New City High Yield Fund Ltd : Half-yearly report
To: THOMSON REUTERS
Date: 26 February 2014
From: New City High Yield Fund Limited
Subject: Interim Report
Unaudited statement of results for the six months ended 31 December 2013
Net asset value total return of 4.4% per cent since 1 July 2013.
Ordinary share price total return of 8.6% per cent since 1 July 2013.
Dividend yield of 6.5%, based on dividends at an annualised rate of 4.16 pence and a share price of 64.13 pence at 31 December 2013.
Ordinary share price at a premium of 5.4% to net asset value at 31 December 2013.
£11.6m raised since 31 December 2013 under the Placing Programme.
Chairman's Statement
Investment and Share Price Performance
Your Company enjoyed another good six months. Our primary investment focus is to provide shareholders with a high dividend yield, and the Company generated a net asset value total return for the six months to 31 December 2013 of 4.4%, most of it by way of dividend.
The share price total return was better still at 8.6%, and the share price stood at a premium of 5.4% to net asset value at 31 December.
Dividends
The Company declared two dividends of 0.92 pence in respect of the period, an increase of 2.2% on those declared in respect of the same period last year. Based on an annualised rate of 4.16 pence and a share price of 64.1 pence at the time of writing, this represents a yield of 6.5%.
Since your Company relocated to Jersey in March 2007 the level of dividends paid has increased every year.
Rating and Placing Programme
The market continues to attach a premium rating to the shares of your Company. At an Extraordinary General meeting in December shareholders approved a resolution granting authority to issue shares equivalent to 25 per cent of the Company's share capital, and a prospectus was published in January. £11.6m was raised from new and existing shareholders earlier this month under the placing programme, and the Directors anticipate issuing further shares during the year as part of the process of managing the premium to net asset value at which your Company's shares trade. As well as a modest increase in net asset value, continuing shareholders can look to benefit from a lower total expense ratio and greater liquidity in the Company's shares.
Outlook
While equity markets took fright at the US Federal Reserve's modest start to "tapering" in January, your Company's net asset value held up well, increasing from 60.9 pence at 31 December to stand at 61.6 pence as I write. The proceeds of the placing programme have been invested by our portfolio manager, Ian Francis, who continues to find value in the bond markets. The Federal Reserve notwithstanding it would appear there is no rush to tighten global monetary policy and your Company, and its shareholders, remain well positioned to benefit from the prevailing market trends.
James G West
Chairman
26 February 2014
Investment Manager's Review
For the whole of the first half of the Company's year, the major theme was "when would tapering (that is the decreasing of funds applied into the Quantitative easing three programme (QE3)) begin?" and when does the market expect that interest rates will turn and start to rise in the US and the UK?
The theme for the first month and a half was that rates were not going up anytime soon with forward guidance from Mark Carney, the new Bank of England Governor, and also from Mario Draghi, the head of the European Central Bank (ECB), whilst in the US the slower than expected improvement in the jobs market implied that interest rates were not going up there in the short term either!
Towards the end of October 2013, the economy was firing on all cylinders with the August Markit / CIPS UK services purchasing managers index implying that the UK was growing at its fastest rate for over six years. This statistic along with the markets' expectation (at that time) of the early implementation of "tapering" in the US pushed both 10 year US treasury yields and the UK 10 year gilt yields above the 3% mark. This was very soon to change when the "Hawkish" Larry Summers pulled out of the process to take over the Chairmanship of the Federal Reserve Bank from Ben Bernanke, leaving the field open for a much more "Doveish" Janet Yellen. This may well have been part of the reasoning behind the 18th September announcement that QE was to be expanded, which resulted in a jump in global equity and government bond markets, pushing those same 10 year yields down 30bp to 2.7%.
Come October and it was all eyes and ears on the spat between the Republicans in Congress and President Barak Obama over the US budget, the short-term result was the Government shutdown of all non-essential government departments and services. The most worrying element to this brinkmanship was that the politicians were prepared to engage in it as default was looming close! As a result the international view changed from one of fear to anger! This put more pressure on the Americans to sort the problem once and for all, which they managed to do just before the Christmas break.
