UK: Down The wiRe: Surveying Preliminary Announcements - Part 2

This article is part of a series: Click Down The wiRe: Surveying Preliminary Announcements - Part 1 for the previous article.

6. SURVEY RESULTS – INVESTMENT TRUSTS

This section analyses the findings for the 30 investment trusts included in the survey. One of these trusts was registered in Guernsey and another in Jersey and were, therefore, not subject to UK company law. Where these trusts have affected the results of the survey, this has been discussed in more detail below.

Mechanics Of Reporting

Form Of First Announcement

As shown in figure 13, the trusts' first announcement of annual results came in a number of forms.

Figure 13. What Form Does The First Announcement Take?

Similar to the results for other companies, the majority of trusts (80%) chose to continue with the practice of preparing a preliminary announcement, with only one trust (in the middle group) choosing to disseminate its full annual report in plain text.

The 17% of trusts reporting in another form consisted of two trusts releasing a near full version of the annual report (but excluding the auditor's report and giving no indication of whether the auditor had modified their report) and one trust each releasing:

  • a link to a pdf of the annual report, with no information provided in plain text;
  • an announcement that the annual report was available via the trust's website with no information provided in plain text; and
  • an announcement that the annual report was available via the trust's website with minimal financial highlights provided in plain text.

Time To Announce

As shown in figure 14, the average period from a trust's year-end to its first announcement remained fairly stable year on year at 67 days (compared to 65 days in the prior year). All trusts reported within the DTR deadline for publication of an annual report of four months.

Figure 14. How Quickly Was The First Announcement Issued?

As observed for other companies, the larger trusts generally announced more quickly.

Length Of First Announcement

Figure 15 below shows that the length of the first announcement varied significantly from one to 51 pages.

Figure 15. How Many Pages Does An Average First Announcement Contain And What Is The Range?

Unsurprisingly, there was a close link between the length of the first announcement and the form of reporting, with unaudited preliminary announcements typically being shorter than audited ones and significantly shorter than the full annual report presented in plain text.

The "other" category consists of the four announcements referred to above (a 51 page announcement being the near full text of the annual report and three one page announcements giving minimal information).

The average length of a first announcement increased from nine pages for years ending in 2007 to 16 pages for years ending in 2008. Again, this was principally a function of the format of reporting with a number of trusts moving from a basic preliminary announcement to the full, or near full, text of the annual report.

References To Statutory Financial Information

70% of trusts sought to give a statement in accordance with section 240 of Companies Act 1985, but only 20% of trusts included all of the information required by the Act. 50% of trusts stated that the auditor's report was unqualified but failed to state whether the auditors had drawn attention to any matters by way of emphasis. These results are consistent with the findings for other companies surveyed.

The 30% of trusts not providing a section 240 statement consisted of:

  • the trust which disseminated the full annual report (including an auditor's report) in plain text and which did not, therefore, require a section 240 statement;
  • the two trusts referred to above which disseminated a near full annual report but with no auditor's report included;
  • the three trusts referred to above which provided little or no information in plain text; and
  • three other trusts which provided extensive first announcements (albeit, excluding significant sections of the annual report) but overlooked the requirement for a section 240 statement.

The two Channel Island trusts within the sample both gave a statement akin to that required under s240 despite not being subject to that part of UK company law.

None of the trusts indicated that the auditor's report on the financial statements was, or was expected to be, qualified or modified.

Narrative Content

Going Concern And Liquidity Risk

The level of disclosure in this area by trusts was limited. Eight trusts gave a generic comment on going concern, an example of which follows.

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to Shareholders through the optimisation of the debt and equity balance.

Murray Income Trust plc – Annual financial report for the year ended 30 June 2008

Four further trusts made no explicit statement on going concern but discussed their liquidity positions as part of the narrative content of the first announcement.

