Capital and income growth from
active global equity investment
Annual Report 2014
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Witan’s objective
Long term growth in income and
capital(cid:123)through active multi-manager
investment in global equities
Our relationship with the RHS
Witan is an investment trust which is listed
on the London Stock Exchange and was
founded in 1909.
(cid:58)itan o(cid:426)ers diversi(cid:428)ed e(cid:91)posure to global
markets (principally equities) using a
multi-manager approach. The portfolio is
diversi(cid:428)ed by geographical region, industrial
sector and at the individual stock level.
Witan typically uses between 10 and 15
investment managers. The blend of di(cid:426)erent
active approaches and styles aims to deliver
added value for shareholders while smoothing
out the volatility normally associated with
a(cid:123)single manager.
To view the report online
If you would like to view video updates
about the Company, please visit:
www.witan.com
Witan Investment Trust has enjoyed a fruitful relationship with
the Royal Horticultural Society (‘RHS’) for more than 15 years.
Over this time Witan has helped the RHS to redevelop a number
of new gardens at Wisley including the Walled Garden West, the
Herb Garden, the Bowes-Lyon Rose Garden and the Vegetable
Garden at Hyde Hall, which is scheduled to open to the public
in Summer 2016. Witan shareholders who hold their shares
through Witan Wisdom or Jump Savings, or on the main
register,(cid:123)are eligible to apply for a ballot for a ticket that will
allow free entry for two adults to any one of the four RHS
gardens in the UK.
If you would like to request a ticket then please
phone us on 0800 082 8180 or email us at
wisdom@ifdsgroup.co.uk.
Contents
Shareholder Total Return
NAV Total Return
Dividends per Share
Financial Highlights
+15.1%
+6.6%
+6.9%
02
Chairman’s and Chief Executive’s Report
04
Report of the Directors
02 Financial Highlights
04
Chairman’s and Chief Executive’s
Report
Strategic Report
07 Strategic Report
21 Investment Managers
24 Fifty Largest Investments
25 Classi(cid:428)cation of Investments
Statutory Information
26 Board of Directors
28 Directors’ Report
Corporate Governance
32 Corporate Governance Statement
42 Report of the Audit Committee
44 Directors’ Remuneration Report
55
Statement of Directors’
Responsibilities
56 AIFMD disclosures
Financial Statements
58 Independent Auditor’s Report
62 Statement of Comprehensive Income
63 Statements of Changes in Equity
64 Balance Sheets
65 Cash Flow Statements
66 Notes to the Financial Statements
Other Information
88 Historical Record
88 Unsolicited approaches for shares
89 Witan Wisdom and Jump
90 Shareholder Information
IBC The Royal Horticultural Society
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Annual Report 2014 Witan Investment Trust plc
01
Financial Highlights
Corporate key performance indicators
Share price and net asset value (NAV)
Share Price
NAV per ordinary share (debt at par value)
NAV per ordinary share (debt at market value)
Premium/(discount) (NAV including income, debt at market value)
Premium/(discount) (NAV excluding income, debt at market value) (A)
(A) The average discount on this basis in 2014 was 2.2% (2013: 8.3%). (Source: Datastream)
2014
753.5p
760.3p
749.2p
0.6%
1.3%
2013
% change
12.6
4.8
4.4
669.0p
725.2p
717.6p
(6.8)%
(6.1)%
Total return performance
Total shareholder return (B)
Net asset value total return (C)
Benchmark (D)
FTSE All-Share Index (E)
FTSE World (ex UK) Index (E)
1yr % Return
3yrs % Return
5yrs % Return
15.1
6.6
5.5
1.2
12.3
80.5
59.9
44.0
37.3
54.2
91.8
70.2
54.5
51.8
68.9
(B) Source: Datastream. The movement in ordinary share price adjusted to include
(D) Source: Witan. The benchmark is a composite of four indices: the FTSE
the reinvestment of dividends.
(C) Source: Datastream/Witan. The movement in the net asset value per share
adjusted to include the reinvestment of dividends.
All-Share Index 40%, the FTSE All-World North America Index 20%, the FTSE
All-World Europe (ex UK) Index 20% and the FTSE All-World Asia Paci(cid:428)c Index
20%.
(E) Source: Datastream. See also FTSE International for conditions of use
(www.ftse.com).
Total returns since the introduction of the multi-manager structure (30.09.04) (F)
300
275
250
225
200
175
150
125
100
Share Price
NAV
Witan benchmark
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(F) Source: Datastream.
02
Witan Investment Trust plc Annual Report 2014
Dividend information
Revenue per share
Dividend per share
2015 Dividend schedule*
Ex-Dividend Date
05/03/2015
21/05/2015
20/08/2015
19/11/2015
2014
15.9p
15.4p
2013
15.4p
14.4p
% change
3.2
6.9
Pay Date
Dividend Type
Dividend payable
per share
02/04/2015 Fourth Interim (2014)
18/06/2015
First Interim
18/09/2015
Second Interim
18/12/2015
Third Interim
4.60p
3.85p
3.85p
3.85p
*Please note that the dates and amounts for the first, second and third interim dividends could be subject to change.
(cid:50)ther (cid:428)nancial information
Net assets
Number of ordinary shares in issue
Gearing (A)
Ongoing charge excluding performance fee
Ongoing charge including performance fee
2014
2013
% change
£1,441,247,000
£1,372,944,000
189,561,000
189,311,000
5.0
0.1
10.1%
0.74%
0.96%
7.3%
0.69%
1.12%
(A) The di(cid:426)erence between shareholders’ funds and the total market value of the investments (including the face value of futures positions) expressed as a percentage
of shareholders’ funds (see note 14, page 83).
Since 2004, Witan’s dividend per share has risen 79%, compared with 30% for the UK consumer price index
16.5
14.5
12.5
10.5
8.5
Witan dividend (pence per share) (left scale)
CPI Index (right scale)
190.0
167.0
144.0
121.0
98.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Datastream.
Annual Report 2014 Witan Investment Trust plc
03
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Chairman’s and Chief Executive’s Report
Summary
In the year to 31 December 2014 Witan delivered
a net asset value (NAV) total return of 6.6%, 1.1%
more than our benchmark’s total return of 5.5%
and(cid:123)5.4% more than the 1.2% return on the FTSE
All-Share Index of UK shares. The share price
total return was 15.1%, enhanced by the move
during the(cid:123)year from a 6.1% discount at the end
of 2013 to(cid:123)a 1.3% premium at the year-end. The
total dividend for the year is 15.4 pence per share
(2013:(cid:123)14.4 pence), an increase of 6.9%, including
the fourth interim dividend of 4.6 pence declared
in February 2015 and payable on 2 April 2015. This
marks the 40th consecutive year of rising dividends
at Witan, with the current dividend per share more
than 40 times that paid in 1974.
Over the past 5 years Witan has achieved an NAV
total return of +70.2%, compared with the +54.5%
return from our benchmark over this period.
2014(cid:123)also marked the 10th anniversary of Witan’s
adoption of a multi-manager investment approach.
Over the 10 years to the end of 2014, shareholders
have enjoyed an NAV total return of 143.8%,
compared with the benchmark’s return of 117.0%.
In a year when market sentiment was less positive
than in 2013, with no consistent market direction,
investment selection was particularly important.
Overall our managers outperformed, with additional
contributions from the investment in Japanese
equity market futures and the use of gearing.
The investment markets in 2014
Equity markets delivered returns in 2014 that were
generally modest in sterling terms. The US was the
standout exception among major centres, with a
market rise of over 10% boosted further by the
dollar’s strength to deliver 20% returns in sterling
terms. Japan, by contrast, saw an 8% rise in its
market index almost totally eroded by yen weakness.
The UK and Europe delivered small positive total
returns in sterling terms.
Harry Henderson | Chairman
Andrew Bell | Chief Executive
04
Witan Investment Trust plc Annual Report 2014
Highlights
> NAV total return of 6.6% outperformed the benchmark’s return of 5.5%
> NAV total return over the last (cid:428)ve years of 70.2%, 15.7% ahead of the benchmark
> Dividend increased by 6.9% to 15.4p, 6.4% ahead of the rate of in(cid:430)ation
> The 40th consecutive year of increased dividends
> Share price rerated from a 6.1% discount to a 1.3% premium
A (cid:428)nal ingredient to a slightly unsettling year was
the slowdown in the Chinese economy. Whilst
this appeared to be a controlled process, with the
authorities gradually easing policy in response to
weaker growth, the fear of a more disorderly collapse
remained, due to the poorly-controlled boom in
lending during recent years. This did not prevent
the previously-depressed Chinese domestic stock
market from rising over 50% during the year, but
the impact of China’s slower growth on commodity
prices and the e(cid:426)ect of the mood of o(cid:431)cial austerity
on demand for global consumer products cast
shadows over markets elsewhere.
Witan’s strategy during the year was to remain fully
invested into what we believed to be improving
economic conditions, taking advantage of periods of
weakness earlier in the year to increase our gearing,
which rose from 7% to 10%.
The discount, share buybacks and treasury shares
The Company’s discount (relative to the NAV
excluding income, with debt at market value) was
6.1% at the end of 2013 and, on the same basis, our
shares traded at a premium of 1.3% at the end of
2014. The average discount for the year was 2.2%
(2013: 8.3%).
As a result of this rerating, the Company was able
to reissue shares held in treasury and to issue
new shares at a premium to NAV to meet investor
demand, making this the (cid:428)rst year since 1996
that(cid:123)the Company has had more shares in issue at
the end of the year than at the start.
One common factor was the degree of anticipation
already factored into share prices following the
strong market rises in 2013. Economic growth
fell short of forecasts for much of 2014, either
temporarily (for example the harsh US winter
weather in the (cid:428)rst quarter), or more persistently,
where economies were held back by higher taxes
(in(cid:123)Japan) and, in Europe, by earlier currency strength
and relatively tight monetary and (cid:428)scal policies.
Stock markets found it hard to make progress as a
result, other than the US, where economic activity
accelerated as the year progressed.
2014 was also punctuated by a number of political
and economic events. Early in the year, Russia’s
annexation of the Crimea and involvement in a civil
con(cid:430)ict in Eastern Ukraine led to the imposition
of economic sanctions restricting trade and
(cid:428)nancial (cid:430)ows. These had a greater commercial
impact in Europe than elsewhere, in addition to
the apprehension caused by Russia’s proximity.
In(cid:123)the Middle East, political consensus continued
to(cid:123)elude a(cid:123)number of countries of strategic regional
importance (such as Egypt and Syria) as well as oil
producing countries.
Until the summer, this served to push up oil prices,
especially after extreme political elements made
startling territorial gains in Iraq, threatening
disruption to oil production. This marked a turning
point for oil prices, since once the insurgents were
pushed back markets focused upon the oversupply
in the oil market. This had resulted from signi(cid:428)cant
production growth, especially by US shale oil
companies, allied to weaker growth in the demand
for oil as a result of slower than expected global
growth. Oil prices halved in the second half of the
year, presenting a signi(cid:428)cant headwind for the UK
stock market, given its heavy oil sector weighting.
Concern about the (cid:428)nancial system’s loan exposure
to oil producers vied for investors’ attention with
the alternative conclusion that a fall in oil prices
represented a signi(cid:428)cant bene(cid:428)t to consumers of
oil(cid:123)and should boost growth in 2015.
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Annual Report 2014 Witan Investment Trust plc
05
Chairman’s and Chief Executive’s Report continued
Regulatory changes
In accordance with the Alternative Investment Fund
Managers Directive (‘AIFMD’), the Company has
appointed Witan Investment Services Limited as
its Alternative Investment Fund Manager (‘AIFM’)
and has appointed BNP Paribas Securities Services
London Branch as its Depositary. There are a number
of consequent changes in the presentation of the
Annual Report which are set out in the more detailed
sections of the Strategic Report and the Directors’
Report which(cid:123)follow.
AGM
Our Annual General Meeting will be held at
Merchant(cid:123)Taylors’ Hall on Thursday 30 April 2015 at
2.30 pm. Formal notice of the meeting will be sent to
shareholders when the Annual Report is published.
We look forward to the opportunity to meet you then
for the Company’s 107th AGM.
Outlook
In retrospect, 2014 appears to have been a transition
year, between the eager anticipation of improving
conditions factored into markets in 2013 and the
achievement of those improvements which has
occurred somewhat more slowly than hoped.
the decline in sterling will help companies with
exports and overseas earnings.
One of the greatest surprises in 2014 was that, in
an environment of improving economic growth and
speculation of interest rate rises in the US and the
UK (albeit so far unful(cid:428)lled), government bond yields
declined from what were already low levels. This can
perhaps be rationalised by a reassessment of how
long the current period of low interest rates needs
to be to sustain convalescent economies around the
world and by the low level of in(cid:430)ation, a(cid:426)ected by the
recent plunging oil price. Nonetheless, the market
has been troubled periodically by concerns that low
bond yields might be a warning of coming recession,
although the distortions caused by quantitative
easing policies appear a likelier explanation. The
fact that central banks in Japan and(cid:123)Europe are set
to be buyers of government bonds even as the US
Federal Reserve withdraws from the market means
that supply-demand factors will remain positive for
another year. This does not mean bonds represent
good value from an investment point of view but
if yields remain suppressed it would provide a
continuing boon for companies and governments
seeking to borrow at current low rates.
Economic growth was generally stronger last year
than in 2013 but failed to buoy already elevated
spirits. Europe remained dogged by economic
di(cid:426)erences between the more competitive and the
weaker countries (notably Greece) and by the lack
of consensus over how to manage the stresses. The
crisis with Russia has undermined con(cid:428)dence at a
vulnerable point in this process. Japan’s economy
has yet to recover momentum following the tax rise
a year ago, while investors are focused on whether
the re-elected Prime Minister Abe will implement
reform measures to boost his country’s growth
potential. The UK grew more strongly than most in
2014 but faces political uncertainty in the form of
the forthcoming general election as well as equity
market pressures from the signi(cid:428)cant exposure to
mining and oil companies. On(cid:123)a more positive note,
2015 begins with a similar question to that a year
ago (cid:115) will the world economy grow su(cid:431)ciently to
meet expectations for corporate pro(cid:428)ts growth
and to enable debt-laden Western economies to
get on top of their problems? Geopolitical events
have complicated the normal economic judgments
during 2014 and risks remain but the fall in the oil
price has the capacity, if sustained, to generate
a growth surprise in economies that have so far
failed to recover as rapidly as normal from the 2009
recession.
Harry Henderson
Chairman
10 March 2015
Andrew Bell
Chief Executive
06
Witan Investment Trust plc Annual Report 2014
Strategic Report
Strategy and business model
Companies are required to publish a Strategic
Report, which should provide a description of the
objectives which its strategy is designed to deliver
for shareholders, the business model and the
outlook for the year ahead. It should also include
analysis of the Company’s performance during the
year, relative to the key elements of its business
strategy. This report falls into four main sections:
1. Strategy
2. Business model
3. Performance and principal developments
in 2014
4. Corporate and operational structure
Witan is an Investment Trust, which was founded
in 1909 and has been listed on the London
Stock Exchange since 1924. It is managed by the
Executive team of its Alternative Investment Fund
Manager, Witan Investment Services Limited
(WIS), under the control and supervision of the
Company’s Board of Directors.
1. Strategy
The Company’s strategy is to create value for shareholders,
by addressing the investment objective, by adding value in
pursuing that objective and by communicating e(cid:426)ectively with
existing and potential shareholders.
The Company invests its shareholders’ funds primarily
in a(cid:123)broad geographical spread of global equity markets.
The(cid:123)objective is to pro(cid:428)t from opportunities created by global
economic growth and to outperform a representative equity
benchmark, thereby generating long-term capital growth for
shareholders, together with an income that rises faster than
the rate of in(cid:430)ation.
The Company employs an active multi-manager approach,
allocating funds for investment by selected managers with
di(cid:426)ering styles and specialisations. The aim is to access the
best available managers, including those not accessible on
the same terms (or at all) to UK investors.
Witan’s multi-manager approach was adopted in 2004, in
the belief that no single manager was likely to excel in all
markets and at all points in the economic cycle. Employing
managers to invest in their areas of greatest competence has
the potential to improve returns and to reduce risk relative to
using a single manager across the investment waterfront.
Our approach is to balance di(cid:426)erent factors (such as quality,
value or growth approaches and geographical exposure),
aiming to pro(cid:428)t from asset allocation and from managers’
combined ability to outperform over time. We seek managers
who can capture the longer term growth rewards from equity
investment by focusing on fundamental share values rather
than chasing short-term momentum.
2. Business model
The Company has appointed Witan Investment Services
Limited (WIS) as its Alternative Investment Fund Manager
(‘AIFM’) under the Alternative Investment Fund Managers
Directive (‘AIFMD’). As AIFM, WIS has responsibility for
operating the Company’s portfolio and risk management
processes. WIS does, however, delegate certain portfolio
management responsibilities to external portfolio managers.
In addition to WIS delegating investment management
to external portfolio managers, the Company uses an
outsourced model for other corporate functions, such
as fund(cid:123)accounting, custody and specialist professional
services. These activities are overseen by the WIS and
Witan(cid:123)Executive team, covering Investment, Operations
and(cid:123)Marketing, headed by the Chief Executive O(cid:431)cer, who
is(cid:123)a Director of the Company.
Whilst the external managers appointed are responsible for
stock selection in their individual portfolios, WIS and the
Company’s Board are responsible for the overall delivery of
performance to shareholders, through the following means:
> Setting the overall investment objective;
> Selecting competent managers, who are expected
to outperform a suitable benchmark relating to the
investment remit set by the Company;
> Operating appropriate portfolio and risk management
arrangements to meet the requirements of the AIFMD
and to maintain an e(cid:426)ective overall system of risk
management and corporate governance;
> Adjusting asset allocation according to opportunities
that(cid:123)arise;
Annual Report 2014 Witan Investment Trust plc
07
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Strategic Report
Strategy and business model continued
> The judicious use of borrowings with the aim of adding
to(cid:123)performance;
> Direct investment in funds exposed to specialist asset
categories;
> Controlled and selective use of exchange-traded
derivatives to adjust asset allocation; and
> Clear communication of Witan’s objective and its
results(cid:123)to shareholders and potential investors.
The Board’s and the Executive’s role
in investment management
As noted above, the Company has appointed its wholly-
owned subsidiary WIS as its AIFM under the AIFMD. As
such, WIS(cid:123)has responsibility for ensuring that portfolio and
risk management of the Company are properly carried out,
with appropriate safeguards to ensure the functional and
hierarchical independence of those(cid:123)with portfolio and risk
management responsibilities. The Board remains responsible
for setting the investment strategy, policy and guidelines of
the Company and the AIFM operates within these.
The selection of individual investments is largely delegated
to external managers, subject to investment limits and
guidelines which re(cid:430)ect the particular mandate (e.g. UK or
global equities) and the speci(cid:428)c investment approach which
the Company and its AIFM have selected (e.g. value, higher
dividend yield, special situations). The managers are chosen
by the Witan and WIS Boards after a disciplined selection
process focused on the managers’ scope to add value and
their (cid:428)t with the overall balance of the portfolio.
The overwhelming majority of the portfolio is managed in
segregated accounts, held by the Company’s depositary,
(via the custodian to whom it delegates safekeeping
responsibilities) which enables the Company to view the
portfolio as a whole and analyse its risks and opportunities
as well as those at the level of each manager’s portfolio.
The(cid:123)operations of the custodian and the safeguarding of the
Company’s assets are further supervised by the depositary,
appointed by Witan and its AIFM, in accordance with the
requirements set out in(cid:123)the AIFMD.
At the end of 2014, the Company and its AIFM had 11 external
investment managers, covering a range of investment
remits.(cid:123)Information regarding the proportion of Witan’s
assets managed by each and of their performance during
the(cid:123)year is set out on page 11.
08
Witan Investment Trust plc Annual Report 2014
A proportion, up to 10%, of the portfolio (at the time of
investment)(cid:123)may be invested in collective funds selected
by WIS, with the objective of outperforming Witan’s equity
benchmark. This portfolio is managed subject to limits
set by the Board, and in accordance with portfolio and
risk management processes established by Witan and the
Company’s AIFM. These investments may represent asset
categories that are temporarily undervalued or funds which
are viewed as attractive longer-term generators of superior
returns.
The WIS Executive, overseen by and working within
clear parameters set by the Board, also seeks to add to
performance by adjusting the level of gearing employed,
by the selective use of exchange-traded derivatives to alter
the asset allocation and by the use of specialist funds to
gain exposure to areas underrepresented in the rest of the
portfolio. In essence, the Company seeks to have su(cid:431)cient
levers to pull to take advantage of investment opportunities
that may arise, in addition to the total returns arising from
the investment managers’ portfolios, which are expected to
be the most signi(cid:428)cant driver of the Company’s performance.
Our selected benchmark
The Company’s benchmark is a combination of global equity
markets, which re(cid:430)ect the investment universe from which
most of the portfolio holdings are chosen. Since October
2007 the benchmark (based on(cid:123)the FTSE All-World indices)
has been:
40% UK
20% North America
20% Europe ex-UK
20% Asia Paci(cid:428)c.
This re(cid:430)ects an investment policy that balances investment
in the UK market (both for its domestic and international
exposure) with access to growth in other regions of the world.
It should be emphasised that the portfolio is actively
managed and not designed to track any index or combination
of market indices. Performance can be expected to vary,
sometimes considerably, from that of the benchmark, while
aiming for outperformance in the longer term.
Performance information for other commonly used indices
is also given in the key performance indicators summary
section on page 2.
Strategic Report
Performance and principal developments in 2014
3. Performance and principal developments in 2014
Success in implementing the Company’s strategy is monitored against a range of Key Performance
Indicators (KPIs) which are viewed as significant measures of success over the longer term.
Although performance relative to the KPIs is also monitored over shorter periods, it is success
over the long-term that is viewed as more important, given the inherent volatility of short-term
investment returns. The principal financial KPIs are set out below, with a report (in italics) of
Witan’s performance against them during 2014. With respect to non-financial measures, details
of the Company’s policies and performance in relation to its obligations under the UK Corporate
Governance Code are set out in the Corporate Governance Statement on pages 32 to 41.
Key performance indicators
Investment performance
Outperformance compared with Witan’s equity benchmark.
The Company seeks to achieve at least 2% p.a. outperformance in NAV total return
and shareholder total return terms over the long-term.
In 2014, Witan achieved 1.1% NAV total return outperformance relative to its combined
global equity benchmark (see page 8) and a shareholder total return 9.6% above that of
the benchmark. NAV performance, although beating the benchmark, was below the 2%
outperformance sought. This followed a particularly strong result in 2013.
A positive long-term total return, after in(cid:430)ation, for shareholders.
In 2014, Witan shareholders enjoyed a NAV total return of 6.6% and, owing to the
narrowing of the discount, a shareholder total return of 1(cid:24).1%. In(cid:430)ation was 0.(cid:24)% in
the(cid:123)year to (cid:39)ecember 2014. (cid:53)eturns over the longer term are set out on page 2 and
indicate that this objective has also been met over the past 3 and 5 year periods.
Long-term investment outperformance by the individual managers relative to
the relevant benchmark.
In 2014, seven of the eleven third party delegated managers outperformed their benchmarks.
The managers(cid:111) returns since appointment are set out in the table on page(cid:123)11.
Further details are set out on pages 10-11.
Annual growth in the dividend per
share ahead of the rate of in(cid:430)ation
In 2014, the dividend increased by 6.9%, compared with an in(cid:430)ation rate of 0.5% in the
year to (cid:39)ecember 2014.
Further details are set out on page 12.
A positive contribution to
investment returns from the use(cid:123)of
borrowings
The Company employed average gearing of 9% during the year, which contributed
0.7% to returns. After taking account of the (mostly structural) costs of borrowing,
the(cid:123)contribution was 0.1%.
Further details are set out on pages 12 to 13.
A discount to NAV of 10% or less
(compared with the NAV excluding
income, with debt at(cid:123)market value)
The discount on this basis averaged 2.2% during 2014, the shares ending the year on a
1.3% premium, compared with a 6.1% discount at the end of 2013.
Further details are set out on page 14.
A competitive level of ongoing
charges, below the costs of other
multi-manager funds, balancing
the need to pay for high quality
investment management with the
aim of keeping the costs of managing
the business as low as possible
In 2014, the ongoing charges (cid:428)gure (‘OCF’) was 0.74% excluding performance fees
(2013:(cid:123)0.69%) and 0.96% including performance fees (2013: 1.12%).
This compares with the average OCF of 1.45% in the IA Global equity funds sector and
0.79% (0.81% including performance fees) for the AIC Global sector.
Further details are set out on page 15.
Annual Report 2014 Witan Investment Trust plc
09
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Strategic Report
Performance and principal developments in 2014 continued
Performance summary and attribution
Whereas 2013 had been a vintage year for equity investors,
2014 was one when the investment climate was more volatile,
requiring careful attention in order to achieve a positive
outcome. The US was the most signi(cid:428)cant riser amongst
the main equity markets (total return in sterling 20%), while
sterling total returns in most other regions were between
zero and 5%. The gross portfolio return (before costs) was
8.0%. This performance was made up of contributions from
the combined managers’ portfolios (with seven out of our
11 third party delegated managers outperforming their
benchmarks), from asset allocation and from the gain on the
investment in Japanese equity index futures. The contribution
from gearing (0.7%) was su(cid:431)cient to o(cid:426)set the drag from the
Company’s mostly (cid:428)xed borrowing costs.
Witan’s NAV total return (after all costs) was 6.6%, which
compares with 5.5% from the composite equity benchmark
the Company uses for comparison purposes and just 1.2%
from the FTSE All-Share Index which is widely followed by UK
investors. Excluding the e(cid:426)ect of the rise in the market value
of Witan’s quoted debt securities, the NAV total return was
7.0%, 1.5% ahead of the benchmark. The shareholder total
return was 15.1%, boosted by the rerating from a 6.1% discount
at the end of 2013 to a 1.3% premium at the end of 2014.
Combined portfolio composition
During the year the Company invested its assets with a view
to spreading investment risk and in accordance with the
investment policy set out on the inside front cover. It has
maintained a diversi(cid:428)ed portfolio in terms of stocks, sectors
and geography. The portfolio has been actively managed by
the investment managers, in accordance with their individual
mandates, with overall asset allocation and risk being
managed by the Executive team, within delegated limits from
the Board and the Company’s AIFM.
The sector breakdown and regional exposure for the aggregated
portfolio is shown on page 25. The top 50 holdings across
the combined Witan portfolio are set out on page 24. They
represented 41.2% of Witan’s portfolio at 31(cid:123)December
2014 (2013: 41.7%). These analyses highlight the substantial
diversi(cid:428)cation provided by our range of managers and the
broad geographical exposure. However, it(cid:123)is also important
that diversi(cid:428)cation does not unduly dilute returns, since the
purpose of using active managers is to outperform, which
requires the portfolio to di(cid:426)er from the benchmark. One
measure of active management in a portfolio is known as
“active share”. This indicates the degree to which a portfolio
di(cid:426)ers from its benchmark, with a portfolio identical to the
benchmark having an active share of 0% while one with
no holdings in common with its benchmark would have an
active share of 100%. Although looking at active share at a
particular point is an incomplete measure of the degree to
which a portfolio is managed actively (let alone successfully),
as a guide Witan’s active share was circa 65% at the end
of 2014. This is similar to the levels prevailing since 2011
but compares with a lower level (around 50%) at the end of
2009. The relative performance seen in recent years also
demonstrates that Witan’s aggregated portfolio retains an
individual character distinct from the relevant indices.
Equity mandate
Investment manager
Benchmark
Investment style
UK
UK
UK
Global
Global
Global
Global
Global
Artemis Investment Management LLP
FTSE All-Share
Recovery/special situations
Heronbridge Investment Management LLP
FTSE All-Share
Intrinsic value growth
Lindsell Train Limited
Lansdowne Partners (UK) LLP
MFS International (UK) Limited
Pzena Investment Management, LLC
Tweedy, Browne Company LLC
Veritas Asset Management LLP
FTSE All-Share
DJ Global Titans
FTSE All-World
FTSE All-World
FTSE All-World
FTSE All-World
Long-term growth from undervalued brands
Concentrated, benchmark-independent
investment in developed markets
Growth at an attractive price
Systematic value
Fundamental value
Fundamental value, real return objective
Pan-European
Marathon Asset Management LLP
FTSE All-World Developed
Europe
Capital cycles
Asia Paci(cid:428)c
(including Japan)
Matthews International
Capital Management LLC
MSCI Asia Paci(cid:428)c Free
(cid:52)uality companies with dividend growth
Emerging Markets
Trilogy Global Advisers, LP
MSCI Emerging Markets
Fundamental, growth orientated
Directly-held
investments
Witan’s AIFM and Executive team
Witan’s combined equity
benchmark
Collective funds invested in mispriced
or specialist assets, recovery situations
10
Witan Investment Trust plc Annual Report 2014
A breakdown of the performance attribution in 2014 (based on the Company’s (cid:428)nancial statements) is shown in the table below.
Net asset value total return
Benchmark total return
+6.6% Portfolio total return (gross)
+5.5% Benchmark total return
Relative investment performance
Gearing impact
E(cid:426)ect of changed market value of debt
Share buybacks/issuance
Borrowing costs
Operating costs and tax
Relative performance
+1.1%
+0.7%
-0.4%
+0.0%
-0.6%
-1.1%
+8.0%
+5.5%
+2.5%
+0.3%
+2.8%
-1.7%
+1.1%
Investment manager performance
Details of the manager structure in place at the end of 2014, showing the proportion of Witan’s assets that each managed
and the performance they achieved, are set out in the following table:
Investment manager
Artemis
Heronbridge
Lindsell Train
Lansdowne Partners
MFS
Pzena
Tweedy, Browne
Veritas
Marathon
Matthews
Trilogy
Witan Direct holdings
Value of
Witan assets
% of Witan’s
assets under
managed management
at 31.12.14
(Note 1)
at 31.12.14
£m
Performance
in 2014
(%)
Benchmark
performance
in 2014
(%)
Performance
since
appointment
(%)
(Note 2)
Benchmark
performance
since
appointment
(%)
152.4
104.9
187.6
151.5
137.4
155.1
51.1
200.1
116.5
153.2
52.9
106.3
9.6
6.6
11.8
9.5
8.7
9.8
3.2
12.6
7.3
9.7
3.3
6.7
2.9
1.2
7.4
17.5
12.0
8.4
8.1
13.9
1.9
5.9
3.7
5.3
1.2
1.2
1.2
11.1
11.3
11.3
11.3
11.2
0.3
6.5
4.3
5.5
11.3
11.1
19.4
31.6
12.4
8.9
8.4
13.0
10.4
4.2
(3.3)
8.8
5.4
6.9
10.1
14.8
9.5
11.4
11.4
10.2
8.2
2.9
(0.8)
7.8
Notes:
1.
2. The percentages are annualised where the date of appointment was more than one year ago.
Percentage of Witan’s investments managed, excluding the holdings in Polar Japan open-ended funds (£19.8m, 1.2% of assets) and cash balances held centrally by Witan.
Manager structure and performance
The Company’s delegated managers have a range of
investment approaches and follow di(cid:426)ering mandates
set by the Company. Details of each manager’s mandate,
benchmark and investment style are shown on page 10.
Further details, including the date of appointment are shown
in the(cid:123)manager summaries on pages 21 to 23.
All of the delegated managers were in place throughout
the year. During the year, seven of the third party delegated
managers outperformed their benchmarks, while four
underperformed, along with the direct holdings. Lansdowne,
Veritas and MFS delivered particularly strong absolute
returns, also beating their global benchmarks. Our UK
managers’ outperformance was also helpful, particularly
Lindsell Train, helping to o(cid:426)set the negative e(cid:426)ect of the UK
market’s dull performance compared with global equities.
Directly held investments
This portfolio, which held 6.3% of assets at the end of 2013,
underperformed Witan’s benchmark by 0.2% during 2014,
with a return from the portfolio of 5.3%. Its proportion of
the investment portfolio at the year-end was slightly higher
at 6.7%, owing to net investments made during the year.
