Final Results

RNS Number : 7473T

City Natural Res High Yield Tst PLC

04 October 2010

 



To:                    RNS

From:                City Natural Resources High Yield Trust plc

Date:                4 October 2010

Audited results for the year ended 30 June 2010

·      Net asset value total return of 38.7 per cent since 1 July 2009 compared to a total return of 40.0 per cent from the benchmark index.

·      Ordinary share price total return since 1 July 2009 of 45.7 per cent.

·      Dividend of 3.71 pence per share for the year, an increase of 20.8 per cent.

·      Fifth consecutive increase in the annual dividend with an increase of over 85 per cent since 1 August 2003.

·      Net asset value total return of 397.8 per cent since 1 August 2003 compared to a total return of 239.2 per cent from the benchmark index.

·      Ordinary share price total return since 1 August 2003 of 312.3 per cent.

The Chairman, Geoff Burns said,

'Investment and Share Price Performance

At 30 June 2010 your Company's net asset value stood at 226.0 pence, giving a net asset value total return for the year of 38.7 per cent.

It was a "year of two halves", with a total return for the second half of the year of just 1.9 per cent following the 36.2 per cent return generated by the Company in the first half.  Even this modest second half gain was much better than markets as a whole could muster; the FTSE All-Share index, for example, fell by 7.9 per cent during the second half, a pattern which emphasises the continuing interest in and strength of commodities.

The Company's share price total return during the year of 45.7 per cent was rather better than that of its net asset value, reflecting a narrowing of the discount at which the Company's shares trade from 20.2 per cent to 16.6 per cent. Your Board and Manager continue to work hard to minimise this figure, but while modest success has been achieved in recent months we continue to wait for the stability and reduced volatility that might underpin such work.  The discount stands at 17.1 per cent as I write.

Your Company has generated net asset value and share price total returns of 397.8 and 312.3 per cent respectively since its current incarnation on 1 August 2003; the benchmark index has returned 239.2 per cent.

The final warrant exercise date on 31 October 2009 saw all 3.9 million warrants in issue exercised, adding £3.3 million to the Company's assets.  This means that there will be no dilution of net asset value returns for shareholders in future.

Income and Dividends

The Company paid a fourth interim dividend of 1.85 pence per share.  This took the dividend for the year to a total of 3.71 pence, an increase of 20.8 per cent on last year and representing the fifth successive year of dividend increases.  These have seen the Company's dividends grow by over 85 per cent since 2004/05.  The Board intends to continue to implement a progressive dividend policy.

The yield on the Company's shares is 1.5 per cent as I write, and the revenue reserve stands at 5.7 pence per share, up from 4.3 pence per share at 30 June 2009.

Managers' Arrangements

On 14 September 2010 Merfyn Roberts joined Will Smith as co-manager of the Company.  Richard Lockwood, who has managed the Trust since 2003, has stepped back from day-to-day management, but remains with the NCIM team and will continue to make an important contribution to strategy.

The Board wants to thank Richard for his vision and for his outstanding contribution to the Company's fortunes.  The Company's net asset value has risen from 52.1 pence on 1 August 2003 to 293.5 pence as I write, while at the same time dividend payments have increased in excess of 85 per cent. The Board is pleased to have an experienced and familiar team to take the Company forward, and that Richard will continue to be involved.

Investment Strategy and Outlook

The market rally since 30 June 2010 has seen most of the ground lost in the second half of our year regained, but it does not wholly convince and a slightly febrile atmosphere persists.  All may yet end well, but a weaker than expected recovery in the USA and hints of a policy slowdown in China, especially around the property sector, suggest that the possibility of renewed slowdown, or even double dip recession in the developed world, cannot be discounted.

That said, our view remains that, while commodity markets cannot be decoupled from the prospects for Europe, Japan and North America, they will continue to see demand and support from a wide range of emerging economies, including Brazil, but above all from an Asia that has demonstrated impressive resilience in the face of worldwide recession.  In addition, while BHP Billiton's hostile bid for Potash Corporation of Saskatchewan, now apparently attracting Chinese interest as well, is the public face of merger and acquisition activity in the commodities markets, that activity extends far wider.  In our own portfolio the last few months have seen the manoeuvring of major players into becoming strategic stake holders in either or both of Extract Resources and Kalahari Minerals, with Rio Tinto Zinc, Itochu and Apac Resources of Hong Kong having built up significant positions.

