SC137448031 December 202101 January 2021The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether they have been prepared in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in
the UK governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.Basis of accounting. The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards.
The Company’s assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a £10 million credit facility comprised of a fixed rate £5 million loan which expires in 2023 and a revolving £5 million loan which expires in April 2022. A replacement option for the revolving element of the facility is currently being sought but, should the Board decide not to renew this facility, any outstanding borrowing would be repaid through the proceeds of investment sales as required. The Company undertakes a continuation vote every five years. The last continuation vote was passed at the AGM held in June 2020 with 99.7% of votes in favour. Having taken these factors into account as well as the impact of Covid-19 and having assessed the principal risks set out in the Strategy Report on pages 19 to 21, the Directors believe that, after making enquiries, the Company has adequate financial resources to continue in operational existence
for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period until at least 31 December 2023. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.
In preparing these financial statements the Directors have considered the impact of climate change risk as an emerging risk as set out on page 20, and have concluded that it does not have a material impact on the Company’s investments. In line with IFRS investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the Balance Sheet date and therefore reflect market participants view of climate change risk.
The financial statements have also been prepared in accordance with the Statement of Recommended Practice (SORP), “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in April 2021 to the extent that it is consistent with IASs.Investments. The Company has adopted the classification and measurement provisions of IFRS 9 ‘Financial Instruments’.
The Company classifies its equity investments and debt instruments based on their contractual cash flow characteristics and the Company’s business model for managing the assets. Equity investments fail the contractual cash flows test so are measured at fair value. For debt instruments, the business model is the determining feature and they are managed, performance monitored and risk evaluated, on a fair value basis. The Manager is also compensated based on the fair value of the Company’s assets. Consequently, all investments are measured at fair value through profit or loss.
Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured at fair value. For listed investments, the valuation of investments at the year end is deemed to be bid market prices or closing prices for SETS (London Stock Exchange’s electronic trading service) stocks sourced from the London Stock Exchange.
Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Transaction costs are treated as a capital cost.Dividend income from equity investments, including preference shares which have a discretionary dividend is recognised when the shareholders’ rights to receive payment have been established, normally the ex-dividend date. Special dividends are allocated to revenue or capital based on their individual merits. Dividends payable. Interim dividends are recognised in the financial statements in the period in which they are paid.Interest from debt securities, and income from preference shares which do not have a discretionary dividend are accounted for on an accruals basis. Any write-off of the premium or discount on acquisition as a result of using this basis is allocated against the revenue reserve in accordance with the SORP.
Interest receivable on AAA rated money market funds and short term deposits are accounted for on an accruals basis.
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the management fee and finance costs have been allocated 30% to revenue and 70% to capital (2020 – same), in order to reflect the Directors’ expected long-term view of the nature of the investment returns of the Company. This allocation is reviewed on a regular basis.The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the Balance Sheet date.Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound.The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the Balance Sheet date.
Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound.Factors that might affect future tax charges. No provision for deferred tax has been made in the current or prior accounting year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.
At the year end, the Company has for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £16,503,000 (2020 – £15,534,000). It is unlikely that the fund will generate sufficient taxable profits in the future to utilise these amounts and therefore no deferred tax asset has been recognised.11055Liquidity risk. This is the risk that the Company will encounter difficulty raising funds to meet its cash commitments as they fall due. Liquidity risk may result from either the inability to sell financial instruments quickly at their fair value or from the inability to generate cash inflows as required.
Management of the risk. Liquidity risk is not considered to be significant as the Company’s assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan facilities (note 12).Credit risk. This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
Management of the risk. The Company considers credit risk not to be significant as it is actively managed as follows:
– where the Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;
– investments in quoted bonds are made across a variety of industry sectors so as to avoid concentrations of credit risk;
– investment transactions are carried out on a delivery versus payment basis with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;
– the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodian’s records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager’s compliance department carries out periodic reviews of the custodian’s operations and reports its finding to the Manager’s risk management committee.
– cash is held only with reputable banks with high quality external credit ratings.