In November the ECB was forced to cut rates to 0.25%. At the time we commented "whether or not this changes the attitude of companies to borrow or invest in new plant/staff or Banks to lend we have to see?" At the time of writing this report, little effect had been evidenced, and rumours that European interest rates would go to zero abound! So the short answer was a definite no.
Whilst in the US third quarter GDP came in above expectations at +2.8% vs forecasts around +2%, also confirmed in the much improved non farm payroll numbers at +204,000 at which point markets and pundits correctly forecast that "tapering" would come into effect by $10bn / month from January 2014.
In the UK it looks as if we are back to a consumer led recovery on the back of increased debt, with household spending up 2.4% year on year with third quarter growth confirmed at 0.8%, the fastest in the developed world. Supported by a record consumer debt figure of £1.43 trillion including mortgage lending published in November, the next highest was September 2008. This equates to £28,489 for every UK household.
With the factors mentioned in the last two paragraphs it is hardly surprising that we ended the period with both the US and UK government 10 year debt back over 3%, a level at which markets are inclined to take a nervous interest.
For the Company over the period we added to core holdings, Phoenix 7.25% 2021, British Airways 6 3/4% preferred and General Accident 8 7/8% irredeemable. Whilst the Skipton 10% 2018 was called by the building society, we were able to replace the yield with a combination of new issue Barclays 8 1/4% Coco and Nationwide 10.25% perpetual.
During the period the Co-op restructuring had a positive effect on the bonds held by the Company and we used the opportunity to decrease the exposure at a price which had recovered by 30% from its nadir in early May. Part of the proceeds were reinvested into the AA 9.5% PIK 2019, and towards the end of the reporting period we opened a holding in Domestic and General 7 7/8% 2021 and Bluewater 10% 2019.
We still see opportunities in the markets for high yield and convertibles as we perceive that any interest rate increases are still not happening in the short-term, and when they do they are unlikely to be of a great magnitude until western economies are in a sustained period of economic growth. Our emphasis on the importance of a balanced portfolio leaves us well placed to anticipate and adapt to such changes as they evolve.
Ian Francis
New City Investment Managers
26 February 2014
Enquiries:
Ian Francis
Investment Manager
New City Investment Managers Tel: 0207 201 6900
Martin Cassels
R&H Fund Services Limited Tel: 0131 524 6140
Unaudited Condensed Income Statement
For the six months ended 31 December 2013
| Six months ended 31 December 2013 | ||||
| Notes | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | ||
| Capital gains on investments | ||||
| Gains on investments | 3 | - | 862 | 862 |
| Exchange gains | - | 14 | 14 | |
| Revenue | ||||
| Income | 4 | 6,697 | - | 6,697 |
| 6,697 | 876 | 7,573 | ||
| Expenses | ||||
| Investment management fee | 5 | (484) | (161) | (645) |
| Other expenses | (259) | - | (259) | |
| Total expenses | (743) | (161) | (904) | |
| Profit before finance costs and taxation | 5,954 | 715 | 6,669 | |
| Finance costs | ||||
| Interest payable and similar charges | (109) | (36) | (145) | |
| Profit before taxation | 5,845 | 679 | 6,524 | |
| Irrecoverable withholding tax | (85) | - | (85) | |
| Profit after taxation | 5,760 | 679 | 6,439 | |
| Earnings per ordinary share (pence) | 6 | 2.36 | 0.28 | 2.64 |
The total column of this statement represents the Company's Income Statement, 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.
All revenue and capital items in the above statement are derived from continuing operations.
No operations were acquired or discontinued during the period.