These are some of the factors that have underpinned the 30 per cent rise in the Company's net asset value to 293.5 pence since its financial year end on 30 June 2010.  At a time of such excitement the sheer range of commodities in which your Company invests provides further interest, and protection through diversification. If the strength of gold, the Company's largest single commodity weighting, impresses more than that of oil, then the recent marked improvement in the price of uranium must not be forgotten; copper and rare earths have stood us in good stead; and, the threat posed to crop production by La Niña and storm damage in Indonesia has reawakened interest in soft commodities such as palm oil and rubber where we are well represented.

There are, then, a number of positive factors influencing the commodities markets that are our raison d'être, but there remains considerable market volatility and economic uncertainty to contend with.  Your Company cannot be isolated from these, but it is well positioned to capitalise on the longer term demand for finite natural resources.'

Enquiries:

Will Smith, New City Investment Managers:                     0207 201 6900

Merfyn Roberts, New City Investment Managers:              0207 201 6900

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

Audited Income Statement

for the year ended 30 June 2010

			2010	2010	2010
		Revenue		Capital	Total
	Notes	£'000		£'000	£'000
Gains on investments		-		40,840	40,840
Exchange losses		-		(394)	(394)
Income		5,060		-	5,060
Investment management fee		(431)		(1,294)	(1,725)
Other expenses		(423)		(12)	(435)
Net return before finance costs and taxation		4,206		39,140	43,346
Interest payable and similar charges		(61)		(182)	(243)
Net return on ordinary activities before taxation		4,145		38,958	43,103
Tax on ordinary activities		(957)		417	(540)
Net return attributable to equity shareholders		3,188		39,375	42,563
Return per ordinary share	1
Basic		4.88p		60.21p	65.09p
Fully diluted		4.88p		60.21p	65.09p

Reconciliation of Movements in Shareholders' Funds

	Year ended 30 June 2010 Audited  £'000	Year ended 30 June 2009 Audited  £'000
Opening equity shareholders' funds	107,316	145,131
Gain / (losses) on investments	40,840	(37,367)
Return on ordinary activities after taxation	3,188	2,601
Costs charged to capital	(1,071)	(1,099)
VAT refund on management fees	-	124
Exchange losses	(394)	(440)
Exercise of warrants	3,343	33
Dividends paid	(2,113)	(1,667)
Closing equity shareholders' funds	151,109	107,316

Audited Income Statement

for the year ended 30 June 2009

			2009	2009	2009
		Revenue		Capital	Total
	Notes	£'000		£'000	£'000
Losses on investments		-		(37,367)	(37,367)
Exchange losses		-		(440)	(440)
Income		4,539		-	4,539
Investment management fee		(279)		(838)	(1,117)
Vat refund on management fees		41		124	165
Other expenses		(528)		(6)	(534)
Net return before finance costs and taxation		3,773		(38,527)	(34,754)
Interest payable and similar charges		(258)		(776)	(1,034)
Net return on ordinary activities before taxation		3,515		(39,303)	(35,788)
Tax on ordinary activities		(914)		521	(393)
Net return attributable to equity shareholders		2,601		(38,782)	(36,181)
Return per ordinary share	1
Basic		4.13p		(61.65)p	(57.52)p
Fully diluted		4.07p		(60.70)p	(56.63)p

Balance Sheet

as at 30 June 2010

	As at 30 June 2010 Audited		As at 30 June 2009 Audited
	£'000		£'000
Fixed assets
Investments	160,293		114,447
Current assets
Debtors	1,089		1,046
Cash at bank and on deposit	4,382		5,270
	5,471		6,316
Creditors: amounts falling due within one year	(14,655)		(13,447)
Net current liabilities	(9,184)		(7,131)
Net assets	151,109		107,316
Capital and reserves
Called-up share capital	16,714		15,731
Special distributable reserve	30,386		30,386
Share premium	4,753		80
Warrant reserve	-		2,313
Capital reserves	95,460		56,085
Revenue reserve	3,796		2,721
Equity shareholders' funds	151,109		107,316
Net asset value per ordinary share                               2
Basic		226.02p		170.55p
Fully diluted		226.02p		165.52p

