Final Results

RNS Number : 1254E

City Natural Res High Yield Tst PLC

24 September 2008

 



To:             RNS

From:        City Natural Resources High Yield Trust plc

Date:         24 September 2008

Unaudited results for the year ended 30 June 2008

• Net asset value total return of 16.3 per cent since 1 July 2007 compared to a total return of 21.7 per cent from the benchmark index.

• Ordinary share price total return since 1 July 2007 of 8.8 per cent.

• Net asset value total return of 372.9 per cent since 1 August 2003 compared to a total return of 217.8 per cent from the benchmark index.

• Ordinary share price total return since 1 August 2003 of 297.9 per cent.

• Dividend of 2.65 pence per share for the year, an increase of 12.8 per cent.

The chairman, Geoff Burns noted,

Investment Performance and Strategy

At 30 June 2008 the Company's fully diluted net asset value stood at 222.1 pence, giving a net asset value total return for the year of 16.3 per cent.

This bald statement of fact conceals a rollercoaster ride; the net asset value registered a low of 148.7 pence in August 2007, before climbing to an all time high of 238.9 pence on 21 May 2008. It subsequently fell by 35.2 per cent to 154.9 pence during a traumatic August and September.

This turbulence was not wholly unexpected given the credit-crunch and threats of recession playing out in the background. The Manager had trimmed gearing to a historically low 116 per cent by the end of May, as well as top-slicing a number of the largest holdings and adding to our portfolio of natural resource convertibles. These precautions moderated, but could only moderate, some of the worst effects of the market's re-rating of commodity related stocks, the latter a topic to which I shall return below.

Share Price Performance

The share price total return for the year was 8.8 per cent. This reflected a widening of the discount to net asset value at which the Company's shares traded to 14.9 per cent.  The Board and Manager have worked, and continue to work, hard to minimise this figure, but the commodities sector is, at least temporarily, unloved and it is not clear how long this situation will persist.

The warrant price increased by more than 20 per cent to 109.5 pence during the year ended 30 June 2008. It has since fallen back to 64.5 pence.

Income

I promised in my Statement last year not to lose sight of the importance of income to shareholders, and the fourth interim dividend of 1.0 pence per share paid at the end of August took dividends for the year to 2.65 pence per share. This represents a 12.8 per cent increase over last year's level.

Earnings per share increased from 2.85 pence to 3.10 pence, allowing 0.25 pence per share to be added to the Company's revenue reserve at the same time as the dividend was increased. The Revenue Reserve now stands at more than 2.8 pence per share. The yield on the Company's shares is 2.0 per cent.

Benchmark 

We have since 2003 compared our performance to that of a composite benchmark index weighted two-thirds to the HSBC World Mining Index (sterling adjusted) and one third to the MSCI Euro Sterling Corporate Index (non-financials). The latter index was discontinued during the period and, following careful research, we have chosen to replace it with the Credit Suisse High Yield Bond Index (sterling adjusted).

The total return on the old composite index between 1 August 2003, the date that the reconstruction of the investment portfolio was completed following the change to the Company's investment objective, and 30 June 2007 was 148.5 per cent. The total return on the new composite index was 149.0 per cent.  

The total return on the new composite index during the year to 30 June 2008 was 21.7 per cent. This brought its total return since 1 August 2003 to 217.8 per cent, while the Company's net asset value total return over the same period was 372.9 per cent and its share price total return 297.9 per cent.

Outlook

Volatility has been the defining quality of the fifteen months since the Company's 2007 year end, with particularly severe market storms in August 2007 and August 2008 / September 2008. In respect of the latter, the falls in commodity related share prices look disproportionate even allowing for the decline in the commodities markets, and there are signs that the market has begun to recognise this.

At the level of individual commodities everything from palm oil to uranium has a story to tell; but, it is oil that compels the attention. Breaking through the US$100 per barrel level in December 2007, the price paused only briefly before pushing on to new highs, peaking at US$147 per barrel in July before it rapidly retrenched in August. It stands at US$121 as I write.