The investment in Electra Private Equity ordinary shares
was sold, while that in the same company’s convertible
bonds was increased. New investments were made in the
JZ Capital Partners 6% convertible bond and in the quoted
private equity vehicle SVG Capital, both of which have
performed satisfactorily. Less positively, a holding in Black
Rock World Mining Trust was initiated in September, as a
means of increasing exposure to the mining sector, where
the Company’s portfolio has relatively little exposure. This
has so far proved a premature decision, with a further fall in
mining shares being exacerbated by a speci(cid:428)c investment in
that company’s portfolio having to be written o(cid:426). However,
we believe the rationale for this investment holds true and
accordingly we have added to the holding at lower valuation
levels. The main investments are in listed private equity and
related funds (Electra Private Equity, Princess Private Equity,
SVG Capital, JZ Capital Partners and NB Distressed Debt
Investment Fund), UK domestic recovery (Aberforth Geared
Income Trust), three specialist sector funds (Polar Capital
Insurance Fund, Blackrock World Mining Trust and Ludgate
Environmental Fund Limited) and the convertible bonds of
Edinburgh Dragon Investment Trust.
Annual Report 2014 Witan Investment Trust plc
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Strategic Report
Performance and principal developments in 2014 continued
Dividend policy and performance in 2014
The Company’s policy (subject to circumstances) is to
increase its dividend per share in real terms, ahead of the
increase in UK Consumer Price Index (CPI).
For 2014, the Board has declared a fourth interim dividend
of 4.6 pence per share, to be paid to shareholders on 2 April
2015, making a total distribution for the year of 15.4 pence
(2013: 14.4 pence). This represents an increase of 6.9%,
6.4% ahead of the 0.5% rate of CPI in(cid:430)ation in the year
to December 2014. This is the 40th consecutive year that
Witan(cid:123)has increased its dividend.
The chart below shows the growth in dividends over the
past(cid:123)10 years. Our dividend per share has grown ahead of the
rise in the UK CPI in each year and cumulatively has grown by
79%, more than twice the 30% rise in consumer prices.
Since 2004, Witan’s dividend per share has risen 79%
compared with +30% for the UK consumer price index
16.5
14.5
12.5
10.5
8.5
Witan dividend (pence per share) (left scale)
CPI Index (right scale)
190.0
167.0
144.0
121.0
98.0
2004
2005
2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Datastream.
The Company pays dividends quarterly. The (cid:428)rst three
payments for 2015 (in June, September and December)
will, in(cid:123)the absence of unforeseen circumstances, be paid
at a rate(cid:123)of 3.85 pence per share (2014: 3.6 pence), being
one quarter of the full year payment for 2014. The fourth
payment (in March 2016) will be a balancing amount,
re(cid:430)ecting the di(cid:426)erence between the three quarterly
dividends already paid and the payment decided for the
full(cid:123)year.
Policy on gearing and the use
of derivatives
Employment of gearing
Purpose
The purpose of using borrowings is to improve (or “gear/
leverage”) returns for shareholders, by achieving investment
returns higher than the interest cost of the borrowings.
Accordingly, attention is paid to using a level of gearing
appropriate for market conditions (put simply, having
more borrowings when markets are attractively valued
and(cid:123)borrowing less at times when returns are expected
to(cid:123)be poorer). In addition, a blend of long-term and
short-term borrowings is used, to balance the certainty
of(cid:123)cost associated with locking in (cid:428)xed rates for longer
periods with(cid:123)the (cid:430)exibility of using short-term facilities
which(cid:123)can be readily repaid when they are not required.
Limits
Although the Company has the legal power under its Articles
of Association to borrow up to 100% of the adjusted total
of shareholders’ funds (which is also the maximum level of
leverage set by its AIFM), with the objective of enhancing
returns, this is subject to practical constraints including a
test of prudence. The Board’s longstanding policy is not to
allow gearing (as de(cid:428)ned on page 3) to rise to more than 20%,
other than temporarily in exceptional circumstances. Over
the past (cid:428)ve years it has generally varied between 5% and
15% and where appropriate the Company may hold a small
net cash position.
Structure
Witan has £110 million of structural debt, consisting of
debenture, secured bond and preference share capital. The
Company also has a £70 million one-year facility, providing
additional (cid:430)exibility over the level of gearing, as well as
enabling the Company to borrow in other currencies than
sterling, if deemed appropriate. Witan may either invest
its borrowings fully, or neutralise their e(cid:426)ect with cash
balances (or the sale of equity index futures) according to
its assessment of the markets. The Company’s delegated
managers are not permitted to borrow within their portfolios
but may hold cash(cid:123)if deemed appropriate.
12
Witan Investment Trust plc Annual Report 2014
Action taken in 2014
Gearing was managed actively during the year. It was
increased to take advantage of periods of market weakness
and other opportunities, from 7.3% at the start of the
year to(cid:123)8.8% in June and 10.1% at the end of the year. The
calculation of gearing takes account of the nominal value
of any derivatives held, since this represents the size of the
asset or liability to which the derivative provides exposure.
Gearing bene(cid:428)ted performance during the year. Although
the(cid:123)estimated contribution of 0.7% of shareholders’ funds
was only slightly greater than the interest costs borne (0.6%),
the majority of the (cid:428)nance cost is (cid:428)xed and would have had
to be borne irrespective of whether the funds were invested,
so the bene(cid:428)t was signi(cid:428)cant, especially in a year of modest
returns.
The one-year borrowing facility was increased from £50m
to £70m, in view of the increased size of shareholders’
funds(cid:123)and favourable borrowing conditions. The drawn
balance on this was £45m at the year-end (2013: £10m).
At the end of 2013, the published gearing (cid:428)gure of 7.3%
took(cid:123)account of a £35.2 million long position in the Nikkei
Index futures, equivalent to 2.6% of net assets. Gearing
excluding this position was 4.7%. Gross gearing (adding
together the value of all positions (less cash), irrespective
of(cid:123)whether they were an asset or a liability) was 7.3% at the
end of 2013.
At the end of 2014, gross gearing on the same basis was
10.1%. This included a £34.7 million long position in Nikkei
Index futures, equivalent to 2.4% of net assets. Further
details of the accounting treatment for these positions are
given in note 1 on page 69.
particular asset or for portfolio hedging) their use will be
considered. In recent years, exchange-traded index futures
have been the only instruments used. These give exposure
to a particular market index, are relatively liquid to trade and
depend upon the creditworthiness of the particular exchange,
not an individual (cid:428)rm.
The use of index futures enables Witan to adjust its gearing
rapidly, which helps investment (cid:430)exibility. It also provides a
means of adjusting asset allocation (by directing investment
to particular markets). In both cases, the use of index futures
enables the adjustments to be made without interfering with
the assigned objectives for our investment managers, which
are to pick stocks that will grow in value over the medium
to long term and outperform their respective benchmarks.
The(cid:123)operation of this investment area is the responsibility
of the AIFM, acting under guidelines set by the Board.
Transactions are reported to the Board as they occur, with
the(cid:123)CEO and AIFM being accountable for the (cid:428)nancial results.
The Company’s delegated managers are not permitted to
make use of derivatives or to gear their portfolios.
Activity during 2014
At the end of 2013, the Company held a position in the Nikkei
225 Index futures contract, equivalent to approximately
2.6% of net assets. This had been put in place in early 2013,
to increase our portfolio exposure to a market which we
believed to be attractive and where our managers had
relatively little stock exposure. This position was increased
between March and May 2014, when Japan’s market was
particularly weak, in reaction to an increase in taxation in
April. Later in the year, the exposure was reduced after the
market rallied strongly in response to continued corporate
pro(cid:428)t growth and further economic stimulus measures. The
position was equivalent to 2.4% of assets at the end of 2014.
Use of Derivatives
Policy
Witan’s policy on the use of derivatives emphasises simplicity,
transparency, cost e(cid:426)ectiveness and the minimisation of
counterparty risk. Where (cid:428)nancial instruments are available
that help the Company to implement its investment policy
(whether for the purpose of increasing exposure to a
The Company takes full account of the e(cid:426)ect of the nominal
value of the futures contracts when calculating its gearing.
The value of the investments (which are traded on o(cid:431)cial
exchanges) is fully marked to market every day. The realised
gain on index futures during the year is shown in the cash
(cid:430)ow statement on page 65.
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Strategic Report
Performance and principal developments in 2014 continued
At the 2014 AGM, the Company sought and obtained
shareholder approval to buy shares into treasury, for possible
reissue if the shares were to trade at a premium in the future.
Additionally, the Company obtained shareholder authority
to issue shares, up to 10% of the starting total, provided that
such shares were issued at a premium to net asset value.
During 2014, both authorities were used. During the summer
months, the Company bought a total of 51,000 shares into
treasury at discounts between 3% and 5%. These shares
were subsequently sold at a premium to NAV to meet market
demand in late October. In December, the shares traded
at a premium for most of the month and 250,000 new
shares were issued at a premium to NAV, to satisfy market
demand. The criteria for the Company’s transactions in its
own shares will always be that it should be in shareholders’
interests. Share buybacks and issuance are accretive to NAV
per share and help contribute to liquidity in the trading of
the Company’s shares, while (in the case of new issuance)
bene(cid:428)ting our ongoing charges (cid:428)gure by spreading the
Company’s (cid:428)xed costs over a wider base.
Marketing
The purpose of “marketing” is to communicate developments
at the Company e(cid:426)ectively to existing and potential
shareholders, to help sustain a liquid market in our shares.
Clear communication of the Company’s investment objective
and its success in executing its strategy makes it easier
for investors to decide how Witan (cid:428)ts in with their own
investment objectives. Other things being equal, this should
help the shares to trade at a narrower discount, from which
all shareholders bene(cid:428)t. If the shares trade on a premium,
this creates the possibility of increasing the size of the
Company by issuing new shares, with bene(cid:428)ts in terms of
greater liquidity as well as spreading costs.
Market liquidity and discount policy
Witan is a member of the FTSE 250 index, with a market
capitalisation of over £1.4 billion. The Board places great
importance on the encouragement of a liquid market in
Witan’s shares on the London Stock Exchange. Considerable
e(cid:426)ort is devoted to communicating Witan’s objective and
performance clearly to shareholders and potential investors.
Although there is a wide range of (cid:428)rms and online investment
platforms through which the Company’s shares may be held,
the Company’s subsidiary Witan Investment Services Limited
also operates a savings plan for investing in Witan shares,
details of which are described on page 89.
The Company has for many years made use of share
buybacks, purchasing shares for cancellation when they have
stood at a signi(cid:428)cant(cid:123)discount to the NAV (excluding income,
with debt(cid:123)at market value), with the objective of achieving a
sustainable and improving discount of 10% or less (subject
to(cid:123)market conditions).
This policy has the direct e(cid:426)ect of improving NAV per
share(cid:123)with the additional strategic aims of mitigating
volatility in the discount and bringing the share price closer
to the NAV. The discount has shown an improving trend in
recent years, particularly during 2013 and 2014, as illustrated
in the chart below.
Witan Investment Trust discount trend
5 day average discount
3 month average discount
1 year average discount
6
1
-4
-9
-14
Jan 2008
Jan 2009
Jan 2010
Jan 2011
Jan 2012
Jan 2013
Jan 2014
Jan 2015
Source: Datastream.
14
Witan Investment Trust plc Annual Report 2014
In view of these potential bene(cid:428)ts, the Company has felt for
many years that it is bene(cid:428)cial to incur the limited costs of
operating a marketing programme in order to disseminate
information about our investment strategy and performance
more widely. This programme communicates with private and
professional investors, (cid:428)nancial advisers and intermediaries
using a range of media (including direct meetings, press
interviews and advertising through traditional media and
the internet). The Company also provides an informative and
easy to use website (www.witan.com) to enable investors to
make informed decisions about including Witan shares in
their investment portfolios. The website includes a section
focused on the requirements of Financial Advisers, as well
as information about the Witan Wisdom and Jump savings
schemes operated by the Company’s subsidiary, Witan
Investment Services Limited.
Costs
Investment management fees
Each of the delegated managers is entitled to a base
management fee rate, levied on the assets under
management, and in some cases a performance fee,
calculated according to investment performance relative
to an appropriate benchmark. The agreements can be
terminated on one month’s notice (except one, for which a
three month notice period applies). One of the investment
mandates is operated via a fund vehicle, to simplify
custody(cid:123)arrangements in emerging economies.
The base management fee rates for managers in place at the
end of 2014 ranged from 0.2% to 0.8% per annum and the
performance fees ranged from nil (the majority) to 20% of
the relevant outperformance. The average base management
fee, weighted according to the value of the funds under
management, was 0.48% as at 31 December 2014 (2013:
0.47%). On a similar basis, the average performance fee is 6%
of the outperformance of the relevant benchmark (2013: 6%),
subject to capping of payments for any particular year.
As an illustration, if our managers uniformly outperformed
their benchmarks by 3% after base management fees,
this would generate a performance fee of 0.17% of net
assets, giving total investment management fees of 0.65%
(including a 0.48% base fee). The comparable estimate in
2013 was 0.66% (including a 0.47% base fee). The actual
fees payable will of course vary according to the level of
performance and the variation in performance between
managers with higher or lower fees.
Witan takes care to ensure the competitiveness of the fee
rates it pays and that where higher fees are incurred they
are linked to good performance, from which shareholders
bene(cid:428)t. A majority of the managers have base fees alone
(without performance fees) and a majority of the fee
structures incorporate a “taper” whereby the average
fee(cid:123)rate reduces as the portfolio grows.
The Company’s external investment managers may use
certain services which are paid for, or provided by, various
brokers. In return, they may place business, including
transactions relating to the Company, with those brokers.
Ongoing charges and costs
The ongoing charges (cid:428)gure (‘OCF’) (which is the recurring
operating and investment management costs of the
Company, expressed as a percentage of average net assets)
was 0.74% in 2014 (2013: 0.69%). The increased OCF in 2014
principally re(cid:430)ects the full year e(cid:426)ect of the manager and
fee changes during 2013, which resulted in a higher average
base fee, o(cid:426)set by a reduced number of performance fee
arrangements. When performance fees due to the relevant
external managers are included, the OCF was 0.96% in 2014
(2013: 1.12%).
This compares with the average OCF for 2014 of 1.45% in the
IA Global equity funds sector (source: IA, Financial Express)
and 0.79% (0.81% including performance fees) for the AIC
Global sector (source: AIC).
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Strategic Report
Performance and principal developments in 2014 continued
Category of cost
Other expenses (excluding investment management expenses)
(see note 5 on page 71)
Less expenses relating to the subsidiary (whose expenses do not
relate to the operation of the investment company)
Investment management base fees (see note 4 on page 70)
Ongoing Charges Figure (including investment management base fees)
Investment management performance fees (see note 4 on page 70)
Ongoing charges (including performance fees)
Portfolio transaction costs*
Relative outperformance during the year (valuing debt at market value)
2014
£m
4.90
2014
% of average
net assets
0.36
2013
£m
5.32
2013
% of average
net assets
0.42
(1.01)
(0.07)
(1.16)
(0.09)
6.17
10.06
3.00
13.06
0.91
0.45
0.74
0.22
0.96
0.07
+1.1%
4.58
8.74
5.49
14.23
1.89
0.36
0.69
0.43
1.12
0.16
+7.1%
* excludes (in 2013) non-recurring portfolio transition costs of £0.9m arising from the manager changes in 2013.
The Company exercises strict scrutiny and control over
costs. Any negotiated savings in investment management
or other fees directly reduce the costs for shareholders.
Whilst this will not always generate the lowest absolute
costs, the Board believes that it is in shareholders’ interests
to pay for managers who add value. The Board believes that
the OCF during the year represented good value for money
for shareholders given a further year of NAV total return
outperformance.
There is continuing debate over the most appropriate
measure of investment company costs, to enable investors
to assess value for money and to make comparisons between
funds. Consensus on how best to present a single (cid:428)gure
for costs remains elusive, partly because of concerns that
oversimpli(cid:428)cation might distort comparisons rather than
facilitating them.
In the meantime, the Company will continue to focus on
the OCF (which is prepared in accordance with the AIC’s
recommended methodology) as a readily-understood
measure of the underlying expenses of running the business.
As last year, we are presenting the information on costs in a
single table above. This indicates the main cost headings in
money terms and as a percentage of net assets. The (cid:428)gures
for relative NAV total return performance are also(cid:123)included,
for comparison purposes.
Priorities for the year ahead
In 2015, the key priorities for Witan include:
> Investment. Seek to build on the good returns
achieved for shareholders in recent years, setting an
appropriate strategic asset allocation to re(cid:430)ect changing
opportunities in the world economy. Make use of a range
of active managers to deliver our strategic objectives
through a multi-manager structure. Continue to deliver
dividend growth ahead of in(cid:430)ation;
> Communication. Communicate Witan’s distinct
and active investment approach and achievements
e(cid:426)ectively(cid:123)to existing and potential shareholders. In
particular increase the focus on improving information
for personal investors and (cid:428)nancial advisers, where
direct(cid:123)meetings are less practicable;
> Regulatory change. Continue to operate risk and
investment management processes in compliance with
the AIFMD, liaising closely with the Company’s AIFM,
Witan Investment Services Limited; and
> Client service. Provide good service to the corporate
and(cid:123)individual clients of Witan Investment Services
Limited.
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Witan Investment Trust plc Annual Report 2014
4. Corporate and operational structure
As described earlier (page 7) Witan is an Investment Trust
with a Premium Listing on the London Stock Exchange. It
has a single, wholly-owned, subsidiary, Witan Investment
Services Limited (‘WIS’) which acts as the Company’s
Alternative Investment Fund Manager.
Operational management arrangements
In addition to the appointment of delegated investment
managers, Witan and WIS contract with third parties for
the(cid:123)supporting services required, including:
> BNP Paribas Securities Services London Branch (‘BNPSS’)
for global depositary services, custody, investment
accounting and(cid:123)administration;
> Frostrow Capital LLP for company secretarial services;
> International Financial Data Services (‘IFDS’) Ltd. as
the(cid:123)savings plan administrators of Witan Wisdom and
Jump Savings;
> Specialist advisers used for media relations, advertising
and investment manager research; and
> The Company also takes specialist advice on regulatory
compliance issues and, as required, procures legal,
investment consulting, (cid:428)nancial and tax advice.
As with investment management, the contracts governing
the provision of these services are formulated with legal
advice and stipulate clear objectives and guidelines for the
level of service required.
Premises and sta(cid:431)ng
Since November 2005 the Company has had a lease on
o(cid:431)ce(cid:123)premises at 14 (cid:52)ueen Anne’s Gate, London SW1H 9AA,
which is also the Company’s registered o(cid:431)ce.
The Company’s policy towards its employees is to attract
and(cid:123)retain sta(cid:426) with the particular skills and expertise
required to manage the a(cid:426)airs of an investment trust
company. Details of the Company’s remuneration policies
and required disclosures are set out in the Directors’
Remuneration Report on page 44. Employees and those
who(cid:123)seek to work within the Group are treated equally
regardless of sex, marital status, creed, colour, race or ethnic
origin. The Company has seven direct employees, four men
and three women. The Board currently consists of seven
non-executive directors ((cid:428)ve men and two women) and the
Chief Executive O(cid:431)cer, Andrew Bell, who is an employee.
Given its outsourced model and small number of direct
employees, the Group has no speci(cid:428)c policies in respect of
environmental or social and community a(cid:426)airs.
Witan Investment Services (‘WIS’)
Witan Investment Services Limited is a wholly-owned
subsidiary of Witan Investment Trust plc (‘Witan’). It is
authorised and(cid:123)regulated by the Financial Conduct Authority
(‘FCA’).
It was established in March 2005 to provide investment
savings accounts and marketing services and to give
investment advice to professional investors. From July 2014,
as already noted, WIS became the Alternative Investment
Fund Manager (‘AIFM’) for Witan to ful(cid:428)l the(cid:123)requirements of
the AIFMD.
Prior to assuming the role of Witan’s AIFM, WIS’s principal
activities have historically been to provide executive
management services to the Boards of Witan and Witan
Paci(cid:428)c Investment Trust plc (‘Witan Paci(cid:428)c’), to communicate
information about the companies to the market to increase
investor interest in their shares and to operate cost-e(cid:426)ective
savings plans for investors to hold the shares.
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Strategic Report
Corporate and operational structure continued
WIS’s operational objectives for 2015 are:
> to ful(cid:428)l its investment and risk management
responsibilities as Witan’s AIFM;
> to provide a reliable and e(cid:431)cient investment savings
platform for Witan and Witan Paci(cid:428)c investors;
> to provide suitable advice to the Boards of its corporate
clients;
> to reduce the net operating costs for Witan; and
> to seek appropriate business opportunities which can
add value for shareholders.
WIS has two principal sources of income. These are savings
plan revenues and the fees (as AIFM or Executive Manager
and for marketing services) paid by its corporate clients,
Witan and Witan Paci(cid:428)c. The main costs incurred by WIS are
fees to the savings schemes administrator (IFDS), sta(cid:426) costs
to provide the services described above and professional
advice to ensure that its regulatory and accounting
obligations are properly satis(cid:428)ed.
The savings plans provided for WIS clients are marketed
under the Witan Wisdom and Jump Savings brands. They
currently have over 23,500 accounts with assets of some
£327 million invested.
Principal risks and uncertainties
Risks are inherent in investment and corporate management
but it is important that their nature and magnitude is
understood, in order that risks, particularly those which the
Company does not wish to take, can be identi(cid:428)ed and either
avoided or controlled. In accordance with the provisions
of the AIFMD, WIS has established a Risk(cid:123)Committee in
order to comply with its risk management and reporting
obligations as Witan’s AIFM. The Company has established
a detailed framework of the key risks impinging on the
business (principally investment, operational, (cid:428)nancial and
regulatory), with associated policies and processes devised
to mitigate or manage those risks. This risk map is reviewed
regularly by the Audit Committee along with the WIS Risk
Committee, which report on issues arising to their respective
boards, for action as necessary. The guiding principles remain
watchfulness, proper analysis, prudence and a clear system
of risk management.
Where appropriate, the Witan and WIS boards meet jointly to
cover matters of common interest. The WIS board consists
of (cid:428)ve non-executives and one executive director who are
also directors of Witan, and one executive director who is a
Company employee.
The Group’s key risks fall broadly under the following
categories:
Market and investment portfolio risks
Witan is set up to invest in UK and overseas equity markets
on behalf of its shareholders. Equity exposure is unlikely to
drop below 80%, in normal conditions. Therefore a key risk
of investing in Witan is a general fall in equity prices, which
could be exacerbated by gearing. Other risks, as with any
international equity portfolio, are the investment portfolio’s
exposure to country, currency, industrial sector and stock
speci(cid:428)c factors. There are also risks associated with changes
in Witan’s share price discount or premium to NAV and the
performance of its investment managers.
The Board seeks to manage these risks through:
> appropriate asset allocation decisions, with a broadly
diversi(cid:428)ed equity benchmark;
> manager diversi(cid:428)cation and regular reviews of the
managers’ competence;
> monitoring the global economic, geo-political and stock
market outlook;
> active management of risk, whether to preserve capital
or(cid:123)capitalise on opportunities;
> the application of relevant policies on gearing and
liquidity; and
> the use of share buybacks and issuance to respond to
market supply and demand.
During the year Andrew Bell (Witan’s Chief Executive O(cid:431)cer
(CEO) and WIS’s principal portfolio manager) managed the
overall business and the investment portfolio in accordance
with limits and restrictions determined by the Board and its
AIFM. The Board regularly reviews the matters delegated to
Executive management, on which the CEO reports at each
Board meeting. The Board also regularly reviews investment
strategy and performance, supported by comprehensive
management information including investment performance
data and (cid:428)nancial reports.
18
Witan Investment Trust plc Annual Report 2014
Liquidity
The Company’s portfolio consists mainly of securities that
are(cid:123)readily realisable. The Company and its AIFM regularly
review possible liquidity needs (for example to cover
operational costs, loan servicing and repayment, shareholder
dividends and share buybacks) relative to the Company’s
portfolio income and the signi(cid:428)cance of possible liquidity
calls relative to the value and tradability of the Company’s
assets. Given that most of the likely liquidity requirements
are readily foreseeable (for example, loan payments and
dividends are timetabled), while others (such as share
buybacks) are subject to the Company’s discretion, the Board
is satis(cid:428)ed that unexpected liquidity needs are not signi(cid:428)cant
relative to the size of the Company’s portfolio and that they
could be readily met without compromising normal portfolio
management practice.
Operational
Many of the Group’s (cid:428)nancial systems are outsourced to
third(cid:123)parties, principally BNP Paribas Securities Services
(‘BNPSS’). Disruption to the accounting, payment systems
or custody records operated by BNPSS could prevent the
accurate reporting and monitoring of the Company’s
(cid:428)nancial position. BNPSS as the Company’s depositary has
a key responsibility for monitoring such issues on behalf of
the Company and its AIFM, WIS. Details of how the Board
monitors the services provided by its suppliers, and the key
elements designed to provide e(cid:426)ective internal control, are
explained further in the Corporate Governance Statement.
Corporate governance
The Board takes its own regulatory responsibilities very
seriously and regularly reviews the main points of compliance
against requirements.
Details of the Company’s compliance with corporate
governance best practice are set out in the Corporate
Governance Statement on pages 32 to 41. The Board
conducts an annual internal assessment of the e(cid:426)ectiveness
of its governance processes in managing the Company and
enabling it to evolve in response to future challenges. There is
also a 3-yearly independent external review, the most recent
of which was conducted in late 2013. See page 36 for(cid:123)further
details.
Operational and regulatory risks are regularly and extensively
reviewed by Witan’s Audit Committee. WIS is subject to its
own operating rules and regulations and is regulated by
the FCA. From 2014, WIS has become the AIFM for Witan,
which has entailed it becoming more closely involved in
a wide range of Witan’s operations. The Company has
established a modus operandi for the e(cid:426)ective coordination
of these responsibilities, which has been adapted to ensure
full compliance with the AIFMD’s requirements without
duplication of e(cid:426)ort and will continue to be adapted in the
light of experience.
Operationally the multi-manager structure is robust, as
the investment managers, the custodian and the fund
accountants keep their own records which are regularly
reconciled. The depositary, AIFM and the Board provide
additional checks and risk management safeguards.
Management monitors the activities of all third parties
and(cid:123)reports any signi(cid:428)cant issues to the Board.
Accounting, legal and regulatory
In order to qualify as an investment trust the Company
must comply with sections 1158-59 of the Corporation Tax
Act 2010 (‘CTA’). A breach of these sections could result
in the Company losing investment trust status and, as a
consequence, capital gains realised within the Company’s
portfolio would be subject to Corporation Tax. The criteria are
monitored by the CEO and AIFM and reviewed at each Board
meeting. The Company also carefully and regularly monitors
compliance with the accounting rules a(cid:426)ecting investment
trusts.
The Company is required to comply with the provisions of the
Companies Act 2006 (‘Companies Act’), and the Company
must also comply with the UK Listing Authority’s Listing
Rules and Disclosure Rules (‘UKLA Rules’). A breach of the
Companies Act could result in the Company and/or the
directors being (cid:428)ned or becoming the subject of criminal
proceedings. Breach of the UKLA Rules could result in the
suspension of the Company’s shares which would in turn
lead(cid:123)to a breach of the provisions of the CTA.
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Strategic report
Corporate and operational structure continued
These legal and regulatory requirements o(cid:426)er signi(cid:428)cant
protection for shareholders. The Board relies on the CEO, the
AIFM, the Company Secretary and the Group’s professional
advisers to ensure compliance with all applicable rules.
WIS(cid:123)is regulated by the Financial Conduct Authority to act
as the AIFM for Witan, for the marketing and administration
of savings plans and the provision of investment advice to
professional clients.
Going concern
The assets of the Company consist mainly of securities that
are readily realisable and, accordingly, the Company has
adequate financial resources to continue in operational
existence for the foreseeable future. Therefore, the directors
believe that it is appropriate to continue to adopt the going
concern basis in preparing the financial statements. In
reviewing the position as at the date of this report, the Board
has considered the guidance on this matter issued by the
Financial Reporting Council. (See also note 1(b) on page 66).
Approval
This report was approved by the Board of Directors on
10(cid:123)March 2015 and is signed on its behalf by:
Harry Henderson
Chairman
10 March 2015
Andrew Bell
Chief Executive
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Witan Investment Trust plc Annual Report 2014
Strategic report
Investment Managers
Artemis Investment Management LLP
Established in 1997, Artemis Investment Management LLP manages
over £20.0bn (as at 31.12.14) on behalf of a range of retail and
institutional clients. Witan’s portfolio is a segregated mirror of Derek
Stuart’s £1.8bn UK Special Situations Strategy launched in 2001 – a
contrarian strategy that aims to outperform the FTSE All-Share Index
by 3% per annum. This approach seeks to exploit market ine(cid:431)ciencies,
with an absolute return mindset, in order to generate maximum returns.
It is a stock picking strategy that aims to achieve long-term capital
growth by focusing on stocks that are out of favour and have turnaround
potential.
Equity Mandate
Benchmark
Investment style
Inception date
UK
FTSE All-Share
Recovery/special
situations
06.05.08
Heronbridge Investment Management LLP
Heronbridge is a long-only, value-biased equity investment
management boutique. Founded in November 2005, it is a small,
focused, independent (cid:428)rm, controlled by its working partners who
were previously with Merrill Lynch Investment Managers, Silchester
International Investors and Goldman Sachs Asset Management.
Heronbridge currently manage £1.4bn (as at 31.12.14) for institutional
and charity clients in the UK, the US and elsewhere. In order to maximise
the alignment of interests, the (cid:428)rm’s partners have a considerable
proportion of their own assets co-invested alongside those of clients.
Equity Mandate
Benchmark
Investment style
Inception date
UK
FTSE All-Share
Intrinsic value
growth
17.06.13
Lindsell Train Limited
Lindsell Train was established in 2000 by Michael Lindsell and Nick
Train and focuses on the management of UK, Global and Japanese
equity mandates for institutional clients. The business was founded
on the shared investment philosophy that developed while Michael
and Nick worked together during the early 1990s and which underlies
the business today. The “purpose” of Lindsell Train is to provide a
professional working environment that enables the (cid:428)rm to achieve
strong investment results for their clients. Lindsell Train think it
important to maintain a small and simple organisational structure that
avoids the bureaucracy and distractions experienced within some larger,
more complex investment management businesses. The structure
is designed to allow the investment professionals to concentrate on
investment issues and to give them the freedom to invest in line with
their investment principles, which they believe will maximise returns to
their investors over the longer term. The business has grown steadily
and assets under management total £4.7bn (as at 31.12.14). Lindsell
Train continues to be majority owned by the two founders. This is
important because it ensures they maintain the integrity of the business
principles on which the (cid:428)rm was founded.
Equity Mandate
UK
Benchmark
FTSE All-Share
Investment style
Long-term growth
from undervalued
brands
Inception date
01.09.10
Lansdowne Partners (UK) LLP
Lansdowne Partners (founded in 1998) manages assets for a
diversi(cid:428)ed client base that includes some of the world’s largest and
most sophisticated investors. Assets under management are £11.5bn
(as at 31.12.14) across four distinct equity investment strategies;
European, Developed Markets, Global Financials and Global Energy,
each with its own dedicated team of portfolio managers and analysts.
Lansdowne Partners employs 93 people in its London o(cid:431)ce. The
investment philosophy is predicated on generating consistent, absolute
risk adjusted returns, through the use of exceptional investment
talent within a leading-edge operational infrastructure. Central to
Lansdowne Partners’ investment philosophy is a rigorous process
of fundamental research. The Developed Markets Strategy is run
by Peter Davies, Jonathan Regis and Stuart Roden, who have been
with Lansdowne Partners since 2001. The Developed Markets Long
Only Strategy leverages the fundamental stock analysis of the team,
investing predominantly in mega-cap companies (+$10bn market cap)
in developed markets.
Equity Mandate
Benchmark
Investment style
Inception date
Global
DJ Global Titans
14.12.12
Concentrated,
benchmark-
independent
investment in
developed markets
Annual Report 2014 Witan Investment Trust plc
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Strategic report
Investment Managers continued
MFS International (UK) Limited
MFS is a global investment (cid:428)rm managing £276.0bn (as at 31.12.14)
of equity and (cid:428)xed income assets for investors worldwide. Founded in
1924, MFS established one of the industry’s (cid:428)rst in-house fundamental
research departments in 1932. Today, MFS o(cid:426)ers a broad range of
investment styles that combine both fundamental and quantitative
research and portfolio management. Their investment philosophy
has remained consistent: to identify opportunities on behalf of
clients through the application of global research and bottom-up
security selection. MFS’ culture is investment driven, client-centred,
and collaborative. To underscore their values of collaboration and
accountability, they structure ownership and compensation to
reward long-term investment performance and teamwork. Up to 22%
ownership of MFS is available to key MFS contributors. Their majority
shareholder since 1982 has been Sun Life of Canada (U.S.) Financial
Services Holdings, Inc.