Cash Flow Statement

for the year to 30 June

	Year ended 30 June 2010 Audited	Year ended 30 June 2009 Audited (restated)
	£'000	£'000
Operating activities
Investment income received	4,833	4,963
Deposit interest received	2	82
Other income received	90	-
Investment management fees paid	(1,686)	(1,152)
Other cash payments	(520)	(448)
Net cash inflow from operating activities	2,719	3,445
Servicing of finance
Interest on bank facility	(291)	(1,386)
Net cash outflow from servicing of finance	(291)	(1,386)
Taxation
Tax paid	(70)	-
Capital expenditure and financial investment
Purchases of investments	(74,180)	(36,535)
Disposals of investments	68,937	53,536
Net cash (outflow) / inflow from capital expenditure and financial investment	(5,243)	17,001
Dividends
Equity dividends paid	(2,113)	(1,667)
Net cash (outflow) / inflow before financing	(4,998)	17,393
Financing
Bank facility drawdown / (repayment)	1,161	(15,000)
Issue of ordinary shares following warrant exercise	3,343	33
Net cash inflow / (outflow) from financing	4,504	(14,967)
(Decrease) / increase in cash	(494)	2,426
Reconciliation of net cash flow to movement in net debt (Decrease) / increase in cash in the year	(494)	2,426
Cash (inflow) / outflow from (drawdown) / repayment of bank facility	(1,161)	15,000
Exchange losses	(394)	(440)
Movement in net debt in the year	(2,049)	16,986
Opening net debt at 1 July	(6,730)	(23,716)
Closing net debt at 30 June	(8,779)	(6,730)

The figures for the financial year ended 30 June 2009 have been restated. Previously these figures included overseas withholding tax as tax paid and have been restated to reflect investment income received net of withholding tax as this is a non-cash item. 

Notes

1.         The basic revenue return per ordinary share is based on a net profit after taxation of £3,188,000 (2009: £2,601,000) and on a weighted average of 65,391,728 ordinary shares in issue during the year (2009: 62,909,535).

The basic capital return per ordinary share is based on a net capital gain of £39,375,000 (2009: a net capital loss of £38,782,000) and on a weighted average of 65,391,728 ordinary shares in issue during the year (2009: 62,909,535).

The fully diluted revenue return per ordinary share is based on a net profit after tax of £3,188,000 (2009: £2,601,000) and on a weighted average of 65,391,728 ordinary shares in issue during the year (2009: 63,896,056 shares being the weighted average of ordinary shares and warrants in issue during the year).

The fully diluted capital return per ordinary share is based on a net capital gain of £39,375,000 (2009: a net capital loss of £38,782,000) and on a weighted average of 65,391,728 ordinary shares in issue during the year (2009: 63,896,056 shares being the weighted average of ordinary shares and warrants in issue during the year).

2.         The basic net asset value per ordinary share is based on net assets of £151.1 million (2009: £107.3 million) and on 66,857,143 (2009: 62,924,229) ordinary shares, being the number of ordinary shares in issue at the year end.

The diluted net asset value per ordinary share is based on net assets of £151.1 million and 66,857,143 ordinary shares, being the number of shares in issue at the year end (2009: net assets of £107.3 million plus £3.3 million in relation to the warrants and on 66,857,143 shares, being the number of ordinary shares and warrants in issue at the year end).

3.         On 13 November 2009 the Company issued 3,932,914 ordinary shares of 25p each following the final exercise of the warrants.  Following this there were 66,857,143 ordinary shares of 25p in issue.  As at 30 June 2009 there were 3,932,914 warrants in issue.

4.         The Board declared a fourth interim dividend of 1.85p per share which was paid on 27 August 2010 to shareholders on the register on 6 August 2010, having an ex-dividend date of 4 August 2010. 

5.         The following are considered related parties: the Board of Directors ("the Board") and CQS/New City Investment Managers Limited ("the Manager"). As at 30 June 2010, the Company held shares in New City Energy, Golden Prospect Precious Metals and Geiger Counter, these three investment companies are also managed by the Manager. Mr Lockwood is a non-executive director of Kalahari Minerals.  At the year end the Company held 3,600,000 Kalahari Minerals ordinary shares valued at £5,436,000 and 1,750,000 Kalahari Minerals 10% Cv 31/08/11 valued at £1,750,000.  Mr Prickett is also a Director of Patagonia Gold. At the year end the Company held 3,712,500 shares in Patagonia Gold valued at £501,188. There are no other transactions with the Board other than aggregated remuneration for services as Directors.

