From: Capital
Gearing Trust P.l.c
LEI:
213800T2PJTPVF1UGW53
Date: 24
May 2024
Annual Results for the year ended 31
March 2024
The
Directors of Capital Gearing Trust P.l.c. (the “Company”) announce
the Company's results for the year ended 31
March 2024. The following is an extract from the Company's
Annual Report and Financial Statements for the year to 31 March 2024.
The Annual
Report is expected to be posted to shareholders later this
month.
Members of
the public may obtain copies from the registered office,
Murray House, Murray Street, Belfast BT1 6DN or from its
website: www.capitalgearingtrust.com.
A copy will also shortly be available for inspection at the
National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual
General Meeting (“AGM”) of the Company will be held at 11.30 a.m. on Tuesday 2
July 2024. The AGM will be held at the Numis Auditorium, 45
Gresham Street, London, EC2V
7BF.
Performance
Summary
Total
Return Performance (to 31 March
2024)
|
1
Year
|
3
Years
|
5
Years
|
10
Years
|
|
|
|
|
|
|
|
|
|
|
Share
Price
|
0.8%
|
3.5%
|
19.1%
|
52.2%
|
NAV per
Share
|
1.8%
|
7.9%
|
23.7%
|
65.7%
|
Consumer
Price Index
|
3.2%
|
21.6%
|
24.3%
|
33.4%
|
Chairman’s Statement
The
past year
At
31 March 2024, the net asset value
(“NAV”) per share was 4,810.5p, representing an NAV total return
over the year of 1.8%. Whilst this is a positive return over the
year, it is far from satisfactory when compared to the rise in the
Consumer Price Index (“CPI”) of 3.2%. The share price total return
over the period was 0.8% as the discount ended the year at a
slightly wider margin of 2.4%.
This
financial year started ominously with the shotgun wedding of Credit
Suisse and UBS narrowly preventing the largest bank failure since
the global financial crisis in 2008. This financial fragility was
only part of a wall of worries facing investors including
stagflation in Europe, the spread
of war from Ukraine to the
Middle East and serious economic
dysfunction in China. Then ChatGPT
arrived, showcasing the phenomenal power of AI, and the mood music
in equity markets abruptly changed. Investor excitement focused on
the Magnificent Seven, US technology behemoths that seem likely to
dominate the early development of this world-changing technology.
The scale of these seven companies, which collectively returned
more than 65% in the year, created a narrowly-based bull market in
US equities. Meanwhile the persistence of inflation across the
developed world ensured interest rates remained high. Higher
funding costs have placed strain on those areas of the economy
exposed to leverage, whether indebted consumers experiencing a cost
of living crisis, or the slow moving and weak asset markets in
property and private equity.
The last
12 months proved to be another year of rising interest rates and
widening investment trust discounts as well as a period of sterling
strength. These factors impeded many defensive investment companies
and performance was pedestrian. However, the last two years have
been a period of dramatic repricing in the most significant markets
in which this Company invests, raising the prospect of improved
medium-term returns.
Earnings
and dividends
The amount
the Company receives in dividends and interest is the outcome of
the application of its investment policy, and the amounts
distributed to shareholders are designed to satisfy the Company’s
annual income distribution test to ensure that it maintains its
investment trust status.
Although
the Company, unusually, paid an additional special dividend to
shareholders in February this year in respect of its financial year
ended 31 March 2023, the Company’s
current intention is to continue to pay a single annual dividend in
July of each year.
Given the
significant increase in bond yields, the Company has received
appreciably more bond income compared to last year, but this year’s
revenue return per share for the year, after tax and expenses, was
69.74p, a decrease of 1.3% on last year. The Company is proposing a
dividend for the year ended 31 March
2024 of 78p per share. Subject to approval at the AGM, this
will be payable on 5 July 2024 to
shareholders on the share register as at 6
June 2024.
If bond
income remains high, the Company is likely to consider paying at
least part of future dividends as interest distributions. If
interest distributions are to be paid, further information will be
provided at the relevant time regarding any potential tax
consequences for shareholders.
Share
issuance and buybacks
During the
year, the discount control policy (“DCP”), which provides liquidity
for both buyers and sellers in the market at around NAV, played an
important role in reducing share price volatility. Over the last 12
months the Company has repurchased 4,220,036 shares for a total
consideration of £195 million.
For a period of approximately three months in the second half of
the year, the operation of the DCP was temporarily restricted while
the Company sought court approval to cancel the Company’s share
premium account and create an equivalent distributable reserve.
These restrictions were lifted in February
2024, and since then the DCP has been operating normally.
The Board remains committed to the DCP and is confident that the
issues experienced around availability of distributable reserves
will not occur again. At the year end, the share price discount to
net asset value per share was 2.4%.
