Annual Financial Report

RNS Number : 3452D

CQS New City High Yield Fund Ltd

09 October 2018

 

Date:     9 October 2018

From:     CQS New City High Yield Fund Limited

LEI:        549300KMGN75B0PTWT07

Results for the year ended 30 June 2018

Chairman's Statement

Highlights

·      Net asset value total return of 5.82%.

·      Ordinary share price total return of 5.50%.

·      Dividend yield of 7.16%, based on dividends at an annualised rate of 4.42 pence
and a share price of 61.75 pence at 30 June 2018.

·      Ordinary share price at a premium of 7.15% at 30 June 2018.

·      £18.8m of equity raised during the year to 30 June 2018.

Investment and Share Price Performance

The Company's net asset value total return was 5.82% for the year ended 30 June 2018.  The share price total return for the same period was 5.50%, and the premium to net asset value at which the Company's shares trade stood at 7.1% at 30 June 2018.  The average premium over the year to 30 June 2018 was 5.6%, and over three years 4.0%.

Last year's strong investment returns were built on markets which were sanguine as to Eurozone and Brexit concerns and buoyed by President Trump's election.  This year's more subdued returns reflect a reawakening of those Brexit concerns as the end game approaches, and worry as to how President Trump's approach to international trade may play out.

Earnings and Dividends

The Company's earnings per share were 4.54 pence for the year; although marginally below the level of last year, earnings continued to cover the dividend paid.  It is worth noting that the Company has substantial revenue reserves which could be used to partly pay the dividend if it became uncovered in future years, but this isn't planned or forecast.

The Company declared three interim dividends of 0.99 pence in respect of the period, and one of 1.45 pence.  The aggregate payment of 4.42 pence per share represents a 0.7% increase on the 4.39 pence paid last year.  Based on an annualised rate of 4.42 pence and a share price of 60.40 pence at the time of writing, this represents a yield of 7.3%. Since its launch in 2007, the level of dividends paid by the Company has increased every year.

Gearing
The Company renewed its existing £30m loan facility with Scotiabank in December 2017 at a current all-in rate of 1.47%.  The facility is on comparable terms to the one that it replaced.  £28m was drawn down at 30 June 2018 and the Company had an effective gearing rate of 10.45%.

Rating and Fund Raising

The market attached a premium rating to the shares of your Company throughout the period.  Taking advantage of this, the Company raised £18.8m from new and existing shareholders during the year, selling 27.6m shares out of treasury and issuing 3.0m ordinary shares from its blocklisting facility.  A further £2.1m has been raised since the year end.  In order to ensure maximum flexibility, a resolution will be proposed at the Annual General Meeting to renew the Directors' authority to issue shares equivalent to 10% of the Company's share capital.  As well as a modest increase in net asset value from any issue of shares, existing shareholders can look to benefit from a lower ongoing charges ratio and greater liquidity in the Company's shares.

Board Changes

I recorded our thanks to Adrian Collins, who retired at the Annual General Meeting in 2017, and welcomed John Newlands when I wrote to you in October last year.

This year I am delighted to welcome Caroline Hitch, who joined us on 15 March 2018. After a number of years with James Capel and Standard Chartered, Caroline worked for 24 years at HSBC, where she had an investment focus on multi asset portfolios and a strong interest in transparency and governance.  These are skills that complement and deepen the Board's resources and I am delighted that she has chosen to join us; Caroline has already made a considerable contribution to the affairs of the Company.

The Board has been entirely renewed since July 2015, and the time is right for me to retire at the Annual General Meeting in December this year.  I have been Chairman of the Company since it was launched in Jersey in January 2007, when it began life with Total Assets of £53m.  The last eleven years have seen the Company grow almost five times, with Total Assets of £259m at 30 June 2018.  I would like to pay particular tribute to Ian ("Franco") Francis, who has been the Company's fund manager throughout this period and whose skill and steadiness has underpinned this success.

Caroline Hitch will take over the chair from me.  Her recent City and investment experience are combined with a strong background in governance and she is ideally equipped to lead the Company at this time.  I wish her, you the shareholders, and the Company every success in the future.

