Half Yearly Report

RNS Number : 7450B

City Natural Res High Yield Tst PLC

24 February 2011

 



To:                    RNS

From:                City Natural Resources High Yield Trust plc

Date:                24 February 2011

Unaudited results for the six months ended 31 December 2010

·      Highest share price total return by any conventional trust during 2010 - 85.6 per cent *

·      Net asset value total return of 80.2 per cent since 1 January 2010

·      Net asset value total return of 77.0 per cent since 1 July 2009 compared to a total return of 34.9 per cent from the benchmark index

·      Dividend increase of 11.3 per cent for the half year

·      Ordinary share price discount of 12.7 per cent to net asset value

* Source: J P Morgan Cazenove (excluding VCTs)

Chairman's Statement

Investment and Share Price Performance

At 31 December 2010 your Company's net asset value stood at 394.4 pence, giving a net asset value total return for the six month period under review of 77.0 per cent and a share price total return of 84.8 per cent; the benchmark index returned 34.9 per cent.

This means that your Company followed a net asset value total return of 100.0 per cent for the 2009 calendar year with a net asset value total return for the 2010 calendar year of 80.2 per cent. Its share price performance was even stronger, with the 147.6 per cent total return of 2009 being followed by 85.6 per cent in 2010.

The share price return reflected a narrowing of the discount at which the Company's shares trade from 31.1 per cent at 31 December 2008 to 15.3 per cent at 31 December 2009 and 12.7 per cent at 31 December 2010. This does not, of course, represent straight line progress, but your Board and Manager have worked work hard to minimise the discount figure over a number of years, and it feels for the first time as though the market is, perhaps, moving to re-rate the Company's shares. Caution must, however, remain the watchword as the stability and reduced volatility that typically mitigate discount levels remain elusive.

Too many statistics obscure, but it is worth underlining the fact that your Company's net asset value increased from 52.1 pence on 1 August 2003, the date of its current incarnation, to 394.4 pence at 31 December 2010.

Income and Dividends

Nor has this capital performance been achieved at the expense of income. For a number of years the portfolio has been managed with income enhancement and a desire to progress the dividend firmly in mind, and the dividends paid in respect of the year to 30 June 2009 were 15.8 per cent higher than those paid in 2008, while the year to 30 June 2010 saw a further 20.8 per cent dividend increase. This represented a fifth successive year of dividend increases.

The yield on the Company's shares is 1.2 per cent as I write, and the revenue reserve stands at 5.9 pence per share, up from 5.7 pence per share at 30 June 2010.

We are always aware of the importance of income to investors. Two interim dividends of 0.69 pence have been paid in respect of this year, representing an increase of 11.3 per cent on the same period last year, in line with our policy of progressive dividend increases.

Investment Strategy and Outlook

When I wrote to you a year ago I said that we were slightly sceptical as to whether bank bail outs, low interest rates, quantitative easing and ballooning budget deficits amounted to a programme that would encourage a sustained global recovery, but that we kept faith in the strength of the commodity story over the medium term. I wrote to you again on 1 October 2010, noting that while we were not wholly convinced by the depth of the market rally, we were satisfied that the Company was well positioned to capitalise on the longer term demand for finite natural resources.

I am afraid that I can do no better than to express a similarly qualified optimism as we move into a new decade. Markets have been distorted by long-term interest rates which remain low; by government intervention which remains high; and, by levels of sovereign debt that remain excessive. Exchange rates fluctuate wildly, and once again the spectre of inflation stalks the land.

Equity markets have weathered these conditions well to date, but we remain on our guard, with gearing at a modest level. While the drivers that have benefited the performance of your Company remain to large extent still in place, namely: emerging markets growth; commodity price rises; mergers and acquisitions; and, sterling weakness, there are signs of overheating and inflation in that main generator of growth - Asia. In the short term if growth were to slacken its pace there, this would be felt in the natural resources arena, so we are not complacent.