Unaudited Condensed Income Statement
For the six months ended 31 December 2012
| Six months ended 31 December 2012 | ||||
| Notes | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | ||
| Capital gains/(losses) on investments | ||||
| Gains on investments | 3 | - | 9,903 | 9,903 |
| Exchange losses | - | (18) | (18) | |
| Revenue | ||||
| Income | 4 | 6,052 | - | 6,052 |
| 6,052 | 9,885 | 15,937 | ||
| Expenses | ||||
| Investment management fee | 5 | (409) | (136) | (545) |
| Other expenses | (235) | - | (235) | |
| Total expenses | (644) | (136) | (780) | |
| Profit before finance costs and taxation | 5,408 | 9,749 | 15,157 | |
| Finance costs | ||||
| Interest payable and similar charges | (89) | (30) | (119) | |
| Profit before taxation | 5,319 | 9,719 | 15,038 | |
| Irrecoverable withholding tax | (85) | - | (85) | |
| Profit after taxation | 5,234 | 9,719 | 14,953 | |
| Earnings per ordinary share (pence) | 6 | 2.38 | 4.41 | 6.79 |
The total column of this statement represents the Company's Income Statement, 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.
All revenue and capital items in the above statement are derived from continuing operations.
No operations were acquired or discontinued during the period.
Audited Condensed Income Statement
For the year ended 30 June 2013
| Year ended 30 June 2013 | ||||
| Notes | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | ||
| Capital gains on investments | ||||
| Gains on investments | - | 5,600 | 5,600 | |
| Exchange gains | - | 54 | 54 | |
| Revenue | ||||
| Income | 14,176 | - | 14,176 | |
| 14,176 | 5,654 | 19,830 | ||
| Expenses | ||||
| Investment management fee | (916) | (305) | (1,221) | |
| Other expenses | (518) | - | (518) | |
| Total expenses | (1,434) | (305) | (1,739) | |
| Profit before finance costs and taxation | 12,742 | 5,349 | 18,091 | |
| Finance costs | ||||
| Interest payable and similar charges | (196) | (65) | (261) | |
| Profit before taxation | 12,546 | 5,284 | 17,830 | |
| Irrecoverable withholding tax | (160) | - | (160) | |
| Profit after taxation | 12,386 | 5,284 | 17,670 | |
| Earnings per ordinary share (pence) | 2 | 5.42 | 2.31 | 7.73 |
The total column of this statement represents the Company's Income Statement, 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.
All revenue and capital items in the above statement are derived from continuing operations.
No operations were acquired or discontinued during the year.
Condensed Balance Sheet
As at 31 December 2013
| As at | As at | As at | ||
| 31 December 2013 | 31 December 2012 | 30 June 2013 | ||
| (unaudited) | (unaudited) | (audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Non-current assets | ||||
| Investments held at fair value | 156,956 | 142,414 | 157,714 | |
| Current assets | ||||
| Other receivables | 3,183 | 3,181 | 3,918 | |
| Cash at bank | 1,859 | - | 777 | |
| 5,042 | 3,181 | 4,695 | ||
| Total assets | 161,998 | 145,595 | 162,409 | |
| Current liabilities | ||||
| Bank loan facility | (13,184) | (11,331) | (12,214) | |
| Other payables | (192) | (162) | (2,346) | |
| Total liabilities | (13,376) | (11,493) | (14,560) | |
| Net assets | 148,622 | 134,102 | 147,849 | |
| Stated capital and reserves | ||||
| Stated capital account | 81,890 | 66,680 | 81,890 | |
| Special distributable reserve | 50,385 | 50,385 | 50,385 | |
| Capital reserve | 3,750 | 7,506 | 3,071 | |
| Revenue reserve | 12,597 | 9,531 | 12,503 | |
| Equity shareholders' funds | 148,622 | 134,102 | 147,849 | |
| Net asset value per ordinary share (pence) | 7 | 60.85 | 60.88 | 60.53 |
Condensed Statement of Changes in Equity
For the six months ended 31 December 2013 (unaudited)
| Stated | Special | |||||
| capital | distributable | Capital | Revenue | |||