Issuing at
a premium and buying back at a discount under the DCP more than
compensates for its operational costs and is modestly accretive to
NAV. Activity under the DCP added approximately 0.3% to shareholder
total returns over the last financial year.
Supplier
review process
Following
the administrative issues and delays experienced by the Company
over the last year in connection with the court process for the
cancellation of the Company’s share premium account, the Company
engaged an external consultant in late 2023 to assist the Board in
conducting a review of its operational arrangements. Following
completion of that review, the Board has decided to appoint
Frostrow Capital LLP and JP Morgan Securities to provide company
secretarial and administration, and DCP services respectively in
place of Juniper Partners. Transition arrangements are underway and
it is currently anticipated that these new providers will commence
provision of the services on 1 July
2024. In addition, it has been agreed that the Company would
benefit from enhanced investor relations and marketing services
which will be provided by CG Asset Management as Investment Manager
under a revised Investment Management and AIFM Services Agreement.
Together these new and revised service arrangements will result in
a modest increase in the Company’s costs and ongoing charges ratio
(“OCR”) as referred to below.
Costs
Although
we have previously been able to report that the Company’s running
costs have reduced substantially as a percentage of its net asset
value, as buy-backs over the past year have reduced the size of the
Company, there have been marginal increases in costs. The key
measure of the overall costs is the OCR. This is reported in two
ways. The OCR measured solely on the costs of running the Company
has increased from 0.46% to 0.47% this year. As disclosed in the
Key Information Document (“KID”), when the management costs of the
underlying funds into which the Company invests are also taken into
account, the OCR has risen from 0.64% last year to 0.69% this
year.
As
mentioned above, following the implementation of the outcome of the
Company’s supplier review process, the Company’s investment
management and administration costs will increase slightly. Based
on the Company’s net asset value as at 31
March 2024, these increased costs are expected to have the
effect of increasing the OCR by approximately 0.05%.
Board
matters
The Board
currently has a complement of five Directors and complies with the
recommendations of the Listing Rules, the Parker Review on
diversity in the UK boardroom and the FTSE Women Leaders
Review.
In the
last Annual Report we reported that Robin
Archibald, the current Audit and Risk Chairman and Senior
Independent Director, will retire at the conclusion of the AGM in
July. I would like to place on record our appreciation for the
valued and unstinting commitment he has shown to the Company, and
the Board, over the last nine years. Ravi
Anand will take over from Robin as Audit and Risk Chairman,
and I have no doubt the Company will continue to benefit from his
similarly extensive knowledge of accounting and corporate issues.
Wendy Colquhoun will assume the role
of Senior Independent Director.
Although I
have only held the role of Chairman since July 2020,
I have now served for nine years on the Board. To avoid two long
standing Directors standing down at the same time and facilitate an
orderly handover, my colleagues have asked me to remain on the
Board for a further period of one year and the current intention is
that I will retire at the Company’s AGM in 2025. We have commenced
a recruitment campaign and hope that we will be able to announce
the outcome in the next few months.
Annual
General Meeting
The AGM
will be held on Tuesday 2 July 2024
at 11.30am at the Numis Auditorium,
45 Gresham Street, London
EC2V 7BF.
I hope as
many shareholders as possible will be able to attend to take the
opportunity to meet the Board and to hear a presentation from the
Investment Manager. However, if you are unable to attend in person,
you can listen to the Investment Manager‘s presentation and watch
the AGM live by visiting:
https://stream.brrmedia.co.uk/broadcast/6633c53d2fcfbb6c6020254f
Full
details are set out in the Notice of Annual General Meeting on
pages 73 and 74 of the Annual Report. Further details on the
resolutions to be proposed at the AGM can be found on pages 28 and
29 of the Directors’ Report
in the Annual Report.
The Board
firmly believes that all the resolutions being proposed are in the
best interests of the Company and its shareholders and encourages
shareholders to vote by proxy in favour of the resolutions, as the
Board intends to do in respect of their own shareholdings. We would
encourage shareholders to return their votes by electronic proxy,
including by instructing their platform providers to vote on their
behalf if their shares are held through platform
nominees.
Outlook
Since the
pandemic, both bond and equity markets have experienced a roller
coaster ride with investor sentiment swinging from euphoria to
panic and back again. The worst inflationary episode since the
1970’s has resulted in a significant reset in the bond market.
Whilst this has proved a headwind for the Company over the last two
years, dramatically higher yields will also result in improved
medium term returns. Close to 70% of the portfolio is invested in a
range of high quality bonds all now yielding well in excess of
inflation. These should underpin returns for the next few
years.
The
extraordinary performance of the Magnificent Seven may have
stretched US equity valuations too far and recent extreme
volatility in those mega-capitalisation stocks may point to
investor nervousness. By contrast, investment trust discounts,
which recently hit lows last seen in the global financial crisis,
are showing tentative signs of improvement. The Investment Manager
believes this is a compelling opportunity and that the Company’s
exposure to this corner of the equity markets can, over time,
deliver strong returns without undue risk.
