Investment Co. Regulatory News (INV)

THE INVESTMENT COMPANY PLC - Annual Financial Report

PR Newswire

London, October 1

THE INVESTMENT COMPANY PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2015

The full Annual Report and Accounts for the year ended 30 June 2015 can be found on the Company’s website: http://www.mitongroup.com/tic.

DIRECTORS (all non-executive)

Sir David Thomson Bt. (Chairman)S. J. CockburnP. S. AllenM. H.W. Perrin (Audit Committee Chairman) 

STRATEGIC REPORT

SUMMARY OF RESULTS

* Excluding shares held in treasury.** The total return per ordinary share is based on total comprehensive income after taxation as detailed in the Consolidated Statement of Comprehensive Income and in note 6 below and is shown to enable comparison with other investment trust companies.

FINANCIAL CALENDAR

November Payment of first interim dividend for the year ending 30 June 2016.

December Annual General Meeting.

February Payment of second interim dividend for the year ending 30 June 2016.

February/ March Announcement of Half-Yearly Financial Report.

May Payment of third interim dividend for the year ending 30 June 2016.

August Payment of fourth interim dividend for the year ending 30 June 2016.

September/October Announcement of Annual Results.

CHAIRMAN’S STATEMENT

This is my second annual statement since The Investment Company (“the Company”) was reorganised in June 2013.

Over the year to 30 June 2015, the NAV of the Company fell slightly from 394.41p to 389.34p, a reduction of 1.3%. The return to shareholders, including the dividends paid during the year, totalled 16.9p.

The modest return in the year reflected the more unsettled market conditions towards the end of the period when the Greek problems came to a head, along with some increased anxiety regarding the Chinese stock market. The FTSE All-Share Index generated a total return of 2.6% over the twelve months to June 2015. Returns in smaller quoted indices were mixed with 8.4% achieved on the FTSE SmallCap (excluding Investment Companies) including dividend income whilst the total return on the AIM All-Share Index was down 2.5%. The total return on the FTSE Actuaries Government Securities UK Gilts All Stocks Index was 5.3% over the same period.

As set out in my Interim Statement, the Board is adjusting the dividend policy of the Company to make it more sustainable. Rather than have dividend payments that fluctuate up and down every year in line with the changes in the NAV at the end of June, the new policy will take the dividend in the first year after reorganisation, which amounted to 20.7p, and seek gradually to grow it going forward. It is anticipated that the first interim dividend in the new financial year will be 5.0p (5.5p last year). Any growth in the dividend beyond 20.7p will be reflected in the quantum of the fourth interim dividend.

The abrupt fall in commodity prices underlines just how profoundly world growth expectations have deteriorated during the year under review. Fortunately, the UK has a stable business-friendly Government in place for the coming five years, which may give it something of a safe haven status in an unsettled world. The Board believes the Company should now look to expand. If the Company expands, shareholders benefit through the fixed costs being spread over a wider number of shares, as well as an increase in market liquidity in the shares.

The strategy of the Company has real advantage in difficult markets. The Company can invest in both large and smaller companies, and thereby has greater flexibility compared with many others. The portfolio can invest either in fixed income instruments issued by corporates with a commensurate degree of security, or in ordinary shares, where there may be more upside. The Company therefore has great scope to change the asset allocation. In addition, the Company continues to have a small portion of the portfolio invested in a Put option on the FTSE 100, which would rise in value were the UK exchange to fall back abruptly.

We continue to believe the Company remains well-placed to deliver attractive returns for shareholders in the coming years.

Sir David ThomsonChairman1 October 2015 

MANAGER’S REPORT

A recap on the reasons behind The Investment Company investment strategy When long-term bond yields fall to very low levels, it suggests that forthcoming returns on many mainstream assets could be sub-normal over the coming years. In this context, the fact that the yield on the 10 year UK Government Bonds has fallen to 2.0% or so at the end of June 2015 is sobering. In short, there is a greater challenge on all active funds to ensure their strategies have plenty of scope to generate an attractive return for their investors without taking unreasonable risks. The Investment Company has an investment strategy with a number of elements that, it is projected, will combine to deliver a premium return.

It is widely recognised that smaller quoted companies tend to have more growth potential than larger companies. This differential has not been especially distinctive during a long credit boom when world growth has been plentiful. However, the huge setback in commodity prices underlines just how much expectations for world growth have reduced. In spite of many years of remarkably low interest rates, and the adoption of novel policies such as Quantitative Easing, world growth has progressively decelerated. Therefore, there may be great advantage for those funds that can invest in both larger and smaller companies to buck the wider trend in the future. Such a portfolio has greater opportunity to deliver premium returns through investing in those stocks that can sustain growth even at a time when economic conditions are more challenging. In addition, smaller companies have the added advantage that many stand on less demanding investment valuations currently, plus there is greater scope for extra return through investing in those with mispriced valuations versus the sub-normal average. For all of these reasons, we believe The Investment Company portfolio has better scope for delivering a premium return.

The second arm of the investment strategy builds on these foundations, through considering participation in both equity or fixed income securities issued by UK quoted companies. Many funds invest in corporate bonds, since those issued by the mainstream quoted companies normally carry slightly higher yields and often carry a slightly higher risk of default than those issued by the Government. In contrast the Company’s portfolio has the scope to invest in a much wider range of fixed income securities, including Preference Shares, Notes, Debentures and Loan Stocks. Most of these issues are relatively modest in scale too, in part because they have often been issued by smaller quoted companies. The bottom line is that many of our fixed income securities tend to have yields that are very much higher than the mainstream corporate bonds or Government bonds, which we anticipate will therefore deliver better returns.

