Half-year Report

CQS Natural Resources Grwth&Inc PLC
28 March 2024
 

CQS Natural Resources Growth and Income PLC
Unaudited Half Year Results For The Six Months Ended 31 December 2023

 

This Announcement is not the Company's Half Year Report & Accounts. It is an abridged version of the Company's full Half Year Report & Accounts for the six months ended 31 December 2023. The full Half Year Report & Accounts, together with a copy of this announcement, will shortly be available on the Company's website at www.ncim.co.uk/cqs-natural-resources-growth-and-income-plc where up to date information on the Company, including daily NAV, share prices and fact sheets, can also be found.

The Company's Half Year Report & Accounts for the six months ended 31 December 2023 has been submitted to the UK Listing Authority, and will shortly be available for inspection on the National Storage Mechanism ("NSM"): https://data.fca.org.uk/#/nsm/nationalstoragemechanism

Our Objective

To provide shareholders with capital growth and income predominantly from a portfolio of mining and resource equities and of mining, resource and industrial fixed interest securities.

Strategic report

Key Metrics


Six months to 31 December 2023

Six months to 31 December 2022

Net asset value total return

3.4%

17.2%

Share price total return

0.7%

13.9%

Dividend yield**

3.3%

2.8%

Net asset value capital return

0.1%

15.6%

Share price capital return

(0.7)%

12.3%

MSCI World Energy Sector Index* total return (sterling adjusted)

6.8%

17.7%

MSCI World Metals and Mining Index* total return (sterling adjusted)

8.4%

18.9%

 

*    Used by the Company as a comparator, not a benchmark.

**  Based on an annualised dividend of 5.60 pence per share.

Chair's Statement

 

 

Your Board believes that the ongoing energy transition is an investment theme that will deliver rewards to investors over the long term.

OVERVIEW

Geopolitical events, inflation concerns, and a slow rebound in growth in China have defined the first half of our financial year. These macro headwinds have had a knock on effect on some but not all commodities in which the fund invests. As a result, your Investment Manager took a more cautious approach over the past six months, positioning the portfolio to mitigate risks.

Geopolitically, the period was dominated by the Israel / Hamas conflict and the ongoing war in Ukraine. While fears of a significant broadening of the conflict have, to date, proven unfounded, November saw the beginning of sustained attacks on shipping in the Red Sea. Perhaps surprisingly, these tensions have yet to have a material effect on the price of commodities.

Elsewhere, reflecting easing inflation and weak new housing and manufacturing activity in China which have acted as headwinds to many commodity markets, the portfolio has low levels of exposure to base metals. Precious metals, on the other hand, were supported by central bank buying, with gold hitting an all-time high although this is yet to flow through to the valuations of the precious metal miners.

On a positive note, our exposure to uranium has delivered good results as the sector has continued to be supported by demand arising from moves to reduce emissions and extend reactor lives. Supply has been constrained as a result of sanctions against Russia and a lack of new developments and the Investment Manager believes that this allows the sector to offer some defensive characteristics.

Fuller details of how the Investment Manager has navigated these and other markets in which we invest are provided in the Investment Manager's Review.

PERFORMANCE AND DISCOUNT

Despite the macro headwinds, the performance of the fund generated a total net asset return of 3.4%. The share price total return over the period was 0.7%. This difference reflects a widening of the discount over the period from 13.5% to 17.7%, in line with the widening of discounts seen across the investment trust sector in the second half of calendar 2023.

As stated in our most recent Annual Report, the Company now uses the MSCI World Metals and Mining Index (which produced a total return of 8.4% in sterling terms), and the MSCI World Energy Sector Index (which returned 6.8% in sterling terms) as performance comparators. This decision was taken as one of the component indices from our previous composite index (80 per cent of the EMIX Global Mining Index and 20 per cent of the Credit Suisse High Yield Index) was retired in July 2023 and no suitable replacement was available. The Board believes the comparison of our performance to the MSCI World Metals and Mining and the MSCI World Energy Sector indices is more accurate and sustainable.

During the six month period under review, the Company underperformed its MSCI comparators. In part, this was due to the Company's focus on small and mid-capitalisation companies, which the macro-economic environment did not favour during the period.

Over the longer term the Company's net asset value has increased by 144.0% in total return terms over the five years to 31 December 2023. In comparison, the MSCI World Energy Sector Index has risen by 65.2% and the MSCI World Metals and Mining Index has increased by 113.4% over the same period.

DIVIDENDS AND INCOME

The Board considers that the dividend policy is very attractive to shareholders and provides an element of share price stability. The Company has continued to maintain its dividend and has paid two quarterly dividends of 1.26 pence each per share during the financial year to date.