As the
tectonic plates of macro-economic fragility and technological
change grind against one another, no one can tell when or where the
next earthquake will occur. This Company exists to protect its
shareholders from just these sort of disruptions. This risk averse
approach will inevitably result in periods of muted performance,
but the Board shares the Investment Manager’s belief that the
Company’s portfolio is well placed to achieve its objectives going
forward.
Jean
Matterson
Chairman
Investment Manager’s Report
Your
Company delivered a NAV total return of 1.8% for the year, which
was an improvement on the previous year but still less than the
rate of inflation and therefore not satisfactory.
We began
the year defensively positioned and, as things turned out, were too
cautious. Chief among our concerns was that years of ultra-low
interest rates had caused a buildup of risk throughout the
financial system which would be revealed by higher interest rates
and the shrinking money supply. This is hardly a new phenomenon.
Writing in 1848, Walter Bagehot put it as follows: “It is a fact of
experience, that when the interest of money is two per cent,
capital habitually emigrates, or, what is here the same thing, is
wasted on foolish speculations, which never yield any adequate
return.”
As it
turned out, the spat of bank failures in the spring of 2023 were
contained with little spillover into other markets. Outside of the
banking system, credit losses so far have been modest: losses in
commercial real estate lending have been manageable, private equity
backed companies appear to be able to withstand much higher costs
of borrowing, consumer confidence has not cracked despite rising
mortgage rates and residential construction, in the US at least,
has remained strong. Money supply in the US, as measured by M2 is
growing again, alleviating pressure on the financial
system.
Our second
concern was that inflation would prove much stickier than markets
expected and the subsequent repricing of both inflation and
interest rate expectations would have unpleasant knock-on impacts
on both bond and equity markets. The first part proved correct.
Inflation did not fall back to target in either the UK or the US
and seems unlikely to return to target on a sustainable basis for
some time. Ten year yields rose by about 0.7% in the US to 4.2% and
0.4% in the UK to 3.9%. Yet equity markets rose, completely
unperturbed, to record highs. Frankly, this was puzzling. Equity
prices are nothing more than the discounted value of their future
cashflows, as the discount rate rises that present value falls.
More subtly, but no less significant, the nominal return on equity
tends not to rise during inflationary periods, meaning that the
real return on equity falls. In addition, accounting profits become
overstated during periods of inflation as the cost of replacing
property, plant and equipment exceeds depreciation. All this should
lead to falling and not rising PE multiples.
With
rising yields, our index-linked bond holdings struggled to make
headway, despite the larger than expected inflation accruals. They
returned -0.5% for the year with most of the negative performance
attributable to US TIPS, not helped by Sterling’s appreciation.
Whilst a disappointing return, it was ahead of the Bloomberg Global
Index-Linked Bond Index which was down 1.9%. The Company’s
UK index-linked holdings were a bright spot. We added aggressively
to 2028 and 2029 linkers as yields rose over the summer, having
generated annualised returns of around 7% per annum on our
purchases, and have since taken some profits. Less satisfactory was
our holding of Japanese index-linked bonds and Japanese treasury
bills which have been poor performers as the Yen continued to
depreciate against all major currencies.
The credit
portfolio performed well generating returns of 7.0%, the holdings
of speculative grade credit did better returning 10.5%. Spreads
have contracted materially which, combined with our cautious
outlook for interest rates, has resulted in our taking profits and
recycling into treasury bills and investment trust
special situations.
Risk
assets performed adequately, returning a little under 5.6%.
Equities and property returned 12.6% and 11.6% respectively. Among
the best contributors were some of our investment trust holdings.
Pershing Square Holdings delivered a return of 47.8%. Originally
built during the teeth of the Covid pandemic at an average price of
$17.57, the investment has since
delivered strong underlying NAV performance which, combined with
discount narrowing, resulted in the share price reaching
$49.52 at year end. A more recent
addition in 2022 was AVI Global Trust which, itself, invests in
discounted investment trusts, holding companies and conglomerates.
Again, strong underlying NAV performance and discount narrowing led
to returns of 28.6% in the year.
The
Company’s infrastructure holdings performed poorly returning -15.1%
over the year and it is within this category that the largest
detractors to performance are found. Discounts on high quality
infrastructure stocks rose dramatically and finished the year at an
average of c. 20% across the sector. These discounts cannot be
explained by investor concerns that the net asset values of these
companies are overstated – all our major holdings reported
extensive sales of assets at or above book value. Instead, their
performance reflected technical dislocations in the wider
alternatives sector of the investment trust market. Able, for the
first time in over a decade, to earn reasonable returns on
short-dated
government bonds, investors have shunned alternative trusts. With
the supply of shares fixed (at least in the short term), a collapse
in demand meant that price inevitably took up the slack. We think
these offer fantastic prospective returns with relatively low risk
and have added materially to our holdings such that infrastructure
now makes up 8% of the portfolio.