In summary, we believe the Company can generate an attractive return for investors in spite of the challenges of a world of slower growth, and the fact that long-term bond yields have fallen to very low levels. The Company has a portfolio that holds both ordinary shares (most of which are small and under-researched stocks with the potential for premium returns), along with a portfolio of fixed-income securities (again mostly small issues from smaller quoted companies that therefore stand at premium yields). In some of the more recent purchases, these instruments also have the right to participate in the rise of the share price of the underlying quoted company too if it rises above a certain level over the coming three or five years. Finally, the Company has the scope to manage market risk through investing a small part of the portfolio in a FTSE 100 Put option. The value of this option will tend to decay over time in the same way that the redemption value of car insurance reduces over time. However, the market price of the Put option could rise to be worth several times its current value if equity markets were to suffer a significant setback. The full reasoning for the inclusion of the Put option is outlined in the next section of this report below.

Market returns in the year to June 2015In the year under review to 30 June 2015, asset returns have been modest. Although inflationary pressures have continued to moderate, this was offset to some degree by the slowing rate of world growth and a concern that investment risks could be rising.

Over the year the total return on FTSE Actuaries Government Securities UK Gilts All Stocks Index was only 5.3%. However, the reductions on bond yields have been so substantive over the years that new investors in the 10 year Government bonds are now locking in a nominal return that is now only one fifth of that available in the equivalent bond at the start of 1990. Equity market returns were also very modest over the period with the FTSE All-Share Index generating a total return, including dividend payment, of only 2.6%.

After enjoying a period of premium returns in the previous year, smaller company share prices were more mixed over the last twelve months. Stocks in the FTSE SmallCap Index (excluding Investment Companies) on average generated a total return of 8.4%, whereas those from the AIM All-Share Index actually lost 2.5% on average, even after dividend receipts were included.

PortfolioThe overall positioning of the portfolio did not greatly change over the year. The equity portfolio benefited from the takeover premiums on BRIT Group and Friends Life. The portfolio has retained the new stock in Aviva that was issued as part of the consideration for the Friends Life acquisition. Direct Line and Hiscox have been added to the portfolio too, so it still retains a good weighting in insurance stocks. Elsewhere, the holdings in Anpario and Seeing Machines have been sold in the year as they have performed well and do not have the advantage of paying significant dividend yields currently. These changes have made way for a number of new holdings. These include Anglo Pacific Group, Entu, and KCOM. In addition, Elegant Hotels and Quantum Pharmaceuticals were added at their IPO issues.

The portfolio holdings in preference shares, loan stocks, debentures and notes, have continued to generate a running yield of 5.5% on their valuation at the beginning of the year. The holding in TF & JH Braime Holdings Preference Shares was redeemed at an attractive premium. Meanwhile, a new holding in the 600 Group plc Loan Stock, yielding 8%, was purchased to help them fund a US acquisition, which we believe will generate a relatively quick cash payback. This Loan Note came with warrants to subscribe for 600 Group plc equity at 20p that can be exercised over the next five years, thereby offering the Company further upside potential.

Performance Overall market returns in the year under review were not substantial. In part this is related to the fact that many asset allocators took profits on many of their UK Smaller Company open ended investment companies during the year, after the outperformance of this universe in the previous year.

The greatest contributors to the positive returns in the year were Friends Life and BRIT on their agreed takeover offers. Conversely, the stocks where the share prices fell back were dominated by Gable Group, where this growing business needed to increase reserves after a large fire claim from a customer in France. The share price in DX Group and Juridica also fell back, but to a lesser degree. Even so, the overall fund still generated a total return of 4.7% after costs.

ProspectsIn our view, the slowing of world growth over recent periods has added weight to the opportunities for our investment strategy. Whilst institutional flows may have held back the returns on many of the smallest stocks in the portfolio during the year under review, we remain upbeat over their potential to generate outperformance going forward in a similar manner to the way they outperformed in the previous year. In particular, we continue to seek promising stocks which we believe have unusually attractive risk/reward ratios. The flexible mandate of this Company means that the portfolio can participate in such opportunities, either via equity or via a debt instrument, where the running yield is higher and yet the investment risk is often more limited. We continue to be upbeat about the prospects for the Company.

The rationale for holding the FTSE 100 Put optionOn 5 September 2014, the Company invested around 1.2% of the portfolio, at that date, to purchase some downside protection, covering approximately one-third of the portfolio. Our view is that an option like this should only be purchased when its cost appears modest by historical standards. This tends to occur after markets have appreciated for some years, and at times when confidence in further appreciation is at a cyclical high.

The key advantage for shareholders of holding a Put option is that, should markets suffer a significant setback, then the market value of the Put option tends to rise. In part this is proportional to the scale of the market setback, and in part it is related to the duration of the remaining term of the option. It is possible that the market value of the option might be a multiple of its initial cost at such a time. The advantage for shareholders is that the option could then be sold to bring additional capital into the Company at a time when share prices were depressed. This could be used to buy additional income stocks, at a time when their prices were abnormally low, on hopefully more attractive dividend yields. The effect would be to boost the dividend income generated by the Company, as well as increasing the portfolio’s ability to participate in any subsequent market recovery.