Outlook

Twelve months on, geo-political uncertainty remains the defining characteristic as we look ahead, with Brexit locally and protectionist measures globally making for an uncomfortable backdrop.   The slow normalisation of the world economy ten years after the collapse of Lehman Brothers, marked by rising interest rates, especially in the United States, is more encouraging, however.  In this context, portfolio diversity remains your Company's greatest strength, and we are ready to take advantages of opportunities as they occur.

James G West
8 October 2018
 

 

Investment Manager's Review

When I began to write the report for the year to 30^th June 2018 I naturally looked back to what was said in last year's Annual; in what feels like a bad case of déjà vu it reads "we feel the greatest risks to global markets going forward are from the potential impact of Brexit in our economy and the unpredictable effects of Donald Trump's dictate by Twitter." Fast forward twelve months and you could be forgiven in thinking nothing has changed!

In the UK, Theresa May and the Conservative party have clung on to power despite being battered internally and externally by the forces of Brexit. No matter the loss of most of her senior team Theresa May is still moving inexorably towards the Brexit finishing line and no-one knows what deal or not will eventually emerge. We still believe that there is too much to lose for both sides and some sort of compromise will be fashioned that can be accepted. Over the next few months expect to see endless amounts of Brexit hyperbole no doubt finalising in a dramatic end game where a deal is secured with seconds to go. 

The UK economy has been sluggish - since the Brexit vote Sterling has been weak against the Euro and the US$. This has some inflationary effects and we saw inflation peaking in November last year at 3.1% before falling during the course of 2018 to reach 2.4% most recently.  Inflation was cited as a major reason for the Bank of England's 25bp rate rise in December to ½%.  The retail and consumer sectors have had a tough time over the last year with inflation squeezing household finances with low rates of wage growth. This has led to savings falling and consumers relying on their credit cards to continue spending. The High Street has seen a number of prominent retailers going out of business and new car sales falling sharply.   In a generally gloomy picture there have been a few bright spots with employment remaining at historically high levels and the manufacturing sector holding its own.

Across the Channel, Europe has continued to expand with manufacturing, services, retail sales and car sales all rising at a steady pace. The jobs market in Europe is strong and there has been a modest pick-up in inflation.  In the early months of 2018 we were concerned about problematic coalition talks in Germany and Italy but these appear to have been resolved satisfactorily. All of this puts Europe in a strong position for the Brexit finale but there are worrying concerns over economic immigration and the future of the bigger European project which may temper how the EU approaches the Brexit end game.

Economically the United States has had a very good twelve months, continuing to add jobs throughout the period with unemployment falling and wages rising.  The corporate sector has been given a massive boost in the form of tax changes introduced in December which benefitted companies and wealthier Americans. The Federal Reserve Bank has been increasing rates steadily on the back of continuing strength in the US economy.  The downside to all the good news is the potential for inflation in the US to rise to uncomfortable levels. President Trump's frequent forays into the Twitterverse have been a prime target for comedians and sometimes viewed as being remote from the real world where US companies continue to power ahead. In recent months this has stopped being an amusing issue as the President has attacked his allies and initiated a series of tariffs and trade wars that have the capacity to slow and potentially depress global growth.

On the macro side the overall picture of the High Yield Corporate Bond market has been positive with default rates continuing to fall with Moody's projecting the high-yield default rate to fall to 1.5% by April 2019, from 3.7% in April 2018. Since the end of the oil slump in 2016, the number of companies not making their debt payments has steadily fallen even as corporate leverage has increased.  The strength of the High Yield Bond market has seen a number of the companies in the portfolio seek to repay their higher yielding bonds and replace them with lower yielding paper. Whilst this is laudable act it does have consequences as we have to work harder to find equivalent yields from companies we like.   Examples of companies repaying or calling their bonds in the year have been  Louis Dreyfus 8.25% perpetual, Old Mutual 7.875% 2025 and Trafigura 7.625% perpetual. New holdings in the top ten over the year are Perform Group Financing 8.5% 15/11/2020, who provide digital sports content and broadcasting  and  Shawbrook Group 7.875% variable perpetual, who are a specialist UK savings and lending bank.