We continue to monitor the revenue position of the Company closely. Our income can be materially affected by shifts in portfolio holdings and by special dividends received. The revenue outlook remains healthy, supported by income from shipping and energy. However, at this stage of the year it is reasonable to say that a repeat of last year's supernormal payout is unlikely given a reduced level of special dividend receipts from energy investments in the year to date. Based on the current conditions and revenue forecasts, and subject to no unforeseen circumstances, the Board currently intends to follow the pattern of previous years in paying three identical interim dividends, with the last dividend of the year being adjusted to reflect the full year revenue position of the Company. Should the portfolio benefit from any material one-off dividends from its holdings, the Board may consider an additional special dividend, separate from the more reliable continuing dividend stream offered by the Company.

GEARING

The rising uncertainty in the markets in which the Company invests has led the Investment Manager to reduce gearing slightly over the period from 8.9% at the start of the period to 7.1% as at 31 December 2023. Gearing continues to be provided by a £25 million revolving credit facility from Scotiabank which is due to mature in September 2024 and which the Company intends to renew. As at 31 December 2023, a total of £14 million had been drawn down from this facility. Further details will be provided in the Company's Annual Report for the year to 30 June 2024.

OUTLOOK

The outlook is demanding, however, the more volatile conditions we are operating in do create investment opportunities for your Investment Manager. The flexible mandate which allows the Investment Management team to invest across a range of commodity sectors has proved very useful as the Company has avoided exposure to areas such as iron ore and copper which have come under pressure over the last year. Attractive areas for investment growth can be seen in the uranium sector in which we have increased our weighting. We have also kept our precious metals exposure as an effective hedge against market volatility.

The Board share the Investment Manager's views and expectations for the longer term: further details are set out within their Review.

HELEN GREEN

Chair

27 March 2024

Financial Highlights

Total Return

Six months ended

31 Dec 2023

Six months ended

31 Dec 2022

Year ended

30 June 2023

Five years ended

31 December

2023

Net asset value

3.4%

17.2%

3.5%

144.0%

Ordinary share price

0.7%

13.9%

(2.0)%

142.2%

MSCI World Energy Sector Index (sterling adjusted)*

6.8%

17.7%

8.2%

65.2%

MSCI World Metals and Mining Index (sterling adjusted)*

8.4%

18.9%

14.0%

113.4%

 

Capital Values

As at

31 December

2023

As at

30 June

2023

% change

Net asset value per share

204.33p

204.16p

0.1%

Ordinary share price (mid market)

168.25p

169.50p

(0.7)%

 

Revenue and Dividends

Six months ended

31 Dec 2023

Six months ended

31 Dec 2022

Earnings per ordinary share

3.06p

5.26p

Dividends per ordinary share

2.52p

2.52p

Dividend yield**

3.3%

2.8%

Discount (difference between share price and fully diluted net asset value)

17.7%

15.8%

Gearing

7.1%

8.2%

Ongoing charges (as a percentage of average shareholders' funds)

1.8%

1.6%

 

Highs and Lows during the six months ended 31 December 2023

High

Low

Net asset value

217.92p

188.63p

Ordinary share price (mid market)

187.00p

164.50p

Discount

19.3%

9.9%

 

Dividend History

Rate per share

Ex-dividend date

Record date

Payment date

Second interim dividend 2024

1.26p

25 January 2024

26 January 2024

23 February 2024

First interim dividend 2024

1.26p

26 October 2023

27 October 2023

27 November 2023

Total

2.52p




Special interim dividend 2023

3.00p

21 September 2023

22 September 2023

16 October 2023

Fourth interim dividend 2023

1.82p

27 July 2023

28 July 2023

31 August 2023

Third interim dividend 2023

1.26p

27 April 2023

28 April 2023

26 May 2023

Second interim dividend 2023

1.26p

26 January 2023

27 January 2023

28 February 2023

First interim dividend 2023

1.26p

27 October 2022

28 October 2022 25

November 2022

Total

8.60p




*    The EMIX Global Mining Index (sterling adjusted), which formed part of the Company's composite benchmark index in periods prior to 30 June 2023 ceased publication. From 1 July 2023, the Company has used the MSCI World Energy Sector Index (sterling adjusted) and MSCI World Metals and Mining Index (sterling adjusted) as performance comparator indices, not formal benchmarks.