All of that said, the essentials underlying the commodity story remain a touchstone in the medium and longer term, and your Company is well positioned to take advantage of the demand created by the shift of economic power from the old world to the new, as the former continues to pay for the partying of the last decade, so generously financed by the latter.

Manager's Review

The last six months have seen the Company's net asset value total return rise by 77.0 per cent and the share price total return by 84.8 per cent. The conditions in most equity markets have been buoyant and the Company's performance has been helped by strong moves in the underlying commodity prices, notably Gold, Uranium and Palm Oil.

Continued M&A activity has also been supportive of prices within the resources sector and the portfolio has been helped by the weakness in Sterling, particularly against the Australian and Canadian dollars.

The economic backdrop has continued to be mixed with patchy growth in the economies of the Developed nations offset by further growth in the Emerging nations. A lack of resolution to the Sovereign Debt problems and further expansion of the Federal Reserve balance sheet by the implementation of QE2 has further clouded the picture.

None of the above factors have been negative for Gold, which hit an all time high during December. The Company's large weighting in the sector was enhanced by the focus on the growth companies, at the expense of the large stocks which generally underperformed during the period.

Corporate activity and absence of new supply were consistent themes across many commodity sectors, but never more so than in the Uranium space. The bid for Mantra Resources, which was developing the Mkuju project in Tanzania, by ARMZ Uranium Holdings, a Russian company, being the most significant transaction. The Russians have been the largest source of Uranium supply for the last few years via the HEU agreement and it is noteworthy that this is the second acquisition this year after the earlier purchase of 51 per cent of Uranium One. The uranium price rose from $42 to $66 during the period.

The Rare Earth sector has been in the market's spotlight over the period and never did we think that a drunken Chinese fisherman could have such an influence on the Company's performance. The unfortunate mariner's detention by the Japanese authorities and the retaliatory reduction in Rare Earth export quotas by the Chinese led to a scramble to find companies outside of China who were capable of producing these elements that are vital to new technologies. The performances of Lynas Corporation, Great Western Minerals and Neo Material Technologies all reflected the surge in prices of the Rare Earth basket.

Looking forward, we are conscious of inflation creeping back, particularly in the prices of food and energy, in developing countries. The housing market continues to be a drag on any revival in the United States, and, elsewhere, political risk would appear to be the dominant theme for at least the first half of the year.

Enquiries:

Will Smith / Merfyn Roberts

Investment Manager

New City Investment Managers                           Tel:  [phone]

Martin Cassels

Company Secretary

F&C Asset Management plc                               Tel:  [phone]

Beth Harris

Threadneedle Communications                            Tel:  [phone]

Unaudited Income Statement

for the six months ended 31 December 2010

			2010	2010	2010
		Revenue		Capital	Total
	Notes	£'000		£'000	£'000
Gains on investments		-		113,295	113,295
Exchange losses		-		(128)	(128)
Income	3	2,868		-	2,868
Investment management fee		(304)		(911)	(1,215)
Other expenses		(244)		-	(244)
Net return before finance costs and taxation		2,320		112,256	114,576
Interest payable and similar charges		(41)		(121)	(162)
Net return on ordinary activities before taxation		2,279		112,135	114,414
Tax on ordinary activities		(408)		289	(119)
Net return attributable to equity shareholders		1,871		112,424	114,295
Return per ordinary share	1	2.80p		168.16p	170.96p

Amounts recognised as dividends in the period

	Six months	Six months
	ended	ended
	31 December	31 December
	2010	2009
	(unaudited)	(unaudited)
	£'000	£'000
Fourth interim dividend for the year ended
30 June 2009 of 1.42p per share	-	894
First interim dividend for the year ended
30 June 2010 of 0.62p per share	-	390
Fourth interim dividend for the year ended
30 June 2010 of 1.85p per share	1,237	-
First interim dividend for the year ended
30 June 2011 of 0.69p per share	461	-
	1,698	1,284