The advantage of a FTSE 100 Put option is that it is regularly traded, so the weekly NAV fully reflects the market value of the option. In addition, being a popular instrument, the cost of a FTSE 100 Put option is much lower than a specialist instrument covering other indices such as the FTSE All-Share or the FTSE SmallCap Indices. Furthermore, at times of market distress when the option might want to be sold, market volume in the FTSE 100 Put option tends to be better than other more obscure instruments.

However, despite the unsettled market conditions, we need to appreciate that it is unusual for the FTSE 100 Index to fall back precipitously. That explains why Put options should only be purchased when the cost is relatively modest. In our case, the running cost is only 0.07% or so each month over the period to March 2016 should markets remain resilient.

Gervais Williams and Martin TurnerMiton Asset Management Limited1 October 2015 

TWENTY LARGEST INVESTMENTSAt 30 June 2015

§ Issues with unrestricted voting rights.The Group has a total of 73 portfolio investment holdings in 57 companies.

CORPORATE SUMMARYInvestment ObjectiveThe Company’s investment objective is to provide shareholders with an attractive level of dividends coupled with capital growth over the long-term, through investment in a portfolio of equities, preference shares, loan stocks, debentures and convertibles.

Investment PolicyThe Company invests primarily in the equity securities of quoted UK companies with a wide range of market capitalisations many of which are, or are expected to be, dividend paying, with anticipated dividend growth in the long term. The Company may also invest in large capitalisation companies, including FTSE 100 constituents, where this may increase the yield of the portfolio and where it is believed that this may increase shareholder value.

The Company will also make investments in preference shares, loan stocks, debentures, convertibles and related instruments of quoted UK companies. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company’s direct investments, as described below. The Company will not enter into uncovered short positions.

Risk diversificationPortfolio risk is mitigated by investing in a diversified spread of investments. Investments in any one company shall not, at the time of acquisition, exceed 15% of the value of the Company’s investment portfolio. In the long term, it is expected that the Company’s investments will generally be a portfolio of between 40 and 60 securities, most of which will represent individually no more than 3% of the value of the Company’s total investment portfolio, as at the time of acquisition.

The Company will not invest more than 10% of its gross assets, at the time of acquisition, in other listed closed-ended investment funds, whether managed by the Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds.

Unquoted investmentsThe Company may invest in unquoted companies from time to time subject to prior Board approval.

Investments in unquoted companies in aggregate will not exceed 5% of the value of the Company’s investment portfolio as at the time of investment.

Borrowing and gearing policyThe Company may use gearing, including bank borrowings and the use of derivative instruments such as contracts for differences. The Company may borrow (through bank facilities and derivative instruments) up to 15% of NAV (calculated at the time of borrowing).

Investment strategyThe Manager uses a bottom-up investment approach for the portfolio, with a diversified portfolio of securities of various market capitalisation sizes. There will be a bias towards dividend paying smaller companies, but the portfolio will also include preference shares, loan stocks, debentures and convertibles with attractive yields.

The investment approach can be described as active and universal, as the Company will not seek to replicate any benchmark and will target a significant proportion of smaller company equities within an overall diversified portfolio. Potential investments are assessed against the key criteria including, inter alia, their yield, growth prospects, market positions, calibre of management and risk and cash resources.

New Dividend PolicyAs set out in the Chairman’s Statement above, the new policy will take the dividend in the first year after reorganisation, which amounted to 20.7p, and seek gradually to grow it going forward. It is anticipated that the first interim dividend in the new financial year will be 5.0p (5.5p last year). Any growth in the dividend beyond 20.7p will be reflected in the quantum of the fourth interim dividend.

Capital StructureAs at 30 June 2015 and the date of this report, the Group’s share capital consists of 4,772,049 ordinary shares of 50p each, of which 32,500 shares are held in treasury and 4,739,549 shares are in circulation. In addition, there are 1,717,565 fixed rate preference shares of 50p in issue, all of which are held by a wholly owned subsidiary of the Company.

At general meetings of the Company, holders of ordinary shares are entitled to one vote on a show of hands and on a poll, to one vote for every share held. Fixed rate preference shares are non-voting.

Total Assets and Net Asset ValueThe Group had total assets of £18,643,488 and a NAV of 389.34p per ordinary share at 30 June 2015.

Business ModelThe principal activity of the Company is investment in equity securities of quoted UK companies with a wide range of market capitalisations, preference shares and prior charge securities with a view to achieving a high rate of income and capital growth over the medium term. The Company has been granted approval from HM Revenue & Customs (“HMRC”) as an investment trust under s1158/1159 of the Corporation Tax Act 2010 (“s1158/1159”) and will continue to be treated as an investment trust company, subject to there being no serious breaches of the conditions for approval.

The principal conditions that must be met for approval by HMRC as an investment trust for any given accounting period are that the Company’s business should consist of “investing in shares, land or other assets with the aim of spreading investment risk and giving members of the company the benefit of the results”, and the Company must distribute a minimum of 85% of all its income as dividend payments. The Company must also not be a close company. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 June 2015 so as to be able to continue to qualify as an investment trust.

The Company’s status as an investment trust allows it to obtain an exemption from paying taxes on the profits made from the sale of its investments and all other net capital gains. Investment trusts offer a number of advantages for investors, including access to investment opportunities that might not be open to private investors and to professional stock selection skills at lower cost.

The Company owns Abport Limited, an investment dealing company, and New Centurion Trust Limited, a dormant investment company (“the Subsidiaries”).