Outlook
If we are
right that the world is in a structurally more inflationary
environment, then the outlook for nominal bonds remains poor. This
is exacerbated by the fiscal situation in developed countries. The
average budget deficit across the G8 is forecast to be 4.6% in
2025, so the supply of bonds will increase while central banks
continue to reduce their balance sheets. Added to which there is no
imminent sign of recession, nor any discernible term premium in
longer dated bonds.
The
outlook for index-linked bonds is more nuanced. Real yields in the
US are above 2% across the length of the treasury curve. It appears
that the sustainable growth rate of the US economy has risen
materially which suggests that these real interest rates are close
to fair value. However, the fiscal position is poor and looks set
to deteriorate. Real interest rates at these levels will not be
sustainable if there is no prospect of bringing fiscal deficits
under control. Left unchecked, financial repression – characterised
by negative real interest rates – will be necessary. What is less
certain is the path. Index-linked bonds trade in sympathy with
nominal bonds. If nominal bonds are weak, as seems plausible,
index-linked will most likely suffer with them. Yet the long-term
prospects look fair or, should financial repression be enacted,
excellent.
Risk
assets present a similar conundrum. US equities have rarely been so
expensive. The cyclically adjusted PE ratio stands at 34x today, it
reached 38x during the “everything bubble” of 2021 and otherwise
was only higher during the technology bubble. Market breadth has
fallen dramatically as returns are increasingly concentrated in the
so-called Magnificent
Seven. Microsoft
trades on a free cash flow yield of 1.7%. To deliver acceptable
returns, from this starting valuation, it needs to be able to grow
its free cashflow between 8-10% per annum in
perpetuity.
In
attempting to justify these high prices, investors might point to
the huge outperformance of US earnings both against the rest of the
world and against their own history. While tempting to attribute
this to American exceptionalism, that is only part of the story.
More significant in recent years has been the contribution from
collapsing interest expenses and corporation tax rates. Having
termed out their debt, it may be some years before interest
expenses rise meaningfully, but it seems unlikely they can fall.
With the US running ever larger fiscal deficits, we would not
expect corporation tax to continue to fall. But with the
possibility of a Trump presidency, nothing should be ruled out. In
any event, it seems that this large tailwind to earnings will
become a headwind.
While the
prospect for US equities looks poor, the outlook for investment
trusts is the most attractive that it has been for years. Discounts
on investment trusts are the widest they have been since the global
financial crisis. Furthermore, these discounts are broad based and
include the larger, more liquid high quality trusts. In response we
have added to our investment trust holdings, partly financed by
sales of ETFs and partly from cash. We are optimistic that these
holdings will provide better returns than broader equity
markets.
Peter Spiller
Alastair Laing
Christopher Clothier
CG
Asset Management Limited
Principal Risks and Risk Management
The
Company has been subject to significant economic headwinds, such as
substantial market movements, inflationary pressures and increasing
interest rates. This makes preserving shareholders’ real wealth,
far less growing it, challenging. The central aims remain to
preserve value in the Company’s portfolio and liquidity in the
Company’s shares.
The
Directors aim to ensure that the Company maintains its investment
strategy, has operational resilience, meets its regulatory
requirements as an investment trust and navigates the financial and
economic circumstances.
The
Directors have carried out a robust assessment of the principal and
emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. The principal risks and uncertainties facing the
Company, together with the mitigating actions the Board takes, are
set out in the table below.
The
Company faces continuing risks of geopolitical events such as
conflict in the Middle East and
Ukraine and volatility in the
equity markets. It is difficult to assess how these exogenous risks
will impact the Company, but they do introduce caution on returns
that might be achieved in the future given the inflationary impact
on equity and bond returns and the risk of market shocks caused by
geopolitical risk. The Investment Manager continues to apply
protective measures in constructing the portfolio but is also aware
that an ‘oversold market’ can present opportunities as well and it
retains liquidity in the portfolio to exploit these if they become
available.
Risk
|
Mitigation
|
Investment
strategy and performance
The Board
is responsible for setting the investment strategy of the Company
and monitoring investment performance. Inappropriate strategy
and/or poor investment performance may have an
adverse effect
on shareholder returns.
There is
increasing awareness of the challenges and emerging risks posed by
climate change. The investment process considers ESG factors, as
set out in the Strategic Review. Overall the specific potential
effects of climate change are difficult, if not impossible, to
predict and the Board and Investment Manager will continue to
monitor developments in this area.
Geopolitical
risk has always been part of the investment process. The risk has
heightened as a result of the Russian invasion of Ukraine and
recent events in the Middle East. Inflation, heightened interest
rates and discounts on investment companies’ shares have had and
will continue to have a significant impact on the Company and its
investment portfolio.
