30th June
2017 included an unqualified audit report, did not contain any statements under
section 498 of the Companies Act 2006, and have been filed with the Registrar
of Companies.
The half year financial statements have been prepared in accordance with
International Accounting Standard 34 'Interim Financial Reporting', and are
presented in pounds sterling, as this is the Group's functional currency.
The same accounting policies have been followed in the interim financial
statements as applied to the accounts for the year ended 30th June 2017, which
were prepared in accordance with IFRSs as adopted by the European Union.
No segmental reporting is provided as the Group is engaged in a single segment.
2. TOTAL INCOME
Six months Six months Year ended
ended 31st ended 31st 30th June
December 2017 December 2016 2017
GBP'000 GBP'000 GBP'000
Income from Investments
UK net dividend income 765 847 1,540
Unfranked investment income 91 95 146
856 942 1,686
Other Income
Bank interest receivable 31 9 28
Loan interest income 6 - 1
37 9 29
Total income comprises
Dividends 856 942 1,686
Other income 37 9 29
893 951 1,715
3. MANAGEMENT FEES
Six months Six months Year ended
ended 31st ended 31st 30th June
December 2017 December 2016 2017
GBP'000 GBP'000 GBP'000
Investment management fee 331 300 622
Performance fee - - -
331 300 622
The Investment Manager receives a management fee, payable quarterly in arrears,
equivalent to an annual 0.75 per cent of total assets after the deduction of
the value of any investments managed by the Investment Manager or its
associates (as defined in the investment management agreement). The Investment
Manager is also entitled to a performance fee of 15% of the growth in net
assets over a hurdle of 3-month Sterling LIBOR plus 1% per annum, payable six
monthly in arrears, subject to a high water mark. The aggregate of the
Company's management fee and any performance fee are subject to a cap of 4.99%
of net assets in any financial year (with any performance fee in excess of this
cap capable of being earned in subsequent periods). The performance fee will be
charged 100% to capital, in accordance with the Board's expectation of how any
out-performance will be generated. No performance fee is payable for the
period.
4. RETURN PER ORDINARY SHARE
Six months Six months Year ended
ended 31st ended 31st 30th June
December 2017 December 2016 2017
GBP'000 GBP'000 GBP'000
Revenue return 438 495 810
Capital return 5,218 8,746 15,185
Total return 5,656 9,241 15,995
Weighted average number of Ordinary 71,023,695 71,023,695 71,023,695
shares
Revenue return per Ordinary share 0.61p 0.70p 1.14p
Capital return per Ordinary share 7.35p 12.31p 21.38p
(before dividend)
Total return per Ordinary share 7.96p 13.01p 22.52p
(before dividend)
5. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
At At At
31st December 31st December 30th June
2017 2016 2017
GBP'000 GBP'000
GBP'000
GROUP AND COMPANY 97,445 83,892 91,730
ANALYSIS OF INVESTMENT
PORTFOLIO - GROUP AND COMPANY
Six months ended 31st December 2017
Listed* Unlisted** Total
(level 1 and (level 3)
2) GBP'000 GBP'000
GBP'000
Opening book cost 55,791 7,555 63,346
Opening investment holding gains/ 31,129 (2,745) 28,384
(losses)
Opening valuation 86,920 4,810 91,730
Movement in period:
Purchase at cost 9,365 151 9,516
Sales
- Proceeds (9,402) - (9,402)
- Realised gains on sales 4,447 - 4,447
Movement in investment holding gains/ (435) 1,589 1,154
(losses)
Closing valuation as at 31 December 90,895 6,550 97,445
2017
Closing book cost 60,201 7,706 67,907
Closing investment holding gains/ 30,694 (1,156) 29,538
(losses)
Closing valuation 90,895 6,550 97,445
* Listed investments include unit trust and OEIC funds which are valued at
quoted prices. Included within Listed Investments is one monthly valued level 2
investment of GBP3,527,000 (2016: GBP3,117,000).
** The Unlisted investments, representing approximately 6% of the Company's
NAV, have been valued in accordance with IPEVC valuation guidelines. The
largest unquoted investment amounting to GBP3,268,000 (2016: GBP2,400,000) was
valued at the latest transaction price. The second largest investment has been
valued based on the expected capital distribution.
There were no reclassifications for assets between Level 1, 2 and 3.
Six months Six months Year
ended ended ended
31st December 31st December 30th June
2017 2016 2017
GBP'000 GBP'000
GBP'000
ANALYSIS OF CAPITAL GAINS AND LOSSES
Realised gains on sales of investments 4,447 2,739 2,739
Increase in investment holding gains 1,154 5,160 12,075
5,601 7,899 14,814
6. RETAINED EARNINGS
At At At
31st December 31st December 30th June
2017 2016 2017
GBP'000 GBP'000
GBP'000
Capital reserve - realised 925 (3,046) (3,522)
Capital reserve - revaluation* 29,155 21,469 28,384
Revenue reserve 873 688 1,003
30,953 19,111 25,865
* The Capital reserve-revaluation includes unrealised currency (losses)/gains
of GBP(383,000), GBP847,000 and GBP371,000 respectively.
7. NET ASSET VALUE PER ORDINARY SHARE
31st December 31st December 30th June
2017 2016 2017
GBP'000 GBP'000 GBP'000
Net assets attributable to Ordinary 110,144 98,302 105,056
shareholders
Ordinary shares in issue at end of 71,023,695 71,023,695 71,023,695
period
Net asset value per Ordinary share 155.08p 138.41p 147.92p
8. TRANSACTIONS WITH THE INVESTMENT MANAGER
During the period there have been no new related party transactions that have
affected the financial position or performance of the Group.
Since 1st January 2010 Brompton has acted as Investment Manager to the Company.
This relationship is governed by an agreement dated 23rd December 2009.
Mr Duffield is the senior partner of Brompton Asset Management Group LLP the
ultimate parent of Brompton.
The total investment management fee payable to Brompton for the half year ended
31st December 2017 was GBP331,000 (2016: GBP300,000) and at the half year end GBP
167,000 (2016: GBP151,000) was accrued. No performance fee was payable in respect
of the half year ended 31st December 2017 (2016: GBPnil).
The Group's investments include seven funds managed by Brompton or its
associates valued at GBP19,501,000 (2016: GBP17,828,000). No investment management
fees were payable directly by the Company in respect of these investments.
END
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