Equity Mandate
Benchmark
Investment style
Inception date
Global
FTSE All-World
Growth at an
attractive price
30.09.04
Tweedy, Browne Company LLC
Tweedy, Browne Company LLC is principally engaged in the
management of international, global and global high dividend equity
portfolios for institutional and individual clients. Since the (cid:428)rm was
founded in 1920 as Tweedy & Co., a dealer in closely held and inactively
traded securities, they have pursued a value oriented approach to
securities, (cid:428)rst as a market maker, and later, as an investor and manager.
Their investment principles are based upon the broad concepts of
“intrinsic value” and “margin of safety” as conceived and practiced
by the late Benjamin Graham. For more than ninety years, through
depressions, recessions, and stock market cycles, through a quadrupling
of interest rates and the advent of double digit in(cid:430)ation, and through
the emergence and disappearance of numerous investment fads,
they have adhered to the same value oriented principles of analysis
and investment. The consistency of their results over many decades
has con(cid:428)rmed their con(cid:428)dence in this approach. Tweedy, Browne has
£13.3bn (as at 31.12.14) of assets under management.
Equity Mandate
Benchmark
Investment style
Inception date
Global
FTSE All-World
Fundamental value 02.12.13
Pzena Investment Management, LLC
Pzena Investment Management is an institutional investment manager
based in New York with a strict focus on long-term classic value
investing. The (cid:428)rm was founded in late 1995 and began managing
assets on January 1, 1996. Pzena manages £17.8bn (as at 31.12.14)
in assets for leading endowments, foundations, pension plans and
individual investors. Pzena’s team has grown to approximately 81
employees and the (cid:428)rm is based at its headquarters in New York City
with an o(cid:431)ce for business development and client service in Australia.
Equity Mandate
Benchmark
Investment style
Inception date
Global
FTSE All-World
Systematic value
02.12.13
Veritas Asset Management LLP
Veritas is an a(cid:431)liate of AMG Group, managing £11.0bn (as at 31.12.14)
of assets, with the key objective of delivering long-term real returns
to its clients. Veritas aligns its interest with clients’ objectives and is
committed to partnership. Veritas manages both segregated portfolios
and funds, with either long-only or long-short real return mandates.
Their clients include institutions, charities, trusts and private clients.
The Real Return Group Limited was set up in 2003 as a boutique
focused on real return investing. The Real Return Group and Veritas
Asset Management (UK) Limited merged in 2004. In 2013 Veritas Asset
Management (UK) Limited completed a corporate reorganisation
and Veritas Asset Management LLP was formed as a regulated fund
management boutique running Global and Asian Equity mandates.
Veritas Asset Management LLP is the UK operating company of
the Veritas Asset Partners Limited group, of which Veritas Asset
Management (Asia) Limited in Hong Kong is also a subsidiary. In 2014
Veritas Asset Management LLP partnered with AMG Group. AMG have a
stake in a number of investment boutiques and are quoted on the NYSE.
Equity Mandate
Benchmark
Investment style
Inception date
Global
FTSE All-World
Fundamental
value, real return
objective
11.11.10
22
Witan Investment Trust plc Annual Report 2014
Marathon Asset Management LLP
Marathon Asset Management was founded in 1986 and is
totally independent, managing some £32.2bn (as at 31.12.14) of
institutional client assets. At the heart of Marathon’s investment
philosophy is the ‘capital cycle’ approach to investment. This is
based on the idea that the prospect of high returns will attract
excessive capital (and hence competition), and vice versa. In
addition, the assessment of management and how they respond
to incentives and the forces of the capital cycle is critical to the
investment outcome. The investment philosophy is intrinsically
contrarian. Given the long-term nature of the capital cycle,
Marathon’s investment ideas generally require patience and, by
industry standards, long stock holding periods.
Equity Mandate
Benchmark
Investment style
Inception date
Pan- European
FTSE All-World
Developed Europe
Capital cycles
23.07.10
Trilogy Global Advisors, LP
Trilogy Global Advisors is a long-only specialist equity investment
boutique managing global developed and global emerging market
portfolios for institutional pension schemes. Founded in 1999, it is
an a(cid:431)liate of A(cid:431)liated Managers Group (AMG), a listed US company.
The principal partners and other key sta(cid:426) hold a substantial share of
the equity and have their personal wealth co-invested in the (cid:428)rm’s
strategies. It has two investment o(cid:431)ces in New York and Orlando,
Florida, and a marketing and client service o(cid:431)ce in London. Total
assets under management comprise £8.4bn (as at 31.12.14) with
approximately a third represented by UK pension fund clients and
around a half of total assets managed in dedicated global emerging
market equity portfolios.
Equity Mandate
Benchmark
Investment style
Inception date
Emerging Markets MSCI Emerging
Markets
Fundamental,
growth orientated
09.12.10
Matthews International Capital Management LLC
(Matthews(cid:123)Asia)
Matthews Asia, an independent, privately owned (cid:428)rm based
in San(cid:123)Francisco, is the largest dedicated Asia only investment
specialist in the U.S. Matthews has £17.3bn (as at 31.12.14) in
assets under management. Matthews Asia employs a fundamental,
bottom-up investment process that seeks to identify companies
with sustainable long-term growth prospects, strong business
models, quality management teams and reasonable valuations.
Matthews Asia will seek to invest its portion of the Trust in
companies that are paying high dividends relative to their current
share price, or are well positioned to do so in the future.
Equity Mandate
Benchmark
Investment style
Inception date
Asia Paci(cid:428)c
(including Japan)
MSCI Asia
Paci(cid:428)c Free
(cid:52)uality companies
with dividend
growth
20.02.13
Annual Report 2014 Witan Investment Trust plc
23
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Fifty Largest Equity Investments
at 31 December 2014 (unaudited)
Company
1 Reed Elsevier
2 London Stock Exchange
3 Diageo
4 Comcast
5 Unilever
6 Schroders
7 Daily Mail & General
8 NB Distressed Debt Inv. Fund
9 Pearson
10 Princess Private Equity
11 Sage
12 Electra Private Equity 5% Conv. Bond
13 BT
14 BP
15 Oracle
16 Royal Dutch Shell
17 Microsoft
18 Lloyds Banking
19 Rathbone Brothers
20 Burberry
21 JP Morgan Chase
22 Goldman Sachs
23 Capita
24 Walt Disney
25 Vodafone Group
Top 25
26 Roche Holdings
27 Edinburgh Dragon 3.5% Conv. Bond
28 Delta Air Lines
29 BlackRock World Mining
30 Aberforth Geared Income
31 International Consolidated Airline
32 Imperial Tobacco
33 Reckitt Benckiser
34 Hargreaves Lansdown
35 Nike
36 Wells Fargo
37 (cid:52)ualcomm
38 Amazon
39 Barclays Bank
40 Fidessa
41 Citigroup
42 SES
43 Baxter International
44 JZ Capital Partners 6% Conv. Bond
45 American Express
46 Greene King
47 Safran
48 Laboratory Corporation of America
49 Micro Focus
50 Unitedhealth
Top 50
Market value of
holding £ million
% of portfolio
Country
32.5
27.6
23.9
22.7
21.1
19.6
18.9
18.2
17.9
17.6
17.4
15.2
15.1
15.0
14.3
14.0
13.6
13.4
13.0
12.8
12.6
12.4
12.2
12.0
11.3
424.3
11.3
11.2
10.8
10.3
10.1
10.0
9.2
9.1
8.9
8.6
8.0
8.0
7.9
7.9
7.8
7.8
7.7
7.7
7.7
7.7
7.6
7.4
7.4
7.3
7.2
2.09
1.78
1.54
1.46
1.36
1.26
1.22
1.17
1.15
1.13
1.12
0.98
0.97
0.97
0.92
0.91
0.88
0.86
0.84
0.82
0.81
0.80
0.79
0.77
0.73
27.33
0.73
0.72
0.69
0.66
0.65
0.65
0.60
0.59
0.57
0.55
0.51
0.51
0.51
0.51
0.50
0.50
0.50
0.50
0.50
0.50
0.49
0.48
0.47
0.47
0.47
638.9
41.16
UK
UK
UK
USA
UK
UK
UK
USA
UK
UK
UK
UK
UK
UK
USA
UK
USA
UK
UK
UK
USA
USA
UK
USA
UK
Sector
Media
Financial services
Beverages
Media
Personal Goods
Financial Services
Media
Equity Investment Instruments
Media
Equity Investment Instruments
Software & Computer Services
Equity Investment Instruments
Fixed Line Telecommunications
Oil & Gas Producers
Software & Computer Services
Oil & Gas Producers
Software & Computer Services
Banks
Financial Services
Personal Goods
Banks
Financial Services
Support Services
Media
Mobile Telecommunications
Switzerland
Pharmaceuticals & Biotechnology
UK
USA
UK
UK
UK
UK
UK
UK
USA
USA
USA
USA
UK
UK
USA
Luxembourg
USA
UK
USA
UK
France
USA
UK
USA
Equity Investment Instruments
Travel & Leisure
Equity Investment Instruments
Equity Investment Instruments
Travel & Leisure
Tobacco
Household Goods & Home Construction
Financial Services
Personal Goods
Banks
Technology Hardware & Equipment
General Retailers
Banks
Software & Computer Services
Banks
Media
Health Care Equipment & Services
Equity Investment Instruments
Financial Services
Travel & Leisure
Aerospace & Defence
Health Care Equipment & Services
Software & Computer Services
Health Care Equipment & Services
The top 10 holdings represent 14.2% of the total portfolio (2013: 14.8%).
The full portfolio is not listed because it contains over 400 companies. The above listing is of the largest individual equity investments and as such excludes a collective
investment used to invest in Emerging Markets (which is valued at £52.9 million), a specialist insurance fund (valued at £6.4 million), Japan equity funds valued at
£19.8(cid:123)million and an exchange traded FTSE All-World fund (which is valued at £28.7 million).
24
Witan Investment Trust plc Annual Report 2014
Classi(cid:428)cation of Investments
at 31 December 2014 (unaudited)
Basic Materials
Chemicals
Notes
Industrial Metals & Mining
Mining
Consumer Goods
Automobiles & Parts
Beverages
Food Producers
Household Goods & Home Construction
Leisure Goods
Personal Goods
Tobacco
Consumer Services
Food & Drug Retailers
General Retailers
Media
Travel & Leisure
Financials
Banks
Equity Investment Instruments
Financial Services
Life Insurance
Non-life Insurance
Real Estate Investment Services
Real Estate Investment Trusts
Health Care
Health Care Equipment & Services
Pharmaceuticals & Biotechnology
Industrials
Aerospace & Defence
Construction & Materials
Electronic & Electrical Equipment
General Industrials
Industrial Engineering
Industrial Transportation
Support Services
Oil & Gas
Alternative Energy
Oil & Gas Producers
Oil Equipment Services & Distribution
Technology
Software & Computer Services
Technology Hardware & Equipment
Telecommunications
Fixed Line Telecommunications
Mobile Telecommunications
Utilities
Electricity
Gas, Water & Multi-utilities
Open-ended Funds (see note 3)
Totals 2014
Totals 2013
United
Kingdom
%
Continental
Europe
%
North
America
%
Asia Paci(cid:428)c
(ex Japan)
%
–
–
0.2
0.2
0.1
1.6
–
0.7
–
2.1
0.9
5.4
0.3
0.3
5.8
2.9
9.3
1.9
4.8
5.6
0.8
0.3
0.2
–
13.6
0.3
0.7
1.0
0.9
0.1
0.6
0.3
0.4
0.1
3.6
6.0
–
1.9
0.2
2.1
2.9
0.2
3.1
1.0
0.8
1.8
0.2
–
0.2
0.2
0.9
0.1
0.2
1.2
0.5
0.6
0.5
–
–
0.6
–
2.2
0.1
0.2
0.6
0.4
1.3
1.7
–
0.2
0.1
0.4
0.3
–
2.7
0.5
1.2
1.7
0.5
0.3
0.3
0.4
0.3
0.1
0.7
2.6
0.1
0.9
0.1
1.1
0.2
0.2
0.4
0.3
0.4
0.7
0.2
–
0.2
0.6
42.9
43.9
14.7
14.8
0.2
–
–
0.2
–
–
0.2
0.1
–
0.7
–
1.0
0.5
1.5
2.9
1.1
6.0
2.1
1.2
2.4
0.1
0.4
–
0.1
6.3
3.0
0.8
3.8
0.5
–
0.2
0.5
–
0.3
0.7
2.2
–
0.2
0.5
0.7
2.3
1.3
3.6
0.3
–
0.3
–
–
–
1.3
25.4
24.4
0.2
–
–
0.2
0.3
0.2
0.2
0.1
0.1
0.6
0.2
1.7
0.2
0.2
0.2
0.1
0.7
0.7
–
0.2
–
–
–
0.7
1.6
1.0
–
1.0
0.2
–
0.3
0.2
0.5
0.2
–
1.4
–
–
0.1
0.1
–
0.2
0.2
0.4
0.6
1.0
–
0.4
0.4
2.2
10.5
9.6
Latin
America
%
Other
%
Total
2014
%
Japan
%
0.1
–
–
0.1
0.7
0.3
0.2
–
–
0.3
0.4
1.9
0.1
–
–
–
0.1
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
0.1
0.1
–
–
–
–
–
0.4
–
–
–
0.4
0.8
–
–
–
–
–
0.1
0.1
–
0.2
0.2
–
–
–
1.4
4.7
4.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
0.2
0.6
0.9
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
0.3
–
–
–
0.6
0.9
1.4
1.4
0.1
0.4
1.9
1.6
2.7
1.1
0.9
0.1
4.3
1.5
12.2
1.2
2.2
9.5
4.5
17.4
6.6
6.0
8.4
1.0
1.1
0.5
0.8
24.4
4.8
2.7
7.5
2.1
0.4
1.8
1.4
1.2
0.7
5.4
13.0
0.1
3.0
0.9
4.0
5.4
2.0
7.4
2.0
2.3
4.3
0.4
0.6
1.0
6.9
100.0
100.0
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1. The holding of £35m Japan equity futures (2.4% of net assets) is not included in this classi(cid:428)cation (see page 13).
2. Included in the above are (cid:428)xed interest holdings (including convertibles) of £34,137,000 (2013: £15,543,000).
3. Open-ended Funds relates to the collective investment fund used to invest in Emerging Markets, a specialist insurance fund, two Japan equity funds and an
exchange-traded MSCI global equity fund.
Annual Report 2014 Witan Investment Trust plc
25
Board of Directors
H M Henderson
Chairman (A), (C), (D)
Appointed a director in 1988, Harry
Henderson became Chairman in March
2003. He was formerly a partner of
Cazenove & Co. and subsequently a senior
executive at Cazenove Group plc, retiring in
2002. Mr Henderson is Chairman of Witan
Investment Services Limited. He is also a
director of Cadogan Settled Estates Limited.
A L C Bell MA
Chief Executive O(cid:431)cer (D)
Andrew Bell was appointed a director and
Chief Executive O(cid:431)cer from February
2010. He is responsible for the overall
management of Witan. Previously he
worked at Rensburg Sheppards Investment
Management Limited as Head of Research
and as an equity strategist and Co-Head
of the Investment Trusts team at BZW and
Credit Suisse First Boston. Prior to the City,
he worked for Shell in Oman, leaving to take
a Sloan Fellowship at the London Business
School. He is a non-executive director of
Henderson High Income Trust plc, Chairman
of Gabelli Value Plus+ Trust plc and was
Chairman of the Association of Investment
Companies until January 2015.
J E B Bevan MA
Director (A)
James Bevan was appointed a director
in 2007. He is CIO, CCLA Investment
Management. Before joining CCLA
in November 2006, he was the Chief
Investment O(cid:431)cer at Abbey. Prior to
Abbey, he was Chief Investment O(cid:431)cer
for Barclays Stockbrokers and Barclays
Personal Investment Management, having
joined BZW in 1988, following postgraduate
research in applied economics and asset
allocation at Cambridge University.
R W Boyle MA, FCA
Chairman of the Audit Committee (A), (B), (D)
Robert Boyle was appointed a director in
2007. He is a Chartered Accountant and was
a partner of PricewaterhouseCoopers LLP,
where he was responsible for multi-national
client accounts, specialising in the telecoms
and media sectors: he was chairman of the
PWC European Entertainment and Media
Practice for twelve years, retiring in 2006.
He is a non-executive director, and chairman
of the audit committee, of Maxis Berhad (in
Malaysia), Centaur Media plc and Prosperity
Voskhod Fund Ltd (an AIM listed company).
26
Witan Investment Trust plc Annual Report 2014
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(A) Independent non-executive directors.
(B) Members of the Audit Committee which
is chaired by Mr Boyle.
(C) Members of the Remuneration and Nomination
Committee which is chaired by Mrs Claydon.
(D) Director of Witan Investment Services Limited.
M C Claydon BA, MBA
Chairman of the Remuneration and
Nomination Committee (A), (B), (C), (D)
Catherine Claydon joined the Board in 2009.
Previously she was a Managing Director
in the Pension Advisory Group at Goldman
Sachs (1992-2007) and Lehman Brothers
(2007- 2008). She is a non-executive
director of the Dunedin Income Growth
Investment Trust. She is a director of the
Barclays UK Pension Fund and the BT
Pension Scheme, and an independent
member of Unilever UK Pension Fund’s
Investment Committee.
S E G A Neubert LLM
Director (A), (D)
Suzy Neubert joined the Board in 2012. She
is Sales & Marketing Director at J O Hambro
Capital Management, which she joined in
March 2006. She was previously Managing
Director of Equity Markets within the Global
Markets and Investment Banking Group at
Merrill Lynch Securities in London. From
1993, she worked at Smith New Court
Europe (later taken over by Merrill Lynch)
as a European equity analyst and later as
Director of European Equity Sales. Prior to
Smith New Court, she worked at Hambros
Bank as an Executive in the Corporate
Finance division. She is a quali(cid:428)ed barrister.
R J Old(cid:428)eld BA
Director (A), (C)
Richard Old(cid:428)eld joined the Board in 2011.
He is chairman of Old(cid:428)eld Partners,
an investment management (cid:428)rm. He
was chairman of the Oxford University
investment committee from 2007 to
2014 and of Keystone Investment Trust
plc from 2001 to 2010. He is a trustee of
Royal Marsden Cancer Charity, Canterbury
Cathedral Trust and Clore Du(cid:431)eld
Foundation.
A Watson CBE, BSc (Econ), ASIP, Barrister-
at-Law, FCISI (Hons), D.Sc. (Hons)
Senior Independent Director (A), (B), (D)
Tony Watson was appointed a director in
2006. He was appointed Senior Independent
Director in February 2008. He is a
non-executive director of Hammerson plc,
Lloyds Banking Group plc, Vodafone Group
Plc and the Shareholder Executive. He was
formerly chairman of the Trustees of the
Marks & Spencer Pension Scheme, chairman
of the Strategic Investment Board Limited
(Northern Ireland) and a member of the
Financial Reporting Council. Mr Watson
retired in 2006 from an executive career in
the investment management industry, most
recently as Chief Executive of Hermes Fund
Managers Limited.
Annual Report 2014 Witan Investment Trust plc
27
Directors’ Report
Statutory Information
The directors present the Annual Report of the Group for the
year ended 31 December 2014.
Substantial share interests
As at 31 December 2014, the following had notified the
Company of interests in the Company’s voting rights:
Activities and business review
A review of the business is given in the Chairman’s and
Chief Executive’s report on pages 4 to 6 and in the Strategic
Report on pages 7 to 23. The Directors are required by
the Companies Act to prepare a Strategic Report for each
financial year, which contains a fair review of the business of
the Group during the financial year ended 31 December 2014
and of the position of the Group at the end of the year and a
description of the principal risks and uncertainties facing the
Group. This information can be found within the Strategic
Report on pages 18 to 20.
Investment policy
The Company’s investment policy is set out on the inside
front cover.
Status
Witan Investment Trust plc (‘the Company’) is incorporated
in the United Kingdom and registered in England and Wales
and domiciled in the United Kingdom. It is an investment
company as defined in section 833 of the Companies Act
2006 and operates as an investment trust in accordance with
section 1158 of the Corporation Tax Act 2010. The Company
has received confirmation from HM Revenue and Customs
that it has been accepted as an approved investment trust
with effect from 1 January 2012, provided it continues to
meet the eligibility conditions of section 1158 and of the
ongoing requirements for approved companies
in the Investment Trust (Approved Company) (Tax)
Regulations 2011.
Subsidiary company
The Company has one subsidiary company, Witan
Investment Services Limited, which provides marketing
services and investment products to the Company and
executive management and marketing services to third
party investment trust clients. Witan Investment Services
Limited is authorised and regulated by the Financial Conduct
Authority to manage savings schemes for investors and
provide investment advice to professional investors and also
acts as the Company’s AIFM.
ISAs
The Company intends to continue to manage its affairs so
that its investments fully qualify for the stocks and shares
component of an ISA and Junior ISA.
AXA Investment Managers SA
%
18.0
The above percentage is calculated by applying the shareholding as notified
to the Company to the issued ordinary share capital as at 31 December 2014
(the(cid:123)shareholdings representing the voting rights).
There has not been any change in this holding or new
holdings notified between the year end and the date of
this(cid:123)Report.
Assets
At 31 December 2014 the total net assets of the Group were
£1,441.2 million (2013: £1,372.9 million). At this date the net
asset value per ordinary share was 760.3p (2013: 725.2p).
Revenue and dividend
The total profit for the year was £95.3 million (2013: £303.9
million). A profit of £30.1 million is attributable to revenue
(2013: £29.3 million). The profit for the year attributable to
revenue has been applied as follows:
Distributed as dividends:
First interim of 3.6p per ordinary share
(paid on 18 June 2014)
Second interim of 3.6p per ordinary share
(paid on 18 September 2014)
Third interim of 3.6p per ordinary share
(paid on 18 December 2014)
Fourth interim of 4.6p per ordinary share
(payable on 2 April 2015)
Added to the revenue reserve
£’000
6,798
6,815
6,815
8,727
910
30,065
The directors have declared a fourth interim dividend instead
of a final dividend in order to ensure that, as in previous
years, the distribution is made to shareholders before 5 April.
The Company intends to grow the dividend in real terms,
ahead of inflation.
Company revenue account
As permitted by section 408 of the Companies Act 2006,
the(cid:123)Company has not presented its own income statement.
The profit on the revenue return of the Company dealt with
in(cid:123)the accounts of the Group amounted to £29,910,000
(2013: £29,150,000).
28
Witan Investment Trust plc Annual Report 2014
Directors
The current directors of the Company are shown on pages 26
and 27.
All the directors held office throughout the year under
review. At the Annual General Meeting on 30 April 2015,
Mr(cid:123)(cid:37)evan, Mrs Claydon and Ms (cid:49)eubert will retire in
accordance with the Company’s Articles of Association
and, being eligible, will seek re-election by shareholders.
Mr Henderson and Mr Watson will also retire and stand for
re-election, as they have served as a director for more than
nine years and are eligible to stand for re-election. The (cid:37)oard
considers them to be independent despite their length of
service. This is explained in more detail in sections 1 and 2
of(cid:123)the Corporate Governance Statement on(cid:123)page 33.
The (cid:37)oard’s policy on the frequency of the re-election
of directors is set out on page 34 in the Corporate
Governance Statement.
During the year the membership of the Audit Committee
comprised Mr (cid:37)oyle (Chairman), Mr Watson and Mrs Claydon.
During the year the membership of the Remuneration
Committee comprised Mrs Claydon (Chairman),
Mr(cid:123)Henderson and Mr (cid:50)ldfield.
As noted on page 33, Mr Henderson was formerly a senior
executive at Cazenove and a partner in its predecessor firm.
As one of a number of institutional investors, the Company
purchased in 2001 a holding of shares in Cazenove Group plc,
which was disposed of in 2013.
(cid:49)o director was a party to, or had an interest in, any contract
or arrangement with the Company at any time during the
year or to the date of this report. With the exception of
Mr (cid:37)ell, no director has or had a service contract with
the Company.
Directors’ interests
The interests of the directors in the share capital of the
Company are set out in the Directors’ Remuneration Report
on page 46.
Directors’ conflicts of interest
Directors have a duty to avoid situations where they have,
or could have, a direct or indirect interest that conflicts,
or(cid:123)possibly could conflict, with the Company’s interests.
With(cid:123)effect from 1 (cid:50)ctober 2008, the Companies Act
2006 (‘the Act’) has allowed directors of public companies
to authorise such conflicts and potential conflicts, where
appropriate, but only if the Articles of Association contain
a provision to this effect. The Act also allows the Articles
of Association to contain other provisions for dealing with
directors’ conflicts of interest to avoid a breach of duty.
There(cid:123)are two circumstances in which a potential conflict
of interest can be permitted: either the situation cannot
reasonably be regarded as likely to give rise to a conflict of
interest or the matter has been authorised in advance by the
directors. The Company’s Articles of Association, which were
adopted by shareholders on 27 April 2010, give the directors
the relevant authority required to deal with conflicts of interest.
Each of the directors has provided a statement of all
conflicts of interest and potential conflicts of interest, if
any, applicable to the Company. A register of conflicts of
interest has been compiled and approved by the (cid:37)oard. The
directors have also undertaken to notify the Chairman as
soon as they become aware of any new potential conflicts of
interest that need to be approved by the (cid:37)oard and added to
the register, which is reviewed annually by the (cid:37)oard. It has
also been agreed that directors will advise the Chairman and
the Company Secretary in advance of any proposed external
appointment and new directors will be asked to submit a
list of potential situations falling within the conflicts of
interest provisions of the Act in advance of (cid:77)oining the (cid:37)oard.
The Chairman will then determine whether the relevant
appointment causes a conflict or potential conflict of interest
and should therefore be considered by the (cid:37)oard. (cid:50)nly
directors who have no interest in the matter being considered
would be able to participate in the (cid:37)oard approval process. In
deciding whether to approve a conflict of interest, directors
will also act in a way they consider, in good faith, will be most
likely to promote the Company’s success in taking such a
decision. The (cid:37)oard can impose limits or conditions when
giving authorisation if the directors consider this to
be appropriate.
The (cid:37)oard believes that its arrangements for the
authorisation of conflicts have operated effectively since
they were introduced on 1 (cid:50)ctober 2008. The (cid:37)oard also
confirms that its procedures for the approval of conflicts of
interest have been followed by all the directors.
Annual Report 2014 Witan Investment Trust plc
29
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Directors’ Report continued
Directors’ indemnity
The Company’s Articles of Association allow the Company,
subject to the provisions of UK legislation, to:
(a)
(b)
indemnify any person who is or was a director, or
a director of any associated company, directly or
indirectly against any loss or liability, whether in
connection with any proven or alleged negligence,
default, breach of duty or breach of trust by him or
her, or otherwise, in relation to the Company or any
associated company; and
purchase and maintain insurance for any person who
is or was a director, or a director of any associated
company, against any loss or liability or any expenditure
he or she may incur, whether in connection with any
proven or alleged negligence, default, breach of duty or
breach of trust by him or her, or otherwise, in relation to
the Company or any associated company.
Directors’ and officers’ liability insurance cover is in place in
respect of the directors and was in place throughout the year
under review.
Directors’ fees
The report on the directors’ remuneration is set out on pages
44 to 54.
Financial instruments and the management of risk
(cid:37)y its nature as an investment trust, the Company is exposed
to market risk, price risk, currency risk, interest rate risk,
liquidity risk and credit risk. The Company’s policies for
managing these risks are outlined in note 14 to the accounts
on pages 76 to 83.
Investment managers
It is the opinion of the directors that the continuing
appointment of the investment managers listed on
page(cid:123)10 is in the interests of the Company’s shareholders
as a(cid:123)whole and that the terms of engagement negotiated
with them are competitive and appropriate to the
investment mandates.
The Board and the Company’s AIFM review the
appointments of the investment managers on a regular
basis and make changes as appropriate.
Share capital
The Company’s share capital comprises:
a) ordinary shares of 25p nominal value each (‘shares’)
The voting rights of the shares on a poll are one vote for
every four shares held (one vote per £1 of nominal value). At
31 December 2013 there were 189,311,000 shares in issue.
During the year 51,000 shares were bought back by the
Company and held in treasury. These shares were re-issued
on 30 (cid:50)ctober 2014. A further 250,000 shares were issued
on 29 December 2014. At 31 December 2014 there were
189,561,000 shares in issue and thus the number of voting
rights was 47,390,250 on a poll. (cid:50)n 26 January 2015, 150,000
shares were issued.
The Company’s Articles of Association permit the Company
to purchase its own shares and to fund such purchases from
its accumulated realised capital profits. At the AGM in April
2014 a special resolution was passed giving the Company
authority, until the conclusion of the AGM in 2015, to make
market purchases to be held in treasury of the Company’s
ordinary shares up to a maximum of 28,377,718 shares
(being 14.99% of the issued ordinary share capital as at 30
April 2014). At the date of this report, the Company had valid
authority, outstanding until the conclusion of the AGM in
2015, to make market purchases to be held in treasury of
28,326,718 shares.
The (cid:37)oard is seeking to renew its powers at the forthcoming
Annual General Meeting to buy shares into treasury, for
possible reissuance when the shares trade at a premium. The
Company makes use of share buybacks, purchasing shares to
be held in treasury when they stand at a significant discount
to (cid:49)A(cid:57), with the objective of achieving a sustainable discount
of 10% or less. Shares are not bought back unless the result is
an increase in the net asset value per ordinary share. Shares
will only be re-sold from treasury at, or at a premium to, the
net asset value per ordinary share.
The Company is also seeking to renew shareholder approval
to issue shares, up to 10% of the starting total, provided that
such shares are issued at or at a premium to net asset value.
b) 2.7% preference shares of £1 nominal value each
(‘2.7% preference shares’)
The 2.7% preference shareholders have no rights to attend
and vote at general meetings. At 31 December 2014 there
were 500,000 2.7% preference shares in issue. Further
details on the preference shares are given in note 17 on
page 85.
30
Witan Investment Trust plc Annual Report 2014
Annual General Meeting
The next AGM will be held at 2.30 pm on Thursday 30 April
2015 at Merchant Taylors’ Hall, 30 Threadneedle Street,
London EC2R 8J(cid:37). The formal notice of the AGM is set out in
the accompanying circular to shareholders, together with
explanations of the resolutions.
Greenhouse gas emissions
The Company has a staff of seven employees, operating from
small serviced office premises. Accordingly it does not have
any significant greenhouse gas emissions to(cid:123)report from its
own operations, nor does it have responsibility for any other
emission producing sources under the Companies Act 2006
(Strategic Report and Directors’ Reports) Regulations 2013,
including those within(cid:123)its underlying investment portfolio.
(cid:37)y order of the (cid:37)oard
Frostrow Capital LLP
Secretary
10 March 2015
c) 3.4% preference shares of £1 nominal value each
(‘3.4% preference shares’)
The 3.4% preference shareholders have no rights to attend
and vote at general meetings. At 31 December 2014 there
were 2,055,000 3.4% preference shares in issue. Further
details on the preference shares are given in note 17 on
page(cid:123)85.
At the AGM in April 2014 a special resolution was passed
giving the Company authority, until the conclusion of the
AGM in 2014, to make market purchases for cancellation
of the Company’s own 2.7% preference shares and
3.4% preference shares up to a maximum of all those in
issue. This(cid:123)authority has not been used. Accordingly, as
at 31 December 2014 the Company had valid authority,
outstanding until the conclusion of the AGM in 2015,
to make market purchases for cancellation of 500,000
2.7% preference shares and 2,055,000 3.4% preference
shares. (cid:49)o(cid:123)preference shares were bought back between
the year end and the date of this report. Accordingly, the
Company has valid authority to make market purchases
for cancellation of 500,000 2.7% preference shares and
2,055,000 3.4% preference shares. The directors intend to
seek a fresh authority at the AGM in April 2015. There are no
restrictions on the transfer of the Company’s share capital
and there are no shares or stock which carry specific rights
with regards to control of the Company.
Independent auditor
Resolutions to reappoint Deloitte LLP as the Company’s
auditor and to authorise the directors to determine their
remuneration will be proposed at the forthcoming Annual
General Meeting.
Directors’ statement as to the disclosure of information
to(cid:123)the auditor
Each of the directors at the date of approval of this report
confirms that:
(1)
(2)
so far as the director is aware, there is no relevant
audit information of which the Company’s auditor is
unaware; and
the director has taken all the steps that he/she ought to
have taken as a director to make himself/herself aware
of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted
in accordance with the provisions of section 418 of the
Companies Act 2006.