Unaudited Income Statement

for the six months ended 31 December 2009

			2009	2009	2009
		Revenue		Capital	Total
	Notes	£'000		£'000	£'000
Gains on investments		-		38,656	38,656
Exchange losses		-		(179)	(179)
Income	3	2,506		-	2,506
Investment management fee		(200)		(600)	(800)
Other expenses		(160)		-	(160)
Net return before finance costs and taxation		2,146		37,877	40,023
Interest payable and similar charges		(36)		(108)	(144)
Net return on ordinary activities before taxation		2,110		37,769	39,879
Tax on ordinary activities		(491)		400	(91)
Net return attributable to equity shareholders		1,619		38,169	39,788
Return per ordinary share	1	2.53p		59.70p	62.23p

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	3	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	4.88p		60.21p	65.09p

Balance Sheet as at 31 December 2010
	As at 31 December	As at 31 December	As At 30 June
	2010	2009	2010
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Fixed assets
Investments	281,767	158,033	160,293
Current assets
Debtors	1,579	1,256	1,089
Cash at bank and on deposit	438	3,222	4,382
	2,017	4,478	5,471
Creditors: amounts falling due within one year	(20,078)	(13,348)	(14,655)
Net current liabilities	(18,061)	(8,870)	(9,184)
Net Assets	263,706	149,163	151,109
Capital and reserves
Called-up share capital	16,714	16,714	16,714
Special distributable reserve	30,386	30,386	30,386
Share premium	4,753	4,753	4,753
Capital reserve	207,884	94,254	95,460
Revenue reserve	3,969	3,056	3,796
Equity shareholders' funds	263,706	149,163	151,109
Net asset value per share	394.43p	223.11p	226.02p

Reconciliation of Movements in Shareholders' Funds

	Six months	Six months	Year
	ended	ended	Ended
	31 December	31 December	30 June
	2010	2009	2010
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Opening equity shareholders' funds	151,109	107,316	107,316
Exercise of warrants	-	3,343	3,343
Return on ordinary activities after taxation	114,295	39,788	42,563
Dividends paid	(1,698)	(1,284)	(2,113)
Closing equity shareholders' funds	263,706	149,163	151,109

Condensed Cash Flow Statement for the six months ended 31 December 2010
	Six months ended 31 December 2010 (unaudited)	Six months ended 31 December 2009 (unaudited) (restated)	Year ended 30 June 2010 (audited)
	£'000	£'000	£'000
Net cash inflow from operating activities	1,406	1,239	2,719
Net cash outflow from servicing of finance	(151)	(196)	(291)
Taxation paid	-	-	(70)
Net cash outflow from financial investment	(9,010)	(4,971)	(5,243)
Equity dividends paid	(1,698)	(1,284)	(2,113)
Net cash outflow before financing	(9,453)	(5,212)	(4,998)
Net cash inflow from financing	5,637	3,343	4,504
Decrease in cash	(3,816)	(1,869)	(494)
Reconciliation of net cash flow to movement in net debt
Decrease in cash	(3,816)	(1,869)	(494)
Drawdown of bank facility	(5,637)	-	(1,161)
Exchange losses	(128)	(179)	(394)
Movement in net debt in the period	(9,581)	(2,048)	(2,049)
Opening net debt at 1 July	(8,779)	(6,730)	(6,730)
Closing net debt at 31 December/ 30 June	(18,360)	(8,778)	(8,779)
Represented by:
Cash at bank	438	3,222	4,382
Debt falling due within one year	(18,798)	(12,000)	(13,161)
	(18,360)	(8,778)	(8,779)
Reconciliation of operating revenue to net cash flow from operating activities
Net revenue before interest payable and taxation	114,576	40,023	43,346
Gains on investments	(113,295)	(38,656)	(40,840)
Withholding tax suffered	(95)	(31)	(83)
Increase in accrued income	(114)	(189)	(52)
(Increase) / decrease in other debtors	(8)	(5)	2
Increase / (decrease) in other creditors	81	(82)	(48)
Exchange losses	128	179	394
VAT on management fees refund	133	-	-
Net cash inflow from operating activities	1,406	1,239	2,719

Notes

1.         The unaudited interim results which cover the six months to 31 December 2010 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the year ended 30 June 2010.