**  Based on an annualised dividend of 5.60 pence per share (31 December 2022: 5.60 pence per share).

Portfolio at a glance

By commodity


As at 31 December 2023 % of total investments

As at 31 December 2022 % of total investments

Oil & Gas

31.1%

34.1%

Gold

20.6%

11.2%

Uranium

10.0%

5.9%

Shipping

6.6%

8.3%

Coal

5.8%

8.2%

Copper

5.7%

6.5%

Base metals*

5.2%

6.6%

Lithium

4.9%

6.8%

Palm Oil

2.9%

3.2%

Silver

2.1%

2.7%

Rare Earths

2.1%

2.0%

Nickel

1.2%

3.1%

Platinum

0.8%

1.0%

Diversified Minerals

0.7%

0.4%

Zinc

0.3%

-

* Comprises polymetallic investee companies.

By location of listing


As at 31 December 2023 % of total investments

As at 31 December 2022 % of total investments

Canada

52.1%

37.6%

US

15.1%

17.7%

Australia

15.1%

20.8%

UK

10.8%

9.7%

Europe

4.0%

8.8%

Unquoted

2.9%

5.4%

Investment Manager's Review

 

 

ECONOMIC AND MARKET SUMMARY

Inflation pressures notably eased during the period under review, supporting a market consensus for a broader soft landing in the global economy. We have taken a more cautious tone as we see a number of potential risks that are increasingly difficult to ignore. The year-on-year comparisons on inflation are flattered by the peak inflation numbers in late 2022, which, whilst easing, means that prices are still substantially above where they were, even if the rate of growth has slowed. This has led to higher wage demands from a tight workforce adding some permanence to inflation.

The reopening of China's economy has stalled over the past six months as the ongoing property crisis continues to dampen sentiment and confidence, thus weighing on the demand for commodities. The Chinese stock markets remain weak, indicative of broader concerns, whilst the Chinese central bank is easing monetary conditions to add support.

The ongoing Russian / Ukrainian war has had remarkably little impact on commodities, as Russian commodities have circumvented restrictions and sanctions. Russian oil has consistently traded above the $60 per barrel price cap.

The Israel / Hamas conflict has also seen little direct impact on commodities. Iran remains involved in most Middle East regional incidents and continues to enrich uranium to weapons grade, suggesting an increasing probability of escalation or at a minimum a stricter enforcement of sanctions, which would be supportive for oil prices.

POSITIONING

Commodities continue to offer good protection against inflation risk, but with a worsening outlook for China we continued to focus the portfolio on commodities that are less tied to Chinese economic growth. This has led to a zero weighting in iron ore and a low weighting in base metals, that are intrinsically tied to Chinese property and white goods. The pace of the energy transition theme has also softened, and the valuations are generally quite stretched. Over the medium term, valuations appear attractive as supply remains constrained. We will be looking to add back to the sector on any material pull backs.

We increased the weighting in the precious metal miners, however, sentiment towards this sub sector remained poor, with discounted valuations despite the gold price making a new all time high at the end of 2023. Gold has held above $2,000 per oz. despite weak financial market demand from exchange-traded funds ("ETFs") and soft retail demand. The primary driver has been strong Central Bank demand, which we expect to continue over the coming years. There are many reasons we believe steady ETFs selling of physical gold may shift to buying in 2024, which may be the catalyst to more convincingly break the all-time highs that are currently creating significant resistance.

The portfolio continues to be overweight in energy, noting energy demand is fairly insensitive to slowdowns as people still drive to work, heat homes, require goods to be delivered to supermarkets etc. Supply growth is also constrained, but after OPEC cuts of 3 million barrels of oil per day, there is still spare production capacity that can fill projected global demand growth for 2024.

Although discord in OPEC is flagging, the Saudis are less willing to bear further cuts for the group, which lessens one supportive mechanism. However, other than this spare capacity, it is not clear where any meaningful sources of supply will come from. The US shale sector is now maturing. There have been a number of large-scale mergers, discipline has increased, rig counts have dropped and US shale growth looks close to plateauing, despite headlines flagging record US shale production. We will see increasingly less flexibility in the system through 2024, leaving the market vulnerable to any supply shocks.

2023 was marked by very few energy supply disruptions, as Russian supply managed to circumvent sanctions and the price cap via the shadow fleet of older crude ships they acquired, but the lack of oil field services will begin to weigh on domestic production. The US also eased sanctions on Iranian oil exports, leading to an increase in supply, despite Iran appearing to have a hand in multiple points of tension in the Middle East. Going in to 2024, at the time of writing, Trump is leading in the polls. He would be likely to take a much tougher stance on Iran, whilst even under Biden, application of sanctions would probably toughen which could add to a tightening of spare capacity in the global oil market.