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Annual Report 2014 Witan Investment Trust plc
31
Corporate Governance Statement
Background
The UK Listing Authority’s Disclosure and Transparency
Rules (the ‘Disclosure Rules’) require listed companies to
disclose how they have applied the principles and complied
with the provisions of the UK Corporate Governance Code
(the ‘Corporate Governance Code’), as issued by the Financial
Reporting Council (‘the FRC’). The provisions of the Corporate
Governance Code, which was issued by the FRC in September
2012, were applicable in the year under review. The Corporate
Governance Code can be viewed at www.frc.org.uk.
The related Code of Corporate Governance (‘the AIC Code’),
issued by the Association of Investment Companies (‘the
AIC’), provides specific corporate governance guidelines
to investment companies. The FRC has confirmed that
AIC member companies who report against the AIC Code
and who follow the AIC’s Corporate Governance Guide for
Investment Companies (the ‘AIC Guide’) will be meeting their
obligations in relation to the Corporate Governance Code
and the associated disclosure requirements of the Disclosure
Rules. The AIC Code issued in February 2013 was applicable
in the year under review. The AIC Code can be viewed at
www.theaic.co.uk.
Compliance
The (cid:37)oard has considered the principles and
recommendations of the AIC Code by reference to the
AIC Guide. The AIC Code, as explained by the AIC Guide,
addresses all the principles set out in the Corporate
Governance Code, as well as setting out additional principles
and recommendations on issues that are of specific relevance
to the Company.
The (cid:37)oard considers that reporting against the principles and
recommendations of the AIC Code and by reference to the
AIC Guide (which incorporates the Corporate Governance
Code) will provide better information to shareholders.
The Company has complied with the recommendations of the
AIC Code and the best practice provisions of the Corporate
Governance Code throughout the year ended 31 December
2014 except as set out below:
>
>
The Corporate Governance Code (C.3.5) includes
provisions relating to the need for an internal audit
function. As explained on page 41, the Company does
not(cid:123)have an internal audit function.
The Corporate Governance Code ((cid:37).7.1) includes
provisions relating to the annual re-election of all
directors. As explained on page 34, the Company
considers that this provision is inappropriate to the
Company.
The (cid:37)oard has noted the recommendations of the new edition
of the Corporate Governance Code, which was published by
the(cid:123)FRC in September 2014 and which are re(cid:430)ected in the new
AIC Code which was published in March 2015. These new
Codes(cid:123)apply to reporting periods beginning on or after
1(cid:123)(cid:50)ctober 2014.(cid:123)The (cid:37)oard will report on its compliance with
the(cid:123)recommendations of the new AIC Code in the Company’s
2015 Annual Report.
The principles of the AIC Code
The AIC Code is made up of twenty one principles. Its three
sections cover the (cid:37)oard; board meetings and relations with the
investment managers; and shareholder communications.
32
Witan Investment Trust plc Annual Report 2014
Principles of the AIC Code
The (cid:37)oard
1. The chairman should
be independent.
2. A majority of the board should
be independent of the manager.
Application of the principles
Mr H M Henderson has been Chairman of the Company since the
Annual General Meeting in March 2003; he joined the (cid:37)oard in
1988. The (cid:37)oard considers that Mr Henderson is, and has been
since his appointment, an independent non-executive director.
Independence stems from the ability to make those objective
decisions that may be in con(cid:430)ict with the interests of management;
this in turn is a function of con(cid:428)dence, integrity and judgement.
Mr Henderson has served on the (cid:37)oard for more than nine years.
Accordingly, he stands for re-election by the shareholders each
year and will do so for as long as he continues to serve on the (cid:37)oard.
The (cid:37)oard is (cid:428)rmly of the view, however, that length of service does
not of itself impair a director’s ability to act independently; rather,
a director’s longer perspective adds value to the deliberations
of a well-balanced investment trust company board. The other
independent non-executive directors, under the chairmanship of
the Senior Independent Director, review and evaluate annually the
performance and continuing independence of the Chairman.
Mr Henderson was formerly a partner of Cazenove (cid:9) Co., the (cid:428)rm
which for many years has acted as the Company’s stockbroker.
However, he did not have responsibility for or involvement
with Cazenove’s role with the Company, being for many years
responsible for aspects of Cazenove’s fund management division.
Accordingly, the (cid:37)oard considers that the Chairman has no
relationships that might create a con(cid:430)ict of interest between his
interests and those of the other shareholders.
Mr A Watson was appointed as the Senior Independent Director
in February 2008. As noted above, he takes the lead in the annual
evaluation of the Chairman. He is also able to act as a sounding
board for the Chairman and serve as an intermediary for the other
directors, should this prove necessary, and to act as a channel of
communication for shareholders in the event that contact through
the Chairman has failed to resolve concerns or is inappropriate.
At 31 December 2014 the (cid:37)oard was composed of seven
independent non-executive directors and one executive director
(the Chief Executive (cid:50)fficer). The (cid:37)oard is therefore independent
of the Company’s executive management. All the directors
are wholly independent of the Company’s various investment
managers. In the opinion of the (cid:37)oard, each of the directors
is independent in character and judgement and there are no
relationships or circumstances relating to the Company that are
likely to affect their judgement (see also section 1 above).
Annual Report 2014 Witan Investment Trust plc
33
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Corporate Governance Statement continued
Principles of the AIC Code
The (cid:37)oard
3. Directors should be submitted for re-election at regular
intervals. (cid:49)omination for re-election should not be
assumed but be based on disclosed procedures and
continued satisfactory performance.
Application of the principles
(cid:49)ew directors stand for election by the shareholders at the annual
general meeting of the Company that follows their appointment.
Thereafter all directors stand for re-election at least every three
years, as required by the Company’s Articles of Association.
Directors who have served for more than nine years stand for
re-election annually. There are currently two directors with
service(cid:123)of(cid:123)more than nine years: Mr H M Henderson, the Chairman,
and Mr A Watson.
The (cid:37)oard has reviewed Provision (cid:37).7.1 of the Corporate
Governance Code, which states that all directors of FTSE 350
companies should be subject to annual election by shareholders.
The (cid:37)oard considers that the annual re-election of all the
directors is inappropriate to the Company. There are two main
reasons for this view: (a) it appears to place excessive emphasis
on the short term and insufficient emphasis on the need for an
effective board to work together and to refresh its composition
over time; and (b) there is some danger, because many small and
nominee shareholders choose not to exercise their voting rights,
that if all the directors seek re-election at once a minority of the
shareholders could engineer the removal of the whole (cid:37)oard for
reasons injurious to the interests of the Company’s investors as a
whole. Therefore the (cid:37)oard considers it appropriate to continue
to apply Provision (cid:37).7.1 as if the Company were not a constituent
of the FTSE 350 Index, a view which a number of prominent
institutional investors have shared.
Every year the (cid:37)oard reviews its composition and the composition
of its two Committees. The (cid:37)oard’s Remuneration and (cid:49)omination
Committee oversees this process. Further details are given under
section 7 on page 36.
34
Witan Investment Trust plc Annual Report 2014
Principles of the AIC Code
The (cid:37)oard
4. The board should have a policy on tenure, which is
disclosed in the annual report.
5. There should be full disclosure of information about the
board.
6. The board should aim to have a balance of skills,
experience, length of service and knowledge of the
Company.
Application of the principles
(cid:49)ew directors are appointed for an initial term ending three
years from the date of their first annual general meeting after
appointment and with the expectation that they will serve two
three-year terms. The continuation of directors’ appointments is
contingent on satisfactory performance evaluation and re-election
at annual general meetings. Directors’ appointments are reviewed
formally every three years by the (cid:37)oard as a whole. (cid:49)one of the
non-executive directors has a contract of service and a director
may resign by notice in writing to the (cid:37)oard at any time; there are
no set notice periods. The (cid:37)oard’s tenure and succession policy
seeks to ensure that the (cid:37)oard is well-balanced and refreshed
regularly by the appointment of new directors with the skills
and experience necessary, in particular, to replace those lost by
directors’ retirements. Directors must be able to demonstrate
their commitment to the Company, including in terms of time. The
(cid:37)oard seeks to encompass past and current experience of various
areas that is relevant to the Company’s objective and operations,
the most important skill-sets being investment management,
finance, marketing, financial services, risk management, custody
and settlement, and investment banking. Specialist agents are
used to assist with recruitment. While the roles and contributions
of longer serving directors are subject to rigorous review, the (cid:37)oard
is strongly of the view that length of service is only one factor and
that the shareholders benefit from having directors with a longer
perspective of the Company’s history and its place in the savings
market. Therefore there is no absolute limit to the period for which
a director may serve.
Details of the directors are set out on pages 26 and 27. They
demonstrate a broad range of investment, professional and
commercial expertise and experience, gained overseas as well as
in the United Kingdom.
The (cid:37)oard considers that it has achieved this aim. (cid:37)rief biographical
details of each director are set out on pages 26 and 27.
Board Diversity
The Company welcomes the objectives of the Davies Report to
improve the performance of corporate boards by encouraging
the appointment of the best people from a range of differing
perspectives and backgrounds. The Company recognises the
benefits of diversity on the board, including gender, and takes
this into account in its board appointments. The Company is
committed to ensuring that its director search processes actively
seek both men and women with the right qualifications so that
appointments can be made, on the basis of merit, against objective
criteria from a diverse selection of candidates. To this end the
(cid:37)oard will continue to dedicate time to consider diversity during
the director search process.
Annual Report 2014 Witan Investment Trust plc
35
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Corporate Governance Statement continued
Principles of the AIC Code
The (cid:37)oard
7. The board should undertake a formal and rigorous
annual evaluation of its own performance and that of its
committees and individual directors.
8. Director remuneration should re(cid:430)ect their duties,
responsibilities and the value of their time spent.
9. The independent directors should take the lead in the
appointment of new directors and the process should be
disclosed in the annual report.
10. Directors should be o(cid:426)ered relevant training and
induction.
11. The chairman (and the board) should be brought into
the process of structuring a new launch at an early
stage.
36
Witan Investment Trust plc Annual Report 2014
Application of the principles
The (cid:37)oard has established a process to evaluate its performance
on an annual basis. This process is based on open discussion and
seeks to assess the strengths and weaknesses of the (cid:37)oard and
its Committees. The Chairman leads on applying the conclusions
of the evaluation. The Chairman reviews with each director his
or her individual performance, contribution and commitment to
the Company. The Senior Independent Director leads the annual
evaluation of the Chairman and reviews the conclusions with him.
The (cid:37)oard’s Remuneration and (cid:49)omination Committee oversees
this process. In addition, in consideration of Provision (cid:37).6.2 of the
Corporate Governance Code, which states that evaluation of the
board of FTSE 350 companies should be externally facilitated at
least every three years, the (cid:37)oard concluded that, regardless of
the size of the company, periodic external evaluation should add
value to the process. Accordingly, in July 2013, the (cid:37)oard appointed
(cid:37)oardAlpha Limited to carry out an evaluation programme. The
(cid:37)oard reviewed the report submitted to it and the Chairman has led
on implementing those changes recommended by the report that
the (cid:37)oard considered should be made. The report did not identify
any material weaknesses or concerns. (cid:37)oardAlpha Limited does
not have any other connection with the Company.
The Directors’ Remuneration Report on pages 44 to 54 details the
process for determining the directors’ remuneration and sets out
the amounts payable.
The (cid:37)oard’s Remuneration and (cid:49)omination Committee oversees
the recruitment process, which includes the use of a firm of
non-executive director recruitment consultants. However, all the
independent non-executive directors are asked to contribute and
to consider serving on the sub-committee appointed to draw up
the shortlist of candidates. (cid:49)otwithstanding this, the Chairman
would not expect to be involved in the selection of his successor.
Directors newly appointed to the (cid:37)oard are provided with an
introductory programme covering the Company’s strategy, policies
and operations, including those outsourced to third parties.
Thereafter, directors are given, on a regular and ongoing basis,
key information on the Company’s investment portfolios, financial
position, internal controls and details of the Company’s regulatory
and statutory obligations (and changes thereto). The directors are
encouraged to attend industry and other seminars, conferences
and courses, if necessary at the Company’s expense, and to
participate generally in industry events. A log of directors’ training
is maintained and reviewed each year by the Audit Committee.
The directors have access to the advice and services of the
Company’s executive team and AIFM and of the Company Secretary,
through its appointed representative, who are responsible to the
(cid:37)oard for ensuring that (cid:37)oard procedures are followed and that
applicable rules and regulations are complied with.
This principle does not apply to the Company, which is a long
established investment trust company.
Principles of the AIC Code
(cid:37)oard meetings and the relationship with the manager
12. (cid:37)oards and managers should operate in a supportive,
Application of the principles
co-operative and open environment.
Typically, the (cid:37)oard meets approximately ten times each year.
The Chief Executive (cid:50)fficer (who is himself a director), other
representatives of the Company’s executive team and the AIFM
and a representative of the Company Secretary expect to be
present at all meetings. The (cid:37)oard devotes two full days each year
to meetings with the Company’s investment managers and each
investment manager sends representatives at least once a year.
The Chairman seeks to encourage open debate within the (cid:37)oard
and a supportive and co-operative relationship with the executive
team and with the Company’s investment managers, advisors and
support staff.
13. The primary focus at regular board meetings should
be a review of investment performance and associated
matters such as gearing, asset allocation, marketing/
investor relations, peer group information and industry
issues.
14. (cid:37)oards should give su(cid:431)cient attention to overall
strategy.
15. The board should regularly review both the performance
of, and contractual arrangements with, the manager (or
executives of a self-managed company).
16. The board should agree policies with the manager
covering key operational issues.
17. (cid:37)oards should monitor the level of the share price
discount or premium (if any) and, if desirable, take
action to reduce it.
18. The board should monitor and evaluate other service
providers.
The Chief Executive (cid:50)fficer and the AIFM monitor investment
performance and all associated matters. The CE(cid:50) reports to each
(cid:37)oard meeting, at which investment performance, asset allocation,
gearing, marketing and investor relations are usually key
agenda items.
The (cid:37)oard is responsible for determining the strategic direction
of the Company and for promoting its success. At least one of
its meetings each year is devoted entirely to reviewing overall
strategy and progress is monitored throughout the year.
The (cid:37)oard’s Remuneration and (cid:49)omination Committee reviews
the performance of and the contractual arrangements with the
Chief Executive (cid:50)fficer. The Chief Executive (cid:50)fficer is responsible
to the (cid:37)oard for reviewing the performance and the contractual
arrangements of his staff. The (cid:37)oard’s Remuneration and
(cid:49)omination Committee oversees this process.
The Chief Executive (cid:50)fficer leads on the selection and monitoring
of the investment managers and their terms of reference, which
are approved by the (cid:37)oard and the AIFM.
The Company manages its own operations through the (cid:37)oard and
that of its AIFM, as set out on page 39. Each investment manager
runs a discrete investment portfolio within the terms of the
mandate given to them in an investment management contract.
Further details are given on page 39. Shares are held by the
Company’s custodian/depositary.
The Chief Executive (cid:50)fficer and his team monitor the share price
and the discount/premium to net asset value on a daily basis and
he reports to every (cid:37)oard meeting.
The (cid:37)oard has a share buy-back programme that seeks to add to
the net asset value per share and achieve a sustainable discount
of(cid:123)not more than 10%. In addition, shares may be issued at a
premium to (cid:49)A(cid:57), where this is in shareholders’ interests.
The Chief Executive (cid:50)fficer and the AIFM are responsible for
monitoring and evaluating the performance of the Company’s
various service providers. The (cid:37)oard’s Audit Committee oversees
this process together with the WIS Risk Committee.
Annual Report 2014 Witan Investment Trust plc
37
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Corporate Governance Statement continued
Principles of the AIC Code
Shareholder communications
19. The board should regularly monitor the shareholder
pro(cid:428)le of the company and put in place a system for
canvassing shareholder views and for communicating
the board’s views to shareholders.
20. The board should normally take responsibility for,
and have a direct involvement in, the content of
communications regarding major corporate issues
even(cid:123)if the manager is asked to act as spokesman.
21. The board should ensure that shareholders are provided
with su(cid:431)cient information for them to understand
the risk: reward balance to which they are exposed by
holding the shares.
Application of the principles
The Chairman is responsible for ensuring that there is effective
communication with the Company’s shareholders. He works
closely with the Chief Executive (cid:50)fficer and there is regular
liaison with the Company’s stockbroker. There is a process in
place for analysing and monitoring the shareholder register and a
programme for meeting or speaking with the institutional investors
and with private client stockbrokers and advisors. In addition to the
Chief Executive (cid:50)fficer, the Chairman, or the Senior Independent
Director, expects to be available to meet the larger shareholders.
The Company encourages attendance at its Annual General
Meeting as a forum for communication with the individual
shareholders. The (cid:49)otice of Annual General Meeting and related
papers are sent to shareholders at least 20 working days before the
meeting. The Chairman, the Chief Executive (cid:50)fficer, the Chairman
of the Audit Committee and the Chairman of the Remuneration
and (cid:49)omination Committee all expect to be present at the Annual
General Meeting and able to answer questions from shareholders
as appropriate. Details of the proxy votes received in respect of
each resolution are made available to shareholders. The Chief
Executive (cid:50)fficer makes a presentation to the meeting.
The directors may be contacted through the Company Secretary at
the address shown on page 90.
While the Chief Executive (cid:50)fficer and his team together with the
AIFM expect to lead on preparing and effecting communications
with investors, all major corporate issues are put to the (cid:37)oard or, if
time is of the essence, to(cid:123)a Committee thereof.
The (cid:37)oard places importance on effective communication with
investors and approves a marketing programme and budget each
year to enable this to be achieved. Copies of the Annual Report
and the Half Year Report are circulated to shareholders, to those
who hold shares through the subsidiary company’s products and,
where possible, to investors through other providers’ products and
nominee companies (or written notification is sent when they are
published online). In addition, the Company publishes a factsheet
monthly and its net asset value per share daily. All this information
is readily accessible on the Company’s website (www.witan.com).
The Company belongs to the Association of Investment Companies
which publishes information to increase investors’ understanding.
38
Witan Investment Trust plc Annual Report 2014
The Board
The (cid:37)oard is collectively responsible for the success of
the Company. Its role is to provide leadership within a
framework of prudent and effective controls that enable
risk to be assessed and managed. The (cid:37)oard sets the
Company’s strategic aims (subject to the Company’s Articles
of Association and to such approval of the shareholders in
general meeting as may be required from time to time) and
ensures that the necessary resources are in place to enable
the Company’s objectives to be met.
The (cid:37)oard has typically met approximately ten times a year
and deals with the most important aspects of the Company’s
affairs, including the setting of parameters for and the
monitoring of investment strategy, the review of investment
performance and the extent to which borrowings may
be used.
The Chief Executive (cid:50)fficer is responsible to the (cid:37)oard
and the AIFM for the overall management of the Company
including investment performance, business development,
shareholder relations, marketing, investment trust industry
matters, administration and unquoted investments. The
duties of the Chief Executive (cid:50)fficer include leading on
investment strategy and asset allocation, on the selection
and monitoring of the investment managers and their terms
of reference and on the use of derivatives. The (cid:37)oard, in
conjunction with the AIFM, sets limits on matters such as
asset allocation, gearing and investment in derivatives,
within which the Chief Executive (cid:50)fficer may operate at
his discretion.
The Chief Executive (cid:50)fficer reports to each meeting of the
(cid:37)oard. His report includes confirmation that the (cid:37)oard’s
investment limits and restrictions and those which govern
the Company’s tax status as an investment trust, have been
adhered to.
The individual investment managers are each appointed to
manage a discrete portfolio in accordance with guidelines
which limit, for example, the markets in which they can
invest, the size of each investment and the amount of cash
that may be held in their portfolio in normal circumstances.
They are not allowed to invest in unquoted securities, to
borrow against the security of the portfolio, to sell stocks
short or to use derivatives. The investment managers
take decisions as to the purchase and sale of individual
investments and are responsible for effecting those
decisions on the best available terms. The Company and
the AIFM receive monthly confirmation from each of the
investment managers that they have carried out their duties
in accordance with the terms of their investment mandates.
In addition to his responsibilities for the overall management
of the Company, the Chief Executive (cid:50)fficer manages
the Direct Holdings portfolio. A maximum of 10% of the
Company’s gross assets (at the time of purchase) may be
invested in this portfolio and there are restrictions on the
number, size and type of investments that may be made.
The Chairman is responsible for ensuring that the directors
are provided, in a timely manner, with management,
regulatory and financial information that is clear, accurate
and relevant, whether from the Chief Executive (cid:50)fficer
or otherwise.
Matters specifically reserved for decision by the full
(cid:37)oard have been defined. There is an agreed procedure
for directors, in the furtherance of their duties, to take
independent professional advice, if necessary, at the
Company’s expense.
Board Committees
The (cid:37)oard has established an Audit Committee and a
Remuneration and (cid:49)omination Committee. The membership
of the Audit Committee and the Remuneration and
(cid:49)omination Committee is set out on pages 26 and 27. The
roles and responsibilities of the Committees are described in
the Report of the Audit Committee on pages 42 and 43 and
in(cid:123)the Directors’ Remuneration Report on pages 44 to 54.
Meetings of the Board and its Committees
The number of formal meetings during the year of the
(cid:37)oard and its Committees, and the attendance of the
individual directors at those meetings, is shown in the table
that follows.
(cid:49)umber of meetings
H M Henderson
A L C (cid:37)ell
J E (cid:37) (cid:37)evan
R W (cid:37)oyle
M C Claydon
S E G A (cid:49)eubert
R J (cid:50)ldfield
A Watson
Remuneration
and
Nomination
Committee
2
2
2*
–
–
2
–
2
–
Audit
Committee
3
2*
3*
–
3
3
–
–
3
Board
10
10
10
9
10
10
9
9
9
* (cid:49)ot a member of the Committee but in attendance by invitation for all or part of
the meetings.
All the directors attended the Annual General Meeting in
April 2014 and the (cid:37)oard’s ‘Away Day’ in May 2014.
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Annual Report 2014 Witan Investment Trust plc
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Corporate Governance Statement continued
Directors’ remuneration
The directors’ remuneration is detailed in the Directors’
Remuneration Report on pages 44 to 54.
Accountability and audit
The directors’ statement of responsibilities in respect of the
accounts is set out on page 55.
The report of the independent auditor is set out on pages 58
to 61.
The (cid:37)oard has delegated contractually to external
agents, including the various investment managers, the
management of the investment portfolio, global custody
(which includes the safeguarding of the assets), the
investment administration, management and financial
accounting, company secretarial and certain other
administrative requirements and the registration services.
Each of these contracts was entered into after full and proper
consideration by the (cid:37)oard of the quality and cost of the
services offered, including the control systems in operation in
so far as they relate to the affairs of the Company. The (cid:37)oard
receives and considers regular reports from the investment
managers and ad hoc reports and information are supplied
to(cid:123)the (cid:37)oard from its other contractors as required.
Internal control
The (cid:37)oard has established an ongoing process for identifying,
evaluating and managing the significant risks faced by the
Company. This process accords with the Turnbull guidance,
is subject to regular review by the Audit Committee and was
fully in place during the year under review and up to the date
of this annual report. The (cid:37)oard remains responsible for the
Company’s system of internal control and has conducted its
annual review of the effectiveness of the system, covering all
the controls, including financial, operational and compliance
controls and risk management systems. This review took into
account points raised during the year in the regular appraisal
of specific areas of risk. However, such a system is designed
to manage rather than eliminate the risks of failure to achieve
the Company’s business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss.
In accordance with provisions C2 and C3 of the Corporate
Governance Code the (cid:37)oard reviews the Company’s business
risks at least once a year. These are analysed and recorded in
a risk map. The Company receives from its main contractors
formal reports which detail the steps taken to monitor the
areas of risk and which report the details of any known
internal control failures.
As described elsewhere, the management of Witan’s
portfolio is outsourced to a number of third party investment
managers around the world. There are currently 11 such
investment managers as well as the Direct Holdings portfolio
which is managed by the Chief Executive (cid:50)fficer.
The Chief Executive (cid:50)fficer has responsibility (under
delegation from the (cid:37)oard and the AIFM) for a number of
aspects of the management of the portfolio, including asset
allocation, gearing and investment in derivatives. The (cid:37)oard
has set guidelines in respect of each of these aspects within
which he may operate. The Chief Executive (cid:50)fficer reports to
the (cid:37)oard regularly on each of these areas, as well as on the
overall performance of the Company and other matters
of significance.
The in-house executive management team of Witan and WIS
is responsible for managing and controlling the relationships
with the third party managers. The management team
receives monthly reports on investment and compliance
matters from each manager. During 2014, the investment
managers were asked to provide detailed information on
their operational structures and systems. The (cid:37)oard also
receives each year from its investment managers reports on
their internal controls; in most cases these include a report
from the relevant company’s auditors on the control policies
and procedures in operation.
The Chief Executive (cid:50)fficer makes regular reports to the
(cid:37)oard on the performance of and activity within the Direct
Holdings portfolio. In addition, the portfolio’s performance is
independently measured by WM Performance Services, along
with those of the third party managers.
The Company’s subsidiary, WIS, is authorised and regulated
by the Financial Conduct Authority to provide investment
products and services and was appointed as the Company’s
AIFM from July 2014. The compliance structures required
for these activities, including a compliance manual and a
compliance monitoring programme, have been duly put into
place.
The Company has a formal policy for staff to raise in
confidence any concerns about possible improprieties,
whether in matters of financial reporting or otherwise, for
appropriate independent investigation. Its staff comprises
only seven people (including the Chief Executive (cid:50)fficer),
who are well known to and have frequent formal and informal
contact with the members of the (cid:37)oard.
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Witan Investment Trust plc Annual Report 2014
The (cid:37)oard encourages the Company’s appointed investment
managers to engage with companies and to vote shares,
in the best long-term interest of Witan shareholders but
in accordance with their own investment philosophies.
Where applicable, it monitors the policies of the investment
managers in respect of the UK Stewardship Code. Elsewhere
in the world it can be more difficult to vote shares as each
country has its own rules and practices regarding shareholder
notification, voting restrictions, registration conditions and
share blocking, including, for example, dealing constraints.
Therefore, whilst the Company’s investment managers are
apprised of the Company’s approach to the stewardship of its
assets and the importance of sound corporate governance,
they use their discretion according to their knowledge of
the relevant circumstances. The investment managers
report their compliance with the UK Stewardship Code, or
equivalent legislation, to the Audit Committee each year.
In respect of the direct investments held, the Company’s
executive management maintains regular touch with the
management of the investee holdings and engages when
issues arise that are controversial or potentially prejudicial
to the interests of Witan’s shareholders. An annual report is
provided to the Audit Committee in compliance with the UK
Stewardship Code.
Approval
This report was approved by the (cid:37)oard of directors on
10(cid:123)March 2015 and is signed on its behalf by:
H M Henderson
Chairman
10 March 2015
The Company does not have an internal audit function.
Through WIS, the AIFM, it delegates to third parties the
management of its investments and most of its other
operations and employs only a small staff. The investment
managers and certain other key contractors are subject to
external regulation and most have compliance and internal
audit functions of their own. The Company’s investments
are held on its behalf by a global custodian appointed by the
depositary. A specialist firm of investment accountants and
administrators is responsible for investment administration,
for maintaining accounting records and for preparing
financial accounts, management accounts and other
management information. Their work is reviewed by an
independent accountant who also carries out some of the
work that an internal audit function would cover. In addition,
the (cid:37)oard receives from the investment administrator an
annual report on its internal controls, including a report
from its auditor on the control policies and procedures in
operation. The investment performance of the investment
managers, both individually and collectively, is measured for
Witan by a company that is independent of all the investment
managers. The corporate Company Secretary is a company
with well-established experience in servicing investment
trusts.
The appointment of these and other professional contractors
provides a clear separation of duties and a structure of
internal controls that is balanced and robust. The (cid:37)oard
and the AIFM will continue to monitor its system of internal
control in order to provide assurance that it operates as
intended and the directors will review at least annually
whether a function equivalent to an internal audit is needed.
Stewardship and the exercise of voting powers
It is the (cid:37)oard’s view that, in order to achieve long-term
success, companies need to maintain high standards
of corporate governance and corporate responsibility.
Therefore Witan expects the companies in which it
is invested to comply with best practice in corporate
governance matters, or to provide adequate explanation of
any areas in which they fail to comply, whilst recognising
that a different approach may be justified in special
circumstances. In respect of UK companies, current best
practice in corporate governance matters is set out in the UK
Corporate Governance Code.
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Annual Report 2014 Witan Investment Trust plc
41
Report of the Audit Committee
Statement by the Chairman of the Committee
As Chairman of the Audit Committee (‘the Committee’), I am
pleased to present the Report of the Committee for the year
ended 31 December 2014.
Composition and responsibilities of the Committee
The Committee comprises three non-executive directors,
including its Chairman, who are appointed by the (cid:37)oard.
I was appointed Chairman of the Committee in 2007.
The(cid:123)(cid:37)oard has taken note of the requirement that at least
one member of the Committee should have recent and
relevant financial experience and is satisfied that the
Committee is properly constituted in this respect, as I am
a Chartered Accountant and was previously a partner in
PricewaterhouseCoopers LLP. Mr Watson, who was appointed
to the Committee in 2006, and Mrs Claydon who was
appointed to the Committee in August 2013, were members
of the Committee throughout the year. Details of their
qualifications and experience are given on pages 26 and 27.
The role of the Committee is to assist the directors in
applying financial reporting and internal control principles
and to maintain an appropriate relationship with the Group’s
auditor. The Committee’s role and responsibilities are set out
in its terms of reference, which comply with the UK Corporate
Governance Code. The terms of reference are available on
request from the Company Secretary and can be seen on
the Company’s website (www.witan.com). In summary, the
Committee is responsible for monitoring the integrity of the
Company’s financial statements, including consideration of
the Company’s accounting policies and significant reporting
judgements. It reviews the Company’s internal financial
controls and risk management systems using an external
consultant where appropriate.
Risk
Management has identified (Strategic Report pages 18 to
20) five main areas of potential risk: market and investment
portfolio, liquidity, operational, corporate governance
and accounting, legal and regulatory and has set out the
actions taken to evaluate and manage these risks. The
auditors have also detailed two specific areas of risk in their
report: Investment valuation and ownership of investments
and have set out the work they have performed to satisfy
themselves that these have been properly reflected in the
financial statements. The Committee reviews the various
actions(cid:123)taken and satisfies itself that they are sufficient:
in(cid:123)particular the Committee reviews management’s Risk
Report at each meeting and requires amendments to both
risks and mitigation actions if(cid:123)appropriate.
Meetings of the Committee
The Committee held three meetings during 2014, in February,
August and (cid:49)ovember and also met in February 2015.
Representatives of the external auditor were present at the
meetings held in February 2014 and 2015 and (cid:49)ovember
2014. I report to the (cid:37)oard after each meeting on the main
matters discussed at the meeting. In summary, the main
matters dealt with at these meetings were as follows:
>
>
>
Assessment of the controls to ensure the ownership,
valuation and liquidity of investments: this includes
assessing management reports on the controls and
procedures of external managers and the external
custodian/administrator and the review of the audit
work performed. (cid:49)o significant issues were identified.
Interim and year-end reporting, in the light of the
requirements of the revised Code of Corporate
Governance issued by the(cid:123)AIC, the Financial Reporting
Council’s revised Guidance on Audit Committees and
the requirement for(cid:123)a Strategic Report. The Committee
agreed the process, timing and responsibility for
compliance.
The installation of WIS as AIFM and the resulting
changes to corporate governance including committee
structures and terms of reference and compliance with
FCA regulations.
42
Witan Investment Trust plc Annual Report 2014
>
>
A variety of more detailed matters including the
adequacy of procedures and monitoring to ensure
internal controls, whistleblowing, anti-money
laundering compliance, data and IT systems protection
and business continuity.
In the light of the relative simplicity of the operations
and the use of independent external consultants to
advise on regulatory compliance and adherence to
internal procedures, it was concluded that no internal
audit function was required (see page 41).
Going concern
The Committee considered the issue of going concern and
recommended that the (cid:37)oard should continue to adopt
the going concern basis in preparing the Group’s accounts.
The(cid:123)(cid:37)oard’s conclusions are set out under “Liquidity” on
page(cid:123)19 and under note 1(b) on page 66.
External audit
The Committee reviews the scope and effectiveness of the
audit process, including agreeing the auditor’s assessments
of materiality, and monitors the auditor’s independence and
objectivity. It conducted a formal review of the performance
of the auditor during the year and concluded that
performance was satisfactory and there were no grounds for
change.