2.         A first interim dividend of 0.69p per share was paid on 26 November 2010.  A second interim dividend of 0.69p per share will be paid on 25 February 2011.

3.         The breakdown of income for the six months to 31 December 2010, 31 December 2009 and the year to 30 June 2010 was as follows:

	Six months ended 31 December 2010 £'000	Six months ended    31 December 2009 £'000	Year ended 30 June 2010 £'000
Income from investments
UK dividend income	437	216	410
Overseas dividends	632	194	435
Interest on fixed interest securities	1,776	2,029	4,123
	2,845	2,439	4,968
Other income
Deposit interest	1	1	2
Other income	22	66	90
Total income	2,868	2,506	5,060

4.         The revenue return per ordinary share is based on a net profit after tax of £1,871,000 (31 December 2009 - £1,619,000 and 30 June 2010 - £3,188,000) and on a weighted average of 66,857,143 ordinary shares (31 December 2009 - 63,934,322 and 30 June 2010 - 65,391,728).

The capital return per ordinary share is based on a net capital gain after tax of £112,424,000 (31 December 2009 - a gain of £38,169,000 and 30 June 2010 - a gain of £39,375,000) and on a weighted average of 66,857,143 ordinary shares (31 December 2009 - 63,934,322 and 30 June 2010 - 65,391,728).

5.         The net asset value per ordinary share is based on net assets at the end of the period of £263,706,000 (31 December 2009 - £149,163,000, 30 June 2010 - £151,109,000) and on 66,857,143 (31 December 2009 - 66,857,143, 30 June 2010 - 66,857,143) ordinary shares, being the total number of ordinary shares in issue at the period end.  The net asset value per ordinary share at 31 December 2010 was 394.43p.

6.         The Company's investment manager is New City Investment Managers ("NCIM"), a group company of CQS Cayman Limited Partnership. NCIM receive a basic monthly fee at the rate of 0.1 per cent of the Company's net assets (excluding borrowings), payable in arrears.  During the period investment management fees of £1,215,000 were incurred, of which £262,000 was payable at the period end.

As at 31 December 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 Prickett is also a director of Patagonia Gold. At the period end the Company held 3,712,500 shares in Patagonia Gold valued at £2,162,531.

7.         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.

8.         The results for the half-year ended 31 December 2010 and 31 December 2009, which have not been reviewed by auditors, pursuant to the Auditing Practices Board guidance on the review of interim financial information, constitute non-statutory accounts in terms of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended 30 June 2010, which were unqualified and did not contain a statement under Section 498 of the Companies Act 2006, have been lodged with the Registrar of Companies. 

9.         The report and accounts for the half-year ended 31 December 2010 will be posted to shareholders and made available on the website www.ncim.co.uk.  Copies may also be obtained from the Company Secretary, F&C Asset Management plc, 80 George Street, Edinburgh, EH2 3BU

Directors' Statement of 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 strategic, regulatory, operational matters and financial controls.  These risks, and the way in which they are managed, are described in more detail under the heading 'Principal risks and risk management' within the Directors' Report and Business Review contained within the Company's annual report and accounts for the year ended 30 June 2010.  The Company's principal risks and uncertainties have not changed materially since the date of the report.

Statement of Directors' Responsibilities in Respect of the Financial Statements

The accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm that to the best of their knowledge:

·      the condensed set of financial statements has been prepared in accordance with applicable UK accounting standards and gives a true and fair view of the assets, liabilities, financial position and return of the Company;

·      the half-yearly report includes a fair review of the 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 principal risks and uncertainties for the remainder of the financial year; and

·      the half-yearly report includes details of related party transactions.

On behalf of the Board

Geoff Burns

Chairman

24 February 2011

 

END

 

 

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