More than any other commodity oil encapsulates the inflationary fears that have revisited a market that had begun to believe them banished. As the US economy looked to be heading into recession, perhaps accompanied by Asia as well as Europe, the word 'stagflation' was heard again. Already nerves have steadied, but there can be no guarantee that this stoicism will be sustained, especially in view of the renewed energy security concerns highlighted by the Georgian crisis.

We are cautiously optimistic that, while there is consolidation in commodity markets which may continue for a while, over the longer term the commodity cycle remains intact. The rationale behind this view includes the fact that a number of the companies in the sector are capitalised at less than half of their cash backing; that corporate activity and consolidation within the commodity sectors (currently exemplified by the recent bid for Lonmin by Xstrata) is extending to the type of smaller mining companies which our portfolio holds; and, that despite the reduction in prospective growth rates amongst emerging economies, their demand for commodities will be little abated.  

We believe that patience in this period of disturbing volatility will, ultimately, be rewarded.

Enquiries:

Richard Lockwood, New City Investment Managers:             0207 557 4370

Martin Cassels, F&C Investment Business Ltd:                     0207 628 8000

  Audited Income Statement

for the year ended 30 June 2008 

	Notes		2008	2008	2008
		Revenue		Capital	Total
		£'000		£'000	£'000
Realised gains on investments		-		11,233	11,233
Increase in fair value of investments		-		9,766	9,766
Exchange losses		-		(261)	(261)
Income		3,864		-	3,864
Investment management fee		(412)		(1,235)	(1,647)
Other expenses		(394)		(8)	(402)
Net return before finance costs and taxation		3,058		19,495	22,553
Interest payable and similar charges		(510)		(1,353)	(1,863)
Net return on ordinary activities before taxation		2,548		18,142	20,690
Tax on ordinary activities		(600)		676	76
Net return attributable to equity shareholders		1,948		18,818	20,766
Return per share	1
Basic		3.10p		29.93p	33.03p
Fully diluted		2.92p		28.16p	31.08p

  Audited Income Statement

for the year ended 30 June 2007 

	Notes		2007	2007	2007
		Revenue		Capital	Total
		£'000		£'000	£'000
Realised gains on investments		-		15,616	15,616
Increase in fair value of investments		-		35,968	35,968
Exchange losses		-		(91)	(91)
Income		3,567		-	3,567
Investment management fee		(304)		(912)	(1,216)
Other expenses		(333)		-	(333)
Net return before finance costs and taxation		2,930		50,581	53,511
Interest payable and similar charges		(322)		(967)	(1,289)
Net return on ordinary activities before taxation		2,608		49,614	52,222
Tax on ordinary activities		(818)		581	(237)
Net return attributable to equity shareholders		1,790		50,195	51,985
Return per share	1
Basic		2.85p		79.84p	82.69p
Fully diluted		2.78p		77.97p	80.75p

   Balance Sheet as at 30 June

	2008 Audited		2007 Audited
	£'000		£'000
Fixed assets
Investments	170,166		148,455
Current assets
Debtors	1,461		3,514
Cash at bank and on deposit	3,284		427
	4,745		3,941
Creditors: amounts falling due within one year	(29,780)		(26,468)
Net current liabilities	(25,035)		(22,527)
Net assets	145,131		125,928
Capital and reserves
Called-up share capital	15,721		15,719
Special distributable reserve	30,386		30,386
Share premium	34		22
Warrant reserve	2,336		2,342
Other reserves:
Capital reserve - realised	43,911		20,709
Capital reserve - unrealised	50,956		55,339
Revenue reserve	1,787		1,411
Equity shareholders' funds	145,131		125,928
Net asset value per share                                2
Basic		230.79p		200.28p
Fully diluted		222.11p		193.42p

Reconciliation of Movements in Shareholders' Funds

	Year ended 30 June 2008 Audited  £’000	Year ended 30 June 2007 Audited  £’000
Opening equity shareholders’ funds	125,928	75,278
Gains on investments	20,999	51,584
Return on ordinary activities after taxation	1,948	1,790
Costs charged to capital	(1,920)	(1,298)
Exchange losses	(261)	(91)
Exercise of warrants	9	16
Dividends paid	(1,572)	(1,351)
Closing equity shareholders’ funds	145,131	125,928