None of the Company’s financial assets are secured by collateral or other credit enhancements.111n/aSC1374482021-12-31SC1374482020-12-31SC1374482019-12-31SC1374482021-01-012021-12-31SC1374482020-01-012020-12-31SC137448ns1:Chairman2021-01-012021-12-31SC137448ns1:Director12021-01-012021-12-31SC137448ns1:Director22021-01-012021-12-31SC137448ns1:Director42021-01-012021-12-31SC137448ns1:Director32021-01-012021-12-31SC137448ns1:CompanySecretary12021-01-012021-12-31SC137448ns1:RegistrarInformation2021-01-012021-12-31SC137448ns1:RegisteredOffice2021-01-012021-12-31SC137448ns1:Director12021-12-31SC137448ns2:Non-currentFinancialInstruments2021-12-31SC137448ns2:CurrentFinancialInstruments2020-12-31SC137448ns2:Non-currentFinancialInstruments2020-12-31SC137448ns2:SharePremium2021-12-31SC137448ns2:ShareCapital2021-12-31SC137448ns2:SharePremium2020-12-31SC137448ns2:CurrentFinancialInstruments2021-12-31SC137448ns2:ShareCapital2020-12-31SC137448ns2:CapitalRedemptionReserve2020-12-31SC137448ns2:CapitalReserve2021-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2020-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2021-12-31SC137448ns2:CapitalReserve2020-12-31SC137448ns2:ShareCapital2019-12-31SC137448ns2:SharePremium2019-12-31SC137448ns2:CapitalReserve2019-12-31SC137448ns2:CapitalRedemptionReserve2019-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2019-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2021-01-012021-12-31SC137448ns2:CapitalRedemptionReserve2021-12-31SC137448ns2:UKTax2021-01-012021-12-31SC137448ns2:CapitalReserve2021-01-012021-12-31SC137448ns1:AllOrdinaryShares2020-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2020-01-012020-12-31SC137448ns2:UKTax2020-01-012020-12-31SC137448ns2:CapitalReserve2020-01-012020-12-31SC137448ns2:SharePremium2021-01-012021-12-31SC137448ns2:InterestRateRiskns2:FixedRateInterestBearingFinancialInstruments2021-12-31SC137448ns2:InterestRateRisk2021-01-012021-12-31SC137448ns2:InterestRateRiskns2:VariableRateInterestBearingFinancialInstruments2021-12-31SC137448ns1:AllOrdinaryShares2021-01-012021-12-31SC137448ns2:CapitalRedemptionReserve2021-01-012021-12-31SC137448ns1:AllOrdinaryShares2021-12-31SC137448ns2:OtherMarketRisk2021-01-012021-12-31SC137448ns2:InterestRateRiskns2:FixedRateInterestBearingFinancialInstruments2020-12-31SC137448ns2:MaximumCreditRiskExposure2021-12-31SC137448ns2:LiquidFinancialInstrumentsns2:WithinOneYear2020-12-31SC137448ns2:InterestRateRiskns2:VariableRateInterestBearingFinancialInstruments2020-12-31SC137448ns2:MaximumCreditRiskExposure2020-12-31SC137448ns2:LiquidFinancialInstrumentsns2:WithinOneYear2021-12-31SC137448ns2:FairValuens2:Level12021-12-31SC137448ns2:FairValue2021-12-31SC137448ns2:LiquidFinancialInstrumentsns2:BetweenOneTwoYears2020-12-31SC137448ns2:LiquidFinancialInstrumentsns2:BetweenOneTwoYears2021-12-31SC137448ns2:FairValuens2:Level12020-12-31SC13744812021-01-012021-12-31SC137448ns2:FairValue2020-12-31SC137448ns2:LiquidFinancialInstrumentsns2:BetweenTwoThreeYears2020-12-31SC137448ns2:FairValuens2:Level22020-12-31SC137448ns5:PoundSterling2021-01-012021-12-31SC137448ns2:FairValuens2:Level22021-12-31SC137448ns1:PublicLimitedCompanyPLC2021-01-012021-12-31SC137448ns1:FullAccounts2021-01-012021-12-31SC137448ns1:FullIFRS2021-01-012021-12-31SC137448ns1:Audited2021-01-012021-12-31iso4217:GBPxbrli:shares
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Annual Report 31 December 2021
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