The portfolio's shipping weighting remains at 9%, dominated by holdings in crude shipper, Frontline, and propane shipper, BW LPG. The order books for shipping in general are at record lows, as a lack of clarity on future propulsion regulation has made financing new vessels difficult. This has pushed up the values of the existing fleets and is leading to strong day rates as shipping fleet utilisation levels increase. This has led to strong earnings for the sector.

The Company's weighting in uranium miners increased to 10.4%, in part due to strong performance from the likes of NexGen but also through some additions. The market dynamics for uranium look increasingly positive as a structural tightly supplied market is being met by an increase in demand. This is driven by an extension of reactor lives in the West following global climate commitments to reduce emissions. China continues to build 8-10 reactors a year and is pushing both spot uranium prices and contract prices significantly higher.

OUTLOOK

The outlook for commodities looks more varied than we have seen in prior stages of the cycle in our view. Energy and precious metals offer an attractive risk reward on a top-down and bottom-up view, hence the large positioning. Commodities should prove more defensive in a slowing economic backdrop, whilst the bottom-up valuations lead to strong returns for the underlying companies held.

Uranium miners are seeing an exciting fundamental backdrop as a tightening supply demand balance is seeing stronger pricing. Unlike other commodities, higher prices have little impact on demand for Uranium as it is such a small proportion of the overall cost of power production. The political support for this zero-carbon form of baseload power will lead to a further build out of the global reactor fleet, supporting demand and thus prices received by the miners. This demand will remain regardless of the global economy so also offers defensive characteristics.

We see demand risks in base metals in the near term primarily driven by a Chinese slow down hence the zero weight in iron ore and reduced weight in base metals, but we like the long-term structural deficits some years out, especially in copper. Valuation remains hugely important in our allocation, which for now leaves copper miners looking relatively expensive. We will add back to these names on weakness or where we see outlying value opportunities.

IAN FRANCIS, KEITH WATSON, ROB CRAYFOURD

New City Investment Managers

27 March 2024

Investment Portfolio As at 31 December 2023

 