Principal Risks and UncertaintiesThe management of the business and the execution of the Group’s strategy are subject to a number of risks. The key business risks affecting the Group are:

(i) Investment decisions: the performance of the Group’s portfolio is dependent on a number of factors including, but not limited to, the quality of initial investment decisions and the strategy and timing of sales;

(ii) Investment valuations: the valuation of the Group’s portfolio and opportunities for realisations depend to some extent on stock market conditions and interest rates; and

(iii) Macroeconomic environment for preference shares and prior charge securities: the environment for issuing of new preference shares and prior charge securities determines whether new issues become available, thus affecting the choice and scope of investment opportunities for the Group.

Risk ManagementSpecific policies for managing risks are summarised below and have been applied throughout the period:

1.Market price riskThe Manager monitors the prices of financial instruments held by the Group on a regular basis. In addition, it is the Board’s policy to hold an appropriate spread of investments in the portfolio in order to reduce risks arising from investment decisions and investment valuations. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. Most of the equity investments held by the Company are listed on the London Stock Exchange.

2.Interest rate riskIn addition to the impact of the general investment climate, interest rate movements may specifically affect the fair value of investments in fixed interest securities.

3.Liquidity riskThe Group’s assets mainly comprise readily realisable quoted securities that can be sold to meet funding commitments if necessary. Short term flexibility is achieved through the use of overdraft facilities.

Additional risks and uncertainties include:Credit risk: the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. Normal delivery versus payment practice and review of counterparties and custodians by the Manager mean that this is not a significant risk.

Discount volatility:  The Company’s shares may trade at a price which represents a discount to its underlying NAV.

Regulatory risk: The Company operates in an evolving regulatory environment and faces a number of regulatory risks. A breach of s1158/1159 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including the Companies Act 2006, the UKLA Listing Rules, the UKLA Disclosure and Transparency Rules, or the Alternative Investment Fund Managers’ Directive, could lead to a detrimental outcome. Breaches of controls by service providers to the Company could also lead to reputational damage or loss. The Board monitors compliance with regulations, with reports from the Manager and the Administrator.

Protection of assets: The Company’s assets are protected by the use of an independent Custodian, BNY Mellon. In addition, the Company operates clear internal controls to safeguard all assets.

These and other risks facing the Company are reviewed regularly by the Board.

Key Performance Indicators (“KPIs”)The Board reviews performance by reference to a number of KPIs and considers that the most relevant KPIs are those that communicate the financial performance and strength of the Company as a whole. The Board and Manager monitor the following KPIs:

ManagementThe Company’s investments are managed by Miton Asset Management Limited.

The Company has a Manager with a distinctive philosophy• Miton is an independent fund management company quoted on AIM with an extensive shareholder base of major institutions and a particularly robust balance sheet.

• Miton is distinctive from most other fund managers in that many of its funds do not use traditional benchmarks since they can bring unintentional risks that can impede the day-to-day managers’ ability to maximise absolute return in unsettled markets.

• Through anticipating post-credit boom trends, Miton proposes investment strategies that are set up with forthcoming trends in mind, rather than slavishly following the consensus.

• Many of Miton’s funds have greater scope to manage volatility more closely than others, with an aim better to sustain its clients’ assets through market cycles.

Miton asks more of its managersMiton believes that able fund managers are better placed to deliver for clients if they have wide-ranging flexibility. Limiting the investment universe to a short list of benchmark stocks can be demotivating since the risk/reward ratio of the portfolio could be constrained unnecessarily. The best managers can take advantage of this wider flexibility better to moderate portfolio risk, as well as enhancing their clients’ returns through selecting the best from a wider range of potential investments.

In addition, Miton also places great emphasis on its fund managers doing their own analysis, since it believes this ensures that they have greater conviction in subsequent investment decisions, and are less vulnerable to becoming panicky sellers when a share price moves adversely.

Details of the ManagerMiton has a team of five fund managers researching the full universe of quoted UK stocks. These include George Godber and Georgina Hamilton, who principally seek stocks which are intrinsically cheap with regard to their tangible assets, or where the scale of the underlying cashflow is underappreciated. Eric Moore principally concentrates on identifying mid and larger companies which have the best opportunities to grow their dividends over time.

The day-to-day management of the portfolio is carried out by Gervais Williams and Martin Turner, who research all quoted companies, but have a particular focus on many of the smaller quoted stocks.

Gervais WilliamsGervais joined Miton in March 2011 as Managing Director of the Miton Group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies and Irish Equities at Gartmore. He won the Grant Thornton Investor of the Year Award in 2009 and 2010, and was recently awarded Fund Manager of the Year 2014 by What Investment?

Martin TurnerMartin joined Miton in May 2011. Martin and Gervais have had a close working relationship since 2004 and their complementary expertise and skills led to a series of successful companies being backed. Martin qualified as a Chartered Accountant with Arthur Andersen and also has extensive experience at Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities his role covered their research, sales and trading activities.

Management arrangementsIn order to comply with the Alternative Investment Fund Managers’ Directive (“AIFMD”), the Company’s previous investment management agreement with Miton Asset Management Limited was terminated and the Company appointed PSigma Unit Trust Managers Limited as its Alternative Investment Fund Manager (“AIFM”) with effect from 22 July 2014. PUTM subsequently changed its name to Miton Trust Managers Limited (“MTM”). MTM has been approved as an AIFM by the UK’s Financial Conduct Authority. Miton Asset Management Limited has been appointed by MTM as Investment Manager to the Company pursuant to a delegation agreement. There has been no change to the fee structure or the portfolio management arrangements as a result of these changes.

Under the terms of the Management Agreement, the Manager has discretion to buy, sell, retain, exchange or otherwise deal in investment assets for the account of the Company.