Deloitte & Touche, a predecessor firm of Deloitte LLP, was
first appointed as the Company’s auditor in March 1997.
The audit was subject to competitive tender in 2007, at
which time Deloitte LLP was reappointed. The auditors are
required to rotate the audit partner every five years. A new
partner has taken on responsibility for the audit with effect
from the audit of the Company’s accounts for the year ended
31 December 2014. The Committee reviews the performance
of the auditors annually. Relevant guidance on audit rotation
will be complied with.
The Committee approved the proposed audit fee.
The(cid:123)Committee has a rule that a specified engagement of
the auditor to provide non-audit services cannot exceed
50% of the annual audit fees without Committee approval.
As noted in note 5 on page 70, the Committee approved the
appointment of Deloitte LLP to provide advice on one-off
withholding tax claims. The appointment, which was made
on a one-off basis, was awarded on a competitive basis and
the Committee satisfied itself that Deloitte’s audit teams and
tax advisory team were independent of each other. Although
the fees paid to date for this work have amounted to £47,000,
the Committee is pleased to note that, to date, £581,000
of withholding tax has been recovered and it is hoped that
further recoveries will be made in future.
Financial statements
The (cid:37)oard has requested the Committee to confirm that in
its opinion the (cid:37)oard can make the required statement that
the Annual Report taken as a whole is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company’s performance,
business model and strategy. The Committee has given
this confirmation on the basis of its review of the whole
document, underpinned by involvement in the planning
for its preparation, review of the processes to assure the
accuracy of factual content, and by assurances from the
Remuneration and (cid:49)omination Committee.
Approval
This report was approved by the Committee on 10 March
2015 and is signed on its behalf by:
Robert Boyle
Chairman of the Audit Committee
10 March 2015
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Annual Report 2014 Witan Investment Trust plc
43
Directors’ Remuneration Report
Chairman’s statement
Introduction
As Chairman of the Remuneration and (cid:49)omination Committee
(the ‘Committee’), I am pleased to present the Directors’
Remuneration Report for the year ended 31 December 2014.
This report covers the remuneration-related activities of the
Committee for the year ended 31 December 2014. It sets out
the remuneration policy and remuneration details for the
non-executive and executive directors of the Company.
It has been prepared in accordance with the Large and
Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (the ‘Regulations’)
which came into force on 1 (cid:50)ctober 2013 and the requirements
of the Association of Investment Companies. The report
is split into three main areas: this statement from me
as Chairman of the Committee, an annual report on
remuneration and a policy report. The policy report was
subject to a binding shareholder vote at the Annual General
Meeting in 2014, which was passed and took effect from
1(cid:123)January 2015. The annual report on remuneration provides
details on remuneration in the financial year ending
31(cid:123)December 2014 and other information required by the
Regulations. It will be subject to an advisory vote at the
Annual General Meeting in 2015.
The Companies Act 2006 requires the auditors to report to
shareholders on certain parts of the Directors’ Remuneration
Report and to state whether, in their opinion, those parts of
the report have been properly prepared in accordance with
the Regulations. The parts of the annual report on remuneration
that are subject to audit are indicated in the report.
Role of the Committee
The remuneration-related role of the Committee is essentially
twofold. First, it has a role in respect of executive remuneration,
assisting the directors in determining the remuneration of the
Chief Executive (cid:50)fficer (the ‘CE(cid:50)’) and evaluating his
performance; and assisting the CE(cid:50) in determining the
remuneration arrangements for the Company’s staff. Second,
in respect of the non-executive directors, it serves as the (cid:37)oard’s
nomination committee with responsibility for reviewing the
effectiveness and composition of the (cid:37)oard and considering
the remuneration of the non-executive directors. The
Committee’s role and responsibilities are set out in its terms
of reference, which are available on request from the Company
Secretary and can be found on the Company’s website.
The Committee normally consists of three non-executive
directors, including its Chairman, who are appointed by the
(cid:37)oard. During the year I served as Chairman of the Committee
and Mr H M Henderson and Mr R J (cid:50)ldfield were members of
the Committee. I was appointed to the Committee, and to act
as its Chairman, in 2009. Mr Henderson and Mr (cid:50)ldfield were
appointed to the Committee in 2003 and 2011 respectively.
The Committee’s programme is to meet formally at least twice
a year and on such other occasions as required. The Committee
held two formal meetings during the year, during which it
addressed all the remuneration-related matters under its remit.
There have been no substantial changes in the Company’s
approach to the remuneration of the CE(cid:50), or the fees payable
to non-executive directors, during the year. In February 2014,
the Committee undertook a review of the non-executive
directors’ fees. The Committee’s recommendation, to which
the (cid:37)oard agreed, was for non-executive directors’ fees
to be increased with effect from 1 April 2014 by £3,000
per annum in respect of the non-executive directors other
than the Chairman and £5,500 per annum in respect of the
Chairman of the Company. The additional fee payable to the
Chairman of the Audit Committee was increased from £4,000
to £6,000 per annum. This was the first increase in fees since
1 April 2011. Accordingly, with effect from 1 April 2014, the
non-executive directors’ fees have been paid at the following
annual rates:
Chairman of the Company
Chairman of the Audit Committee
Chairman of the Remuneration
and (cid:49)omination Committee
Senior Independent Director
(cid:50)ther non-executive directors
£
57,000
36,000
34,000
34,000
30,000
These increases were approved by shareholders as part of
the Company’s remuneration policy at the Annual General
Meeting in April 2014.
The implementation of the Alternative Investment Fund
Managers Directive has resulted in additional duties for
non-executive directors. However, the Committee has
decided that, to date, the additional duties are not sufficient
to warrant the payment of any additional remuneration to
the non-executive directors.
The aggregate non-executive directors’ fees currently
amount to £251,000 per annum.
44
Witan Investment Trust plc Annual Report 2014
The Company’s Articles of Association currently limit the
aggregate fees payable to the non-executive directors to
£350,000 per annum, following approval by shareholders at
the Annual General Meeting in April 2014 of an increase from
£300,000 per annum.
As part of its role in relation to executive remuneration, the
Committee proposes, during 2015, to review the components
of variable remuneration for the CE(cid:50), in particular in light of
the revisions to the UK Corporate Governance Code relating
to clawback and malus. Any changes in this respect would
take effect in relation to remuneration awarded in respect of
2016 onwards.
Catherine Claydon
Chairman of the Remuneration and (cid:49)omination Committee.
Annual report on remuneration
An ordinary resolution for the approval of this section of the
report (together with the Chairman’s statement on page 44)
will be put to members at the forthcoming Annual General
Meeting.
The following section sets out the executive director’s and
the non-executive directors’ remuneration for the year
ended 31 December 2014. The information provided in this
part of the Report has been audited by Deloitte LLP.
Single Total Figure Table for the Year (Audited)
Non-executive directors
The following table shows the single figure of remuneration
of the non-executive directors for the financial year ended
31(cid:123)December 2014, together with the comparative figures
for 2013:
J E (cid:37) (cid:37)evan
R W (cid:37)oyle
R A (cid:37)ruce(2)
M C Claydon
H M Henderson
S E G A (cid:49)eubert
R J (cid:50)ldfield
A Watson
Total
31 December
2014
Fees and total
Remuneration
£(1)
29,250
34,750
–
33,250
55,625
29,250
29,250
33,250
244,625
31 December
2013
Fees and total
Remuneration
£(1)
27,000
31,000
9,000
31,000
51,500
27,000
27,000
31,000
234,500
(cid:49)otes:
1.
The non-executive directors are not entitled to any variable payments or benefits. (cid:49)o taxable benefits were paid in the year, although all reasonably incurred
business expenses will be met.
2. R A (cid:37)ruce retired on 30 April 2013.
Annual Report 2014 Witan Investment Trust plc
45
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Directors’ Remuneration Report continued
CEO
The following table shows a single total figure of remuneration in respect of qualifying services for the financial year ending
31 December 2014 for the CE(cid:50), Mr A L C (cid:37)ell, together with the comparative figures for 2013. Aggregate emoluments are
shown in the last column of the table.
Pension related
benefits
£
2014
268,000 252,000 13,614 12,006 102,100 119,700 134,000 80,952 26,800
Annual Bonus(3)
£
2014
Long-Term
Bonus(3)
£
2014
Base pay(1)
£
2014
Benefits(2)
£
2014
2013
2013
2013
2013
Total
£
2014
2013
2013
22,144 544,514 486,802
Mr A L C (cid:37)ell
(cid:49)otes:
(1)
Mr (cid:37)ell is entitled to hold outside appointments and to retain any fees payable, subject to receiving the (cid:37)oard’s permission. During 2014, in addition to the
base salary set out above, Mr (cid:37)ell received £56,875 (2013: £55,750) in respect of his directorships of Henderson High Income Trust plc and the Association of
Investment Companies.
(2) Taxable benefits include life assurance and health insurance
(3)
Mr (cid:37)ell’s service agreement, as amended, provides that he is eligible to receive a bonus of up to 100% of his basic salary. The cash bonus arrangement consists of
three separate elements:
(i) Discretionary bonus
For a description of the terms of the discretionary bonus (including the performance measures), please see the policy report. The Committee reviewed
Mr (cid:37)ell’s performance against the performance criteria, described on page 52, over the preceding year at its meeting in February 2015 to determine the
appropriate level of the discretionary bonus that is payable for that year. The Committee recommended, and the (cid:37)oard agreed, that Mr (cid:37)ell should receive a
discretionary bonus equal to 20% of his basic salary (£53,600) in respect of the financial year ended 31 December 2014 (2013: 17.5%, £44,100).
(ii) (cid:50)ne-year performance bonus
For a description of the terms of the one-year performance bonus (including the performance measures), please see the policy report. The Company
outperformed its benchmark in 2014 by 1.5% (net asset value debt at par, excluding the effect of share buybacks) and therefore a bonus of £48,500 will
be(cid:123)paid to Mr(cid:123)(cid:37)ell based on the Company’s financial performance for the year ending 31 December 2014 (2013: 7.0%, £75,600).
(iii) Three-year performance bonus (the ‘Long-Term (cid:37)onus’)
For a description of the terms of the three-year performance bonus (including the performance measures), please see the policy report. The Company has
outperformed its benchmark over the three financial years to 31 December 2014 by 13.3% (net asset value debt at par, excluding the effect of share buybacks)
and therefore a Long-Term (cid:37)onus of £134,000 will be paid to Mr (cid:37)ell (2013: 5.8%, £80,952).
Mr (cid:37)ell’s total variable remuneration in respect of the year ended 31 December 2014 is £236,100 (2013: £200,652).
As in previous years, payment of the discretionary bonus and the one-year performance bonus will be partly deferred, with half paid in March 2015 and the
remaining half in January 2016, subject to continuing employment. The Long-Term (cid:37)onus of £134,000 is payable in March 2015.
Scheme interests awarded during the financial year
(cid:49)o directors were awarded any interest over shares in the
Company during the financial year ended 31 December 2014.
Payments to past directors
(cid:49)o payments were made to former directors of the Company
during the financial year ended 31 December 2014 (2013:
£nil).
Payments for loss of office
(cid:49)o loss of office payments were made to any person who has
previously served as a director of the Company at any time
during the financial year ended 31 December 2014 (2013:
£nil).
Statement of directors’ shareholdings
The interests of the CE(cid:50) and the non-executive directors
(including connected persons) in the Company’s ordinary
shares are shown in the table opposite. (cid:49)o share options
or other share-based awards, with or without performance
measures, were awarded to the CE(cid:50) or to any non-executive
46
Witan Investment Trust plc Annual Report 2014
director. There are no requirements or guidelines for the CE(cid:50)
or the non-executive directors to own shares in the Company.
A L C (cid:37)ell
J E (cid:37) (cid:37)evan
R W (cid:37)oyle
M C Claydon
H M Henderson
S E G A (cid:49)eubert
R J (cid:50)ldfield
A Watson
Shares held
as at
31 December
2014
120,000
–
49,553
47,131
1,155,232(1)
4,398
21,500
25,000
Shares held
as at
31 December
2013
120,000
–
17,198
46,929
1,155,232(1)
4,309
21,500
25,000
(cid:49)ote:
(1)
H M Henderson is the legal and beneficial owner of 722,732 shares in the
Company and 432,500 shares in the Company are owned by connected
persons.
There have not been any changes in the directors’ interests
since the year end.
(cid:49)one of the directors had an interest in the secured bonds,
debenture stock or preference shares of the Company.
Total shareholder return performance graph
The line graph below sets out the Company’s six-year
total shareholder return performance relative to the FTSE
All-Share Index and the FTSE World (ex UK) Index (sterling
adjusted). This line graph assumes a notional investment
of £100 into the Indices on 31 December 2008 and the
reinvestment of all income, excluding dealing expenses.
Percentage change in remuneration of CEO
The table below shows how the percentage change in the
CE(cid:50)’s salary, benefits and bonus between 2013 and 2014
compares with the percentage increase in each of those
components of pay for the Group’s employees taken as
a(cid:123)whole:
275
250
225
200
175
150
125
100
Witan Total Return
FTSE World (ex UK) Total Return
FTSE All-Share Total Return
Benchmark
Salary and fees
All taxable benefits
Annual bonuses (discretionary
and one-year performance)
Long-Term Bonus
Total
Relative importance of spend on pay
Percentage increase
in remuneration in
2014 compared with
remuneration in 2013
CEO
%
6
13
(15)
66
12
Employees
%
2
7
34
n/a
6
2013
£000
235
Difference
£000
10
1,089
(229)
27,243
4,437
31,680
1,912
(4,074)
(2,162)
(2)
2014
£000
245
Spend
Fees of non-executive directors
Remuneration paid to or
receivable by all employees of
the Group (including the CE(cid:50))
in respect of the year
Dividends paid to shareholders
in respect of the year ending
29,155
31 December 2014
363
Share buybacks
Total payments to shareholders 29,518
860(1)
(cid:49)otes:
(1) Includes an accrual for future payment of the CE(cid:50)’s three year performance
bonus, subject to performance being sustained and to his continued
employment with the Company.
(2) Share buyback activity reflects changes in the discount, which narrowed during
the year (see further comments on page 5).
Statement of implementation of remuneration policy in
2014
The Company has implemented the approved remuneration
policy with effect from 1 January 2015. Fee increases for 2014
are set out in the Chairman’s statement.
Consideration by the directors of matters relating to
directors’ remuneration
The Board as a whole sets the fees that are payable to the
non-executive directors and it has appointed the Committee
to consider matters relating thereto. The Committee
also considers the remuneration of the CE(cid:50) and makes a
recommendation on this to the Board for its approval.
Annual Report 2014 Witan Investment Trust plc
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2014
Source: Datastream.
The Company is required to compare the Company’s share
price with a single broad equity market index. The Company
has compared the share price total return against (i) a UK
market index, namely the FTSE All-Share Index because the
Company’s shares are listed on the UK market and the UK
forms the largest constituent of the Company’s benchmark;
and also (ii) a global index, namely the FTSE World (ex UK)
Index because more than half of the Company’s investments
are held in overseas companies. The performance of the
Company’s benchmark is also shown.
CEO remuneration table
Annual
discretionary
and one-year
bonus
pay-out against
maximum
%
76.2
95.0
86.5
40.0
100.0
15.0
30.0
CEO single
figure of total
remuneration
£
544,514
486,802
400,535
314,160
409,495
111,318
253,273
Long-Term
Bonus
pay-out
against
maximum
%
100.0
64.2
13.7
n/a
n/a
n/a
n/a
Year ended 31 December
2014 – Mr Bell
2013 – Mr Bell
2012 – Mr Bell
2011 – Mr Bell
2010 – Mr Bell
2010 – Mr Clarke(1)
2009 – Mr Clarke(1)
(cid:49)ote:
(1) Mr R E Clarke was the CE(cid:50) until 8 February 2010, when Mr Bell was appointed.
Directors’ Remuneration Report continued
The Committee was not provided with advice or services,
during the financial year ending 31 December 2014, in
respect of the fees payable to the non-executive directors or
the remuneration payable to the CE(cid:50).
The Committee assesses the workload and responsibilities of
the non-executive directors and reviews, from time to time,
the fees paid to non-executive directors of other investment
trust companies.
Herbert Smith Freehills LLP provided legal advice to the
Company throughout the year, including in relation to the
operation of the Company’s incentive arrangements and on
the CE(cid:50)’s service agreement. This advice was available to be
considered by the Committee.
The table below sets out the members of the Committee
who were present during any consideration of the CE(cid:50)’s
remuneration, and shows the number of meetings attended
by each non-executive director:
Name
M C Claydon
H M Henderson
R J (cid:50)ldfield
Number of meetings
attended
2/2
2/2
2/2
Statement of shareholder voting
At the Annual General Meeting held on 30 April 2014,
ordinary resolutions to approve the Directors’ Remuneration
Report for the year ended 31 December 2013 and to approve
the remuneration policy were passed on a show of hands. The
proxy votes were as follows:
Votes
for
Votes
against
Votes at
proxies’
discretion
Votes
withheld
Total
votes cast
(excluding
votes
withheld)
Remuneration policy
A report on the Company’s remuneration policy in
accordance with the new Regulations was submitted for the
first time in the 2013 Annual Report. An ordinary resolution
for the approval of the policy was put to members at the
Annual General Meeting on 30 April 2014 and passed by
the members. This policy took effect from 1 January 2015.
All provisions of this policy are expected to remain in effect
until the Annual General Meeting in 2017 when the Company
is next required to submit its remuneration policy to its
members.
For ease of reference, we have included the full policy as
approved by members below (updated to reflect application
of the policy in 2015). The unamended version of the policy
as(cid:123)approved by members can be viewed in the Annual Report
for 2013 at www.witan.com.
Non-executive directors
All the directors are non-executive, with the exception of the
CE(cid:50). (cid:49)ew directors are appointed for an initial term ending
three years from the date of their first annual general meeting
after appointment and with the expectation that they will
serve two three-year terms. The continuation of directors’
appointments is contingent on satisfactory performance
evaluation and re-election at annual general meetings.
(cid:49)on-executive directors’ appointments are reviewed formally
every three years by the Board as a whole. Each of the
non-executive directors has a letter of appointment which
sets out the terms on which they provide their services. A
non-executive director may resign by notice in writing to the
Board at any time; there are no set notice periods.
Approval of Directors’ Remuneration Report
24,412,873 327,225
98.4%
75,393
0.3%
Approval of Remuneration Policy
24,151,328 419,308
1.3%
98.0%
1.7%
75,393
0.3%
143,951 24,815,491
–
100%
313,413 24,646,029
–
100%
The Company is committed to ongoing shareholder dialogue
and takes an active interest in voting outcomes. Where
there are substantial votes against resolutions in relation to
directors’ remuneration, the reasons for any such vote will be
sought and any actions in response will be detailed in future
Directors’ Remuneration Reports. There were no substantial
shareholder votes against the resolutions at the Annual
General Meeting in 2014.
48
Witan Investment Trust plc Annual Report 2014
Remuneration policy for non-executive directors
The following table provides a summary of the key elements of the remuneration of the non-executive directors:
Purpose
Operation
Fees
Fees payable to the directors should reflect the time
committed to the Company’s affairs and should be
sufficient to enable candidates of high calibre to be
recruited.
There are no performance-related elements and no
fees are subject to claw-back provisions.
(cid:49)on-executive directors are to be remunerated
in the form of fees, payable monthly in arrears, to
the director personally or to a third party specified
by him. There are no long-term incentive schemes
or pension arrangements and the fees are not
specifically related to their performance, either
individually or collectively.
The Committee determines the level of fee at
its discretion. The fees are reviewed each year,
although such review will not necessarily result in
any increase in the fees. Proposed increases in fees
are determined in the light of increases in inflation
and in the Company’s share price, net asset value
and dividend payments.
The Chairman of the Board, the Chairmen of the
Board’s Committees and the Senior Independent
Director are paid higher fees than the other
non-executive directors in recognition of their
more(cid:123)onerous roles (see below).
The Chairman of the Board receives a fee of
£57,000 per annum. The Senior Independent
Director receives a fee of £4,000 in addition to the
annual base fee.
Each non-executive director’s annual base fee is
£30,000.
Additional fees are payable as follows:
> Chairman of Audit Committee £6,000;
>
Chairman of Remuneration and (cid:49)omination
Committee £4,000.
All of the above fees took effect on 1 April 2014.
The maximum amount of fees, in aggregate, that
may be paid to non-executive directors in any
financial year is £350,000 following approval by
shareholders at the Annual General Meeting in
April(cid:123)2014.
Directors’ and officers’ liability insurance cover is held by the Company in respect of all the directors (including the CE(cid:50)).
Annual Report 2014 Witan Investment Trust plc
49
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Directors’ Remuneration Report continued
Remuneration policy for the CEO (and any future executive director)
Currently the Company operates with one executive director, the CE(cid:50). This policy applies to the CE(cid:50), but would also be
applied to any other executive director appointed by the Company.
Purpose and link to
strategy
Operation and
claw-back
Maximum
opportunity
Performance measures
(cid:49)ot applicable.
Base salary
Base salary is set at
market competitive
levels in order to recruit
and retain an executive
director of a suitably
high calibre.
The level of pay reflects
a number of factors
including individual
experience, expertise
and pay appropriate to
the position.
Benefits-in-
kind
(cid:50)ffering market-
competitive level of
benefits-in-kind to
help recruit or retain an
executive director of a
suitably high calibre.
Pension
(cid:50)ffering market-
competitive levels
of guaranteed cash
earnings to help recruit
or retain an executive
director of a suitably
high calibre.
Base salary is reviewed
annually and fixed for
12 months.
The Committee has
agreed to increase the
CE(cid:50)’s salary, with effect
from 1 January 2015, by
3.7% to £278,000 per
annum.
Year-on-year, salary
increases for any
executive director will not
exceed 10% per annum
other than in times
of abnormal inflation
or other exceptional
circumstances, in which
case the increase will not
exceed 20%.
An executive director
may be eligible to receive
a range of benefits
including some or all of:
The maximum benefit
that can be offered or
paid to an executive
director is:
(cid:49)ot applicable.
>
>
>
private medical
insurance for the
executive director
and their family;
death in service
insurance;
business-related
expenses.
Where benefits are
sourced through third
party providers, the
expense will reflect the
cost of the provision of
the benefits from time
to time but will be kept
under review by the
Committee.
The CE(cid:50) currently
receives a cash payment,
equal to 10% (8.7% to
31(cid:123)December 2013) of
base salary, in lieu of
pension contributions.
>
>
private medical
insurance provided
on a family basis;
death in service
insurance of
4 times base
salary;
>
business-related
expenses.
The maximum cash
payment in lieu of
pension contributions is
10% of base salary.
(cid:49)ot applicable.
50
Witan Investment Trust plc Annual Report 2014
Purpose and link to
strategy
Operation and
claw-back
Maximum
opportunity
Performance measures
The maximum cash
bonus payable to any
executive director is 20%
of base salary.
Please see (cid:49)ote 1 on
page 52 for details of the
performance measures
subject to the CE(cid:50)’s
discretionary bonus.
The maximum cash
bonus payable to any
executive director is 30%
of base salary.
Please see (cid:49)ote 1 on
page 52 for details of the
performance measures
subject to the CE(cid:50)’s
one-year performance
bonus.
The maximum cash
bonus payable to any
executive director is 50%
of base salary.
Please see (cid:49)ote 1 on
page 52 for details of the
performance measures
subject to the CE(cid:50)’s
Long-Term Bonus.
Discretionary
bonus
The purpose of the
bonus arrangements is
to incentivise the CE(cid:50) to
maximise the Company’s
performance and its
return to shareholders.
One-year
performance
bonus
The purpose of the
bonus arrangements is
to incentivise the CE(cid:50) to
maximise the Company’s
performance and its
return to shareholders.
Long-Term
Bonus
The purpose of the
bonus arrangements is
to incentivise the CE(cid:50) to
maximise the Company’s
performance and its
return to shareholders.
The CE(cid:50) is eligible to
receive a discretionary
bonus of up to 20% of
basic annual salary. The
Committee will review
the CE(cid:50)’s performance
against the performance
criteria to determine
the appropriate level of
bonus payable in respect
of the preceding year.
The Committee may
reduce any bonus
payment that would
otherwise be payable in
order to comply with the
FCA Remuneration Code.
The CE(cid:50) is eligible to
receive a bonus of up
to 30% of base salary
by reference to the
performance of the
Company over the
previous financial year.
The Committee may
reduce any bonus
payment that would
otherwise be payable in
order to comply with the
FCA Remuneration Code.
The CE(cid:50) is eligible to
receive a bonus of up
to 50% of base salary
by reference to the
performance of the
Company over the
previous three financial
years.
The Committee may
reduce any bonus
payment that would
otherwise be payable in
order to comply with the
FCA Remuneration Code.
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Annual Report 2014 Witan Investment Trust plc
51
Directors’ Remuneration Report continued
Notes:
Performance measures
1.
Mr Bell’s service agreement, as amended, provides that he is
eligible to receive a bonus of up to 100% of his basic salary.
The cash bonus arrangement consists of three separate
elements as set out below:
(i) Discretionary bonus
Each year Mr Bell is eligible to receive, at the absolute
discretion of the Committee, a cash bonus of up to 20% of
his basic annual salary. The Committee has determined a
number of criteria that it may take into account, including
the management and administration of the Company and
reporting to the Board, shareholders and other stakeholders,
on which to judge his performance.
One-year performance bonus
(ii)
Each year Mr Bell is eligible to receive an additional cash
bonus of up to 30% of his basic annual salary. The bonus
will be determined by the Company’s net asset value per
share total return performance over the previous financial
year (debt at par, excluding the effect of share buybacks)
relative to its benchmark. (cid:50)utperformance of the benchmark
by 2.5% or more will generate a bonus of the full 30%. (cid:49)o
bonus is payable if performance is in line with or below that
of the benchmark. Relative performance of between nil and
2.5% will generate a pro rata bonus. (The benchmark is a
composite of 40% FTSE All-Share Index, 20% FTSE All-World
(cid:49)orth America Index, 20% FTSE All-World Europe (ex UK)
Index and 20% FTSE All-World Asia Pacific Index, all on a
total return basis.)
(iii) Three-year performance bonus (the ‘Long-Term
Bonus’)
Each year Mr Bell is eligible to receive a Long-Term Bonus
of up to 50% of his basic annual salary by reference to the
Company’s performance over the previous three financial
years. The Long-Term Bonus will be determined by reference
to the Company’s net asset value per share total return (debt
at par, excluding the effect of share buybacks) relative to
its benchmark, as set out in the Company’s audited annual
accounts for the applicable financial years. (cid:50)utperformance
of the benchmark by an average of 3% per annum or more
will generate a bonus of the full 50%. (cid:49)o bonus is payable if
performance is in line with or below that of the benchmark.
Relative performance of between nil and 3% per annum will
generate a pro rata bonus.
The Long-Term Bonus will be halved if, despite
outperformance of the benchmark over the relevant three
financial years, the Company’s net asset value total return
per share is negative over that period. The Long-Term Bonus
was introduced in 2011 and paid, for the first time, in May
2013 following shareholder approval of the terms of the
Long-Term Bonus at the Annual General Meeting, in respect
of the three financial years ended 31 December 2012.
Legacy plans
2.
The Committee reserves the right to make remuneration
payments and payments for loss of office that are not in line
with the policy set out above (i) where the terms of such a
payment were agreed before the policy came into effect or
at a time when the relevant individual was not a director of
the Company and (ii) in the opinion of the Committee, such
a payment is not in consideration of the individual becoming
a director of the Company. For these purposes, payments
include the Committee satisfying awards of variable
remuneration.
Differences in the Company’s remuneration policy
3.
for directors as compared to employees
The only respect in which the remuneration policy for the
executive director differs from that for employees is that the
executive director’s remuneration is more heavily weighted
towards variable pay so that a greater proportion of his pay is
related to the Company’s performance and the value created
for shareholders.
Principles and approach to recruitment and internal
promotion of directors
Non-executive directors
1)
Remuneration of non-executive directors should
reflect the specific circumstances of the Company and
the duties and responsibilities of the non-executive
directors. It should provide appropriate compensation
for the experience and time committed to the proper
oversight of the affairs of the Company.
2)
3)
4)
(cid:49)on-executive directors are not eligible to receive
bonuses, pension benefits, share options or other
benefits.
The total remuneration of the non-executive directors
is determined by the provisions of the Company’s
Articles of Association and by shareholder resolution.
The basic non-executive director’s fee will be paid
to each non-executive director with a higher fee per
annum for the Chairman of the Company. An additional
fee per annum will be paid to the Chairman of each
of the Audit and Remuneration and (cid:49)omination
Committees and to the Chairman of any other
Committees that the Company forms; and to the Senior
Independent Director.
52
Witan Investment Trust plc Annual Report 2014
Executive directors
1)
When hiring a new executive director, or promoting to
the Board from within the Group, the Committee will
offer a package that is sufficient to retain and motivate
and, if relevant, attract the right talent whilst paying no
more than is necessary.
2)
3)
4)
(cid:50)rdinarily, remuneration for a new executive director
will be in line with the policy set out in the table.
The maximum level of variable pay that may be
awarded to a new director on recruitment or on
promotion to the Board shall be limited to 100% of base
salary (calculated at the date of grant, excluding any
buy-out awards – see below).
The Committee may, where it considers it to be in the
best interests of the Company and shareholders, offer
an additional cash payment to an executive director in
order to replace awards which would be foregone by
the individual on leaving his/her previous employment
(i.e. buy-out arrangements) which will be intended to
mirror forfeited awards as far as possible by reflecting
the value, nature, time horizons and performance
measures.
Letters of appointment/service contract
Non-executive directors’ letters of appointment
The non-executive directors all have letters of appointment,
which may be inspected at the Company’s registered office.
(cid:49)one of the non-executive directors is subject to any notice
period. All continuing non-executive directors are required to
stand for re-election by the shareholders at least every three
years. The initial period of appointment is two terms of three
years. All reasonably incurred expenses will be met.
Mr Henderson, Mr Bevan, Mrs Claydon, Ms (cid:49)eubert and
Mr(cid:123)Watson are proposed for re-election at the Annual
General Meeting in April 2015.
CEO’s service contract
The CE(cid:50)’s service contract with the Company may be
inspected at the Company’s registered office. The CE(cid:50)’s
service agreement dated 3 February 2010, as amended,
provided in 2014 for a salary of £268,000 (2013: £252,000)
per annum. The salary has been increased to £278,000 with
effect from 1 January 2015. Mr Bell’s appointment may be
terminated by either party on the giving or receiving of not
less than nine months’ written notice.
Please see ‘Policy on payment for loss of office’ (below) for
further details of the CE(cid:50)’s service contract.
Illustration of application of remuneration policy
The chart below shows an indication of the values of the
CE(cid:50)’s remuneration that would be received by the CE(cid:50) in
accordance with the director’s remuneration policy for the
first full year in which the policy applies at three direct levels
of performance:
>
>
>
s
0
0
0
£
’
600
550
500
450
400
350
300
250
200
150
100
50
0
minimum performance, i.e. fixed salary, taxable
benefits and payment in lieu of pension contributions,
with no bonus pay-out;
on-target performance, fixed pay plus short and
long-term bonus payments assuming a 50% pay out
of each of the discretionary, one year performance and
Long-Term Bonuses; and
maximum performance, fixed pay plus short and
long-term bonus payments assuming 100% pay-out
of each of the discretionary, one year performance and
Long-Term Bonuses.
Fixed pay
Discretionary bonus
One year performance bonus
Long-Term Bonus
£319,400
£453,400
14.8%
8.9%
5.9%
£587,400
22.8%
13.7%
9.1%
100%
70.4%
54.4%
Minimum performance
On target performance
Maximum performance
Policy on payment for loss of office
Non-executive directors
(cid:49)one of the non-executive directors is subject to any notice
period. It is the Company’s policy not to enter into any
arrangement with any of the non-executive directors to
entitle any of the non-executive directors to compensation
for loss of office.
CEO (and other executive directors)
The Company’s policy is to agree a notice period for the CEO
which would not exceed nine months.
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Annual Report 2014 Witan Investment Trust plc
53
Directors’ Remuneration Report continued
the applicable bonus shall become payable to the extent
determined at the time of the change of control on, or as
soon as practicable after, the CEO’s cessation of employment.
Statement of consideration of conditions elsewhere in the
Company
The Committee considers the employment conditions,
including salary increases, of employees other than the CEO
when setting the CEO’s remuneration.
The Company did not consult with employees when drawing
up the remuneration policy.
Where possible, the Committee benchmarks the
remuneration of the employees and CEO by obtaining details
of remuneration paid to employees in comparable roles in
other companies.