Company

Sector

Valuation

£'000

Total

Investments

%

NexGen Energy

Uranium

10,848

7.4

BW LPG

Shipping

7,530

5.1

Emerald Resources

Gold

7,371

5.0

Transocean

Oil & Gas

6,451

4.4

Frontline1

Oil & Gas

5,024

3.4

Diamondback Energy

Oil & Gas

4,708

3.2

Precision Drilling

Oil & Gas

4,379

3.0

Vermilion Energy

Oil & Gas

4,370

3.0

REA Holdings2

Palm Oil

4,236

2.9

EOG Resources

Oil & Gas

4,041

2.8

Top ten investments


58,958

40.2

Karora Resources

Base metals

3,875

2.6

Diversified Gas & Oil

Oil & Gas

3,654

2.5

West African Resources

Gold

3,555

2.4

Tamboran Resources

Oil & Gas

3,497

2.4

Leo Lithium

Lithium

3,340

2.3

Foran Mining

Copper

3,315

2.3

Lynas Corporation

Rare Earth

2,872

2.0

Thungela Resources

Coal

2,578

1.8

Calidus

Gold

2,571

1.8

Sigma Lithium Resources

Lithium

2,548

1.7

Top twenty investments


90,763

61.9

Peabody Energy

Coal

2,479

1.7

Ora Banda Mining

Gold

2,448

1.7

Calibre Mining

Gold

2,065

1.4

Coronado Global Resources

Coal

2,027

1.4

Ur-Energy

Uranium

2,023

1.4

Wheaton Precious Metals

Gold

1,935

1.3

Talon Metals

Nickel

1,819

1.2

Osisko

Gold

1,776

1.2

Pioneer Natural Resources

Oil & Gas

1,765

1.2

2020 Bulkers

Shipping

1,760

1.2

Top thirty investments


110,860

75.6

Galena Mining

Base metals

1,749

1.2

Peyto Exploration & Development

Oil & Gas

1,716

1.2

Shelf Drilling

Oil & Gas

1,539

1.0

Adventus Mining Corporation

Copper

1,525

1.0

New Hope

Coal

1,432

1.0

Fission Uranium

Uranium

1,428

1.0

Ero Copper

Copper

1,305

0.9

NorAm Drilling

Oil & Gas

1,244

0.8

Tamboran Resources

Oil & Gas

1,097

0.7

Fortuna Silver Mines

Silver

1,078

0.7

Top forty investments


124,973

85.2

Ascendant Resources3

Base metals

1,061

0.7

Metals X

Base metals

940

0.6

Westgold Resources

Gold

929

0.6

TDG Gold

Gold

845

0.6

Central Asia Metals

Copper

775

0.5

MAG Silver

Silver

758

0.5

Richmond Vanadium

Diversified Minerals

749

0.5

Mawson Gold

Gold

738

0.5

Rex Minerals

Gold

731

0.5

Rupert Resources

Gold

690

0.5

Top fifty investments


133,189

90.9

B2Gold Corp

Gold

678

0.5

Reunion Gold

Gold

602

0.4

Afentra

Oil & Gas

592

0.4

Patriot Battery Metals

Lithium

589

0.4

Integra Resources

Gold

586

0.4

Vizsla Silver

Silver

557

0.4

PetroTal Corp

Oil & Gas

552

0.4

Collective Mining

Copper

494

0.3

Trident Royalties

Zinc

479

0.3

Firefinch

Lithium

475

0.3

Top sixty investments


138,793

94.7

Palladium One Mining

Platinum

467

0.3

Euronav

Shipping

451

0.3

Cosa Resources

Copper

451

0.3

First Quantum Minerals

Copper

450

0.3

Silver Mountain Resources

Silver

445

0.3

New World Resources

Gold

445

0.3

Odyssey Gold

Gold

433

0.3

Denison Mines

Uranium

429

0.3

Newcore Gold

Gold

422

0.3

Platinum Group Metals

Platinum

381

0.3

Top seventy investments


143,167

97.7

Other investments


3,432

2.3

Total


146,599

100.0

1   Includes Frontline USD valued at £3,883,000 and Frontline NOK valued at £1,141,000.

2   Includes REA Holdings 9% preference shares valued at £3,670,000, REA Finance 8.75% 31/08/25 valued at £425,000, REA Holdings valued at £138,000 and REA Holdings warrants valued at £3,000.

3   Includes Ascendant Resources valued at £911,000 and Ascendant Resources warrants valued at £150,000.

Top ten largest holdings

 

NEXGEN ENERGY

A tier 1 uranium development asset in the established Athabasca Basin uranium mining district in Saskatchewan, Canada has the potential to be the lowest cost uranium mine globally. As a zero-carbon source of energy, civil nuclear power generation and hence uranium, may gain further traction in global energy mix.

Valuation 31.12.23 £10,848,000 (30.06.23: £7,281,000)

 

Appreciation

£3,567,000

Sales
-

Purchases
-

 

BW LPG

The world's largest independent LPG shipper, predominantly sending propane from the US and Middle East to Asia. Propane is a by-product of shale production, so benefits from increased activity in the US. Naphtha switching at refiners and displacing wood for propane as fuel in the likes of India are major drivers of demand growth. The company has a strong capital returns policy, primarily through dividends.

Valuation 31.12.23 £7,530,000 (30.06.23: £6,487,000)

 

Appreciation

£3,065,000

Sales
£(2,022,000)

 

Purchases
-

 

EMERALD RESOURCES

An Australian listed gold producer, with a producing mine in Cambodia and development asset in Australia. The company has successfully commissioned its low cost Okvau gold mine in Cambodia on time and budget. This strong management team has a long history of delivering mines on time and budget and are self-funded for the future growth profile.

Valuation 31.12.23 £7,371,000 (30.06.23: £5,160,000)


Appreciation

£2,542,000

 

Sales
£(331,000)

 

Purchases
-

 

TRANSOCEAN

A leading international provider of offshore contract drilling services for oil and gas wells. The group is well placed to benefit from an improvement in offshore rig day rates. The offshore rig market looks attractive as spending from global oil and gas increases, whilst the availability of rigs remains constrained given the large capital requirement and long lead times for new builds.

Valuation 31.12.23 £6,451,000 (30.06.23: £7,461,000)

 

Depreciation

£(620,000)

Sales
£(390,000)

 

Purchases
-

 

FRONTLINE

A leading listed seaborne transporter of crude oil and refined products. The company owns and operates one of the largest and most modern fleets in the industry, consisting of VLCCs, Suezmax tankers and LR2 / Aframax tankers. Due to Frontline's brand, financial flexibility, and significant scale, it holds a unique position among its peers.

Valuation 31.12.23 £5,024,000 (30.06.23: £0)

 

Appreciation

£648,000

Sales
£(50,000)

 

Purchases
£4,426,000

 

DIAMONDBACK ENERGY

A large US oil shale producer, in the Permian basin, in Texas. They have high quality acreage and management, so are well placed to benefit from current stronger energy pricing. The implied oil price of $60/bbl. is materially below current spot markets.