We continue to maintain a diversified portfolio across a range of sectors and have a good proportion of the portfolio in non-sterling currencies.   We also favour shorter duration bonds, that is bonds that will repay within a two to three year timetable, as we try to hedge against possible interest rate rises.

Over the year the Total Return for your Company in net asset value terms was 5.82% and the closing yield on the share price was 7.3%.

Ian Francis

New City Investment Managers

8 October 2018

 

Strategic Review

Introduction

This review is part of a Strategic Report being presented by the Company under guidelines for UK-listed companies' Annual Reports in accordance with the Companies Act 2006, and is designed to provide information primarily about the Company's business and results for the year ended 30 June 2018. It should be read in conjunction with the Chairman's Statement and the Investment Manager's Review, which give a detailed review of the investment activities for the year and look to the future.

Investment Policy

The Company invests predominantly in fixed income securities, including, but not limited to, preference shares, loan stocks, corporate bonds (convertible and/or redeemable) and government stocks. The Company also invests in equities and other income yielding securities.

Exposure to higher yielding securities may also be obtained by investing in other closed-end investment companies and open-ended collective investment schemes.

There are no defined limits on securities and accordingly the Company may invest up to 100 per cent of total assets in any particular type of security.

There are no defined limits on countries, size or sectors, therefore the Company may invest in companies regardless of country, size or sector and, accordingly, the Company's portfolio is constructed without reference to the composition of any Stock Market index or benchmark.

The Company may, but is not obliged to, invest in derivatives, financial instruments, money market instruments and currencies for the purpose of efficient portfolio management.

The Company may acquire securities that are unlisted or unquoted at the time of investment but which are about to be convertible, at the option of the Company, into securities which are listed or traded on a stock exchange. The Company may continue to hold securities that cease to be listed or traded if the Investment Manager considers this appropriate. The Board has established a maximum investment limit in this regard of 10 per cent (calculated at the time of any relevant investment) of the Company's total assets. In addition, the Company may invest up to 10 per cent (calculated at the time of any relevant investment) of its total assets in other securities that are neither listed or traded at the time of investment.

The Company will not invest more than 10 per cent (calculated at the time of any relevant investment) of its total assets in other collective investment undertakings (open-ended or closed-end).

The Board has established a maximum investment limit whereby, at the time of investment, the Company may not invest more than 5 per cent of its total investments in the same investee company.

The Company uses gearing and the Board has set a current limit that gearing will not exceed 25 per cent of shareholders' funds at the time of borrowing. This limit is reviewed from time to time by the Board.

The Investment Manager expects that the Company's assets will normally be fully invested. However, during periods in which changes in economic circumstances, market conditions or other factors so warrant, the Company may reduce its exposure to securities and increase its positions in cash, money market instruments and derivative instruments in order to seek protection from Stock Market falls or volatility.

Investment Approach

Investments are typically made in securities which the Investment Manager has identified as undervalued by the market and which it believes will generate above average income returns relative to their risk, thereby also generating the scope for capital appreciation. In particular, the Investment Manager seeks to generate capital growth by exploiting the opportunities presented by the fluctuating yield base of the market and from redemptions, conversions, reconstructions and take-overs.

 

Principal Risks and Uncertainties and Risk Mitigation

Risks are inherent in the investment process, but it is important that their nature and magnitude are understood so that risks, particularly those which the Company does not wish to take, can be identified and either avoided or controlled. The Board has established a detailed framework of the key risks that the business is exposed to, with associated policies and processes devised to mitigate or manage those risks. The principal risks and mitigating factors faced by Company are set out below.

Investment and strategy risk The Board is responsible for deciding the investment strategy to fulfil the Company's objectives and monitoring the performance of the Investment Manager. Inadvisable strategy, including country and sector allocation, stock selection and the use of gearing could all lead to poor returns for shareholders. To manage this risk the Board requires the Investment Manager to provide an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio at each Board meeting, when gearing levels are also reviewed. The Board monitors the spread of investments to ensure that it is adequate to minimise the risk associated with particular countries or factors specific to particular sectors. The Investment Manager also provides the Board and shareholders with monthly factsheets which include an investment commentary.