The Manager is entitled to receive from the Company or any member of its subsidiaries in respect of its services provided under the Management Agreement, a management fee payable monthly in arrears calculated at the rate of one-twelfth of 1% per calendar month of the NAV for its services under the Management Agreement, save that its management fee will be reduced by such amount (being not more than the fees payable to the Manager in respect of any year (exclusive of VAT)) so as to seek to ensure that the Ongoing Charges Ratio of the Company does not exceed 2.5% per annum.

The Management Agreement is terminable by either the Manager or the Company giving to the other not less than six months’ written notice. The Management Agreement may be terminated earlier by the Company with immediate effect on the occurrence of certain events, including the liquidation of the Manager or appointment of a receiver or administrative receiver over the whole or any substantial part of the assets or undertaking of the Manager or a material breach by the Manager of the Management Agreement which is not remedied. The Company may also terminate the Management Agreement should Gervais Williams cease to be an employee of the Manager’s group and, within three months of his departure, is not replaced by a person whom the Company considers to be of equal or satisfactory standing. The Company may also terminate the Management Agreement if a continuation vote is not passed.

Environmental, Human Rights, Employee, Social and Community IssuesThe Board consists entirely of non-executive Directors. Day-to-day management of the business is delegated to the Manager. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. The Board comprises four male Directors. In relation to gender diversity considerations, whilst there are currently no female Directors of the Company, members of the Board are appointed on merit, against an objective criteria set by the Board acting as the Nomination Committee.

On behalf of the Board

Sir David ThomsonChairman1 October 2015 

Going ConcernThe Company’s Articles of Association require a continuation vote to be proposed at the 2016 Annual General Meeting for the Company to be wound up on a voluntary basis.

The Directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements as the assets of the Group consist mainly of securities which are readily realisable. The Directors are of the opinion that the Group has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company’s ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved. 

STATEMENT OF DIRECTORS’ RESPONSIBIITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing this report and the financial statements in accordance with applicable United Kingdom law and regulations and those International Financial Reporting Standards (“IFRS”) adopted by the European Union. Company law requires the Directors to prepare financial statements for each financial period which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period.

In preparing those financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business; and

• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

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 Group and enable them to ensure that the Group financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority.

The financial statements are published on the Company’s website, www.mitongroup.com/tic, which is maintained on behalf of the Company by the Manager. Under the Management Agreement, the Manager has agreed to maintain, host, manage and operate the Company’s website and to ensure that it is accurate and up-to-date and operated in accordance with applicable law. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

We confirm that to the best of our knowledge:

• the Group financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

• this Annual Report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces; and

• the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.

On behalf of the Board

Sir David ThomsonChairman1 October 2015 

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company’s statutory accounts for the years ended 30 June 2015 or 30 June 2014 but is derived from those accounts. Statutory accounts for the year ended 30 June 2014 have been delivered to the Registrar of Companies and statutory accounts for the year ended 30 June 2015 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor’s reports can be found in the Company’s full Annual Report and Accounts at www.mitongroup.com/tic. 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 30 June 2015

The total column of this statement is the Consolidated Statement of Comprehensive Income of the Group prepared in accordance with International Financial Reporting Standards. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies (“AIC SORP”) issued in January 2009.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.

The notes form part of these financial statements. 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 30 June 2015

The notes form part of these financial statements.

COMPANY STATEMENT OF CHANGES IN EQUITYFor the year ended 30 June 2015

The notes form part of these financial statements.

CONSOLIDATED AND COMPANY BALANCE SHEETS As at 30 June 2015

These financial statements were approved by the Board of The Investment Company plc on 1 October 2015 and were signed on its behalf by:

Sir David ThomsonChairman

Company Number: 4205

The notes form part of these financial statements. 

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTSFor the year ended 30 June 2015

The notes form part of these financial statements. 

NOTES TO THE FINANCIAL STATEMENTSAt 30 June 2015

1. Accounting policies

(a) Basis of preparationThe Investment Company plc (the “Company”) is a public limited company incorporated and registered in England and Wales.

The consolidated financial statements, which comprise the audited results of the Company and its wholly owned subsidiaries, Abport Limited and New Centurion Trust Limited (together referred to as the ‘‘Group’’), for the year ended 30 June 2015 have been prepared under the historical cost basis, as modified by the measurement at fair value of investments, and in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and the Companies Act 2006 applicable to companies reporting under IFRS.

The Company has been approved as an investment trust by HM Revenue & Customs under section 1158/1159 of the Corporation Tax Act 2010. As a result the consolidated financial statements have also been prepared in accordance with the AIC SORP issued in January 2009 for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS.

The financial statements have been prepared on the basis that approval as an investment trust company will continue to be met.

The Directors have made an assessment of the Group’s ability to continue as a going concern and are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group, therefore, continues to adopt the going concern basis in preparing its financial statements.

The financial statements are presented in sterling, which is the Group’s functional currency as the UK is the primary environment in which it operates.

(b) Basis of consolidationHaving considered the IFRS 10 criteria needed to require classification of the Company as an investment entity, the directors are satisfied that these criteria are not met and consequently continue to prepare consolidated financial statements. Subsidiary companies are consolidated from the date of acquisition, being the date on which control is obtained, and will continue to be consolidated until the date that such control ceases. Control comprises being exposed, or having rights, to variable returns through its power over the investee. The financial statements of the subsidiaries are prepared for the same reporting year as the parent Company, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from them are eliminated.