Valuation 31.12.23 £4,708,000 (30.06.23: £5,435,000)

 

Appreciation

£983,000

Sales
£(1,710,000)

 

Purchases
-

 

PRECISION DRILLING

Precision Drilling owns a fleet of land rigs for oil and gas shale, in the US, Canada and Middle East. They are well placed to benefit from tightening fundamentals in the rig market, as producer activity picks up due to stronger energy pricing. Despite a cautious stance from oil and gas re adding production in North America, the rig market is already tight, seeing strong day rates for Precision.

Valuation 31.12.23 £4,379,000 (30.06.23: £6,874,000)

 

Appreciation

£1,271,000

Sales
£(3,766,000)

 

Purchases
-

 

VERMILION ENERGY

A Canadian listed European and Canadian oil and gas producer. Two-thirds of their production is North American, but also with sizeable European gas exposure at a higher margin, the company is well placed to benefit from current tight gas market in Europe due to the loss of Russian gas, as windfall taxes have discouraged new investment into supply. With strong free cash flow and significant scope for growth, the company has focused on share buybacks so far and will increase this as they reduce debt levels further.

Valuation 31.12.23 £4,370,000 (30.0623: £4,506,000)

 

Depreciation

£(136,000)

Sales
-

 

Purchases
-

 

REA HOLDINGS

A leading contributor to responsible palm oil production globally. REA has a commitment to produce sustainably and has also received RSPO certification. Following substantial cost cutting measures the group is well placed to benefit from the recent recovery in the crude palm oil price.

Valuation 31.12.23 £4,236,000 (30.06.23: £4,683,000)

 

Depreciation

£(447,000)

Sales
-

 

Purchases
-

 

EOG RESOURCES

A top tier US shale oil producer. The company explores for, develops, produces, and markets crude oil, natural gas liquids ("NGLs") and natural gas primarily in major producing basins in the US. It also has offshore operations in Republic of Trinidad and Tobago.

Valuation 31.12.23 £4,041,000 (30.06.23: £4,150,000)

 

Appreciation

£257,000

Sales
£(366,000)

 

Purchases
-

 


Valuation

30 June 2023

Purchases

Sales

Appreciation/

(depreciation)

Total


£'000

£'000

£'000

£'000

£'000

Top ten investments

52,037

4,426

(8,635)

11,130

58,958

 

At 31 December 2023, these investments totalled £58,958,000 or 40.2% of the investment portfolio.

Financial statements

Condensed Income Statement

 



Six months ended

31 December 2023

(unaudited)

Six months ended

31 December 2022

(unaudited)



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments held at fair value through profit or loss

2

-

2,567

2,567

-

20,502

20,502

Exchange gains


-

226

226

-

16

16

Income

3

3,078

341

3,419

4,428

-

4,428

Investment management fee


(209)

(628)

(837)

(230)

(691)

(921)

Other expenses


(523)

(2)

(525)

(356)

-

(356)

Net return before finance costs and taxation


2,346

2,504

4,850

3,842

19,827

23,669

Interest payable and similar charges


(126)

(367)

(493)

(78)

(233)

(311)

Net return before taxation


2,220

2,137

4,357

3,764

19,594

23,358

Taxation


(174)

-

(174)

(247)

-

(247)

Net return after tax for the period


2,046

2,137

4,183

3,517

19,594

23,111

Basic and diluted return per share


3.06p

3.19p

6.25p

5.26p

29.29p

34.55p

 

The 'Total' column of this statement represents the Company's profit and loss account, prepared in accordance with UK GAAP.

All revenue and capital items in this statement derive from continuing operations.

There is no other comprehensive income, and therefore the net return after tax for the period is also the total comprehensive income.

The accompanying notes are an integral part of the financial statements.

Condensed Balance Sheet

 



As at

31 December

2023

(unaudited)

As at

30 June

2023

(audited)


Notes

£'000

£'000

Fixed assets




Investments at fair value through profit or loss


146,599

149,465

Current assets




Debtors


374

257

Cash at bank


4,234

3,857



4,608

4,114

Creditors: amounts falling due within one year




Other payables


(531)

(1,019)

Loan: amount falling due within one year

8

(14,000)

(16,000)



(14,531)

(17,019)

Net current liabilities


(9,923)

(12,905)

Net assets


136,676

136,560

Capital and reserves




Called-up share capital


16,722

16,722

Special distributable reserve


28,309

28,571

Share premium


4,851

4,851

Capital reserve


85,591

83,454

Revenue reserve


1,203

2,962

Equity shareholders' funds

7

136,676

136,560

Net asset value per share

7

204.33p

204.16p

 

The accompanying notes are an integral part of the financial statements.