Market risk The Company's assets consist principally of listed fixed interest securities and its greatest risks are in consequence market related, with exposure to ordinary movements in the prices of the Company's investments and the loss that the Company might suffer through holding investments in the face of negative market movements. The Board seeks to mitigate this risk through the processes described in the paragraph above, monitoring the implementation and results of the investment process with the Investment Manager.

Financial risk The Company's investment activities expose it to a variety of financial risks that include market price risk, foreign currency risk, interest rate risk, liquidity risk and credit risk.

Earnings and dividend risk The earnings that underpin the amount of dividends declared and future dividend growth are generated by the Company's underlying portfolio. Fluctuations in earnings resulting from changes to the underlying portfolio or changes in the tax treatment of the dividends or interest received by the Company could reduce the level of dividends received by shareholders. The Board monitors and manages this risk by considering detailed income forecasts prepared by the Investment Manager and Company Secretary at each Board meeting and when the quarterly dividends are declared.

Operational risk The Company relies upon the services provided by third parties and is reliant on the control systems of the Investment Manager and the Company's other service providers. The security and/or maintenance of, inter alia, the Company's assets, dealing and settlement procedures, and accounting records depend on the effective operation of these systems. These are regularly tested and monitored and are reported on at each Board meeting. An internal control report, which includes an assessment of risks, together with the procedures to mitigate such risks, is prepared by the Company Secretary and by Maitland Administration Services Limited, whose systems and processes the UK Administrator relies upon.  These are reviewed by the Audit and Risk Committee, as a minimum, once a year. CQS delivers a risk based internal audit plan across the CQS Group which covers different areas of front, middle and infrastructure audits; any areas of concern are discussed with the Audit and Risk Committee when it meets. The Depository and Custodian, HSBC Bank plc, produces an internal control report each year which is reviewed by its auditor and gives assurance regarding the effective operation of controls. This is reviewed by the Audit and Risk Committee.

Gearing risk A fall in the value of the Company's investment portfolio could be adversely affected by the impact of gearing. It could also result in a breach of loan covenants. The Board sets the gearing limits. Gearing levels and compliance with loan covenants are monitored monthly by the Investment Manager and by the Board at regular Board meetings. Gearing will not exceed 25 per cent of shareholders' funds at the time of borrowing.

Key man dependency Performance of the Company may be negatively affected by a change in fund management team within the Investment Manager. The Company delegates the management of the fund management team to New City Investment Managers. Whilst the lead fund manager is responsible for day to day portfolio management, an Investment Committee within New City Investment Managers also decides key stock selection. The Management Engagement Committee of the Company reviews the performance of the Investment Manager annually.

Regulatory risk The breach of regulatory rules could lead to a suspension of the Company's stock exchange listing or financial penalties. The Company Secretary and UK Administrator monitor the Company's compliance with the Listing Rules of the UK Listing Authority. Compliance with the principal rules is reviewed by the Directors at each Board meeting.

Political risk Political developments are closely monitored and considered by the Board. The Board has noted the results of the UK referendum on continuing membership of the European Union. Whilst there is considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.

Viability Statement

In accordance with the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the viability of the Company over a period longer than the 12 months required by the 'Going Concern' provision. The Board conducted this viability review for a period of three years. The Board continues to consider that this period reflects the long term objectives of the Company, being a Company with no fixed life, whilst taking into account the impact of uncertainties in the markets.

The Directors do not expect there to be any significant change to the current principal risks facing the Company nor to the adequacy of the controls in place to mitigate those risks. Furthermore, the Directors do not envisage any change in strategy which would prevent the Company from operating over the three year period. This is based on the assumption that there are no significant changes in market conditions or the tax and regulatory environment that could not reasonably have been forseen. The Board also considers the annual continuation vote should not be a factor to affect the three year period given the strong demand seen for the Company's shares.

In making this statement the Board carried out a robust assessment of the principal risks facing the Company. The principal risks identified as most relevant to the assessment of the viability of the Company were those relating to potential underperformance of the portfolio and its effect on the ability to pay dividends. When assessing these risks the Directors have considered the risks and uncertainties facing the Company in severe but reasonable scenarios, taking into account the controls in place and mitigating actions that could be taken.