Statement of consideration of shareholder views
The Company places great importance on communication
with its shareholders. The Company had frequent meetings
with institutional shareholders and City analysts throughout
the year to 31 December 2014 and met with shareholders in
general at the Annual General Meeting held in 2014 and can
confirm that it is not aware of negative views being expressed
by shareholders in relation to its policy on Directors’
Remuneration.
Approval
This report was approved by the Board of directors on
10(cid:123)March 2015 and is signed on its behalf by:
Catherine Claydon
Chairman of the Remuneration and (cid:49)omination Committee
10 March 2015
The Company may, in its absolute discretion and without
any obligation to do so, terminate the CEO’s employment
immediately by giving him written notice together with a
payment of such sum as would have been payable by the
Company to the CEO as salary (excluding future bonus
accrual) in respect of his notice period. The Company may, at
its discretion, make the termination payment in instalments
over a period of no longer than six months from the
termination date and on terms that any payment should be
reduced to take account of mitigation by the CEO.
If a new executive director is recruited, the Company’s policy
regarding payments for loss of office will be the same as for
the CEO.
If the CEO ceases employment as a result of one of the
good leaver reasons (i.e. death, ill-health, injury, disability,
redundancy, retirement or due to any other circumstance
that the Committee at its discretion permits), any bonus
payment shall be pro-rated for time and performance. The
Committee may, however, taking into account such factors
as it considers appropriate, increase the proportion of the
relevant bonus that becomes payable. If the CEO ceases
employment other than as a ‘good leaver’, or if the CEO gives
or receives notice prior to the date that the relevant bonus
would otherwise have been paid, the CEO will forfeit any right
to receive the relevant bonus for nil consideration unless the
Committee, in its absolute discretion, determines otherwise.
A change of control of the Company shall not affect the
amount of any bonus or the date on which it becomes
payable unless the Committee determines otherwise, in
which case the Committee shall determine whether the
pro-rated performance targets attached to the applicable
bonuses have been satisfied at that time.
If the Committee determines that the pro-rated performance
targets have not been satisfied on the change of control,
the applicable bonus shall immediately lapse unless the
Committee determines otherwise. To the extent that the
Committee determines that the pro-rated performance
targets have been satisfied on the change of control, if the
CEO ceases to be employed by the Company prior to the date
that the applicable bonus would otherwise have been paid to
the CEO other than as a result of:
>
>
a reason which would have justified his summary
dismissal;
his cessation of employment without the giving or
receiving of notice; or
>
his resignation
54
Witan Investment Trust plc Annual Report 2014
Statement of Directors’ Responsibilities
in respect of the Annual Report, the Directors’ Remuneration
Report and the (cid:428)nancial statements
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable
law and regulations.
They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the European
Union (‘EU’) and Article 4 of the EU IAS Regulation and
have also chosen to prepare the parent company financial
statements under IFRSs as adopted by the EU. 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, International Accounting
Standard 1 requires that directors:
>
>
properly select and apply accounting policies;
present information, including accounting policies, in
a manner that provides relevant, reliable, comparable
and understandable information;
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;
and
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
>
the financial statements, prepared in accordance
with International Financial Reporting Standards as
adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the
consolidation taken as a whole;
>
>
the Strategic Report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description (on pages 18 to 20) of the principal risks
and uncertainties that they face; and
the 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.
>
>
make an assessment of the Company’s ability to
continue as a going concern.
By order of the Board
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.
H M Henderson
Chairman
10 March 2015
A L C Bell
Chief Executive O(cid:431)cer
10 March 2015
Note to those who access this document by electronic means
The Annual Report for the year ended 31 December 2014 has been approved by the Board of Witan Investment Trust plc.
Copies of the Annual Report and the Half Year Report are circulated to shareholders, to those who hold shares through
Witan Investment Services Limited’s savings schemes and, where possible, to investors through other providers’ products
and nominee companies (or written notification is sent when they are published online). It is also made available in electronic
format for the convenience of readers. Printed copies are available from the Company’s Registered Office in London.
Annual Report 2014 Witan Investment Trust plc
55
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Alternative Investment Fund Managers Directive
Leverage
Circumstances when the Company may use leverage
The purpose of using leverage, through borrowing, known
as gearing, is to improve (or “gear”) returns for shareholders,
by achieving investment returns higher than the interest
cost of the borrowings. Accordingly, attention is paid to
using a level of gearing appropriate for market conditions
(put simply, borrowing more when markets are attractively
valued and borrowing less at times when returns are
expected to be poorer). In addition, a blend of long-term and
short-term borrowings is used, to balance the certainty of
cost associated with locking in fixed rates for longer periods
with the flexibility of using short-term facilities which can be
readily repaid when they are not required.
In a rising market, gearing will tend to enhance returns
because of the investment fund’s increased exposure to
the market. But by the same token, however, it will tend to
increase losses triggered by a falling market.
Types and sources of leverage permitted
The Company has £110 million of long-term debt, consisting
of debenture, secured bond and preference share capital. The
Company also has a £70 million one-year facility, providing
additional flexibility over the level of gearing, as well as
enabling the Company to borrow in other currencies than
sterling, if deemed appropriate. The Company may either
invest its borrowings fully, or neutralise their effect with cash
balances (or the sale of equity index futures) according to its
assessment of the markets.
Restrictions on the use of leverage
The Company’s delegated investment managers are not
permitted to borrow within their portfolios but may hold cash
if deemed appropriate.
Witan Investment Trust plc is an ‘alternative investment fund’
(‘AIF’) for the purposes of the EU Alternative Investment Fund
Managers Directive (Directive 2011/61/EU) (the ‘AIFMD’) and
the Company has appointed its subsidiary, Witan Investment
Services Limited (‘WIS’), to act as its AIFM. WIS is authorised
and regulated by the United Kingdom Financial Conduct
Authority as a ‘full scope UK AIFM’.
The Company is required to make certain disclosures
available to investors in accordance with the AIFMD. Those
disclosures that are required to be made pre-investment
are included within the Investor Disclosure Document
(‘IDD’) which can be found on the Company’s website
www.witan.com. There have not been any material
changes(cid:123)to the disclosures contained within the IDD
since(cid:123)its(cid:123)publication in July 2014.
The Company and AIFM also wish to make the following
disclosures to investors:
>
>
>
>
>
the investment strategy, geographic and sector
investment focus and principal stock exposures are
included in the Strategic Report. A list of the top 50
portfolio holdings is included on page 24;
none of the Company’s assets is subject to special
arrangements arising from their illiquid nature;
the Strategic Report and note 14 to the accounts set
out the risk profile and risk management systems
in place. There have been no changes to the risk
management systems in place in the period under
review and no breaches of any of the risk limits set, with
no breach expected;
there are no new arrangements for managing the
liquidity of the Company or any material changes to
the liquidity management systems and procedures
employed by the Company; and
all authorised Alternative Investment Fund Managers
are required to comply with the AIFMD Remuneration
Code. In line with FCA guidance on reporting under
AIFMD, it is expected that the Company’s Remuneration
Policy and associated financial disclosures will be
included in next year’s Annual Report.
56
Witan Investment Trust plc Annual Report 2014
The maximum level of leverage which the AIFM is entitled to
employ on behalf of the Company
The Company has the legal power under its Articles of
Association to borrow up to 100% of the adjusted total
of shareholders’ funds (and WIS has agreed to set the
maximum leverage level at that 100% level). This is subject
to practical constraints including a test of prudence and
the long-standing policy is not to allow gearing to rise to
more than 20%, other than temporarily in exceptional
circumstances. Over the past five years it has generally
varied between 0% and 15% and where appropriate the
Company may hold a small net cash position.
Under AIFMD the Company is required to calculate leverage
under the two methodologies specified by the Directive,
the ‘Gross Method’ and the ‘Commitment Method’, the
difference being that the Commitment Method allows
certain exposures to be offset or netted.
The table below sets out the current maximum permitted
limit and the actual level of leverage for the Company, as a
percentage of adjusted shareholders’ funds:
Maximum level
Actual level at 31 December 2014
There have not been
Gross
method
%
Commitment
method
%
100
10.1
100
13.3
>
>
any changes to the maximum level of leverage that the
AIFM may employ on behalf of the Company; and
any changes to the right of reuse of collateral or any
guarantee granted under the leveraging arrangements.
It is the Company’s policy that leveraging arrangements are
not collateralised.
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Annual Report 2014 Witan Investment Trust plc
57
Independent Auditor’s Report
to the members of Witan Investment Trust plc
>
>
>
>
Opinion on financial statements of Witan Investment
Trust plc
In our opinion:
the (cid:428)nancial statements give a true and fair view of
the state of the Group’s and of the parent Company’s
a(cid:426)airs as at 31 December 2014 and of the Group’s
pro(cid:428)t(cid:123)for the year then ended;
the Group (cid:428)nancial statements have been properly
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the
European Union;
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1 to the financial statements, in addition
to complying with its legal obligation to apply IFRSs as
adopted by the European Union, the Group has also applied
IFRSs as issued by the International Accounting Standards
Board (IASB).
In our opinion the financial statements comply with IFRSs as
issued by the IASB.
Going concern
As required by the Listing Rules we have reviewed the
directors’ statement contained within the Strategic Report
that the Group is a going concern. We confirm that:
the parent Company (cid:428)nancial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance
with the provisions of the Companies Act 2006; and
the (cid:428)nancial statements have been prepared in
accordance with the requirements of the Companies
Act 2006 and, as regards the Group (cid:428)nancial
statements, Article 4 of the IAS Regulation.
>
>
the directors’ use of the going concern basis of
accounting in the preparation of the (cid:428)nancial
statements is appropriate; and
we have not identi(cid:428)ed any material uncertainties that
may cast signi(cid:428)cant doubt on the Group’s ability to
continue as a going concern.
The financial statements comprise the Consolidated
Statement of Comprehensive Income, Consolidated and
Individual Company Statements of Changes in Equity,
Consolidated and Individual Company Balance Sheets,
Consolidated and Individual Company Cash Flow Statements
and the related notes 1 to 25. The financial reporting
framework that has been applied in their preparation is
applicable law and IFRSs as adopted by the European Union
and, as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies
Act 2006.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s
ability to continue as a going concern.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the
efforts of the engagement team:
58
Witan Investment Trust plc Annual Report 2014
Risk
How the scope of our audit responded to the risk
Valuation of investments of the Group
The investments balance of £1.55 billion is the most
quantitatively significant balance on the balance sheet
and(cid:123)is an area of focus because it is the main driver
of the(cid:123)Group’s performance. There is a risk that the
investments(cid:123)are not recorded at their fair value, as
described(cid:123)in accounting policy 1(h).
Ownership of investments
The investment balance is the most quantitatively
significant(cid:123)balance on the balance sheet. The risk that
the Group does not hold the rights and obligations to
these investments could materially impact the financial
statements.
To test the valuation of investments as at 31 December 2014,
we performed the following:
>
>
>
for all equity investments with prices quoted in an
active market, valued at £1.4 billion, we agreed the bid
prices to(cid:123)an independent pricing source;
veri(cid:428)ed the trading activity and volume, on a sample
basis, of investments held around the year end to
assess the liquidity of investments;
we critically assessed the valuation techniques applied
to Other Investments, £107 million, and obtained
evidence to corroborate valuations used.
To test the ownership of investment balances as at
31(cid:123)December 2014 we performed the following:
>
>
assessed the ownership of all investments at year end
by obtaining independent third party con(cid:428)rmations
directly from the custodians and agreeing them to
the(cid:123)schedule of investments held at year end. We also
reviewed the latest ISAE 3402 report on the custodian’s
controls related to its custody of the Group’s
investments; and
performed detailed testing on a sample of purchases
and sales made during the year and performed
testing on trades made around the year-end period to
determine whether transactions have been recorded
in(cid:123)the correct period.
The description of risks above should be read in conjunction
with the significant issues considered by the audit committee
discussed on page 42.
Our audit procedures relating to these matters were designed
in the context of our audit of the financial statements as a
whole, and not to express an opinion on individual accounts
or disclosures. Our opinion on the financial statements is not
modified with respect to any of the risks described above,
and we do not express an opinion on these individual matters.
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Annual Report 2014 Witan Investment Trust plc
59
Independent Auditor’s Report continued
Our application of materiality
We define materiality as the magnitude of misstatement
in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the
results of our work.
We determined materiality for the Group to be £14 million,
which has been determined using 1% of total equity. This is
a change of approach from 2013, where we used materiality
of £41million which was around 3% of total equity. We have
changed the percentage following emerging market practice
and changing investor expectations.
We agreed with the Audit Committee that we would report
to the Committee all known audit errors in excess of £10,000
(2013: £10,000), as well as differences below that threshold
that, in(cid:123)our view, warranted reporting on qualitative grounds.
We(cid:123)also report to the Audit Committee on disclosure matters
that we identified when assessing the overall presentation
of(cid:123)the financial statements.
An overview of the scope of our audit
Our audit scope was determined by obtaining an
understanding of the Group and its environment, including
group-wide controls, and assessing the risks of material
misstatement. Audit work to respond to the risks of material
misstatement for all entities in the Group was performed
directly by the audit engagement team.
Our Group audit scope included the audit of Witan
Investment Services Limited (‘WIS’) and this was subject to
a full scope audit for the year ended 31 December 2014. The
audit of WIS was performed for local statutory purposes at
the level of materiality applicable to the entity, which was
lower than Group materiality.
As the accounting is performed by service organisations,
we(cid:123)obtained an understanding of how the Group uses
service(cid:123)organisations in its operations and evaluated
the design and implementation of relevant controls at
the Group(cid:123)that relate to the services provided by service
organisations. We reviewed the latest reports on internal
controls from the service organisations and contacted
them(cid:123)directly to obtain specific information we needed to
conduct our audit.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
>
>
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance
with(cid:123)the Companies Act 2006; and
the information given in the Strategic Report and the
Directors’ Report for the (cid:428)nancial year for which the
(cid:428)nancial statements are prepared is consistent with
the(cid:123)(cid:428)nancial statements.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report
to(cid:123)you if, in our opinion:
>
>
>
we have not received all the information and
explanations we require for our audit; or
adequate accounting records have not been kept by
the(cid:123)parent company, or returns adequate for our audit
have not been received from branches not visited by
us;(cid:123)or
the parent company (cid:428)nancial statements are not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to
report if in our opinion certain disclosures of directors’
remuneration have not been made or the part of the
Directors’ Remuneration Report to be audited is not in
agreement with the accounting records and returns.
We(cid:123)have(cid:123)nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the
part of the Corporate Governance Statement relating to
the company’s compliance with ten provisions of the UK
Corporate Governance Code. We have nothing to report
arising from our review.
60
Witan Investment Trust plc Annual Report 2014
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland),
we are required to report to you if, in our opinion, information
in the annual report is:
>
>
materially inconsistent with the information in the
audited (cid:428)nancial statements; or
apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired
in the course of performing our audit; or
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for
the opinions we have formed.
>
otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the directors’ statement
that they consider the Annual Report is fair, balanced
and understandable and whether the Annual Report
appropriately discloses those matters that we communicated
to the Audit Committee which we consider should have been
disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the preparation
of the financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
We also comply with International Standard on Quality
Control 1 (UK and Ireland). Our audit methodology and
tools aim to ensure that our quality control procedures are
effective, understood and applied. Our quality controls and
systems include our dedicated professional standards review
team, and independent partner reviews.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to
give reasonable assurance that the financial statements
are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s and the
parent Company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the directors;
and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the annual report to identify material
inconsistencies with the audited financial statements and
to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
Andrew Partridge (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
10 March 2015
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Annual Report 2014 Witan Investment Trust plc
61
Consolidated Statement of Comprehensive
Income
for the year ended 31 December 2014
Investment income
Other income
Gains on investments held at fair value
through profit or loss
Total income
Expenses
Management fees
Other expenses
Notes
2
3
10
4
5
Year ended 31 December 2014
Year ended 31 December 2013
Revenue
return
£’000
38,297
1,440
Capital
return
£’000
–
–
Total
£’000
Revenue
return
£’000
Capital
return
£’000
38,297
37,943
1,440
1,449
–
–
Total
£’000
37,943
1,449
–
79,073
79,073
–
289,871
289,871
39,737
79,073
118,810
39,392
289,871
329,263
(1,541)
(7,623)
(9,164)
(1,146)
(8,925)
(10,071)
(4,798)
(101)
(4,899)
(5,216)
(101)
(5,317)
(cid:51)ro(cid:428)t be(cid:73)ore (cid:428)nance costs and taxation
33,398
71,349
104,747
33,030
280,845
313,875
Finance costs
(cid:51)ro(cid:428)t before taxation
6
(2,115)
(6,095)
(8,210)
(2,144)
(6,185)
(8,329)
31,283
65,254
96,537
30,886
274,660
305,546
Taxation
7
(1,218)
–
(1,218)
(1,623)
–
(1,623)
(cid:51)ro(cid:428)t attributable to e(cid:84)uity holders
of the parent company
30,065
65,254
95,319
29,263
274,660
303,923
Earnings per ordinary share
9
15.88p
34.47p
50.35p
15.44p
144.96p
160.40p
The total column of this statement represents the Group’s Statement of Comprehensive Income, prepared in accordance with
IFRSs as adopted by the European Union.
The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the
Association of Investment Companies.
The Group does not have any other comprehensive income and hence the total pro(cid:428)t, as disclosed above, is the same as the
Group’s total comprehensive income.
All items in the above statement derive from continuing operations.
The net pro(cid:428)t for the year of the Company was £95,319,000 (2013(cid:29) £303,923,000).
All income is attributable to the e(cid:84)uity holders of (cid:58)itan Investment Trust plc, the parent company. There are no minority
interests.
The notes on pages 66 to 87 form part of these (cid:428)nancial statements.
62
Witan Investment Trust plc Annual Report 2014
Consolidated and Individual
Company Statements of Changes in E(cid:84)uity
for the year ended 31 December 2014
Group
Year ended 31 December 2014
Total e(cid:84)uity at 31 December 2013
Total comprehensive income(cid:29)
(cid:51)ro(cid:428)t for the year
Transactions with owners,
recorded directly to e(cid:84)uity(cid:29)
Ordinary dividends paid
Buybacks of ordinary shares
Issue of ordinary shares
Total equity at 31 December 2014
Company
Year ended 31 December 2014
Total e(cid:84)uity at 31 December 2013
Total comprehensive income(cid:29)
(cid:51)ro(cid:428)t for the year
Transactions with owners,
recorded directly to e(cid:84)uity(cid:29)
Ordinary dividends paid
Buybacks of ordinary shares
Issue of ordinary shares
Total equity at 31 December 2014
Group
Year ended 31 December 2013
Total e(cid:84)uity at 31 December 2012
Total comprehensive income(cid:29)
(cid:51)ro(cid:428)t for the year
Transactions with owners,
recorded directly to e(cid:84)uity(cid:29)
Ordinary dividends paid
Buybacks of ordinary shares
Total e(cid:84)uity at 31 December 2013
Company
Year ended 31 December 2013
Total e(cid:84)uity at 31 December 2012
Total comprehensive income(cid:29)
(cid:51)ro(cid:428)t for the year
Transactions with owners,
recorded directly to e(cid:84)uity(cid:29)
Ordinary dividends paid
Buybacks of ordinary shares
Total e(cid:84)uity at 31 December 2013
Ordinary
share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Other
capital
reserves
£’000
Notes
Revenue
reserve
£’000
Total
£’000
47,328
16,237
46,498 1,208,931
53,950 1,372,944
–
–
–
65,254
30,065
95,319
8
15,16
15,16
Notes
8
15,16
15,16
Notes
8
15
Notes
–
–
62
47,390
Ordinary
share
capital
£’000
–
–
1,869
18,106
–
–
–
–
(363)
363
46,498 1,274,185
(28,947)
–
–
(28,947)
(363)
2,294
55,068 1,441,247
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Other
capital
reserves
£’000
Revenue
reserve
£’000
Total
£’000
47,328
16,237
46,498 1,209,070
53,811 1,372,944
–
–
–
65,409
29,910
95,319
–
–
62
47,390
Ordinary
share
capital
£’000
–
–
1,869
18,106
–
–
–
–
(363)
363
46,498 1,274,479
(28,947)
–
–
(28,947)
(363)
2,294
54,774 1,441,247
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Other
capital
reserves
£’000
Revenue
reserve
£’000
Total
£’000
47,520
16,237
46,306
938,708
57,076 1,105,847
–
–
–
274,660
29,263
303,923
–
(192)
47,328
Ordinary
share
capital
£’000
–
–
16,237
–
192
–
(4,437)
46,498 1,208,931
(32,389)
–
(32,389)
(4,437)
53,950 1,372,944
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Other
capital
reserves
£’000
Revenue
reserve
£’000
Total
£’000
47,520
16,237
46,306
938,734
57,050 1,105,847
–
–
–
274,773
29,150
303,923
8
15
–
(192)
47,328
–
–
16,237
–
192
–
(4,437)
46,498 1,209,070
(32,389)
–
(32,389)
(4,437)
53,811 1,372,944
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Annual Report 2014 Witan Investment Trust plc
63
Consolidated and Individual
Company Balance Sheets
for the year ended 31 December 2014
Non current assets
Investments held at fair value through profit or loss
Current assets
Other receivables
Cash and cash e(cid:84)uivalents
Total assets
Current liabilities
Other payables
Bank loan
Group
31 December
2014
£’000
Company
31 December
2014
£’000
Group
31 December
2013
£’000
Company
31 December
2013
£’000
Notes
10 1,552,278 1,553,472 1,436,962 1,438,001
11
6,931
46,554
53,485
6,922
45,136
52,058
6,695
57,532
64,227
6,548
56,372
62,920
1,605,763 1,605,530 1,501,189 1,500,921
12
(9,088)
(45,000)
(8,855)
(45,000)
(7,873)
(10,000)
(7,605)
(10,000)
(54,088)
(53,855)
(17,873)
(17,605)
Total assets less current liabilities
1,551,675 1,551,675 1,483,316 1,483,316
Non current liabilities
At amortised cost(cid:29)
8½ per cent. Debenture Stock 2016
6.125 per cent. Secured Bonds due 2025
3.4 per cent. cumulative preference shares of £1
2.7 per cent. cumulative preference shares of £1
Net assets
Equity attributable to equity holders
Ordinary share capital
Share premium account
Capital redemption reserve
Retained earnings(cid:29)
Other capital reserves
Revenue reserve
Total equity
13
13
13, 17
13, 17
(44,581)
(63,292)
(2,055)
(500)
(44,581)
(63,292)
(2,055)
(500)
(44,584)
(63,233)
(2,055)
(500)
(44,584)
(63,233)
(2,055)
(500)
(110,428)
(110,428)
(110,372)
(110,372)
1,441,247 1,441,247 1,372,944 1,372,944
15
16
16
47,390
18,106
46,498
47,390
18,106
46,498
47,328
16,237
46,498
47,328
16,237
46,498
16 1,274,185 1,274,479 1,208,931 1,209,070
53,811
16
55,068
54,774
53,950
1,441,247 1,441,247 1,372,944 1,372,944
Net asset value per ordinary share
18
760.31p
760.31p
725.23p
725.23p
The financial statements of (cid:58)itan Investment Trust plc (registered number 101625) were approved by the directors and
authorised for issue on 10 March 2015 and were signed on their behalf by
H M Henderson
A L C Bell
The notes on pages 66 to 87 form part of these (cid:428)nancial statements.
64
Witan Investment Trust plc Annual Report 2014
Consolidated and Individual
Company Cash Flow Statements
for the year ended 31 December 2014
Operating activities
Profit before taxation
Interest paid
Gains on investments held at fair value through profit or loss
Net (purchases)/sales of investments held at fair value
through profit or loss
Net gain from futures contracts
Scrip dividends included in investment income
(Increase)/decrease in other receivables
Increase in other payables
Net cash (out(cid:73)lo(cid:90))(cid:18)in(cid:73)lo(cid:90) (cid:73)rom operating activities be(cid:73)ore
interest and taxation
Interest paid
Tax on overseas income
Recovery of prior years’ French withholding tax
Group
2014
£’000
Company
2014
£’000
Group
2013
£’000
Company
2013
£’000
Notes
6
10
19
10
2
96,537
8,210
(79,073)
96,537
8,210
(79,228)
305,546
8,329
(289,871)
305,546
8,329
(289,984)
(38,165)
6,413
(1,200)
(302)
956
(6,624)
(8,149)
(1,962)
581
(38,165)
6,413
(1,200)
(440)
991
(6,882)
(8,149)
(1,962)
581
50,630
4,465
(1,256)
(6)
2,752
80,589
(8,285)
(1,624)
–
50,630
4,465
(1,256)
53
2,757
80,540
(8,285)
(1,624)
–
Net cash (out(cid:73)lo(cid:90))(cid:18)in(cid:73)lo(cid:90) (cid:73)rom operating activities
(16,154)
(16,412)
70,680
70,631
Financing activities
E(cid:84)uity dividends paid
Buybacks of ordinary shares
Issue proceeds of ordinary shares
Drawdown/(repayment) of loans
8
15
15
(28,947)
(363)
365
35,000
(28,947)
(363)
365
35,000
(32,389)
(4,617)
–
(11,000)
(32,389)
(4,617)
–
(11,000)
Net cash in(cid:73)lo(cid:90)(cid:18)(out(cid:73)lo(cid:90)) (cid:73)rom (cid:73)inancing activities
6,055
6,055
(48,006)
(48,006)
(Decrease)(cid:18)increase in cash and cash equivalents
Cash and cash e(cid:84)uivalents at the start of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end o(cid:73) the year
(10,099)
57,532
(879)
(10,357)
56,372
(879)
22,674
36,420
(1,562)
22,625
35,309
(1,562)
46,554
45,136
57,532
56,372
The notes on pages 66 to 87 form part of these (cid:428)nancial statements.
Annual Report 2014 Witan Investment Trust plc
65
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Notes to the Financial Statements
for the year ended 31 December 2014
1 Accounting policies
The financial statements of the Group have been prepared
in accordance with International Financial Reporting
Standards (‘IFRSs’) as adopted by the European Union and
therefore the Group financial statements comply with Article
4 of the EU IAS Regulation. These comprise standards and
interpretations approved by the International Accounting
Standards Board (‘IASB’), together with interpretations
of the International Accounting Standards and Standing
Interpretations Committee approved by the International
Accounting Standards Committee (‘IASC’) that remain in
effect, to the extent that they have been adopted by the
European Union.
These financial statements are presented in pounds sterling
because that is the currency of the primary economic
environment in which the Group operates.
(a) Basis o(cid:73) preparation
The financial statements have been prepared on the
historical cost basis, except for the revaluation of certain
financial instruments. The principal accounting policies
adopted are set out below. (cid:58)here presentational guidance
set out in the Statement of Recommended Practice Financial
Statements of Investment Trust Companies and Venture Capital
Trusts (‘the SORP’) issued by the Association of Investment
Companies (‘the AIC’) in January 2009 is consistent with the
re(cid:84)uirements of IFRSs as adopted by the European Union, the
directors have sought to prepare the financial statements on
a basis compliant with the recommendations of the SORP.
Sources o(cid:73) estimation uncertainty
In the application of the Group’s accounting policies,
management is re(cid:84)uired to make (cid:77)udgements, estimates and
assumptions about carrying values of assets and liabilities
that are not always readily apparent from other sources.
The estimates and associated assumptions are based on
historical experience and other factors that are considered
to(cid:123)be relevant. Actual results may vary from these estimates.
(b) Going concern
The Group’s business activities, together with the factors
likely to affect its future development and performance, are
set out in the Strategic Report on pages 7 to 23. The financial
position of the Group as at 31 December 2014 is shown in the
balance sheet on page 64. The cash flows of the Group for
the year ended 31 December 2014, which are not untypical,
are set out on page 65. The Company had fixed debt and
preference share capital totalling £110,428,000, as set out
in note 13 on page 76; none of the borrowings is repayable
before 2016. In 2014, the Group renewed a one-year secured
multi-currency borrowing facility for £70 million, of which
£45 million was drawn down at 31 December 2014 (2013(cid:29)
£10 million). Note 14 on pages 76 to 83 sets out the Group’s
risk management policies and procedures, including those
covering currency risk, interest rate risk and li(cid:84)uidity risk.
As(cid:123)at 31 December 2014 the Group’s total assets less
current(cid:123)liabilities exceeded its total non current liabilities by
a multiple of over ten. The assets of the Group consist mainly
of securities that are held in accordance with the Company’s
investment policy, as set out on the inside front cover.
Most(cid:123)of these securities are readily realisable even in volatile
markets. The directors, who have reviewed carefully the
Group’s budget and forecast for the coming year, consider
that the Group has ade(cid:84)uate financial resources to enable
it to continue in operational existence for the foreseeable
future. Accordingly, the directors believe that it is appropriate
to continue to adopt the going concern basis in preparing the
Group’s accounts.
(c) Basis o(cid:73) consolidation
The consolidated financial statements incorporate the
financial statements of the Company and the entity
controlled by the Company (its subsidiary) made up to
31(cid:123)December each year. Control is achieved where the
Company has the power to govern the financial and
operating policies of an investee entity so as to obtain
benefits from its activities. (cid:58)here necessary, ad(cid:77)ustments
are made to the financial statements of the subsidiary to
bring the accounting policies used by it into line with those
used by the Group. All intra-group transactions, balances,
income and expenses are eliminated on consolidation.
(d) (cid:51)resentation o(cid:73) the Statement o(cid:73) Comprehensive
Income
In order to better reflect the activities of an investment trust
company, and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement
of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Statement
of Comprehensive Income. In accordance with the Company’s
Articles of Association, net capital returns may not be
distributed by way of dividend. Additionally, the net revenue
is the measure the directors believe appropriate in assessing
the Group’s compliance with certain re(cid:84)uirements set out in
section 1158 of the Corporation Tax Act 2010.
(e) Income
Dividends receivable on e(cid:84)uity shares are recognised as
revenue for the year on an ex-dividend basis. (cid:58)here no ex-
dividend date is available, dividends receivable on or before
the year end are treated as revenue for the year. Provision
is made for any dividends not expected to be received. The
fixed returns on debt securities and non-e(cid:84)uity shares are
recognised on a time apportionment basis so as to reflect
the effective yield on the debt securities and shares. Interest
receivable from cash and short-term deposits is accrued to
66
Witan Investment Trust plc Annual Report 2014
the end of the period. Stock lending fees and underwriting
commission are recognised as earned. Any special dividends
are looked at individually to ascertain the reason behind the
payment. This will determine whether they are treated as
income or capital. (cid:58)here the Group has elected to receive
its dividends in the form of additional shares rather than
cash, the amount of cash dividend foregone is recognised as
income. Any excess in the value of shares received over the
amount of cash dividend foregone is recognised as a gain in
the Statement of Comprehensive Income.
((cid:73)) Expenses
All expenses and interest payable are accounted for on an
accruals basis. Expenses are presented as capital where a
connection with the maintenance or enhancement of the
value of the investments can be demonstrated. In this respect
the investment management fees and finance costs are
allocated 25% to revenue and 75% to capital to reflect the
Board’s expectations of long-term investment returns. Any
performance fees payable are allocated wholly to capital,
reflecting the fact that, although they are calculated on
a total return basis, they are expected to be attributable
largely, if not wholly, to capital performance.
(g) Taxation
The tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on the taxable profit for
the period. 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 Group’s liability for
current tax is calculated using tax rates that were applicable
at the balance sheet date.
In line with the recommendations of the SORP, the allocation
method used to calculate tax relief on expenses presented
against capital returns in the supplementary information in
the Statement of Comprehensive Income is the ‘marginal
basis’. Under this basis, if taxable income is capable of being
offset entirely by expenses presented in the revenue return
column of the Statement of Comprehensive Income then no
tax relief is transferred to the capital return column.
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method.
Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary
differences can be utilised. Investment trusts which have
approval as such under section 1158 of the Corporation Tax
Act 2010 are not liable for taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at
each balance sheet date and reduced to the extent that it
is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the
asset is realised. Deferred tax is charged or credited in the
Statement of Comprehensive Income, except when it relates
to items charged or credited directly to e(cid:84)uity, in which case
the deferred tax is also dealt with in e(cid:84)uity.
(h) Investments held at (cid:73)air value through pro(cid:73)it or loss
(cid:58)hen a purchase or sale is made under a contract, the terms
of which re(cid:84)uire delivery within the timeframe of the relevant
market, the investments concerned are recognised or
derecognised on the trade date.