6.         The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 June 2010.  The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2009 accounts, their report was unqualified and did not contain a statement under section 498 of the Companies Act 2006.  The statutory accounts for 2010 are audited and the Auditors have issued an unqualified opinion. The statutory accounts for 2010 will be finalised on the basis of the financial information presented in this 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 2009, and the way in which they are managed, are described in more detail in the annual report for the year ended 30 June 2010.  The report will be made available on the manager's website www.ncim.co.uk during October 2010.

The Company's financial instruments comprise its investment portfolio, cash balances, bank facilities, debtors and creditors that arise directly from its operations.  As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective.  The Company makes use of flexible borrowings for short term purposes, as detailed in the Chairman's Statement, to achieve improved performance in rising markets and to seek to enhance the returns to shareholders, when considered appropriate by the Manager.  The downside risk of borrowings may be reduced by raising the level of cash balances held.

Listed fixed asset investments held are valued at fair value.  For listed securities this is either bid price or the last traded price depending on the convention of the exchange on which the investment is listed.  Unlisted investments are valued by the Directors on the basis of all information available to them at the time of valuation.  The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance Sheet.  The fair value of the bank facility is not materially different from its carrying value in the Balance Sheet.

The main risks that the Company faces arising from its financial instruments are:

(i)         market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii)         interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;

(iii)        foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales and income will fluctuate because of movements in currency rates;

(iv)        credit risk, being the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and

(v)         liquidity risk, being the risk that the Company many not be able to liquidate quickly its investments.

Market price risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held.  It represents the potential loss the Company might suffer through holding market positions in the face of price movements.  To mitigate the risk the Board's investment strategy is to select investments for their fundamental value.  Stock selection is therefore based on disciplined accounting, market and sector analysis, with the emphasis on long term investments.  An appropriate spread of investments is held in the portfolio in order to reduce both the statistical risk and the risk arising from factors specific to a country or sector.  The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. 

Interest rate risk

Financial assets

Bond and preference share yields, and their prices, are determined by market perception as to the appropriate level of yields given the economic background.  Key determinants include economic growth prospects, inflation, the Government's fiscal position, short term interest rates and international market comparisons.  The Investment Manager takes all these factors into account when making any investment decisions as well as considering the financial standing of the potential investee company.

Returns from bonds and preference shares are fixed at the time of purchase, as the fixed coupon payments are known, as are the final redemption proceeds.  Consequentially, if a bond is held until its redemption date, the total return achieved is unaltered from its purchase date.  However, over the life of a bond the market price at any given time will depend on the market environment at that time.  Therefore, a bond sold before its redemption date is likely to have a different price to its purchase level and a profit or loss may be incurred.

Floating rate

When the Company retains cash balances they are held in floating rate deposit accounts.  The benchmark rate which determines the interest payments received on cash balances is the bank base rate for the relevant currency for each deposit.

Financial liabilities

The Company has borrowed in Sterling at a floating rate of interest.  The Board sets borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis.

Foreign Currency Risk

The Company invests in overseas securities and may hold foreign currency cash balances which give rise to currency risks. The Company does not hedge its currency exposure and as a result the movement of exchange rates between pounds sterling and the other currencies in which the Company's investments are denominated may have a material effect, unfavourable or favourable, on the returns otherwise experienced on the investments made by the Company. Although the Manager may seek to manage all or part of the Company's foreign exchange exposure, there is no assurance that this can be performed effectively.

The Manager does not intend to hedge the Company's foreign currency exposure at the present time.

Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.  The Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis.  The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.

Credit risk on fixed interest investments is considered to be part of market price risk.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement.  Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

The cash held by the Company and all the assets of the Company which are traded on a recognised exchange are held by HSBC Bank, the Company's custodian.  Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited.  The Board monitors the Company's risk by reviewing the custodian's internal control reports.

Should the credit quality or the financial position of HSBC Bank deteriorate significantly the Investment Manager will move the cash holdings to another bank.

There were no significant concentrations of credit risk to counterparties as at 30 June 2010 and as at 30 June 2009.

Liquidity risk

The Company's financial instruments include investments in unlisted investments which are not traded in an organised public market and which generally may be illiquid.  As a result, the Company may not be able to liquidate these investments at an amount close to their fair value.

The Company's liquidity risk is managed on an ongoing basis by the Investment Manager.  The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient cash and readily realisable securities to pay accounts payable and accrued expenses.

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 2010, 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

Geoff Burns, Chairman

4 October 2010

 

END

 

 

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