When considering the risk of under-performance, the Board carried out a series of stress tests including in particular the effects of any substantial future falls in investment value on the ability to re-pay and re-negotiate borrowings, potential breaches of loan covenants and the maintenance of dividend payments.

The Board considered the Company's portfolio and concluded that the diverse nature of investments held give stability and liquidity along with flexibility to be able to react positively to market and political forces outwith the Board's control.

The Board also considered the impact of potential regulatory change and the controls in place surrounding significant third party providers, including the fund manager.

The Board also noted the low liquidity risk in the portfolio.

The Scotiabank loan facility is due to expire on 19 December 2018. It is anticipated a new facility on comparable terms will be negotiated prior to this date.

Based on the Company's processes for monitoring revenue and costs, with the use of frequent revenue forecasts, and the Manager's compliance with the investment objective and policies, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of approval of this Report.

Going Concern

The Company does not have a fixed winding-up date and, therefore, unless shareholders vote to wind-up the Company, shareholders will only be able to realise their investment through the market.

At each Annual General Meeting of the Company, shareholders are given the opportunity to vote on an ordinary resolution to continue the Company as an investment company. If any such resolution is not passed, the Board will put forward proposals at an extraordinary general meeting to liquidate or otherwise reconstruct or reorganise the Company.

After making enquiries, and having considered the Company's investment objective, nature of the investment portfolio, loan facility and expenditure projections, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, and in light of the Company's strong investment record, the Directors continue to adopt the going concern basis in preparing the accounts, notwithstanding that the Company is subject to an annual continuation vote as described above.

Performance Measurement and Key Performance Indicators (KPIs)

The Board uses a number of performance measures to assess the Company's success in meeting its objectives. The key performance indicators are as follows:

·      Dividend Yield and Dividend Cover
The Board reviews the Company's dividend yield and dividend cover on a quarterly basis.

·      Total Return
The Board reviews the Company's Net Asset Value ("NAV") total return and Share Price total return on a quarterly basis.

·      Discount/premium to NAV
At each Board meeting, the Board monitors the level of the Company's discount/premium to NAV. The Company publishes a NAV per share figure on a daily basis through the official newswire of the London Stock Exchange.

·      Revenue Earnings and Dividends per share
The Board reviews a revenue forecast on a quarterly basis to determine the quarterly dividend.

·      Ongoing Charges

The ongoing charges are a measure of the total expenses incurred by the Company expressed as a percentage of the average shareholders' funds over the year. The Board regularly reviews the ongoing charges and monitors all Company expenses.

The Board measures the Company's performance by reviewing the KPIs against their expectations of performance from their knowledge of the industry sector.

Social, Community, Human Rights, Employee Responsibilities and Environmental Policy

The Directors recognise that their first duty is to act in the best financial interests of the Company's shareholders and to achieve good financial returns against acceptable levels of risk, in accordance with the objectives of the Company.

In asking the Company's Investment Manager to deliver against these objectives, they have also requested that the Investment Manager take into account the broader social, ethical and environmental issues of companies within the Company's portfolio, acknowledging that companies failing to manage these issues adequately run a long term risk to the sustainability of their businesses.

More specifically, they expect companies to demonstrate ethical conduct, effective management of their stakeholder relationships, responsible management and mitigation of social and environmental impacts, as well as due regard for wider societal issues.

As an investment company with its current structure the Company has no direct social, community, human rights, employee or environmental responsibilities of its own. As a consequence, this report contains no further information on the effectiveness of these policies.

The Company has no greenhouse gas emissions to report from its operations for the year ended 30 June 2018 and prior year, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 (including those within the underlying investment portfolio).

At 30 June 2018 there were four male and two female Directors. The Company has no employees so does not require to report further on gender diversity.