As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own Income Statement. The amount of the Company's return for the financial year dealt with in the financial statements of the Group is a profit after tax of £845,384 (2014: profit after tax of £4,342,785).

(c) Segmental reportingThe Directors are of the opinion that the Group is engaged in a single segment of business, being investment business. The Group primarily invests in companies listed in the UK.

(d) Critical accounting judgements and key sources of estimation uncertaintyThe preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future period if the revision affects both current and future periods.

The unquoted investments are valued by reference to valuation techniques approved by the Directors and in accordance with the International Private Equity and Venture Capital Valuation (‘IPEVC’) guidelines.

(e) Cash and cash equivalentsCash comprises cash in hand, overdrafts and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable.

(f) Foreign currencyTransactions denominated in foreign currencies are converted to sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is of a capital or revenue nature.

(g) IncomeDividends received from UK registered companies are accounted for net of imputed tax credits. Dividends from overseas companies are shown gross of any non-recoverable withholding taxes which are described separately in the Income Statement.

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company’s right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis.

Special dividends are taken to revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis.

When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

Where, before recognition of dividend income is due, there is any reasonable doubt that a return will actually be received, for example as a consequence of the investee company lacking distributable reserves, the recognition of the return is deferred until the doubt is removed.

All other income is accounted for on a time-apportioned accruals basis using the effective interest rate method and is recognised in the Income Statement.

(h) Expenses and finance costsAll expenses and finance costs are accounted for on an accruals basis.

Expenses incurred directly in relation to placings and offers for subscription of shares are deducted from equity and charged to the share premium account.

(i) TaxationDeferred tax is provided on an undiscounted basis in accordance with IAS 19 on all timing differences that have originated, but not reversed, by the Balance Sheet date based on tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the “marginal” basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

No taxation liability arises on gains from sales of fixed asset investments by the Group by virtue of its investment trust status. However, the net revenue (excluding UK dividend income) accruing to the Group is liable to corporation tax at the prevailing rates.

(j) DividendsOrdinary dividends are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Ordinary dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

(k) Earnings per ordinary shareThe Group calculates both basic and diluted earnings per ordinary share in accordance with IAS 33 “Earnings Per Share”. Under IAS 33, basic earnings per share are computed using the weighted average number of shares outstanding during the period. Earnings are adjusted for the participating element of preference share dividends.

(l) InvestmentsThe Group’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. The portfolio of financial assets, which includes equity shares, convertible securities, fixed income securities and derivatives, is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Group’s Board of Directors.

Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market established by the market concerned.

Investments are initially recognised at cost, being the fair value of the consideration given. After initial recognition, investments are measured at fair value.

All investments held that have been purchased by the Group since obtaining approval as an investment trust from 1 July 2013 are classified as at “fair value through profit or loss”. Realised and unrealised gains and losses on investments classified as at ‘‘fair value through profit of loss’’ are recognised in the Consolidated Income Statement and allocated to the Capital reserve.

Investments held at 30 June 2015 which were purchased prior to 1 July 2013 are classified as ‘‘assets available for sale”. These investments have not been reclassified as at ‘‘fair value through profit or loss’’ in accordance with IFRS 39 Financial Instruments Recognition and Measurement. Realised gains and losses and movement in impairment provision on investments classified as ‘‘assets available for sale’’ are recognised in the Consolidated Income Statement and allocated to the Capital reserve. Movement in unrealised appreciation on investments classified as ‘‘assets available for sale’’ is recognised in the Revaluation reserve.

All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 11, described as follows, based on the lowest significant applicable input:

Level 1 reflects financial instruments quoted in an active market.

Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets.

Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data. For investments that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorisation (based on the lowest significant applicable input) at the date of the event that caused the transfer.

For investments actively traded in organised financial markets, fair value is generally determined by reference to quoted market bid prices of closing prices for SETS (London Stock Exchange’s electronic trading service) stocks sourced from the London Stock Exchange on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset.

Unlisted stocks are reviewed and valued by the Board on a regular basis and the fair value is determined based on estimates using present values or other valuation techniques.

The fair value of financial assets that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

(m) Derivative instruments – held for tradingDerivatives, including Index Put options, which are listed investments are classified as financial assets or liabilities held for trading. They are initially recorded at cost (being the premium paid to purchase the option) and are subsequently valued at fair value at the close of business at the year end and included in fixed assets or current assets/liabilities depending on their maturity date.

Changes in the fair value of derivative instruments are recognised as they arise in the Consolidated Statement of Comprehensive Income.

(n) Investments in subsidiariesInvestments in subsidiaries are stated at cost less provision for diminution in value.

(o) Impairment reviewAt each Balance Sheet date, a review is carried out to assess whether there is any objective evidence that the Group’s available for trading financial assets have become impaired. Where such evidence exists, the amount of any impairment loss is recognised immediately in the Consolidated Statement of Comprehensive Income. Any excess of the impairment loss over the amount previously recognised in equity is recognised in the Consolidated Statement of Comprehensive Income.

If, in a subsequent period, the fair value of available for sale financial assets increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed and the amount of the reversal is recognised in profit or loss where it relates to a debt instrument.

(p) Fixed rate preference sharesThe fixed rate preference shares are non-voting, are entitled to receive a cumulative dividend of 0.01p per share per annum, and are entitled to receive their nominal value, 50p, on a distribution of assets or a winding up. Preference shares are disclosed as non-current liabilities in accordance with IAS 32 (Financial Instruments: Disclosure and Presentation).

