CGT Capital Gearing Trust Plc

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:

 

2. 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.

 

3. 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

 

4. 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).

 

5. 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.

 

 

6. 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

 

 

7. 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.

 

8. 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.