Condensed Statement of Changes in Equity

 


Share

Capital

Share

Premium

account

Special

distributable

reserve

Capital

Reserve

Revenue

Reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

For the six months ended
31 December 2023 (unaudited)







Balance at 30 June 2023

16,722

4,851

28,571

83,454

2,962

136,560

Return after tax for the period

-

-

-

2,137

2,046

4,183

Dividends paid

-

-

(262)

-

(3,805)

(4,067)

Balance at 31 December 2023

16,722

4,851

28,309

85,591

1,203

136,676

For the six months ended
31 December 2022 (unaudited)







Balance at 30 June 2022

16,722

4,851

28,571

84,928

-

135,072

Return after tax for the period

-

-

-

19,594

3,517

23,111

Dividends paid

-

-

-

-

(2,060)

(2,060)

Balance at 31 December 2022

16,722

4,851

28,571

104,522

1,457

156,123

 

The special distributable reserve and the revenue reserve represent the amount of the Company's reserves distributable by way of dividend.

The accompanying notes are an integral part of the financial statements.

Condensed Cash Flow Statement

 



Six months

ended

31 December

2023

(unaudited)

Six months

ended

31 December

2022

(unaudited)



£'000

£'000

Operating activities




Investment income received


2,767

3,302

Deposit interest received


46

33

Investment management fees paid


(702)

(896)

Other payments


(562)

(345)

Net cash inflow from operating activities


1,549

2,094

Investing activities




Purchases of investments


(10,569)

(40,090)

Disposals of investments


15,724

40,934

Net cash inflow from investing activities

 

5,155

844

Financing activities

 

 

 

Dividends paid


(4,067)

(2,060)

Loan repayment


(2,000)

(3,000)

Loan interest paid


(486)

(302)

Net cash outflow from financing activities


(6,553)

(5,362)

Increase/(decrease) in net cash


151

(2,424)

Exchange movements


226

16

Opening net cash at 1 July


3,857

6,111

Closing net cash at 31 December


4,234

3,703

 

The accompanying notes are an integral part of the financial statements.

Notes to the Condensed Financial Statements for the Half Year ended 31 December 2023

 

1 ACCOUNTING POLICIES - BASIS OF PREPARATION

The condensed interim financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted.

The condensed interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements, which were prepared under Financial Reporting Standard 102.

2 GAINS ON INVESTMENTS

Included within gains on investments for the period ended 31 December 2023 are realised £1,993,000 (31 December 2022: £13,610,000) and unrealised gains of £574,000 (31 December 2022: £6,892,000).

3 INCOME

The breakdown of income for the six months to 31 December 2023 and 31 December 2022 is as follows:


Six months

ended

31 December

2023

(unaudited)

Six months

ended

31 December

2022

(unaudited)


£'000

£'000

Income from investments:



UK dividend income

39

66

Preference share dividend income

-

714

Overseas dividend income

2,890

3,469

Overseas fixed interest

103

126


3,032

4,375

Other income



Deposit interest

46

53

Total income

3,078

4,428

 

4 RETURN PER SHARE

Return per share attributable to shareholders reflects the overall performance of the Company in the period. Net revenue recognised in the first six months is not necessarily indicative of the total likely to be received in the full accounting year.


Six months

ended

31 December

2023

(unaudited)

Six months

ended

31 December

2022

(unaudited)


£'000

£'000

Revenue return

2,046

3,517

Capital return

2,137

19,594

Total return

4,183

23,111

 


Six months

ended

31 December

2023

(unaudited)

Six months

ended

31 December

2022

(unaudited)


£'000

£'000

Revenue return per share

3.06

5.26

Capital return per share

3.19

29.29

Total return per share

6.25

34.55

 

The weighted average number of shares in issue during the six months ended 31 December 2023 was 66,888,509 (Six months ended 31 December 2022: 66,888,509).

There are no dilutive instruments issued by the Company.

5 DIVIDENDS

During the six months to 31 December 2023, the Company paid a fourth interim dividend of 1.82 pence per share and a special interim dividend of 3.00 pence per share in relation to the financial year ended 30 June 2023, and a first interim dividend of 1.26 pence per share in relation to the six months ended 31 December 2023.

A second interim dividend 2024 of 1.26 pence per share was declared after 31 December 2023 and paid on 23 February 2024. This was not recognised in the Condensed Income Statement in this Half-Yearly Report.