(q) ReservesCapital reserveThe following are accounted for within the Capital Reserve:

• gains and losses on the realisation of investments;

• net movement arising from changes in the fair value of investments held and classified as at “fair value through profit or loss” that can be readily converted to cash without accepting adverse terms;

• net movement in the impairment provision of investments available for sale; and

• net movement from changes in the fair value of derivative financial instruments.

Revaluation reserveThe revaluation reserve represents the accumulated unrealised gains on the Group’s held-for trading investments.

(r) IFRS standardsThe accounting policies adopted are consistent with those of the previous financial year, except the following standards that have been adopted in the current year.

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

The Directors anticipate that the adoption of the above standards will have no material impact on the financial statements of the Group and Company. IFRS 9 has not yet been implemented and may have an impact upon the Group in subsequent accounting periods.

2 Income

3 Investment Management fee

Under the terms of the Management Agreement, the Manager, Miton Asset Management Limited, is entitled to receive from the Company or any member of the Company in respect of its services provided under this Agreement, a management fee payable monthly in arrears equal to one-twelfth of 1% per calendar month of the NAV of the Company. For these purposes, the NAV shall be calculated as at the last Business Day of each month and is subject to the ongoing charges ratio of the Company not exceeding 2.5% per annum in respect of any completed financial year.

At 30 June 2015 an amount of £14,603 (2014: £116,251) was outstanding and due to Miton Asset Management Limited.

4 Other expenses

5 Taxation

The current taxation charge for the year is lower than the standard rate of corporation tax in the UK of 20%. The differences are explained below:

Factors that may affect future tax chargesThe Company has excess management expenses of £1,333,798 (2014: £2,134,613). It is unlikely that the Company will generate sufficient taxable income in the future to use these expenses to reduce future tax charges and therefore no deferred tax asset has been recognised.

Due to the Company's status as an investment trust and the intention to continue meeting the conditions required to obtain approval as an investment trust in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. 

6 Return per ordinary share

The return on total comprehensive income per ordinary share has been calculated to enable comparison of the returns per share shown in the annual reports of other investment trust companies.

A reconciliation is shown below:

7 Dividends per ordinary share

8 Called up share capital

In addition to the above ordinary shares, the issued capital of the Company includes 1,717,565 fixed rate preference shares of 50p each. Details of these preference shares in the Company are set out in note 9.

The ordinary shares entitle the holders to receive all ordinary dividends and all remaining assets on a winding up, after the fixed rate preference shares have been satisfied in full.

The Company holds 32,500 ordinary shares in treasury (2014: 32,500). 

9 Interest bearing liabilities

A bank loan facility is available to the company of up to £500,000, to be secured by an omnibus charge over a portfolio of shares with a valuation of £2,219,760.At 30 June 2015 no loan was outstanding.

The loan notes were issued in March 2005 as part of the consideration for the acquisition of New Centurion Trust Limited. No loan notes were outstanding at 30 June 2015.

The 1,717,565 fixed rate preference shares of 50p each, all of which are held by New Centurion Trust Limited, a wholly owned subsidiary of the Company, are non-voting, are entitled to receive a cumulative dividend of 0.01p per share per annum, and are entitled to receive their nominal value, 50p, on a distribution of assets or a winding up.

The Directors do not consider the fair values of the Company’s financial instruments to be significantly different from the carrying values. 

10 Net asset value per ordinary share

The net asset value per ordinary share is calculated as follows:

The underlying investments of the wholly owned subsidiary New Centurion Trust Limited comprise Fixed Rate Preference Shares, as discussed in note 9, in The Investment Company plc and, being effectively eliminated on consolidation, the valuation thereof does not impact the net asset value attributable to ordinary shareholders. 

11 Investments

Fair value hierarchyIFRS 13 requires classification of financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

Level 1 – valued using quoted prices, unadjusted in active markets for identical assets or liabilities.

Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1.

Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data or the asset or liability.

The table below set out fair value measurements of financial instruments as at 30 June 2015, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Where significant inputs are not based on observable market data, the instrument is included in Level 3. The table below presents the movement in Level 3 investments for the year ending 30 June 2015.

12 Investment in Subsidiaries

At 30 June 2015, the Company held interests in the following subsidiary companies:

13 Substantial share interests

The Company has notified interests in 3% or more of the voting rights of the following companies:

14 Trade and other receivables

The carrying amount of trade receivables approximates to their fair value. Trade and other receivables are not past due at 30 June 2015.

15 Trade and other payables

16 Analysis of financial assets and liabilities

Investment Objective and PolicyThe investment objective of the Group is to generate income and capital growth over the medium term. The Group’s investing activities in pursuit of its investment objective involve certain inherent risks.

The Group’s financial instruments comprise investments in fixed interest securities and prior charge investments, borrowings for investment purposes, cash balances and debtors and creditors that arise directly from its operations.

RisksThe risks identified arising from the Group’s financial instruments are market risk (which comprises market price risk and interest rate risk, liquidity risk and credit and counterparty risk). The Group may enter into derivative contracts to manage risk, and has taken out a listed Put option against the FTSE100 Index during the year. The Board reviews and agrees policies for managing each of these risks, which are summarised below.

Market riskMarket risk arises mainly from uncertainty about future prices of financial instruments used in the Group’s business. It represents the potential loss the Group might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Group assesses the exposure to market risk when making each investment decision and these risks are monitored by the Manager on a regular basis and the Board at quarterly meetings with the Manager.

(i) Market price riskMarket price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments.

The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Manager. Investment performance and exposure are reviewed at each Board meeting.