All the Group’s investments are defined by IFRSs as
adopted by the European Union as investments held at
fair(cid:123)value through profit or loss. All gains and losses are
allocated to the capital return within the Statement of
Comprehensive Income as ‘Gains or losses on investments
held at fair value through profit or loss’. Also included within
this heading are transaction costs in relation to the purchase
or sale of investments.
All investments are designated upon initial recognition as
held at fair value through profit or loss, and are measured at
subse(cid:84)uent reporting dates at fair value, which is either
the bid price or the last traded price, depending on the
convention of the exchange on which the investment is
(cid:84)uoted. Investments in unit trusts or OEICs are valued at the
closing price, the bid price or the single price as appropriate,
released by the relevant investment manager.
The Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or
when it transfers the financial asset and substantially all the
risks and rewards of ownership of the asset to another entity.
On derecognition of a financial asset, the difference between
the asset’s carrying amount and the sum of the consideration
received and receivable and the cumulative gain or loss that
had been accumulated in e(cid:84)uity is recognised in profit or loss.
Fair values for un(cid:84)uoted investments, or for investments for
which there is only an inactive market, are established by
using various valuation techni(cid:84)ues. These may include
recent arm’s length market transactions, the current
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Annual Report 2014 Witan Investment Trust plc
67
Notes to the Financial Statements continued
for the year ended 31 December 2014
(j) Dividends payable
Interim dividends are recognised in the period in which they
are paid. Final dividends are not recognised until approved by
the shareholders in general meeting.
IFRS 10, IFRS 12 and
IAS 27 (amended)
IAS 36 (amended)
1 Accounting policies continued
fair value of another instrument that is substantially
the same, discounted cash flow analysis, option pricing
models and reference to similar (cid:84)uoted companies. (cid:58)here
there is a valuation techni(cid:84)ue commonly used by market
participants to price the instrument and that techni(cid:84)ue has
been demonstrated to provide reliable estimates of prices
obtained in actual market transactions, that techni(cid:84)ue is
utilised. (cid:58)here no reliable fair value can be estimated for
such instruments, they are carried at cost, sub(cid:77)ect to any
provision for impairment.
The subsidiary company, (cid:58)itan Investment Services (cid:47)imited,
is held at fair value in the Company balance sheet. This is
considered to be the net asset value of the shareholder’s
funds, as shown in its balance sheet.
(i) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash
e(cid:84)uivalents are short-term, highly li(cid:84)uid investments that are
readily convertible to known amounts of cash and that are
sub(cid:77)ect to an insignificant risk of changes in value.
(k) Non current liabilities
All debentures and secured bonds are initially recognised
at cost, being the fair value of the consideration received,
less issue costs where applicable. After initial recognition,
all interest-bearing loans and borrowings are subse(cid:84)uently
measured at amortised cost using the effective interest
method, with the interest expense recognised on an effective
yield basis. The effective interest method is a method of
calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts
estimated future payments over the expected life of the
financial liabilities, or, where appropriate, a shorter period,
to the net carrying amount on initial recognition.
(l) Foreign currency translation
Transactions involving foreign currencies are converted
at the rate ruling at the date of the transaction.
Foreign currency monetary assets and liabilities that are
fair valued and denominated in foreign currencies are
re-translated into sterling at the rate ruling on the
balance sheet date. Foreign exchange differences
arising on translation are recognised in the Statement of
Comprehensive Income and allocated to the capital return.
68
Witan Investment Trust plc Annual Report 2014
(m) Adoption o(cid:73) ne(cid:90) and revised accounting standards
(i) Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those
of the previous financial year.
(ii) Standards and interpretations a(cid:73)(cid:73)ecting the reported
results or (cid:73)inancial position
IFRS 13 Fair Value Measurement
The Group has applied IFRS 13 Fair Value Measurement. This
standard replaces the guidance on fair value measurement
in existing IFRS accounting literature with a single standard.
This standard defines fair value, sets out a framework for
measuring fair value and re(cid:84)uires disclosure about fair value
measurements.
(iii) Standards not a(cid:73)(cid:73)ecting the reported results nor the
(cid:73)inancial position
The following new and revised Standards and Interpretations
have been adopted in the current year. Their adoption has not
had any significant impact on the amounts reported in these
financial statements.
IAS 32 (amended)
IAS 39 (amended)
O(cid:426)setting Financial Assets and
Financial (cid:47)iabilities
Investment Entities
Recoverable Amount Disclosures
for(cid:123)Non-Financial Assets
Novation of Derivatives and
Continuation of Hedge Accounting
At the date of authorisation of these financial statements,
the following Standards and Interpretations which had not
been applied in these financial statements were in issue
but not yet effective (and in some cases had not yet been
adopted by the European Union)(cid:29)
IFRS 1 (amended)
IFRS 3 (amended)
IFRS 9
IFRS 13 (amended)
IAS 40 (amended)
IFRS 5 (amended)
IFRS 7 (amended)
IAS 19 (amended)
IAS 34 (amended)
First-time Adoption of International
Financial Reporting Standards
Business Combinations
Financial Instruments
Fair Value Measurements
Investment Property
Non-current Assets Held for Sale
and Discontinued Operations
Financial Instruments(cid:29) Disclosures
Employee Bene(cid:428)ts
Interim Financial Reporting
The directors do not expect that the adoption of the
Standards listed on page 68 will have a material impact on
the financial statements of the Group in future periods.
Beyond the information above, it is not practical to provide a
reasonable estimate of the effect of these Standards until a
detailed review has been completed.
(n) Derivative (cid:73)inancial instruments
The Group’s activities expose it primarily to the financial
risks of changes in market prices, foreign currency exchange
rates and interest rates. Derivative transactions which
the Company may enter into comprise forward exchange
contracts (the purpose of which is to manage currency risks
arising from the Company’s investing activities), (cid:84)uoted
options on shares held within the portfolio, or on indices
appropriate to sections of the portfolio (the purpose of which
is to provide protection against falls in the capital values of
the holdings) and futures contracts appropriate to sections
of the portfolio (to provide additional market exposure or to
provide protection against falls in the capital values of the
holdings). The Company may also write options on shares
represented in the portfolio where such options are priced
attractively relative to the investment managers’ longer-
term expectations for the relevant share prices. The Group
does not use derivative financial instruments for speculative
purposes. Hedge accounting is not used.
The use of financial derivatives is governed by the Group’s
policies as approved by the Board, which has set written
principles for the use of financial derivatives.
Changes in the fair value of derivative financial instruments
are recognised in the Statement of Comprehensive Income
as they arise. If capital in nature, the associated change
in value is presented as a capital item in the Statement of
Comprehensive Income.
2 Investment income
Franked(cid:29)
UK dividends from listed investments
UK special dividends from listed investments
UK dividends from un(cid:84)uoted investments
Unfranked(cid:29)
Overseas dividends from listed investments
Overseas special dividends from listed investments
Property income dividends
Scrip dividends from listed investments
Fixed interest and convertible bonds
Total investment income
Analysis of investment income by geographical segment(cid:29)
United Kingdom
North America
Continental Europe
Japan
Asia Pacific (ex Japan)
South America
Other
Total investment income
2014
£’000
2013
£’000
16,160
346
–
16,506
19,592
128
–
1,200
871
21,791
15,529
1,392
71
16,992
18,622
372
5
1,256
696
20,951
38,297
37,943
2014
£’000
2013
£’000
17,409
5,958
7,515
1,218
4,119
389
1,689
17,815
4,506
8,214
922
4,568
445
1,473
38,297
37,943
Annual Report 2014 Witan Investment Trust plc
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Notes to the Financial Statements continued
for the year ended 31 December 2014
3 Other income
Deposit interest
Stock lending income
Underwriting commission
Income from the subsidiary company’s third party business
2014
£’000
202
140
–
1,098
1,440
2013
£’000
103
147
13
1,186
1,449
At 31 December 2014 the total value of securities on loan by the Company for stock lending purposes was £48,122,000 (2013(cid:29)
£36,094,000). The maximum aggregate value of securities on loan at any time during the year ended 31 December 2014 was
£61,749,000 (2013(cid:29) £69,633,000). Collateral, revalued on a daily basis at a level e(cid:84)uivalent to at least 105% (110% for e(cid:84)uities)
of the market value of the securities lent, was provided against all loans. Collateral in respect of UK securities is usually in the
form of Crest DBVs (Delivery by Values); the content of Crest DBVs is sub(cid:77)ect to a concentration limit of 10%.
4 Management fees
Management fees
Performance fees
Year ended 31 December 2014
Year ended 31 December 2013
Revenue
£’000
1,541
–
1,541
Capital
£’000
4,625
2,998
7,623
Total
£’000
6,166
2,998
9,164
Revenue
£’000
1,146
–
1,146
Capital
£’000
3,438
5,487
8,925
Total
£’000
4,584
5,487
10,071
A summary of the terms of the management agreements is given on page 15 in the Strategic Report.
5 Other expenses
Auditor’s remuneration
The analysis of the auditor’s remuneration is as follows(cid:29)
Fees payable to the Company’s auditor and its associates for the audit of the Company’s annual
accounts
Fees payable to the Company’s auditor and its associates for other services to the Group(cid:29)
– the audit of the Company’s subsidiary
Total audit fees
Tax services (advice, preparation and submission within local (cid:77)urisdictions of withholding tax claims)(cid:13)
Other services
Total non-audit fees
Total fees paid
(cid:13)The fees for this work were specifically approved by the Audit Committee (see page 43).
2014
Revenue
£’000
2013
Revenue
£’000
49
5
54
32
2
34
88
48
5
53
15
2
17
70
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Witan Investment Trust plc Annual Report 2014
Auditor’s remuneration (see page 70)
Tax advisory services
Directors’ fees (see the Directors’ Remuneration Report on pages 44 to 54)
Employers’ national insurance contributions on the directors’ fees
Employee costs (including executive director’s remuneration)(cid:29)
– salaries and bonuses
– employers’ national insurance contributions
– pension contributions (or payments in lieu thereof)
Advisory, consultancy and legal fees
Investment accounting fees
Company secretarial fees
Insurances
Occupancy costs
Bank charges and overseas safe custody fees
Depositary fees
Marketing expenses(cid:13)
Savings scheme expenses ((cid:58)itan (cid:58)isdom and Jump Savings)
Other expenses
Irrecoverable VAT
2014
Revenue
£’000
88
11
245
25
860
122
61
138
261
125
54
133
363
59
829
589
691
144
2013
Revenue
£’000
70
9
235
30
1,089
150
58
208
259
120
58
115
358
–
950
564
745
198
4,798†
5,216†
(cid:13) Includes £50,000 sponsorship paid to the Royal Horticultural Society (2013(cid:29) £50,000).
† The total includes costs of £1,259,000 (2013(cid:29) £1,276,000) in respect of the subsidiary company’s third party business which are offset by the subsidiary company’s
income from that business. The analysis relates to the revenue return column only.
Expenses included in the capital return column for 2014 were £101,000 (2013(cid:29) £101,000). These related to investment advisory
costs.
The average number of employees during the year was 6 (2013(cid:29) 6).
6 Finance costs
Interest payable on overdrafts and loans repayable
within one year
Interest payable on secured bonds repayable
between 1 and 5 years
Interest payable on secured bonds repayable in(cid:123)more
than 5 years
Preference share dividends
Year ended 31 December 2014
Year ended 31 December 2013
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
86
258
344
115
348
463
947
2,840
3,787
947
2,840
3,787
999
83
2,115
2,997
–
6,095
3,996
83
8,210
999
83
2,144
2,997
–
6,185
3,996
83
8,329
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Notes to the Financial Statements continued
for the year ended 31 December 2014
7 Taxation
(a) Analysis o(cid:73) the charge (cid:73)or the year
UK corporation tax at 21.5% (2013(cid:29) 23.25%)
Foreign tax suffered
Recovery of prior years’ French withholding tax
Foreign tax recoverable
Total current tax for the year (see note 7(b))
Year ended 31 December 2014
Year ended 31 December 2013
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
–
2,040
(581)
(241)
1,218
–
–
–
–
–
–
2,040
(581)
(241)
1,218
–
–
1,883
–
(260)
1,623
–
–
–
–
–
–
–
–
1,883
–
(260)
1,623
(b) Factors a(cid:73)(cid:73)ecting the current tax charge (cid:73)or the year
The tax assessed for the year is lower than that resulting from applying the effective standard rate of corporation tax in the
UK for a large company of 21.5% (2013(cid:29) 23.25%). The difference is explained below.
Net profit on ordinary activities before taxation
Corporation tax at 21.5% (2013(cid:29) 23.25%)
Effects of(cid:29)
Non-taxable UK dividends
Non-taxable overseas dividends
(cid:58)ithholding tax written off
Recovery of prior years’ French withholding tax
Non-taxable gains on investments held at fair value
through profit or loss
Excess management expenses not utilised in year
Unused loan relationship deficits for the year
Preference dividends not deductible in determining
taxable profit
Capitalised expenses
Disallowable expenses
Current tax charge
Year ended 31 December 2014
Year ended 31 December 2013
Revenue
£’000
31,283
6,726
Capital
£’000
65,254
14,030
Total
£’000
96,537
20,756
Revenue
£’000
30,886
7,181
Capital
£’000
274,660
63,858
Total
£’000
305,546
71,039
(3,549)
(4,388)
1,799
(581)
–
2,665
1,499
18
(2,971)
–
1,218
–
–
–
–
(3,549)
(4,388)
1,799
(581)
(17,001)
–
–
(17,001)
2,665
1,499
–
2,971
–
18
–
–
–
1,218
(3,951)
(4,608)
1,623
–
–
3,183
1,706
19
(3,537)
7
1,623
–
–
–
–
(3,951)
(4,608)
1,623
–
(67,395)
–
–
(67,395)
3,183
1,706
–
3,537
–
19
–
7
–
1,623
(c) De(cid:73)erred tax
Due to the Company’s status as an investment trust, and the intention to continue meeting the conditions re(cid:84)uired to obtain
approval 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.
No provision has been made for deferred tax on income outstanding at the end of the year as this will be covered by
unrelieved business charges and eligible unrelieved foreign tax (2013(cid:29) £nil).
(d) Factors that may a(cid:73)(cid:73)ect (cid:73)uture tax charges
The Company has not recognised a deferred tax asset of £32,242,000 (2013(cid:29) £28,338,000) arising as a result of having
unrelieved loan relationship deficits and eligible unrelieved foreign tax.
It is unlikely that the Company will obtain relief for these in the future so no deferred tax asset has been recognised.
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Witan Investment Trust plc Annual Report 2014
8 Dividends
Amounts recognised as distributions to equity holders in the year:
Second interim dividend for the year ended 31 December 2012 of 7.2p
per ordinary share
Fourth interim dividend for the year ended 31 December 2013 of 4.5p per ordinary share
First interim dividend for the year ended 31 December 2014 of 3.6p (2013(cid:29) 3.3p)
per ordinary share(cid:13)
Second interim dividend for the year ended 31 December 2014 of 3.6p (2013(cid:29) 3.3p)
per ordinary share
Third interim dividend for the year ended 31 December 2014 of 3.6p (2013(cid:29) 3.3p) per ordinary share
2014
£’000
2013
£’000
–
13,665
8,519
–
6,798
6,229
6,815
6,815
6,248
6,247
28,947
32,389
*Includes a write-back of £17,000 (2013(cid:29) £22,000) of dividends unclaimed for 12 years or more.
Fourth interim dividend for the year ended 31 December 2014 of 4.6p (2013(cid:29) 4.5p) per ordinary share
8,727
8,519
Total in respect o(cid:73) the year:
Set out below is the total dividend to be paid in respect of the year. This is the basis on which the re(cid:84)uirements of section 1158
of the Corporation Tax Act 2010 are considered.
Revenue profits available for distribution
First interim dividend for the year ended 31 December 2014 of 3.6p (2013(cid:29) 3.3p) per ordinary share
Second interim dividend for the year ended 31 December 2014 of 3.6p (2013(cid:29) 3.3p) per ordinary share
Third interim dividend for the year ended 31 December 2014 of 3.6p (2013(cid:29) 3.3p) per ordinary share
Fourth interim dividend for the year ended 31 December 2014 of 4.6p (2013(cid:29) 4.5p) per ordinary share
Revenue retained for the year
2014
£’000
30,065
(6,798)
(6,815)
(6,815)
(8,727)
2013
£’000
29,263
(6,229)
(6,248)
(6,247)
(8,519)
910
2,020
9 Earnings per ordinary share
The earnings per ordinary share figure is based on the net profit for the year of £95,319,000 (2013(cid:29) £303,923,000) and
on(cid:123)189,302,044 ordinary shares (2013(cid:29) 189,472,414), being the weighted average number of ordinary shares in issue during
the year.
The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The
Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings
per ordinary share are the same.
Net revenue profit
Net capital profit
Net total profit
2014
£’000
30,065
65,254
95,319
2013
£’000
29,263
274,660
303,923
(cid:58)eighted average number of ordinary shares in issue during the year
189,302,044 189,472,414
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Notes to the Financial Statements continued
for the year ended 31 December 2014
9 Earnings per ordinary share continued
Revenue earnings per ordinary share
Capital earnings per ordinary share
Total earnings per ordinary share
10 Investments held at fair value through profit or loss
(i) Group changes in investments held at (cid:73)air value through pro(cid:73)it or loss
2014
Pence
15.88
34.47
50.35
2013
Pence
15.44
144.96
160.40
(cid:47)isted in the United Kingdom
(cid:47)isted abroad
Investment in subsidiary undertaking
(ii) Group changes in investments held at (cid:73)air value through pro(cid:73)it or loss
2014
2013
Group
£’000
667,393
884,885
–
Company
£’000
667,393
884,885
1,194
Group
£’000
630,736
806,226
–
Company
£’000
630,736
806,226
1,039
1,552,278 1,553,472 1,436,962 1,438,001
United Kingdom
North America
Continental Europe
Japan
Asia Pacific (ex Japan)
(cid:47)atin America
Other
Valuation
31 December
2013
£’000
630,736
350,933
211,823
67,817
139,164
16,419
20,070
Purchases
£’000
164,522
90,048
76,016
20,423
38,410
1,205
1,323
Investment
gains/(losses)
£’000
8,827
93,292
(28,006)
(1,137)
8,282
(2,708)
(2,687)
Valuation
31 December
2014
£’000
665,728
394,169
228,407
73,232
161,429
13,704
15,609
Cost
31 December
2014
£’000
533,831
289,789
196,471
72,485
164,373
17,081
16,253
Sales
£’000
138,357
140,104
31,426
13,871
24,427
1,212
3,097
1,436,962
391,947
352,494
75,863 1,552,278 1,290,283
The above figures do not include the gains on futures positions.
Included in the above figures are purchase costs of £607,000 (2013(cid:29) £1,792,000) and sales costs of £304,000
(2013(cid:29) £984,000). These comprise mainly stamp duty and commission and include £nil in respect of changes in portfolio
managers (2013(cid:29) £882,000).
(iii) Gains(cid:18)(losses) on investments held at (cid:73)air value though pro(cid:73)it or loss
Realised gains on sales of investments
Realised gain on futures
Movement in investment holding gains
Movement in unrealised gain on futures
Net movement on foreign exchange on cash and cash e(cid:84)uivalents
2014
£’000
63,230
6,413
12,633
(2,324)
(879)
2013
£’000
160,414
4,465
124,776
1,778
(1,562)
79,073
289,871
74
Witan Investment Trust plc Annual Report 2014
(iv) Derivatives
Open (cid:73)uture contracts as at year ended 31 December 2014
Contract
Nikkei Index Future
During the period realised gains on closing of futures positions was £6,413,000.
Open future contracts as at year ended 31 December 2013
Contract
Nikkei Index Future
Position
long
£’000
750
Settlement
value
£’000
35,344
Nominal
exposure
£’000
34,722
Unrealised
loss
£’000
(622)
Position
short
£’000
750
Settlement
value
£’000
33,497
Nominal
exposure
£’000
35,199
Unrealised
profit
£’000
1,702
During the period realised gains on closing of futures positions was £4,465,000.
(v) Substantial share interests
The Company has notified interests in 3% or more of the voting rights of three of the investee companies, all of which are
closed-ended investment funds. However, the Board does not consider any of the Company’s investments to be individually
material in the context of these financial statements.
It is the Company’s stated policy to invest no more than 15% of its gross assets in other listed investment companies
(including listed investment trusts).
11 Other receivables
Sales for future settlement
Unrealised gain on derivatives designated as held at fair value through profit
or loss(cid:13)
Taxation recoverable
Intercompany account
Prepayments and accrued income
Share issue proceeds receivable
Other debtors
2014
2013
Group
£’000
676
–
1,082
–
2,476
1,929
768
6,931
Company
£’000
676
–
1,082
715
2,476
1,929
44
6,922
Group
£’000
1,132
1,702
919
–
2,343
–
599
6,695
Company
£’000
1,132
1,702
919
396
2,343
–
56
6,548
(cid:13)The unrealised gain on derivatives related to a long position in Nikkei 225 Futures, nominal value at 31 December 2013(cid:29) £35,199,000.
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Notes to the Financial Statements continued
for the year ended 31 December 2014
12 Other payables
Purchases for future settlement
Unrealised loss on derivatives designated as held at fair value through profit
or loss(cid:13)
Preference dividends
Accruals
2014
2013
Group
£’000
528
622
38
7,900
9,088
Company
£’000
528
622
38
7,667
8,855
Group
£’000
896
–
38
6,939
7,873
Company
£’000
896
–
38
6,671
7,605
(cid:13)The unrealised loss on derivatives relates to a long position in Nikkei 225 Futures, nominal value at 31 December 2014(cid:29) £34,722,000.
13 Non current liabilities
Financial instruments redeemable other than in instalments are as follows(cid:29)
8½ per cent. Debenture Stock 2016
6.125 per cent. Secured Bonds due 2025
2,055,000 3.4 per cent. cumulative preference shares of £1 each (see note 17
on page 85)
500,000 2.7 per cent. cumulative preference shares of £1 each (see note 17
on page 85)
2014
Group
£’000
Company
£’000
2013
Group
£’000
Company
£’000
44,581
63,292
44,581
63,292
44,584
63,233
44,584
63,233
2,055
2,055
2,055
2,055
500
500
500
500
110,428
110,428
110,372
110,372
On 15 December 2000 the Company issued £100,000,000 (nominal) 6.125 per cent. Secured Bonds due 2025, net of
discount and issue costs totalling approximately £2,000,000. The discount and the issue costs will be written back over the
life of the Secured Bonds. The nominal value of the remaining Secured Bonds in issue (£64,290,000 at 31 December 2014)
is redeemable on 15 December 2025. The nominal value of the Debenture Stock (£44,589,050) is redeemable on 1 October
2016. The Debenture Stock and the Secured Bonds are secured by floating charges over all the undertaking and assets of the
Company. The security of the charges applies pari passu to both issues.
14 Financial instruments
Risk management policies and procedures
As an investment company, (cid:58)itan invests in e(cid:84)uities and other investments for the long term so as to secure its investment
ob(cid:77)ective as stated on the inside front cover. In pursuing its investment ob(cid:77)ective, the Group is exposed to a variety of risks
that could result in either a reduction in the Group’s net assets or a reduction in the profits available for distribution by way
of dividends.
These risks, market risk (comprising price risk, currency risk and interest rate risk), li(cid:84)uidity risk and credit risk, and the
directors’ approach to the management of them, are set out below.
The ob(cid:77)ectives, policies and processes for managing the risks and the methods used to manage the risks, as set out below,
have not changed from the previous accounting period, although in some instances additional resources have been allocated
to some areas.
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Witan Investment Trust plc Annual Report 2014
14.1 Market risk
The fair value or future cash flows of a financial instrument held by the Group may fluctuate due to changes in market prices.
This market risk comprises(cid:29) price risk (see note 14.2), currency risk (see note 14.3) and interest rate risk (see note 14.4). The
Board reviews and agrees policies for managing these risks, which policies have remained substantially unchanged from
those applying in the year ended 31 December 2013. The investment managers assess the exposure to market risk when
making each investment decision and monitor the overall level of market risk on the whole of their investment portfolios on
an ongoing basis.
14.2 Price risk
Price risks (ie changes in market prices other than those arising from interest rate risk or currency risk) may affect the value
of the (cid:84)uoted and the un(cid:84)uoted investments.
Management of the risk
The Board manages the risks inherent in the investment portfolios by regularly reviewing relevant information from the
investment managers. The Board meets regularly and at each meeting reviews investment performance. The Board monitors
the managers’ compliance with their mandates and also whether each mandate and asset allocation is compatible with
(cid:58)itan’s ob(cid:77)ective.
(cid:58)hen appropriate, (cid:58)itan has the ability to manage its exposure to risk through the controlled use of derivatives.
The Group’s exposure to other changes in market prices at 31 December on its (cid:84)uoted e(cid:84)uity investments, and on index
futures and investments, was as follows(cid:29)
Investments held at fair value through profit or loss
Nominal futures exposure (long position)
2014
£’000
2013
£’000
1,552,278 1,436,962
35,199
34,722
Concentration of exposure to price risks
An analysis of the Group’s investment portfolio is shown on page 25. This shows that the greater geographical weighting
is to UK companies, with significant exposure also to North America, Asia and Continental Europe. Accordingly, there is a
concentration of exposure to those regions, although an investment’s country of domicile or of listing does not necessarily
e(cid:84)uate to its exposure to the economic conditions in that country.
Price risk sensitivity
The following table illustrates the sensitivity of the profit after taxation for the year and the value of the shareholders’
funds to an increase or decrease of 15% in the fair values of the Group’s e(cid:84)uity investments (including exposure through
futures contracts). This level of change is considered to be reasonably possible based on observation of market conditions
and historical trends. The sensitivity analysis is based on the Group’s e(cid:84)uities and e(cid:84)uity exposure through options at each
balance sheet date, with all other variables held constant. The results of these example calculations are significant but not
unreasonable, given that most of the Group’s assets are e(cid:84)uity investments.
2014
2013
Increase
in (cid:73)air value
£’000
Decrease
in (cid:73)air value
£’000
Increase
in fair value
£’000
Decrease
in fair value
£’000
Income statement – profit after tax
Revenue return
Capital return – investments
Capital return – futures
–
–
232,842 (232,842)
(5,208)
238,050 (238,050)
5,208
–
215,544
5,280
220,824
–
(215,544)
(5,280)
(220,824)
Annual Report 2014 Witan Investment Trust plc
77
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Notes to the Financial Statements continued
for the year ended 31 December 2014
14 Financial instruments continued
14.3 Currency risk
A proportion of the Group’s assets, liabilities and income is denominated in currencies other than sterling (the Group’s
functional currency, and the currency in which it reports its results). As a conse(cid:84)uence, movements in exchange rates affect
the sterling value of those items.
Management of the risk
The investment managers monitor their exposure to currencies as part of their normal investment processes. The Board
receives a monthly report on the currency exposures of the entire fund.
Income denominated in foreign currencies is converted into sterling upon receipt. The Group does not normally use financial
instruments to mitigate the currency exposure in the period between the time that income is included in the financial
statements and its receipt.
Foreign currency exposure
The fair values of the Group’s monetary items that have foreign currency exposure at 31 December are shown below.
(cid:58)here the Group’s e(cid:84)uity investments (which are not monetary items) are denominated in a foreign currency, they have been
included separately in the analysis so as to show the overall level of exposure.
2014
Receivables (due from brokers, dividends and other income receivable)
Cash at bank and on deposit
Payables (due to brokers, accruals and other creditors)
Payables (unrealised loss on derivatives designated as held
at fair value(cid:123)through profit or loss)
Total foreign currency exposure on net monetary items
Investments at fair value through profit or loss that are e(cid:84)uities
Total net foreign currency exposure
2013
Receivables (due from brokers, dividends and other income receivable)
Receivables (unrealised gain on derivatives designated as held at fair
value(cid:123)through profit or loss)
Cash at bank and on deposit
Payables (due to brokers, accruals and other creditors)
Total foreign currency exposure on net monetary items
Investments at fair value through profit or loss that are e(cid:84)uities
Total net foreign currency exposure
US$
£’000
1,103
2,312
(199)
Euro
£’000
247
1,333
–
Yen
£’000
180
3,522
–
Other
£’000
888
39
(43)
–
3,216
397,012
–
1,580
153,429
(622)
3,080
50,448
–
884
299,934
400,228
155,009
53,528
300,818
US$
£’000
1,525
–
Euro
£’000
235
Yen
£’000
65
–
1,702
Other
£’000
713
–
857
(591)
1,791
353,727
1,504
–
1,739
141,957
8,202
–
9,969
64,929
49
(144)
618
259,361
355,518
143,696
74,898
259,979
The above amounts are not representative of the exposure to risk during the year as levels of monetary foreign currency
exposure change significantly throughout the year.
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit after tax for the year and the Group’s e(cid:84)uity in regard to the Group’s
monetary financial assets and financial liabilities and the exchange rates for the £/US dollar, £/Euro and £/Japanese yen. The
results of these example calculations are significant but not unreasonable in the context of the ma(cid:77)ority of the Group’s assets
being invested overseas.
It assumes the following changes in exchange rates(cid:29)
£/US dollar (cid:14)/- 15% (2013(cid:29) 15%)
£/Euro (cid:14)/- 15% (2013(cid:29) 15%)
£/Japanese yen (cid:14)/- 15% (2013(cid:29) 15%)
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Witan Investment Trust plc Annual Report 2014
The sensitivity analysis is based on the Group’s monetary foreign currency financial instruments held at the balance sheet
date and takes account of any forward foreign exchange contracts that offset the effects of changes in currency exchange
rates.
If sterling had depreciated against the currencies shown, this would have had the following effect(cid:29)
Income statement – profit after tax
Revenue return
Capital return
Change to the profit after tax
US$
£’000
1,412
70,061
71,473
2014
Euro
£’000
767
25,678
26,445
Change to the shareholders’ funds
71,473
26,445
Yen
£’000
US$
£’000
1,248
62,422
63,670
182
8,903
9,085
9,085
2013
Euro
£’000
798
25,051
25,849
Yen
£’000
140
11,458
11,598
63,670
25,849
11,598
If sterling had appreciated against the currencies shown, this would have had the following effect(cid:29)
Income statement – profit after tax
Revenue return
Capital return
US$
£’000
2014
Euro
£’000
Yen
£’000
US$
£’000
2013
Euro
£’000
(1,044)
(51,784)
(567)
(18,979)
(135)
(6,580)
(923)
(46,138)
(590)
(18,516)
Change to the profit after tax
(52,828)
(19,546)
(6,715)
(47,061)
(19,106)
Yen
£’000
(103)
(8,469)
(8,572)
Change to the shareholders’ funds
(52,828)
(19,546)
(6,715)
(47,061)
(19,106)
(8,572)
In the opinion of the directors, neither of the above sensitivity analyses is representative of the year as a whole since the level
of exposure changes fre(cid:84)uently, as part of the currency risk management process used to meet the Group’s ob(cid:77)ective.
14.4 Interest rate risk
Interest rate movements may affect the level of income receivable from fixed interest securities and cash at bank and on
deposit.
Management of the risk
The possible effects on 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 Group holds cash balances, partly to meet payments as they fall due but also when appropriate to offset the long-term
borrowings that it has in place.
The Group finances part of its activities through preference shares that do not have redemption dates and through debenture
stock and secured bonds that were issued as part of the Company’s planned gearing.
Interest rate exposure
The exposure at 31 December 2014 of financial assets and financial liabilities to interest rate risk is shown by reference to(cid:29)
>
>
floating interest rates(cid:29) when the interest rate is due to be re-set; and
fixed interest rates(cid:29) when the financial instrument is due be repaid.
The Group’s exposure to floating interest rates on assets is £1,554,000 (2013(cid:29) £47,532,000). This represents cash holdings
minus variable rate borrowing.
Annual Report 2014 Witan Investment Trust plc
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Notes to the Financial Statements continued
for the year ended 31 December 2014
14 Financial instruments continued
The Group’s exposure to fixed interest rates on assets is £34,137,000 (2013(cid:29) £15,543,000). This represents investments in bonds.
The Group’s exposure to fixed interest rates on liabilities is £110,428,000 (2013(cid:29) £110,372,000). This represents fixed rate
borrowing.
Interest receivable and finance costs are at the following rates(cid:29)
>
interest received on cash balances, or paid on bank overdrafts and loans, is at margin under/over (cid:47)IBOR or its foreign
currency e(cid:84)uivalent (2013(cid:29) same);
>
>
>
the finance charge on the preference shares is at a weighted average interest rate of 3.3% (2013(cid:29) 3.3%);
the finance charge on the debenture stock is at a weighted average interest rate of 8.5% (2013(cid:29) 8.5%); and
the finance charge on the secured bonds is at a weighted average interest rate of 6.125% (2013(cid:29) 6.125%).