Increased
overall risk due to inflation, higher interest rates, supply issues
and ongoing global political tensions and the impact of heightened
interest rates.
|
The
Company’s strategy is formally reviewed by the Board at least
annually, considering investment performance, shareholder views,
developments in the marketplace and the structure of the
Company.
Investment
performance is reviewed by the Board on a regular basis against
CPI. The composition of the portfolio is provided at each Board
meeting and allows the monitoring of the spread of investments and
associated investment risks. The Investment Manager’s approach to
ESG is set out on pages 21
to 25 of the Annual Report. The Company has limited direct impact
on the environment as it invests primarily in government bonds and
closed ended and other collective investment vehicles. Stock
selection, portfolio composition and liquidity are explained in
detail by the Investment Manager at each meeting.
The
Investment Manager is formally appraised at least annually by the
Management Engagement Committee.
|
Premium/discount
level
The
Company’s share price could be impacted by a range of factors
causing it to be higher than (at a premium to) or lower than (at a
discount to) the underlying NAV per share.
Excessive
demand for, or supply of, shares can create liquidity issues,
restricting the ability of investors to buy and sell shares in the
secondary market.
Fluctuations
in the share price can cause volatility which may not be reflective
of the underlying investment portfolio.
Risk
remains relatively unchanged
|
The
Company operates a discount/premium control policy, under which it
aims to purchase or issue shares to ensure, in normal market
conditions, that the shares trade close to their underlying NAV per
share. The DCP increases liquidity and reduces volatility by
preventing the build-up of excessive demand and/or supply for the
Company’s shares which, the Board believes, is in the best
interests of shareholders. The DCP continues to be reviewed to
ensure liquidity for issuance and buyback.
The levels
of issuance/buyback of shares are reported to the Board on an
ongoing basis and at each Board meeting the Board considers the
Investment Manager’s ability to invest new proceeds (in the case of
issuance) and maintain sufficient liquidity (in the case of
buybacks) to meet the demands of the DCP. Since the inception of
the DCP, the Company has issued and bought back a substantial
number of shares, with the more recent trend being buying
back.
The full
operation of the DCP was restored during the year when substantial
distributable reserves were created.
|
Operational
The
Company is reliant on third-party service providers and key teams
at such service providers. Failure of the internal control systems
of these third parties could result in inaccurate information being
reported or risk to the Company’s assets.
Increased
risk due to the risks associated with the transition to new
suppliers
|
The Audit
and Risk Committee formally reviews each service provider at least
annually, considering their reports on internal controls,
information security, and the resources available to them. The
Management Engagement Committee reviews the service levels and how
the service providers have performed.
The
operational requirements of the Company from its service providers
are subject to rigorous testing including the use of office/home
working and online communication. Additionally, the Investment
Manager’s and Administrator’s technology environments are
continually maintained and subject to regular testing,
vulnerability scans and patch management. As part of this review
the Board considers the measures taken by each supplier to mitigate
its cybersecurity risk.
The
transition of secretarial and administration services and operation
of the DCP to Frostrow Capital LLP and JP Morgan Securities
respectively has been carefully planned and is not expected to
result in the disruption of services required by the Company.
Further details of the Company’s internal control and risk
management system is provided on pages 34
and 35 of the Annual Report.
|
Regulatory
and governance
The
Company operates in a regulatory environment. Failure to comply
with section 1158 of the Corporation Tax Act 2010 could result in
the Company losing investment trust status and being subject to tax
on capital gains. Failure to comply with other regulations could
result in financial penalties or the suspension of the Company’s
listing on the London Stock Exchange.
Risk
remains relatively unchanged
|
Compliance
with relevant regulations is monitored on an ongoing basis by the
Company Secretary and Investment Manager who report regularly to
the Board. The Board also takes into account increasing governance
requirements and complies with them wherever practical or explains
why there is any divergence.
The Board
monitors changes in the regulatory environment and receives
regulatory updates from the Investment Manager, Company Secretary,
lawyers and auditors as relevant.
The Board
is appraised of corporate governance issues and changes and as far
as practical the Company complies with governance guidance or
explains where it does not and meets the guidance of the AIC Code
(refer to page 31 of the Annual Report).
|
Financial
and economic
The
Company’s investments are impacted by financial and economic
factors including market prices, interest rates, foreign exchange
rates and credit which could cause losses to the
investment portfolio.
Risk
has been heightened by inflationary and interest rate increases and
geopolitical events
|
The Board
regularly reviews and monitors the management of market risk,
interest rate risk, foreign currency risk and credit risk. These
are explained in detail in note 15 to the financial statements on
pages 64
to 70 of the Annual Report. Inflation, and geopolitical risks, are
considered a component of market risk, with the impact of higher
inflation and interest rates and events in Ukraine and the Middle
East taken into account.