The Group invests in other funds and is susceptible to market price risk arising from uncertainties about future values of those investee funds. The investment manager makes investment decisions after an extensive assessment of the underlying fund, its strategy and the overall quality of the underlying fund’s manager. The Group’s policy requires the Investment Manager to complete a full reassessment of each of the investee funds on a quarterly basis and track the performance of each investee fund on a weekly basis.

The Group’s investment restrictions prohibit it from investing more than 20% of its assets in any one investee fund.

The direct impact of a 5% movement in the value of the portfolio investments and current asset investments amounts to £891,095 (2014: £874,413), being 19p(2014: 18p) per ordinary share. The analysis is based on closing balances only and is not representative of the year as a whole.

The Group mainly invests in equities of other entities that are publicly traded on the London Stock Exchange and is therefore subject to movements in the FTSE index.

(ii) Interest rate riskInterest rate movements may affect the level of income receivable on cash deposits and payable on its revolving credit facility. The Group’s financial assets and liabilities, excluding short-term debtors and creditors, may include investment in fixed interest securities, such as UK corporate debt stock, whose fair value may be affected by movements in interest rates. The majority of the Group’s financial assets and liabilities, however, are non-interest bearing. As a result, the Group’s financial assets and liabilities are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates.

The Group finances its operations through existing reserves and its overdraft facility. The Group has fully repaid the 5% loan notes during the year and is able to drawdown on its bank loan facility set out in note 9.

There was limited exposure to interest bearing liabilities during the year ended 30 June 2015 (2014: same).

The possible effects on the fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions.

(iii) Liquidity riskThe Group’s assets mainly comprise readily realisable quoted and unquoted securities that can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of overdraft facilities. An analysis of the securities is given on note 11.

Cash flow forecasting is performed in the operating entities of the Group and aggregated by group finance. Group finance monitors rolling forecasts of the group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom of its undrawn committed borrowing facilities (note 9) at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, regulatory or legal requirement or legal requirements-for example the restrictions applicable to investment trusts set by HM Revenue & Customs section 1158/1159 of the Corporation Tax Act 2010.

Note 9 gives an analysis of the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amount disclosed is the contractual undiscounted cash flows.

The maturity profile of the Group’s financial liabilities of £nil (2014: £365,700) are all due in one year or less.

(iv) Credit and counterparty risk Credit risk is the risk of financial loss to the Group if the contractual party to a financial instrument fails to meet its contractual obligations

The maximum exposure to credit risk as at 30 June 2015 was £823,000 (2014: £825,000). The calculation is based on the Group’s credit risk exposure as at 30 June 2015 and this may not be representative for the whole year.

The Group’s listed investments are held on its behalf by Bank of New York Mellon acting as the Group’s custodian. Bankruptcy or insolvency of the custodian may cause the Group’s rights with respect to securities held by the custodian to be delayed. The Board monitors the Group’s risk by reviewing the custodian’s internal controls report.

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 Group of default.

Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Group’s custodian bank ensures that the counterparty to any transaction entered into by the Group has delivered on its obligations before any transfer of cash or securities away from the Group is completed.

Cash is only held at banks that have been identified by the Board as reputable and of high credit quality.

DerivativesThe Manager may use derivative instruments in order to ‘hedge’ the market risk of part of the portfolio. The Manager reviews the risks associated with individual investments and, where they believe it appropriate, may use derivatives to mitigate the risk of adverse market (or currency) movements. The Manager discusses regularly the hedging strategy with the Board.

At the year end, there was one derivative contract open (2014: one). The FTSE 100 Put option aims to provide a limited degree of protection from a fall in the value of the FTSE 100 Index and has a strike price of 5,800, and would not materially impact the portfolio returns if a large market movement did occur. There were no other derivative contracts entered into during the year. There were no contracts open in 2014.

Fair values of financial assets and financial liabilitiesAll financial assets and liabilities of the Group are either carried in the Balance Sheet at fair value through profit or loss, or the Balance Sheet amount is a reasonable approximation of fair value, the same accounting valuation methods were applied in 2014, with the exception of the Subsidiaries which were consolidated as discussed in Note 1.

Capital management policiesThe type and maturity of the Group’s borrowings are analysed in note 9 and the Group’s equity is analysed in note 8. Capital is managed so as to maximise the return to shareholders while maintaining a capital base to allow the Group to operate effectively. Capital is managed on a consolidated basis. The Group is not a member of anybody that imposes minimum levels of regulatory capital. No significant external constraints in the management of capital have been identified in the past.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell securities to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt. The gearing ratios at 30 June 2015 and 2014 were as follows:

The Group’s objectives, policies and processes for managing capital have remained unchanged since its launch.

17 Transactions with the Manager and related partiesParties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

The amounts paid to the Manager, together with details of the Management Agreement, are disclosed in note 3. The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under the AIC SORP, the Manager is not considered to be a related party.

Transactions with Directors or other companies related with DirectorsDuring the year the Company was charged administration fees of £nil (2014: £52,383) by Ionian Investment Management which is a division of Fiske plc. At 30 June 2015 there were no balances outstanding (2014: £nil). Mr S. J. Cockburn, a Director, is a substantial shareholder in Fiske plc.

ANNUAL GENERAL MEETING

Notice is hereby given that the 149th Annual General Meeting of The Investment Company plc (“the Company”) will be held at the offices of Miton Group plc, Paternoster House, 65 St Paul’s Churchyard, London EC4M 8AB on Friday, 11 December 2015 at 12.30 pm.

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm

ENDS

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.