| account | reserve | reserve | reserve | Total | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 July 2013 | 81,890 | 50,385 | 3,071 | 12,503 | 147,849 | |
| Total comprehensive income for the period: | ||||||
| Profit for the period | - | - | 679 | 5,760 | 6,439 | |
| Transactions with owners recognised directly in equity: | ||||||
| Dividends paid | 2 | - | - | - | (5,666) | (5,666) |
| At 31 December 2013 | 81,890 | 50,385 | 3,750 | 12,597 | 148,622 | |
For the six months ended 31 December 2012 (unaudited)
| Stated | Special | |||||
| capital | distributable | Capital | Revenue | |||
| account | reserve | reserve | reserve | Total | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 July 2012 | 66,680 | 50,385 | (2,213) | 9,297 | 124,149 | |
| Total comprehensive income for the period: | ||||||
| Profit for the period | - | - | 9,719 | 5,234 | 14,953 | |
| Transactions with owners recognised directly in equity: | ||||||
| Dividends paid | 2 | - | - | - | (5,000) | (5,000) |
| At 31 December 2012 | 66,680 | 50,385 | 7,506 | 9,531 | 134,102 | |
For the year ended 30 June 2013 (audited)
| Stated | Special | |||||||
| capital | distributable | Capital | Revenue | |||||
| Account | reserve | reserve | reserve | Total | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| At 1 July 2012 | 66,680 | 50,385 | (2,213) | 9,297 | 124,149 | |||
| Total comprehensive income for the year: | ||||||||
| Profit for the year | - | - | 5,284 | 12,386 | 17,670 | |||
| Transactions with owners recognised directly in equity: | ||||||||
| Dividends paid | 2 | - | - | - | (9,180) | (9,180) | ||
| Issue of shares | 15,210 | - | - | - | 15,210 | |||
| At 30 June 2013 | 81,890 | 50,385 | 3,071 | 12,503 | 147,849 | |||
Condensed Cash Flow Statement
For the six months ended 31 December 2013
| Six months | Six months | ||
| ended | ended | Year ended | |
| 31 December 2013 (unaudited) | 31 December 2012 (unaudited) | 30 June 2013 (audited) | |
| £'000 | £'000 | £'000 | |
| Operating activities | |||
| Profit before finance costs and taxation | 6,669 | 15,157 | 18,091 |
| Gains on investments | (862) | (9,903) | (5,600) |
| Exchange (gains)/losses | (14) | 18 | (54) |
| Decrease/(increase) in other receivables | 735 | 593 | (144) |
| Increase/(decrease) in other payables | 2 | (5) | 20 |
| Net cash inflow from operating activities before interest and taxation | 6,530 | 5,860 | 12,313 |
| Interest paid | (142) | (109) | (252) |
| Irrecoverable withholding tax paid | (85) | (85) | (160) |
| Net cash inflow from operating activities | 6,303 | 5,666 | 11,901 |
| Investing activities | |||
| Purchases of investments | (36,114) | (35,603) | (77,918) |
| Sales of investments | 35,575 | 31,032 | 55,904 |
| Net cash outflow from investing activities | (539) | (4,571) | (22,014) |
| Financing activities | |||
| Equity dividends paid | (5,666) | (5,000) | (9,180) |
| Drawdown of bank loan facility | 970 | 3,164 | 4,751 |
| Issue of ordinary shares | - | - | 15,210 |
| Net cash (outflow)/inflow from financing | (4,696) | (1,836) | 10,781 |
| Increase/(decrease) in cash and cash equivalents | 1,068 | (741) | 668 |
| Net debt at the start of the period | (11,437) | (7,408) | (7,408) |
| Drawdown of bank loan facility | (970) | (3,164) | (4,751) |
| Exchange gains/(losses) | 14 | (18) | 54 |
| Net debt at the end of the period* | (11,325) | (11,331) | (11,437) |
* Net debt includes cash held at bank and bank loan facility.
Notes to the Accounts
The unaudited interim results which cover the six month period to 31 December 2013 have been prepared in accordance with International Accounting Standard ("IAS") 34 - "Interim Financial Reporting", and the accounting polices as set out in the statutory accounts of the Company for the year ended 30 June 2013.