The
Company has sufficient cash resources and liquidity in its
portfolio to meet its operating requirements, including the
operation of DCP. In common with most commercial operations, there
are always exogenous risks and consequences, which are difficult to
predict and plan for in advance. The Company does what it can to
address these risks when they emerge, not least operationally and
in trying to meet its investment objective.
|
Directors' Responsibilities Statement in Respect of the
Annual Financial Report and the Financial
Statements
Each of
the Directors, whose names and functions are listed in the
Governance Report, confirms that, to the best of his or her
knowledge:
-
the
Company’s Financial Statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102,
and applicable law), give a true and fair view of the assets,
liabilities, financial position and net return of the
Company;
-
the
Board’s Strategic Report includes a fair review of the development
and performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces; and
-
the Annual
Report, taken as a whole, is fair, balanced and understandable and
provides information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
Going Concern
The
Company’s investment objective and business activities, together
with the main factors likely to affect its future development and
performance, are described in the Board’s Strategic Report. The
financial position of the Company, including its cash flows and
liquidity positions, is also described in the Strategic Report and
financial statements contained in the Annual Report. The Board
works closely with the Investment Manager and the Company Secretary
to ensure that the Company’s operations are resilient, and its
portfolio robust enough to meet challenges and opportunities. The
Directors believe that the Company is well placed to manage its
business risks successfully and consider that the Company currently
has adequate resources, an appropriate financial structure and
suitable management arrangements in place to continue in
operational existence. For this reason, they continue to adopt the
going concern basis in preparing the annual report and financial
statements. The Directors do not consider that there are any
material uncertainties to the Company’s ability to continue to
adopt this approach over a period of twelve months from the date of
approval of these financial statements.
For
further information contact:
CG
Asset Management Limited
Investment
Manager
Tel:
020 3906 1633
Juniper
Partners Limited
Company
Secretary
Tel:
0131
378 0500
The
Income Statement, Statement of Changes in Equity, Statement of
Financial Position, and Cash Flow Statement
follow.
Income
Statement
for
the year ended 31 March
2024
|
Year
ended 31 March 2024
|
Year ended
31 March 2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Net losses on investments
|
-
|
(3,113)
|
(3,113)
|
-
|
(68,449)
|
(68,449)
|
Net currency losses
|
-
|
(109)
|
(109)
|
-
|
(547)
|
(547)
|
Investment income
|
25,145
|
-
|
25,145
|
24,846
|
-
|
24,846
|
Other income
|
400
|
-
|
400
|
93
|
-
|
93
|
Gross
return
|
25,545
|
(3,222)
|
22,323
|
24,939
|
(68,996)
|
(44,057)
|
Investment management fee
|
(4,298)
|
-
|
(4,298)
|
(4,620)
|
-
|
(4,620)
|
Other expenses
|
(1,070)
|
-
|
(1,070)
|
(974)
|
-
|
(974)
|
Net return before tax
|
20,177
|
(3,222)
|
16,955
|
19,345
|
(68,996)
|
(49,651)
|
Tax charge on net return
|
(3,220)
|
-
|
(3,220)
|
(1,739)
|
-
|
(1,739)
|
Net return attributable to equity
shareholders
|
16,957
|
(3,222)
|
13,735
|
17,606
|
(68,996)
|
(51,390)
|
Net return per Ordinary share
|
69.74p
|
(13.25)p
|
56.49p
|
70.67p
|
(276.96)p
|
(206.29)p
|
The total
column of this statement represents the income statement of the
Company. The revenue return and capital return columns are
supplementary to this and are prepared under guidance issued by the
Association of Investment Companies.
All
revenue and capital items in the above statement derive from
continuing operations. There are no gains or losses other than
those recognised in the income statement and therefore no statement
of comprehensive income has been presented. The following notes
form an integral part of these financial statements.