The above year-end amounts are not representative of the exposure to interest rates during the year, as the level of exposure
changes as investments are made in fixed interest securities, long-term debt is partially redeemed and as the level of
cash balances varies during the year. In the context of the Group’s balance sheet, the exposure to interest rate risk is not
considered to be material.
Interest rate sensitivity
Based on the Group’s monetary financial instruments at each balance sheet date, an increase or decrease of 200 basis points
in interest rates would decrease or increase revenue return after tax by £706,000 (2013(cid:29) £1,101,000), capital return after tax
by £675,000 (2013(cid:29) £150,000), and total profit after tax and shareholders’ funds by £31,000 (2013(cid:29) £951,000).
This level of change is considered to be reasonably possible based on observation of current market conditions. This is not
representative of the year as a whole, since the exposure changes as investments are made. In the context of the Group’s
balance sheet, the outcome is not considered to be material.
14.5 Liquidity risk
This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities.
Management of the risk
(cid:47)i(cid:84)uidity risk is not significant as the ma(cid:77)ority of the Group’s assets are investments in (cid:84)uoted e(cid:84)uities and other (cid:84)uoted
securities that are readily realisable. The Group has borrowed £44,587,000 by its issue in 1986 of 8½ per cent Debenture
Stock 2016 and £63,174,000 by its issue in 2000 of 6.125 per cent Secured Bonds due 2025. The Group is able to draw
short-term borrowings of up to the sterling e(cid:84)uivalent of £70m from its secured and committed multi-currency borrowing
facility of £70m with BNP Paribas, (cid:47)ondon Branch (expiring in December 2015). £45,000,000 was drawn down under the
facility at 31 December 2014 (2013(cid:29) £10,000,000).
The Board gives guidance to the investment managers as to the maximum amount of the Company’s resources that should
be invested in any one company. The policy is that the Group should remain fully invested in normal market conditions.
Liquidity risk exposure
The remaining contractual maturities of the financial liabilities at 31 December 2014, based on the earliest date on which
payment can be re(cid:84)uired, were as follows(cid:29)
80
Witan Investment Trust plc Annual Report 2014
Debenture stock(cid:13)
Secured bonds(cid:13)
Preference shares†
Other creditors and accruals
Bank loan and interest payable
Within
1 year
£’000
3,790
3,938
83
9,078
45,043
61,932
2014
Bet(cid:90)een
1 and 5 years
£’000
47,432
15,751
332
–
–
More than
5 years
£’000
–
87,744
2,555
–
–
(cid:58)ithin
1 year
£’000
3,790
3,938
83
7,868
10,010
2013
Between
1 and 5 years
£’000
51,222
15,751
332
–
–
More than
5 years
£’000
–
91,681
2,555
–
–
63,515
90,299
25,689
67,305
94,236
(cid:13) The above figures show interest payable over the remaining terms of each instrument. The figures in the ‘Between 1 and 5 years’ and ‘More than 5 years’ columns also
include the capital to be repaid.
† The figures in the ‘More than 5 years’ columns do not include the ongoing annual finance cost of £83,000.
14.6 Credit risk
The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Group
suffering a loss.
Management of the risk
The risk is managed as follows(cid:29)
>
interest received on cash balances, or paid on bank overdrafts and loans, is at margin under/over (cid:47)IBOR or its foreign
currency e(cid:84)uivalent;
>
>
>
transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into
account so as to minimise the risk to the Group of default;
investment transactions are carried out with a large number of brokers, whose credit standard is reviewed periodically
by the investment managers, and limits are set on the amount that may be due from any one broker;
cash at bank is held only with reputable banks with high (cid:84)uality external credit ratings.
None of the Group’s financial liabilities is past its due date or impaired.
Credit risk exposure
The table below summarises the credit risk exposure of the Group as at the year end.
Fixed interest securities
Cash
Receivables(cid:29)
Sales for future settlement
Unrealised gain on derivatives designated as held at fair value through profit or loss
Taxation recoverable
Accrued income
Other debtors
2014
£’000
34,137
46,554
676
–
1,082
2,476
2,697
2013
£’000
15,543
57,532
1,132
1,702
919
2,343
599
87,622
79,770
14.7 Fair values o(cid:73) (cid:73)inancial assets and (cid:73)inancial liabilities
Except for those financial liabilities measured at amortised cost that are shown on page 82, the financial assets and financial
liabilities are either carried in the balance sheet at their fair value (investments and derivatives) or the balance sheet amount
is a reasonable approximation of fair value (amounts due from brokers, dividends and interest receivable, amounts due to
brokers, accruals, cash at bank and bank overdrafts).
Annual Report 2014 Witan Investment Trust plc
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Notes to the Financial Statements continued
for the year ended 31 December 2014
14 Financial instruments continued
Financial liabilities measured at amortised cost(cid:29)
Non current liabilities
Preference shares
Debenture stock
Secured bonds
2014
Fair
value
£’000
Balance
sheet
amount
£’000
2013
Fair
value
£’000
Balance
sheet
amount
£’000
1,384
49,471
80,659
2,555
44,581
63,292
1,379
51,359
71,992
2,555
44,584
63,233
131,514
110,428
124,730
110,372
The fair values shown above are derived from the offer price at which the securities are (cid:84)uoted on the (cid:47)ondon Stock Exchange.
Fair value hierarchy disclosures
The table below sets out fair value measurements using the IFRS 7 fair value hierarchy.
Financial assets at (cid:73)air value through pro(cid:73)it or loss
At 31 December 2014
E(cid:84)uity investments
Investments in other funds
Derivatives (nominal exposure of £34,722,000)
Total
At 31 December 2013
E(cid:84)uity investments
Investments in other funds
Derivatives (nominal value of £35,199,000)
Total
Level 1
£’000
1,444,457
–
(622)
Level 2
£’000
–
107,821
–
Level 3
£’000
Total
£’000
– 1,444,457
107,821
–
(622)
–
1,443,835
107,821
– 1,551,656
(cid:47)evel 1
£’000
1,320,871
–
1,702
(cid:47)evel 2
£’000
–
116,091
–
(cid:47)evel 3
£’000
Total
£’000
– 1,320,871
116,091
–
1,702
–
1,322,573
116,091
– 1,438,664
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(cid:29)
(cid:47)evel 1 – valued using (cid:84)uoted prices in an active market for identical assets.
(cid:47)evel 2 – valued by reference to valuation techni(cid:84)ues using observable inputs other than (cid:84)uoted prices within (cid:47)evel 1.
(cid:47)evel 3 – valued by reference to valuation techni(cid:84)ues using inputs that are not based on observable market data.
The valuation techni(cid:84)ues used by the Group are explained in the accounting policies in note 1(h). There were no transfers
during the year between (cid:47)evel 1 and (cid:47)evel 2.
Level 2 Financial assets
(cid:47)evel 2 Financial assets refer to investments in Trilogy Emerging Markets Fund, Polar Capital Insurance Fund, Polar Japan
Funds and iShares MSCI fund (2013(cid:29) Trilogy Emerging Markets Fund, Polar Capital Insurance Fund, Polar Japan Funds and
iShares(cid:13) MSCI Fund).
82
Witan Investment Trust plc Annual Report 2014
Level 3 Reconciliation o(cid:73) Level 3 (cid:73)air value measurement o(cid:73) (cid:73)inancial assets
There were no (cid:47)evel 3 investments at 31 December 2014 or 31 December 2013.
Capital management
The Group’s capital management ob(cid:77)ectives are(cid:29)
>
>
to ensure that it will be able to continue as a going concern; and
to maximise the income and capital return to its e(cid:84)uity shareholders through an appropriate balance of e(cid:84)uity capital
and debt.
The Group’s total capital employed at 31 December 2014 was £1,596,675,000 (2013(cid:29) £1,493,316,000) comprising £155,428,000
of debt (2013(cid:29) £120,372,000) and £1,441,247,000 of e(cid:84)uity share capital and other reserves (2013(cid:29) £1,372,944,000).
Gearing
The Group’s policy is to manage the effective gearing in the portfolio to be below 20%, other than temporarily in exceptional
circumstances. Effective gearing is defined as the difference between shareholders’ funds and the total market value of the
investments (including the nominal value (effective underlying exposure) of futures positions which were £34,722,000 long
at 31 December 2014 (2013(cid:29) £35,199,000 long)) expressed as a percentage of shareholders’ funds. At 31 December 2014
effective gearing was 10.1% (2013(cid:29) 7.3%) and the calculation is set out below(cid:29)
Value of investments per the Balance Sheet
Add(cid:29)
Nominal exposure of Nikkei 225 Futures
Ad(cid:77)usted gross value of investments (including futures nominal exposure)
Shareholders’ funds per the Balance Sheet (A)
Excess of gross value of investments over shareholder funds (B)
Effective gearing (B as a percentage of A)
2014
£’000
2013
£’000
1,552,278 1,438,001
34,722
35,199
1,587,000 1,473,200
1,441,247 1,372,944
100,256
7.3%
145,753
10.1%
The Board monitors and reviews the broad structure of the Group’s capital on an ongoing basis. This review includes(cid:29)
>
>
the planned level of gearing, which takes into account the Chief Executive Officer’s view on the market;
the opportunity to buy back e(cid:84)uity shares, which takes account of the difference between the net asset value per share
and the share price (ie the level of share price discount or premium); and
>
the extent to which revenue in excess of that which is re(cid:84)uired to be distributed should be retained.
The Group’s ob(cid:77)ectives, policies and processes for managing capital are unchanged from the preceding accounting period.
The Company is sub(cid:77)ect to several externally imposed capital re(cid:84)uirements(cid:29)
>
the terms of issue of the Company’s debenture stock and secured bonds re(cid:84)uire the aggregate amount outstanding in
respect of borrowings, measured in accordance with the policies used to prepare the annual financial statements, not
to exceed a sum e(cid:84)ual to the Company’s capital and reserves at any time;
>
>
as a public company, the Company has a minimum issued share capital of £50,000; and
in order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be
able to meet one of the two capital restriction tests imposed on investment companies by company law.
These re(cid:84)uirements are unchanged since the previous year end and the Company has complied with them.
Annual Report 2014 Witan Investment Trust plc
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Notes to the Financial Statements continued
for the year ended 31 December 2014
15 Called up share capital
Called up and issued(cid:29)
189,561,000 ordinary shares of 25p each (2013(cid:29) 189,311,000)
Group and
Company
2014
£’000
Group and
Company
2013
£’000
47,390
47,328
During the year, 51,000 ordinary shares were bought back and held in treasury at a cost of £363,000. These shares were
subse(cid:84)uently issued for £365,000. In addition to this 250,000 shares were issued for £1,929,000 (2013(cid:29) 768,500 ordinary
shares bought back for cancellation at a cost of £4,437,000).
16 Share premium account and reserves
Capital
reserve
arising on
revaluation
o(cid:73)
investments
held
£’000
Capital
reserve
arising on
investments
sold
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Revenue
reserve
£’000
53,950
–
–
–
–
–
–
30,065
(28,947)
46,498
–
–
–
–
–
–
–
–
957,867
69,643
(879)
(13,819)
(363)
363
–
–
–
251,064
10,309
–
–
–
–
–
–
–
46,498 1,012,812
261,373
55,068
46,498
–
–
–
–
–
–
–
–
957,867
69,643
(879)
(13,819)
(363)
363
–
–
–
251,203
10,464
–
–
–
–
–
–
–
53,811
–
–
–
–
–
–
29,910
(28,947)
46,498 1,012,812
261,667
54,774
Group
At 1 January 2014
Net movement on investments
Net movement on foreign exchange
Expenses and interest payable charged to capital net of tax relief
Buybacks of shares to be held in treasury
Issue of ordinary shares from treasury
Issue of ordinary shares to market
Profit for the year
Ordinary dividends paid
At 31 December 2014
Company
At 1 January 2014
Net movement on investments
Net movement on foreign exchange
Expenses and interest payable charged to capital net of tax relief
Buybacks of shares to be held in treasury
Issue of ordinary shares from treasury
Issue of ordinary shares to market
Profit for the year
Ordinary dividends paid
At 31 December 2014
16,237
–
–
–
–
2
1,867
–
–
18,106
16,237
–
–
–
–
2
1,867
–
–
18,106
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Witan Investment Trust plc Annual Report 2014
17 Preference shares
Included in non current liabilities is £2,555,000 in respect of issued preference shares as follows(cid:29)
2,055,000 3.4 per cent. cumulative preference shares of £1 each
500,000 2.7 per cent. cumulative preference shares of £1 each
Group and
Company
2014
£’000
2,055
500
Group and
Company
2013
£’000
2,055
500
2,555
2,555
The 3.4 per cent. and 2.7 per cent. cumulative preference shares constitute a single class and confer the right, in priority to
any other class of shares(cid:29)
(i)
to receive a fixed cumulative preferential dividend at the respective rates (exclusive of tax credit thereon) of 3.4 per
cent. and 2.7 per cent. per annum, such dividend being payable half-yearly on 15 January and 15 July in each year, in
respect of the 3.4 per cent. cumulative preference shares, and on 1 February and 1 August in each year, in respect of the
2.7 per cent. cumulative preference shares; and
(ii)
to receive repayment of capital at par in a winding up of the Company (but do not confer any further right to participate
in profits or assets).
The preference shareholders are entitled to receive notices of general meetings of the Company but are not entitled to attend
or vote thereat (except on a resolution for the voluntary li(cid:84)uidation of the Company or for any alteration to the ob(cid:77)ects of the
Company as set out in its Articles of Association).
In the event of a poll at a general meeting of the Company, every member of the Company who is present in person or
by proxy and who is entitled to vote thereat, whether an ordinary shareholder or, in the circumstances outlined above, a
preference shareholder, has one vote for every £1 nominal value of shares registered in their name. Accordingly, on a poll
each ordinary shareholder has one vote for every four shares held.
18 Net asset value per ordinary share
The net asset value per ordinary share 760.31p (2013(cid:29) 725.23p) is based on the net assets attributable to the ordinary
shares of £1,441,247,000 (2013(cid:29) £1,372,944,000) and on the 189,561,000 ordinary shares in issue at 31 December 2014
(2013(cid:29) 189,311,000).
The movements during the year of the net assets attributable to the ordinary shares were as follows(cid:29)
Total net assets at 1 January 2014
Total profit for the year
Dividends paid in the year on the ordinary shares (see note 8)
Net proceeds on buybacks and reissue of shares from treasury
Issue of ordinary shares to market
Net assets attributable to the ordinary shares at 31 December 2014
£’000
1,372,944
95,319
(28,947)
2
1,929
1,441,247
An alternative net asset value per ordinary share can be calculated by deducting from the total assets less current liabilities of
the Company the preference shares, the debenture stock and the secured bonds at their market (or fair) values rather than at
their par (or book) values. Details of the alternative values are set out in note 14.7. The net asset value per ordinary share at
31 December 2014 calculated on this basis is 749.2p (2013(cid:29) 717.6p).
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Annual Report 2014 Witan Investment Trust plc
85
Notes to the Financial Statements continued
for the year ended 31 December 2014
19 Note to the cash flow statements
Purchases and sales of investments are considered to be operating activities of the Company, given its purpose, rather than
investing activities. However, the cash flows associated with these activities are presented below.
Proceeds on disposal of fair value through profit or loss investments
Purchases of fair value through profit or loss investments
Group and
Company
2014
£’000
352,950
(391,115)
Group and
Company
2013
£’000
931,017
(880,387)
(38,165)
50,630
20 Capital commitments and contingent liabilities
At 31 December 2014 and 31 December 2013 there were no capital commitments in respect of securities not fully paid up and
no underwriting liabilities. In November 2005 the Company took a five year lease on office premises at 14 Queen Anne’s Gate,
(cid:47)ondon S(cid:58)1H 9AA which was renewed for a further five years in October 2010.
21 Operating lease arrangements
Minimum lease payments under operating leases recognised for the year
The operating lease payments represent rentals payable by the Group for its office property.
2014
£’000
49
2013
£’000
49
The lease was re-negotiated during 2010 for a further term of five years. Rentals are fixed for an average of five years.
There are no future commitments at the balance sheet date as the lease expires in October 2015.
22 Subsidiary undertaking
The Company has an investment in the issued ordinary share capital of its wholly-owned subsidiary undertaking, (cid:58)itan
Investment Services (cid:47)imited, which was incorporated on 28 October 2004, is registered in England and (cid:58)ales and operates in
the United Kingdom.
23 Related party transactions disclosures
Balances and transactions between the Company and its subsidiary, which are related parties, amounting to £286,000 have
been eliminated on consolidation and are not disclosed in this note.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the company for each of the relevant
categories specified in IAS 24 Related Party Disclosures is provided in the audited part of the Directors’ Remuneration Report
on pages 45 to 46.
Directors’ transactions
Dividends totalling £215,000 (2013(cid:29) £235,000) were paid in the year in respect of ordinary shares held by the Company’s directors.
86
Witan Investment Trust plc Annual Report 2014
24 Segment reporting
The Group adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 re(cid:84)uires operating segments to be
identified on the basis of internal reports about components of the Group that are reviewed regularly by the Chief Executive
Officer and that are used to allocate resources to the segments and to assess their performance. The identification of the
Group’s reportable segments did not change as a result of the adoption of IFRS 8.
Geographical segments
Geographical segments are considered to be the primary reporting segment. An analysis of investment income by
geographical segment is set out in note 2 on page 69. Analyses of expenses by geographical segment and of profit by
geographical segment have not been given as it is not possible to prepare such information in a meaningful way. An analysis
of the investments by geographical segment is set out in note 10 on page 74. Analyses of the remaining assets and liabilities
by geographical region have not been given as either it is not possible to prepare such information in a meaningful way or the
results are not considered to be significant.
Business segments
Business segments are considered to be the secondary reporting segment. The Group has two business segments(cid:29) (i) its
activity as an investment trust, which is the business of the parent company, (cid:58)itan Investment Trust plc, and recorded
in the accounts of that company; and (ii) the provision of alternative investment fund manager, executive and marketing
management services and the management of savings schemes, which is the business of the subsidiary company, (cid:58)itan
Investment Services (cid:47)imited, and recorded in the accounts of that company.
Revenue
Interest expense
Net result
Carrying amount of assets
2014
2013
Investment
trust
£’000
38,635
8,210
95,319
1,440,053
Management
services
£’000
1,102
–
–
Investment
trust
Total
£’000
£’000
38,203
39,737
8,329
8,210
303,923
95,319
1,194 1,441,247 1,371,905
Management
services
£’000
1,189
–
–
Total
£’000
39,392
8,329
303,923
1,039 1,372,944
25 Subse(cid:84)uent events
Since the year end, the Board has declared a fourth interim dividend in respect of the year ended 31 December 2014 of 4.6p
per ordinary share (see also page 4 and note 8 on page 73).
In January 2015, 150,000 ordinary shares of 25p each were issued for £1,180,000.
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Annual Report 2014 Witan Investment Trust plc
87
Historical Record
(unaudited)
Debt at fair value
Debt at par value
Market price
per ordinary
share in pence
331.5
414.0
454.5
478.5
351.0
444.6
516.5
450.0
503.0
669.0
753.5
Net asset
value per
ordinary share
Share price
(discount)/
premium
Net asset
value per
ordinary share
in pence(b)
384.4
458.9
508.4
537.9
400.3
497.0
578.1
503.7
568.9
717.6
749.2
%(b)
(13.8)
(9.8)
(10.6)
(11.0)
(12.3)
(10.5)
(10.7)
(10.7)
(11.6)
(6.8)(d)
0.6(d)
in pence(c)
390.2(a)
469.5(a)
517.1
545.7
410.1
502.7
584.4
516.9
581.8
725.2
760.3
Share price
discount
%(c)
Earnings
per ordinary
share in pence
15.0
11.8
12.1
12.3
14.4
11.6
11.6
12.9
13.5
7.7
0.9
8.63(a)
8.96(a)
10.24
11.08
11.60
10.63
9.45
13.27
14.50
15.44
15.88
Dividends
per ordinary
share in pence
8.60
8.80
9.20
9.90
10.20
10.50
10.90
12.00
13.20
14.40
15.40
31 December 2004
31 December 2005
31 December 2006
31 December 2007
31 December 2008
31 December 2009
31 December 2010
31 December 2011
31 December 2012
31 December 2013
31 December 2014
(a)
(b)
(c)
The figure for 2005 has been calculated in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union and the figure
for 2004 has been restated in accordance with IFRSs.
The net asset value per ordinary share is calculated by deducting from the total assets less current liabilities of the Group the fixed borrowings at their fair (or
market) values. The share price discount shown reflects this calculation.
The net asset value per ordinary share is calculated by deducting from the total assets less current liabilities of the Group the fixed borrowings at their par (not
their market) values. The share price discount shown reflects this calculation.
(d) The average discount to the net asset value, excluding income, with debt at market value, in 2014 was 2.2% (2013(cid:29) 8.3%). (Source(cid:29) Datastream)
Unsolicited approaches (cid:73)or shares: (cid:90)arning to Shareholders
Many companies have become aware that their shareholders have received unsolicited phone calls or correspondence
concerning investment matters. These are typically from overseas based ‘brokers’ who target UK shareholders offering to
sell them what often turn out to be worthless or high risk shares in US or UK investments. They can be very persistent and
extremely persuasive. Shareholders are therefore advised to be very wary of any unsolicited advice, offers to buy shares at
a discount or offers of free company reports.
Please note that it is very unlikely that either the Company or the Company’s Registrar, Computershare Investor Services
P(cid:47)C, would make unsolicited telephone calls to shareholders and that any such calls would relate only to official
documentation already circulated to shareholders and never in respect of investment ‘advice’.
If you are in any doubt about the veracity of an unsolicited phone call, please call either the Company Secretary or the
Registrar at the numbers provided on page 90.
88
Witan Investment Trust plc Annual Report 2014
(cid:58)itan (cid:58)isdom and Jump
Ho(cid:90) to invest
There is a variety of ways to invest in (cid:58)itan Investment Trust
plc. Naturally, (cid:58)itan’s shares can be traded through any UK
stockbroker. Advisers who wish to purchase (cid:58)itan for their
clients can also do so via a growing number of platforms
that offer investment trusts including Ascentric, Alliance
Trust Savings, Barclays Stockbrokers, Halifax Sharedealing,
Hargreaves (cid:47)ansdown, Nucleus, Raymond James, Seven IM
and Transact. (cid:58)itan is also available for investment through
the two savings schemes managed by (cid:58)itan Investment
Services (cid:47)imited – (cid:58)itan (cid:58)isdom and Jump Savings.
Witan Wisdom
Shareholders who hold their investment via (cid:58)itan (cid:58)isdom
are charged a single flat annual fee of £30(cid:13) +VAT for both the
(cid:58)itan (cid:58)isdom Share Plan and ISA. There is no charge other
than government stamp duty, for regular savings or dividend
reinvestment. (cid:47)ump sum dealing will be charged at a flat rate
of £15.
(cid:58)itan (cid:58)isdom offers two different savings wrappers(cid:29)
The Witan Wisdom ISA is a stocks and shares ISA that
enables investors to buy (cid:58)itan shares within a tax efficient
wrapper. Investors have an annual ISA allowance of up to
£15,000 for the 2014/15 tax year, rising to £15,240 for
the 2015/16 tax year. The minimum lump sum investment
with (cid:58)itan (cid:58)isdom ISA is £2,000, with the regular savings
minimum being £100 per month. Investors can also transfer
existing ISAs to (cid:58)itan (cid:58)isdom while retaining their tax
efficient wrapper during and after transfer.
The Witan Wisdom Share Plan is our straightforward, low-
cost savings scheme. The minimum lump sum investment
is £500, and the minimum regular contribution is £50 per
month or (cid:84)uarter. There is no maximum. Accounts can also
be held (cid:77)ointly, or designated to a child.
(cid:45)ump Savings for children
Jump gives parents, grandparents and other adults the
chance to invest in (cid:58)itan on behalf of a child. This flexible
savings plan has a minimum lump sum investment set at
£250 and regular contributions can be made from £50 per
month or (cid:84)uarter. Jump is available in three different wrappers(cid:29)
Junior ISA – Is a tax efficient wrapper available to children
born before 1 September 2002 or after 3 January 2012, or
those who did not (cid:84)ualify for a Child Trust Fund. The account
can only be opened by the parent though others can add
to it. It currently has an annual subscription limit of £4,000
for the 2014/15 tax year, which will increase to £4,080 for
the 2015/16 tax year. You can open a Jump Junior ISA with a
minimum lump sum investment of £250 or £50 per month
or (cid:84)uarter.
Jump Child Trust Fund – (cid:47)ike the Junior ISA, the Child Trust
Fund (CTF) is a tax efficient savings vehicle with an annual
limit of £4,000 each year (measured by the child’s birthday),
which will increase to £4,080 from 6 April 2015. Each child
born in the UK from 1 September 2002 up to and including
2 January 2012 was eligible for a CTF. You can transfer
existing CTFs to Jump sub(cid:77)ect to a minimum transfer value
of £1,000. In addition, from April 2015 the UK Government
plans to allow CTF investors to transfer to Junior ISAs. Once
permissions are confirmed, you will be able to transfer
existing CTFs to the Jump Junior ISA sub(cid:77)ect to minimum
transfer values. Please contact (cid:58)itan for further details.
Jump Savings Plan – the Jump Savings Plan offers greater
flexibility than the Junior ISA or Child Trust Fund in terms
of the limits, access and control of the investment. It can
also be opened by grandparents, relatives and other family
friends. You can open a Jump Savings Plan with a lump sum
investment of £250 or £50 per month or (cid:84)uarter.
NB(cid:29) (cid:58)ith a flat rate annual fee of £30(cid:13) +VAT for Jump, the
cost is high for the minimum subscription level. Investors
should consider if this is suitable for them if they do not plan
to add to the account.
Brochures and applications for all of our products are available
by calling 0800 082 81 80 or online via www.witan.com.
If you would prefer to write to re(cid:84)uest further information,
the address details can be found on page 90. To keep up to
date on news and commentary from (cid:58)itan Investment Trust
plc please visit www.witan.com/stayintouch to provide us
with your email address.
(cid:58)itan Investment Trust plc is an e(cid:84)uity investment. Investors
are reminded that past performance is not a guide to
future performance and the value of investments and the
income from them may go down as well as up and investors
may not get back the amount originally invested. Please
note that tax assumptions may change if the law changes,
and the value of tax relief (if any) will depend upon your
individual circumstances. Investors should consult their
own tax advisers in order to understand any applicable tax
conse(cid:84)uences. Issued and approved by (cid:58)itan Investment
Services (cid:47)imited. (cid:58)itan Investment Services (cid:47)imited of
14 Queen Anne’s Gate, (cid:47)ondon S(cid:58)1H 9AA is registered in
England and (cid:58)ales number 5272533. (cid:58)itan Investment
Services (cid:47)imited provides investment products and services
and is authorised and regulated by the Financial Conduct
Authority. (cid:58)e may record telephone calls for our mutual
protection and to improve customer service.
(cid:13) Sub(cid:77)ect to ad(cid:77)ustment in line with the UK CPI inflation at 3-yearly intervals.
The(cid:123)flat rate annual fee for Jump will increase to £31.60 per annum, in line with
this policy, from 6 April 2015.
Annual Report 2014 Witan Investment Trust plc
89
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Shareholder Information
Points of Contact
If you have any (cid:84)uestions or need more information
concerning (cid:58)itan, you may contact us in the following ways(cid:29)
Registered Office
14 Queen Anne’s Gate
(cid:47)ondon S(cid:58)1H 9AA
Freephone:
0800 082 8180
E-mail:
wisdom@ifdsgroup.co.uk
Post:
For (cid:58)itan (cid:58)isdom and Jump Savings (cid:84)ueries(cid:29)
(cid:58)itan (cid:58)isdom
PO Box 10550
Chelmsford
CM99 2BA
Points of Reference
You can follow the progress of your investment through the
newspapers. (cid:58)itan’s share price appears daily in the national
press stock exchange listings under ‘Investment Trusts’ or
‘Investment Companies’ and is also included on the (cid:58)itan
website (www.witan.com).
The (cid:47)ondon Stock Exchange Daily Official (cid:47)ist (SEDO(cid:47)) code
is 0974406.
Dividend
A fourth interim dividend of 4.6p per share has been
declared, payable on 2 April 2015. The record date for the
dividend was 6 March 2015 and the ex-dividend date for the
dividend was 5 March 2015 (see pages 4 and 28).
Capital Gains Tax
The calculation of the tax on chargeable gains will depend on
your personal circumstances. If you are in any doubt about
your personal tax position, you are recommended to contact
your professional adviser.
Disability Act
Copies of this Annual Report and other documents issued by
(cid:58)itan Investment Trust plc are available from the Company
Secretary. If needed, copies can be made available in a
variety of formats, including Braille, audio tape or larger type
as appropriate.
You can contact our Registrar, Computershare Investor
Services P(cid:47)C, which has installed textphones to allow
speech and hearing impaired people who have their own
telephone to contact them directly, without the need for an
intermediate operator, by dialling 0870 702 0005. Specially
trained operators are available during normal business hours
to answer (cid:84)ueries via this service.
Alternatively, if you prefer to go through a ‘typetalk’ operator
(provided by The Royal National Institute for Deaf People),
you should dial 18001 followed by the number you wish to dial.
90
Witan Investment Trust plc Annual Report 2014
Company Secretary
Frostrow Capital (cid:47)(cid:47)P
25 Southampton Buildings
(cid:47)ondon (cid:58)C2A 1A(cid:47)
Telephone(cid:29) 020 3008 4910
Registered Number
Registered as an investment company in England and (cid:58)ales,
Number 101625.
Custodian, Investment Administrator and Depositary
BNP Paribas Securities Services
55 Moorgate
(cid:47)ondon EC2R 6PA
Registrar
Computershare Investor Services P(cid:47)C
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Telephone(cid:29) 0870 707 1408(cid:13)
(cid:13) Calls cost about 7 pence per minute from a BT line; calls from other providers, or
from mobile phones, may cost more.
Auditor
Deloitte (cid:47)(cid:47)P
Chartered Accountants
2 New Street S(cid:84)uare
(cid:47)ondon EC4A 3BZ
Solicitors
Herbert Smith Freehills (cid:47)(cid:47)P
Exchange House
Primrose Street
(cid:47)ondon EC2A 2HS
Dickson Minto (cid:58).S.
16 Charlotte S(cid:84)uare
Edinburgh EH2 4DF
Stockbroker
J.P. Morgan Cazenove
25 Bank Street
Canary (cid:58)harf
(cid:47)ondon E14 5JP
The Company is a member of(cid:29)
The Company conducts its affairs so that its shares can be
recommended by independent financial advisers (‘IFAs’) to
retail private investors. The shares are excluded from the
Financial Conduct Authority’s restrictions which apply to
non-mainstream investment products because they are
shares in a UK-listed investment trust.
Witan’s objective
Long term growth in income and
capital(cid:123)through active multi-manager
investment in global equities
Our relationship with the RHS
Witan is an investment trust which is listed
on the London Stock Exchange and was
founded in 1909.
(cid:58)itan o(cid:426)ers diversi(cid:428)ed e(cid:91)posure to global
markets (principally equities) using a
multi-manager approach. The portfolio is
diversi(cid:428)ed by geographical region, industrial
sector and at the individual stock level.
Witan typically uses between 10 and 15
investment managers. The blend of di(cid:426)erent
active approaches and styles aims to deliver
added value for shareholders while smoothing
out the volatility normally associated with
a(cid:123)single manager.
To view the report online
If you would like to view video updates
about the Company, please visit:
www.witan.com
Witan Investment Trust has enjoyed a fruitful relationship with
the Royal Horticultural Society (‘RHS’) for more than 15 years.
Over this time Witan has helped the RHS to redevelop a number
of new gardens at Wisley including the Walled Garden West, the
Herb Garden, the Bowes-Lyon Rose Garden and the Vegetable
Garden at Hyde Hall, which is scheduled to open to the public
in Summer 2016. Witan shareholders who hold their shares
through Witan Wisdom or Jump Savings, or on the main
register,(cid:123)are eligible to apply for a ballot for a ticket that will
allow free entry for two adults to any one of the four RHS
gardens in the UK.
If you would like to request a ticket then please
phone us on 0800 082 8180 or email us at
wisdom@ifdsgroup.co.uk.
Capital and income growth from
active global equity investment
Annual Report 2014
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