Cash Flow Statement for the year to 30 June

	2008 Audited	2007 Audited
	£'000	£'000
Operating activities
Investment income received	3,930	2,747
Capital dividend received	-	1,200
Deposit interest received	68	35
Investment management fees paid	(1,626)	(1,254)
Other cash payments	(86)	(476)
Net cash inflow from operating activities	2,286	2,252
Servicing of finance
Interest on loan	(1,621)	(1,278)
Bank overdraft interest	(59)	-
Net cash outflow from servicing of finance	(1,680)	(1,278)
Taxation
Tax paid	(170)	(107)
Capital expenditure and financial investment
Purchases of investments	(57,679)	(56,656)
Disposals of investments	59,924	49,634
Net cash inflow / (outflow) from capital expenditure and financial investment	2,245	(7,022)
Dividends
Equity dividends paid	(1,572)	(1,351)
Net cash inflow/(outflow) before financing	1,109	(7,506)
Financing
Bank loan drawn down	2,000	7,500
Issue of ordinary shares	9	16
Net cash inflow from financing	2,009	7,516
Increase in cash	3,118	10
Reconciliation of net cash flow to movement in net debt Increase in cash in the year	3,118	10
Cash inflow from drawdown of loans	(2,000)	(7,500)
Exchange losses	(261)	(91)
Movement in net debt in the year	857	(7,581)
Opening net debt at 1 July	(24,573)	(16,992)
Closing net debt at 30 June	(23,716)	(24,573)

  Notes

1.                  The basic revenue return per ordinary share is based on the net return after taxation of £1,948,000 (2007: £1,790,000) and on 62,881,845 (2007: 62,866,469) ordinary shares being the weighted average number of ordinary shares in issue during the year.

 

The basic capital return per ordinary share is based on a net capital gain of £18,818,000 (2007: £50,195,000) and on 62,881,845 (2007: 62,866,469) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

 

2.         On 16 November 2007 the Company issued 10,000 ordinary shares of 25p each following the exercise of 10,000 warrants.

 

          The basic net asset value per ordinary share of 230.79p (2007: 200.28p) is based on 62,885,643 shares (2007: 62,875,643), being the total number of ordinary shares in issue at the end of the year.

 

          The fully diluted net asset value per ordinary share is 222.11p (2007: 193.42p).

         

          As at 30 June 2008 there were 3,971,500 (2007 – 3,981,500) warrants in issue. Each warrant confers the right to subscribe for one new ordinary shares at 85 pence on 31 October (or, if later, the date being 30 days after the date in which copies of the Company accounts are dispatched to shareholders) in each of the years 2008 and 2009 inclusive. The warrant price as at 30 June 2008 was 109.5 pence (2007: 89.3 pence).         

      

3.         The Board declared a fourth interim dividend of 1.00p per share which was paid on 29 August 2008 to shareholders on the register on 1 August 2008, having an ex-dividend date of 30 July 2008. 

4.         The financial information set out above does not constitute the Company’s statutory 
            accounts for the year ended 30 June 2008.  The financial information for 2007 is derived 
            from the statutory accounts for 2007 which have been delivered to the Registrar of 
            Companies.  The Auditors have reported on the 2007 accounts, their report was unqualified 
            and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 
            The statutory accounts for 2008 are audited and the Auditors have issued an unqualified 
            opinion. The statutory accounts for 2008 will be finalised on the basis of the financial 
            information presented in this preliminary announcement and will be delivered to the 
            Registrar of Companies following the Company’s Annual General Meeting.

Principal Risks

The Company's assets consist principally of listed equities and fixed interest securities and its principal risks are therefore market related. The Company is also exposed to currency risk in respect of the markets in which it invests. These risks, which have not changed materially since the annual report for the year ended 30 June 2007, and the way in which they are managed, are described in more detail in the annual report for the year ended 30 June 2008. The report will be available on the manager's website www.ncim.co.uk during September 2008.

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge, in respect of the annual report for the year ended 30 June 2008, of which this statement of results is an extract:

• The financial statements have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

• The Report of the Directors includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

G Burns, Chairman

23 September 2008

 

END

 

 

FR SEUFIDSASEDU