By Order of the Board

J G West
8 October 2018

 

Audited Income Statement

For the year ended 30 June 2018

		£ '000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital losses on investments
Losses on investments		-	(5,449)	(5,449)
Exchange gains		-	220	220
Revenue
Income		20,033	-	20,033
		20,033	(5,229)	14,804
Expenses
Investment management fee		(1,478)	(493)	(1,971)
Other expenses		(656)	(192)	(848)
Total expenses		(2,134)	(685)	(2,819)
Profit before finance costs and taxation		17,899	(5,914)	11,985
Finance costs
Interest receivable		5	-	5
Interest payable and similar charges		(282)	(94)	(376)
Profit before taxation		17,622	(6,008)	11,614
Irrecoverable withholding tax		(137)	-	(137)
Profit after taxation		17,485	(6,008)	11,477
Earnings per ordinary share (pence)	1	4.54	(1.56)	2.98

The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS.  The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

There is no other comprehensive income as all income is recorded in the Income Statement above.

All revenue and capital items in the above statement are derived from continuing operations.

No operations were acquired or discontinued in the year.

Audited Income Statement

For the year ended 30 June 2017

		£'000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital gains on investments
Gains on investments		-	13,978	13,978
Exchange gains		-	189	189
Revenue
Income		19,490	-	19,490
		19,490	14,167	33,657
Expenses
Investment management fee		(1,390)	(463)	(1,853)
Other expenses		(666)	(53)	(719)
Total expenses		(2,056)	(516)	(2,572)
Profit before finance costs and taxation		17,434	13,651	31,085
Finance costs
Interest receivable		1	-	1
Interest payable and similar charges		(250)	(83)	(333)
Profit before taxation		17,185	13,568	30,753
Irrecoverable withholding tax		(215)	-	(215)
Profit after taxation		16,970	13,568	30,538
Earnings per ordinary share (pence)	1	4.66	3.73	8.39

Audited Balance Sheet

As at 30 June 2018

		As at	As at
		30 June 2018	30 June 2017
	Notes	£'000	£'000
Non-current assets
Investments held at fair value		253,081	232,097
Current assets
Debtors and other receivables		4,298	4,015
Cash at bank		3,850	6,831
		8,148	10,846
Total assets		261,229	242,943
Current liabilities
Bank loan		(28,000)	(25,000)
Brokers and other payables		(2,161)	(268)
Total liabilities		(30,161)	(25,268)
Net assets		231,068	217,675
Stated capital and reserves
Stated capital account		178,424	159,647
Special distributable reserve		50,385	50,385
Capital reserve		(14,765)	(8,757)
Revenue reserve		17,024	16,400
Equity shareholders' funds		231,068	217,675
Net asset value per ordinary share (pence)	2	57.63p	58.77p

Audited Statement of Changes in Equity

For the year ended 30 June 2018

	Stated	Special
	capital	distributable	Capital	Revenue
	account*	reserve+	reserve*	reserve#	Total
	£'000	£'000	£'000	£'000	£'000
At 1 July 2017	159,647	50,385	(8,757)	16,400	217,675
Total comprehensive income for the year:
Profit for the year	-	-	(6,008)	17,485	11,477
Transactions with owners recognised directly in equity:
Dividends paid	-	-	-	(16,861)	(16,861)
Net proceeds from issue of shares	18,777	-	-	-	18,777
At 30 June 2018	178,424	50,385	(14,765)	17,024	231,068

Audited Statement of Changes in Equity

For the year ended 30 June 2017

	Stated	Special
	capital	distributable	Capital	Revenue
	account*	reserve+	reserve*	reserve#	Total
	£'000	£'000	£'000	£'000	£'000
At 1 July 2016	154,397	50,385	(22,325)	15,370	197,827
Total comprehensive income for the year:
Profit for the year	-	-	13,568	16,970	30,538
Transactions with owners recognised directly in equity:
Dividends paid	-	-	-	(15,940)	(15,940)
Net proceeds from issue of shares	5,250	-	-	-	5,250
At 30 June 2017	159,647	50,385	(8,757)	16,400	217,675

* Following a change in Jersey Company Law effective 27 June 2008 dividends can be paid out of any capital account of the Company subject to certain solvency restrictions.  It is the Company's policy however to account for revenue items and pay dividends through a separate revenue reserve.

+ The balance on the special distributable reserve of £50,385,000 (2017: £50,385,000) is treated as distributable profits available to be used for all purposes permitted by Jersey Company Law including the buying back of ordinary shares, the payment of dividends and the payment of preliminary expenses.