Statement
of Changes in Equity
for
the year ended 31 March
2024
|
Called-up share capital
£’000
|
Share premium account
£’000
|
Capital redemption reserve
£’000
|
Special reserve*
£’000
|
Realised Capital reserve*
£’000
|
Unrealised Capital reserve*
£’000
|
Revenue reserve*
£’000
|
Total equity shareholders’ funds
£’000
|
Opening balance at 1 April 2022
|
5,223
|
816,009
|
16
|
-
|
159,561
|
57,222
|
11,804
|
1,049,835
|
Net return attributable to equity shareholders and total
comprehensive income for the year
|
-
|
-
|
-
|
-
|
(3,801)
|
(65,195)
|
17,606
|
(51,390)
|
New shares issued
|
1,422
|
285,744
|
-
|
-
|
-
|
-
|
-
|
287,166
|
Shares bought back into treasury
|
-
|
-
|
-
|
-
|
(15,334)
|
-
|
-
|
(15,334)
|
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
-
|
(10,558)
|
(10,558)
|
Total transactions with owners recognised directly in
equity
|
1,422
|
285,744
|
-
|
-
|
(15,334)
|
-
|
(10,558)
|
261,274
|
Closing balance at 31 March 2023
|
6,645
|
1,101,753
|
16
|
-
|
140,426
|
(7,973)
|
18,852
|
1,259,719
|
|
|
|
|
|
|
|
|
|
Opening balance at 1 April 2023
|
6,645
|
1,101,753
|
16
|
-
|
140,426
|
(7,973)
|
18,852
|
1,259,719
|
Net return attributable to equity shareholders and total
comprehensive income for the year
|
-
|
-
|
-
|
-
|
(1,980)
|
(1,242)
|
16,957
|
13,735
|
Cancellation of share premium account
|
-
|
(1,101,753)
|
-
|
1,101,753
|
-
|
-
|
-
|
-
|
Shares bought back into treasury
|
-
|
-
|
-
|
(64,350)
|
(130,776)
|
-
|
-
|
(195,126)
|
Dividends paid
|
-
|
-
|
-
|
|
-
|
-
|
(18,155)
|
(18,155)
|
Total transactions with owners recognised directly in
equity
|
-
|
(1,101,753)
|
-
|
1,037,403
|
(130,776)
|
-
|
(18,155)
|
(213,281)
|
Closing balance at 31 March 2024
|
6,645
|
-
|
16
|
1,037,403
|
7,670
|
(9,215)
|
17,654
|
1,060,173
|
*These
reserves are available for distribution (except for the unrealised
gains on Level 3 investments detailed in Note 4).
Statement
of Financial Position
as
at 31 March 2024
|
31
March 2024
£’000
|
31 March
2023
£’000
|
Fixed assets
|
|
|
Investments
held at fair value through profit or loss
|
1,053,792
|
1,251,801
|
Current
assets
|
|
|
Debtors
|
4,500
|
7,892
|
Cash at bank
|
11,643
|
13,766
|
|
16,143
|
21,658
|
Creditors:
amounts falling due within one year
|
(9,762)
|
(13,740)
|
Net current assets
|
6,381
|
7,918
|
Total
assets less current liabilities
|
1,060,173
|
1,259,719
|
Capital
and reserves
|
|
|
Called-up
share capital
|
6,645
|
6,645
|
Share
premium account
|
-
|
1,101,753
|
Capital
redemption reserve
|
16
|
16
|
Special
reserve
|
1,037,403
|
-
|
Capital
reserve
|
(1,545)
|
132,453
|
Revenue
reserve
|
17,654
|
18,852
|
Total
equity shareholders’ funds
|
1,060,173
|
1,259,719
|
Net asset
value per Ordinary share
|
4,810.5p
|
4,797.3p
|
The financial statements were approved by the Board on 23 May 2024 and signed on its behalf
by:
Jean
Matterson
Chairman
Cash
Flow Statement
for
the year ended 31 March
2024
|
Year ended 31 March 2024
£’000
|
Year ended 31 March 2023
£’000
|
Net
cash inflow from operating activities
|
10,612
|
16,499
|
Payments
to acquire investments
Receipts
from sale of investments
|
(809,667)
1,006,421
|
(1,037,482)
713,875
|
Net
cash inflow/(outflow) from investing activities
|
196,754
|
(323,607)
|
Equity
dividends paid
|
(18,155)
|
(10,558)
|
Repurchase
of Ordinary shares
|
(191,334)
|
(15,315)
|
Proceeds
from the issue of Ordinary shares
|
-
|
297,172
|
Cost of
share issues
|
-
|
(1,036)
|
Net
cash (outflow)/inflow from financing activities
|
(209,489)
|
270,263
|
Decrease
in cash and cash equivalents
|
(2,123)
|
(36,845)
|
Cash and
cash equivalents at start of year
|
13,766
|
50,611
|
Cash
and cash equivalents at end of year
|
11,643
|
13,766
|
Notes:
-
Capital Gearing
Trust P.l.c. is a public company limited by shares, incorporated
and domiciled in Northern Ireland
and carries on business as an investment trust.
The
accounts are prepared in accordance with the Companies Act 2006,
United Kingdom Generally Accepted Accounting Practice (Accounting
Standards “UK GAAP”) including Financial Reporting Standard (FRS)
102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland” and the Statement of Recommended Practice
“Financial Statements of Investment Trust Companies and Venture
Capital Trusts” (the “SORP”) issued by the Association of
Investment Companies in 2022. All of the Company’s operations are
of a continuing nature.
The
accounts have been prepared on a going concern basis under the
historical cost convention, as modified by the revaluation of
investments held at fair value through profit or loss.
Estimates
and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. There are no critical accounting estimates or
judgements.