Principal Risks And Uncertainties

Information on principal risks and uncertainties in the first announcement was more common for trusts than for the other companies surveyed, with 11 of the 30 trusts including full detail of their principal risks and uncertainties. In addition, one trust gave a summary of risks cross-referenced to the annual report.

Information on the investment portfolio Due to the nature of investment trusts' operations, information of particular interest to investors normally includes detail of the trust's investment portfolio and its performance (either in market value or underlying trading terms).

Figure 16 shows the level of information given on the investment portfolio:

Figure 16. What Information Is Given On The Investment Portfolio?

It is perhaps surprising that 33% of trusts chose to give no information on individual investments in their first announcements as this information could be considered to be useful in assessing a trust's performance and investment strategy.

Financial Content

Primary Statements And Dividend Information

27 of the 30 trusts included all primary statements in tabular form (as required for preliminary announcements by LR 9.7A) including comparative information. The three exceptions were those trusts noted above as including little or no information in their first announcement.

Compliance with the Listing Rule disclosure requirements in respect of dividends was generally good. 19 trusts gave all required information in respect of a final dividend (dividend per share, payment date and record date) and a further five made it clear that no final dividend was proposed. Three trusts disclosed the proposed dividend per share but failed to state the payment or record dates and another three trusts gave no disclosure in this area.

Notes To The Financial Statements

The volume of information provided in the notes to the financial statements contained in the first announcements varied widely, from zero to 23. Ten trusts chose to include the full set of notes from their annual reports in their first announcements.

The average number of notes included in the first announcement are summarised in figure 17.

Figure 17. How Many Notes Does An Average First Announcement Contain And What Is The Range?

Again, little correlation was noted between the size of the trust and the level of disclosure given, with the form of reporting being the more significant factor.

The subject matter of the more common notes included in the first announcement is summarised in figure 18.

Figure 18. What Notes Were Included In The First Announcement?

Segmental information for trusts typically consisted only of a split of income by type (dividend income, interest receivable etc.).

Subsequent Announcements

Form Of Subsequent Announcements

Trusts made a variety of subsequent announcements to notify the market that their full annual report was now available and, in some cases, to fulfil the additional disclosure requirements of the DTR (as discussed in section 2 of this publication).

Figure 19 shows that most trusts made some sort of subsequent announcement. However, the majority of these only made investors aware of the availability of the trust's annual report. Only 17% of trusts chose to make an announcement giving additional substantive information to shareholders of the kind required by the DTR.

Figure 19. What Subsequent Announcements Are Made?

Timing Of Subsequent Announcements

Subsequent announcements were made on average 20 days after the first announcement. Figure 20 shows the average delay between announcements and the range.

Figure 20. What Was The Delay Between First And Subsequent Announcements?

27 of the 30 trusts surveyed made announcements that their annual report was available within four months of the year-end. The other three trusts had made no announcement but their annual reports were made available on the trusts' websites. It was unclear when these three annual reports were made available.

Announcement Of DTR Required Information

Figure 21 shows the number of trusts that included each type of information required to be made available in plain text by the DTR.

Figure 21. In Which Announcement Was Information Required By The DTR Included?

Nearly all trusts included financial information and a narrative discussion of performance in their announcements (the only exceptions being the three trusts which made little or no information available in plain text).

A lower number of trusts included the information required under the DTR which was not required under the old Listing Rules in their first announcement of annual results under the DTR (being information on principal risks and uncertainties, related party transactions and the responsibility statement in respect of the annual report).

The level of information on principal risks and uncertainties was varied. Of the 17 trusts giving such information, 15 gave full details of the trust's principal risks and uncertainties whilst two gave only a summary with a cross-reference to the annual report.

Seven of the 30 trusts included all information required by the DTR in their announcements, whilst a further four included everything other than information on related party transactions and disclosed no such transactions in their annual report (suggesting that the announcements may have been complete as the DTR do not require negative confirmation in this respect).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click Down The wiRe: Surveying Preliminary Announcements - Part 1 for the previous article.
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