6 SHARE CAPITAL

At 31 December 2023 there were 66,888,509 ordinary shares in issue (30 June 2023: 66,888,509).

During the six months ended 31 December 2023 the Company did not issue or repurchase for cancellation any ordinary shares (Six months ended 31 December 2022: none).

7 NET ASSET VALUE PER SHARE


As at

31 December

2023

As at

31 December

2022


(unaudited)

(unaudited)

Net asset value per share

204.33p

204.16p

Net assets

£136.7m

£136.6m

Ordinary shares of 25p each in issue

66,888,509

66,888,509

 

There are no dilutive instruments issued by the Company.

8 BANK LOAN FACILITY


As at

31 December

2023

(unaudited)

As at

31 December

2022

(unaudited)


£'000

£'000

Amount drawn from the bank loan facility

14,000

16,000

 

The Company has an unsecured loan facility with Scotiabank Europe Plc ("Scotiabank"). The facility expired on 17 September 2023 and has been renewed for a further year expiring on 15 September 2024.

As at 31 December 2023, the unsecured loan facility had a limit of £25 million, of which £14 million was drawn down at an estimated interest rate of 6.2855%.

During the period the covenants of the loan facility have been met. The following are the covenants for the facility:

    the borrower shall not permit the adjusted asset coverage to be less than 3.5 to 1; and

    the borrower shall not permit the net asset value to be less than £45,000,000.

The loan facility is rolled over every three months and can be cancelled at any time.

9 GOING CONCERN

After making enquiries and having considered the Company's investment objective, nature of the investment portfolio, bank facility and expenditure projections, the Directors consider that the Company has adequate resources to continue in operation for the foreseeable future. For this reason, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing this report.

10 COMPARATIVE INFORMATION

The condensed financial statements contained in this Half-Yearly Report do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the six months to 31 December 2023 and 31 December 2022 has not been audited or reviewed by the Company's external auditor.

The information for the year ended 30 June 2023 has been extracted from the latest published audited financial statements. Those statutory financial statements have been filed with the Registrar of Companies and included the report of the auditor, which was unqualified and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.

Earnings for the first six months should not be taken as a guide to the results for the full year.

11 RELATED PARTIES

The following are considered related parties: the Board of Directors ("the Board") and CQS (UK) LLP ("the Investment Manager"). On 15 November 2023, the Company was advised that CQS (UK) LLP was being acquired by Manulife Investment Management, a leading international financial services group. The transaction is expected to close in Spring 2024.

All transactions with related parties are carried out on an arm's length basis.

There are no other transactions with the Board other than aggregated remuneration and reimbursement of expenses for services as Directors. The balance due to Directors for fees at the period end was £17,000.

The Investment Manager's management fee is 1.2 per cent on net assets up to £150m; 1.1 per cent on net assets above £150m and up to £200m; 1.0 per cent on net assets above £200m and up to £250m; and 0.9 per cent on net assets above £250m.

The amount incurred in respective of investment management fees during the period was £837,000 (2022: £921,000), of which £273,000 (2022: £320,000) was outstanding as at 31 December 2023.

Interim Management Report and Responsibility

 

STATEMENT

The Chair's Statement and the Investment Manager's Review give details of the important events which have occurred during the period and their impact on the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES

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. Other key risks faced by the Company relate to investment and strategy, market, sector, financial, earnings and dividend, gearing, operational and key person, regulatory, cyber and political. These risks, and the way in which they are managed, are described in more detail under the heading 'Principal Risks, Uncertainties and Mitigation' within the Strategic Review contained within the Company's Annual Report for the year ended 30 June 2023. The Company's principal risks and uncertainties have not changed materially since the date of the report and are not expected to change materially for the rest of the Company's financial year.

RELATED PARTIES TRANSACTIONS

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

GOING CONCERN

The Directors, having considered the Company's investment objective, the nature and liquidity of the portfolio and the income and expenditure projections, consider that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and is financially sound. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE INTERIM REPORT

The Board of Directors confirms that, to the best of its knowledge:

    the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

    the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

    the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

    the interim management statement and condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

HELEN GREEN

Chair

27 March 2024

 

- ENDS -

 

For further information please contact:

Administrator and Company Secretary
Frostrow Capital LLP
Eleanor Cranmer
Email:
cosec@frostrow.com
Tel: 0203 008 4613

Investment Manager
CQS (UK) LLP
Craig Cleland
Email:
contactncim@cqsm.com
Tel: 0207 201 5368

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