-
Investment
income
|
Year to 31
March
2024
£’000
|
Year to 31
March
2023
£’000
|
Income
from investments:
|
|
|
Interest
from conventional UK bonds
|
8,813
|
5,125
|
Interest
from index-linked UK bonds
|
1,159
|
995
|
Income from
UK equity and non-equity investments
|
9,435
|
10,986
|
Interest
from conventional overseas bonds
|
3,260
|
2,215
|
Interest
from index-linked overseas bonds
|
2,160
|
2,758
|
Income
from overseas equity and non-equity investments
|
318
|
2,767
|
Total
income
|
25,145
|
24,846
|
|
Year to 31
March 2024
£’000
|
Year to 31
March 2023
£’000
|
Total
income comprises:
|
|
|
Dividends
|
7,460
|
10,731
|
Property
income and interest distributions
|
2,293
|
3,022
|
Interest
from bonds
|
15,392
|
11,093
|
Deposit
interest
|
400
|
81
|
Other
income
|
-
|
12
|
|
25,545
|
24,939
|
|
Year to 31
March 2024
£’000
|
Year to 31
March 2023
£’000
|
Income
from investments comprises:
|
|
|
Listed in
the UK
|
19,407
|
17,106
|
Listed
overseas
|
5,738
|
7,740
|
|
25,145
|
24,846
|
-
During the year
to 31 March
2024, the Company did not issue (2023: 5,688,288) any
Ordinary shares for cash proceeds totalling £nil (2023:
£287,166,000). No Ordinary shares (2023: nil) were re-issued from
treasury by the Company.
During the
year to 31 March
2024, 4,220,036 (2023: 321,500) Ordinary shares were
repurchased by the Company for a total cost of £195,126,000 (2023:
£15,334,000). All shares were bought back at a discount to NAV. No
shares were purchased for cancellation during the year (2023: nil)
and at the year-end 4,541,536 shares were held in treasury
(2023: 321,500).
-
The
Company’s assets are measured at fair value through profit or loss.
The fair value of financial instruments traded in active markets is
based on quoted market prices at the Statement of Financial
Position date.
A market
is regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arm’s length
basis.
Fair
Value Hierarchy
Financial
Reporting Standard 102 requires an entity to classify fair value
measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The
fair value hierarchy has the following levels:
Level 1:
valued using unadjusted quoted prices in active markets for
identical assets.
Level 2:
valued using observable inputs other than quoted prices included
within Level 1.
Level 3:
valued using inputs that are unobservable and are valued by the
Directors using International Private Equity and Venture Capital
Valuation (‘IPEV’) guidelines, such as earnings multiples, recent
transactions and net assets, which equate to their fair
values.
As at
31 March 2024, £1,051,371,000 (2023:
£1,251,177,000) of the Company’s investments were classified as
Level 1, with no investments (2023: none) classified as Level 2,
and with £2,421,000 (2023: £624,000) classified as Level 3. During
the year to 31 March 2024, three
assets (Secured Income Fund, Ediston Property Investment Company,
and Troy Income & Growth Trust) were moved from Level 1 to
Level 3 as they delisted. (2023: two assets (Jupiter Emerging and
Frontier Income Trust and Fundsmith Emerging Equities Trust) were
moved from Level 1 to Level 3 as they delisted).
The above
provides an analysis of financial assets and financial liabilities
based on the fair value hierarchy. Short term balances are excluded
as their carrying value at the reporting date approximates to their
fair value.
-
Reconciliation
of net return on ordinary activities before tax to net cash inflow
from operating activities
|
Year
to 31 March 2024
£’000
|
Year to 31
March 2023
£’000
|
Net return
on ordinary activities before tax
|
16,955
|
(49,651)
|
Capital
return before tax
|
3,222
|
68,996
|
Losses on
foreign currency transactions
|
(109)
|
(547)
|
Increase in
prepayments
|
(16)
|
(5)
|
Increase in
accruals and accrued income
|
18
|
39
|
Decrease/(increase)
in recoverable tax
|
4
|
(10)
|
(Increase)/decrease
in dividends receivable
|
(165)
|
186
|
Increase in
accrued interest
|
(5,213)
|
(1,520)
|
Overseas
withholding tax paid
|
(41)
|
(115)
|
UK
Corporation tax paid
|
(4,043)
|
(874)
|
Net
cash inflow from operating activities
|
10,612
|
16,499
|
-
With the
exception of the management fee (as disclosed on
page 26
of the annual report), and the Directors’ fees and shareholdings
(as disclosed in the Directors Remuneration Report on
pages 37
and 38 of the Annual Report), there have been no related party
transactions in the year ended 31 March
2024.
-
These are not
statutory accounts in terms of Section 434 of the Companies Act
2006.
Full audited
accounts for the year to 31 March
2024 will be sent to shareholders shortly. The audited
accounts for the year ended 31 March
2024 will be lodged with the Registrar of
Companies.