2. Dividends
Amounts recognised as distributions to equity holders in the period.
| Six months ended 31 December 2013 | Six months ended 31 December 2012 | Year ended 30 June 2013 | ||||
| Rate | Rate | Rate | ||||
| £'000 | (pence) | £'000 | (pence) | £'000 | (pence) | |
| In respect of the previous period | ||||||
| Fourth interim dividend | 3,419 | 1.40 | 3,018 | 1.37 | 3,018 | 1.37 |
| In respect of the period under review: | ||||||
| First interim dividend | 2,247 | 0.92 | 1,982 | 0.90 | 1,982 | 0.90 |
| Second interim dividend | - | - | - | - | 1,982 | 0.90 |
| Third interim dividend | - | - | - | - | 2,198 | 0.90 |
| 5,666 | 5,000 | 9,180 | ||||
A second interim dividend in respect of the year ended 30 June 2014 of 0.92p per ordinary share will be paid on 28 February 2014 to shareholders on the register on 31 January 2014. In accordance with International Financial Reporting Standards ("IFRS") this dividend has not been included as a liability in these accounts.
Included within gains on investments for the period ended 31 December 2013 are realised losses of £363,000 and unrealised gains of £1,225,000.
Income
The breakdown of income for the period was as follows:
Six months ended Six months ended Year ended
31 December 31 December 30 June
2013 2012 2013
£'000 £'000 £'000
Income from investments:
Dividend income 834 514 1,600
Interest on fixed interest securities 5,863 5,537 12,576
Other income:
Deposit interest - 1 -
Total income 6,697 6,052 14,176
Investment Management Fee
The Company's investment manager is CQS Cayman Limited Partnership ("CQS") which has delegated this function to its wholly owned subsidiary New City Investment Managers. CQS receive a basic monthly fee at the rate of 0.8 per cent per annum of the Company's total assets (less current liabilities other than bank borrowings), payable in arrears. During the period investment management fees of £645,000 were incurred, of which £108,000 was payable at the period end.
Earnings per ordinary share
The revenue earnings per ordinary share is based on profit after taxation of £5,760,000 (31 December 2012: £5,234,000 and 30 June 2013: £12,386,000) and on a weighted average of 244,239,339 (31 December 2012: 220,267,581 and 30 June 2013: 228,639,498) ordinary shares in issue throughout the period.
The capital profit per ordinary share is based on a net capital gain of £679,000 (31 December 2012: a net capital gain of £9,719,000 and 30 June 2013: a net capital gain of £5,284,000) and on a weighted average of 244,239,339 (31 December 2012: 220,267,581 and 30 June 2013: 228,639,498) ordinary shares in issue throughout the period.
Net asset value per ordinary share
The net asset value per ordinary share is based on net assets at the period end of £148,622,000 (31 December 2012: £134,102,000 and 30 June 2013: £147,849,000) and on 244,239,339 (31 December 2012: 220,267,581 and 30 June 2013: 244,239,339) ordinary shares, being the number of ordinary shares in issue at the period end.
Related parties
Mr G Ross is a director of the Company Secretary and Administrators, R&H Fund Services (Jersey) Limited and R&H Fund Services Limited, which both receive fees from the Company. During the period fees of £76,000 were incurred (excluding Director's fees paid to Mr Ross).
Post balance sheet events
On 7 February 2014 the Company allotted 17,528,292 ordinary shares of no par value for cash at 62.76p per share.
On 10 February 2014 the Company allotted 1,000,000 ordinary shares of no par value for cash at 62.77p per share.
Financial information
These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and have not been audited or reviewed by the Company's auditors. The information for the year ended 30 June 2013 has been extracted from the latest published financial statements which received an unqualified audit report and have been filed with the Registrar of Companies. No statutory accounts in respect of the period after 30 June 2013 have been reported on by the Company's auditors or delivered to the Registrar of Companies.
The report and accounts for the six months ended 31 December 2013 will be posted to shareholders and 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
Directors' Statement of Principal Risks and Uncertainties
The Company's assets consist principally of listed 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, financial, earnings and dividend, operational and regulatory matters. 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 2013. 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.
Directors' Responsibility Statement in Respect of the Interim Report
We confirm that to the best of our knowledge:
· the condensed set of financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU;
· the Chairman's Statement 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 Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and
· the 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 that period, and any changes in the related party transactions described in the last annual report that could do so.
On behalf of the Board
J G West
Chairman
26 February 2014
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: New City High Yield Fund Ltd via Globenewswire
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