# The balance on the revenue reserve of £17,024,000 (2017: £16,400,000) is available for paying dividends.

Audited Cash Flow Statement

For the year ended 30 June 2018

	Year	Year
	ended	ended
	30 June 2018	30 June 2017
	£'000	£'000
Operating activities
Profit before taxation	11,614	30,753
Losses/(gains) on investments	5,449	(13,978)
Effective yield	(837)	(558)
Exchange gains	(220)	(188)
Increase in other receivables	(283)	(63)
(Decrease)/increase in other payables	(10)	10
Net cash inflow from operating activities before interest and taxation	15,713	15,976
Irrecoverable withholding tax paid	(137)	(215)
Net cash inflow from operating activities	15,576	15,761
Investing activities
Purchases of investments	(78,028)	(91,438)
Sales of investments	54,335	85,759
Net cash outflow from investing activities	(23,693)	(5,679)
Financing
Equity dividends paid	(16,861)	(15,940)
Drawdown of bank loan facility	3,000	-
Issue of ordinary shares	18,777	5,250
Net cash outflow from financing	4,916	(10,690)
Decrease in cash and cash equivalents	(3,201)	(608)
Cash and cash equivalents at the start of the year	6,831	8,201
Cashflow	(3,201)	(608)
Bank overdraft movement	-	(951)
Exchange gains	220	189
Cash and cash equivalents at the end of the year	3,850	6,831

 

Statement of Directors' Responsibilities in respect of the Annual Report and Accounts

The directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law they are required to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the EU and applicable law.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable, relevant and reliable;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• assess the Company's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with Companies (Jersey) Law, 1991. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The financial statements are published on the www.ncim.co.uk website, which is a website maintained by the Company's Investment Manager. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the annual financial report

We confirm that to the best of our knowledge:

• the financial statements, 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 Strategic Report and Directors' report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

J G West

Chairman

8 October 2018

 

Notes (audited)

1.   Earnings per ordinary share

       The revenue earnings per ordinary share is based on the net profit after taxation of £17,485,000 (2017: £16,970,000) and on 385,436,978 (2017: 364,129,724) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

The capital earnings per ordinary share is based on a net capital loss of £6,008,000 (2017: net capital gain of £13,568,000) and on 385,436,978 (2017: 364,129,724) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

2.   Net asset value per ordinary share

       The net asset value per ordinary share is based on net assets of £231,068,000 (2017: £217,675,000) and on 400,951,858 (2017: 370,374,417) ordinary shares, being the number of ordinary shares in issue at the year end.

3.   Dividends

       A fourth interim dividend in respect of the year ended 30 June 2018 of 1.45p per ordinary share was paid on 31 August 2018 to shareholders on the register on 27 July 2018.  In accordance with IFRS this dividend has not been included as a liability in these accounts and will be recognised in the period in which it is paid.

4.   Transaction with the Manager and Related Parties

The Board of Directors ("the Board") are considered related parties.

All transactions with related parties are carried out at an arms length basis.

There are no other transactions with the Board other than aggregated remuneration for services as Directors.  There are no outstanding balances to the Board at the year end.

5.   Bank loan facility

The Company has a short term loan facility with Scotiabank. The facility is due to expire on 19 December 2018 after which it is anticipated the Company will take out a new facility on comparable terms.

As at the year end the unsecured loan facility had a limit of £30 million of which £28 million was drawn down at the year end.

6.   Financial information

These are not full statutory accounts for the year ended 30 June 2018.  The full audited annual report and accounts for the year ended 30 June 2018 will be sent to shareholders in October 2018 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The full audited accounts for the year ended 30 June 2017, which were unqualified, have been lodged with the Registrar of Companies.

   7. The report and accounts for the year ended 30 June 2018 will be made available on the website www.ncim.co.uk.  Copies may also be obtained from the Company's registered office, Ordnance House, 31 Pier Road, St. Helier, Jersey, JE4 8PW, Channel Islands

Enquiries:

Ian Francis, New City Investment Managers:                  020 7201 5366

Martin Cassels, UK Administrator                                    0131 550 3765

 

END

 

 

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