New City High Yield Fund Ltd : Half-yearly report

To:         THOMSON REUTERS
Date:      25 February 2015
From:     New City High Yield Fund Limited
Subject: Interim Report

Unaudited statement of results for the six months ended 31 December 2014

• Net asset value total return of -2.1% since 1 July 2014.
• Ordinary share price total return of +2.1% since 1 July 2014.
• Dividend yield of 6.7%, based on dividends at an annualised rate of 4.31 pence and a share price of 64.13 pence at 31 December 2014.
• Ordinary share price at a premium of 9.1% to net asset value at 31 December 2014.
• Prospectus relating to initial placing, offer for subscription and placing programme expected to be published at the beginning of March 2015.
• £6.7m raised since 31 December 2014 under the Placing Programme.

Investment and Share Price Performance
Our primary investment focus is to provide shareholders with a high dividend yield, and while the Company's net asset value decreased by 5.8% to 58.8 pence during the six months to 31 December 2014 the dividend increased by 3.3% as detailed below.

The share price decreased by 1.7% during the period, giving a share price total return of 2.1%. The share price stood at a premium of 9.1% to net asset value at 31 December.

Dividends
The Company declared one interim dividend of 0.94 pence in respect of the period, and one of 0.96 pence. The payment of 0.96 pence per share represented a 4.3% increase on the 0.92 pence per share paid in respect of the same period last year, and a 2.1% increase on the 0.94 pence per share first interim dividend paid in November 2014.

The Company has in recent years paid three interim dividends at the same rate and a larger fourth interim dividend. The gap between the size of the first three interim dividends and the fourth had become increasingly large, and the Board has concluded that it would be in shareholders' interests for the gap to be narrowed.

It is anticipated that the third interim dividend will be at least equal to the second interim dividend, and that the fourth interim dividend will be maintained at last year's level.  Based on an annualised rate of 4.31 pence and a share price of 61.8 pence at the time of writing, this represents a yield of 7.0%. Since your Company relocated to Jersey in March 2007 the level of dividends paid has increased every year.

Gearing
The Company replaced its existing £20m loan facility with a new £30m loan facility with Scotiabank in December. At an all-in rate of 1.42% the new facility is significantly cheaper than the one that it replaces and shareholders can look to benefit from this reduction in cost. £15m was drawn down at 31 December 2014 and the Company had effective gearing of 6%.

Rating and Placing Programme
The market continues to attach a premium rating to the shares of your Company. 13.9m shares were issued in November 2014 and at the Annual General Meeting in December shareholders approved a resolution granting authority to issue shares equivalent to 10 per cent of the Company's share capital. 11.25m shares were issued at the beginning of February, 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 part of this process, the Directors expect to publish a prospectus relating to an initial placing, offer for subscription and placing programme at the beginning of March 2015. 

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.

Issues of shares pursuant to the prospectus will be subject to Shareholders approving an extension of the Board's authority to issue new Ordinary Shares equivalent to 50 per cent. of the Company's current issue share capital on a non-pre-emptive basis.  A circular convening an extraordinary general meeting of the Company for 27 March 2015 at which the requisite approval will be sought will be posted to Shareholders in early March.

Management Arrangements and Proposed Change of Name
The costs of operating a fund management company have increased considerably over recent years, the regulatory burden having significantly increased. The Investment Manager has agreed to absorb the costs of acting as our Alternative Investment Fund Manager ("AIFM") within the existing fee arrangements, but the Board felt that the growing size of your Company should be reflected in the fee arrangements. The current management fee of 0.8% per annum on total assets will now reduce to 0.7% per annum on total assets in excess of £200m. The Company's total assets are currently £198.6m. Shareholders will benefit from this reduction in ongoing charges as the Company grows.

The Directors believe that shareholders would benefit from the clearer association of the Company with the investment manager, and a change in the Company's name to "CQS New City High Yield
Fund Limited" will be proposed to shareholders at the Extraordinary General Meeting of the Company expected to be convened in connection with the initial placing, offer for subscription and placing programme referred to above.

Outlook
Our portfolio manager, Ian Francis, continues to find value in the bond markets and is placing a particular emphasis on providing additional protection by increasing diversity. Whether it is threat
of "Grexit", the renewal of the Cold War, or simply wildly unpredictable oil prices the case for diversity has rarely seemed stronger and our increasing size aids this process. That said, the United States notwithstanding, there would appear to be 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
24 February 2015

Investment Manager's Review

World markets have been very complex for the last six months: in the US the tapering of Quantitative Easing ("QE") on the back of the recovering US economy, led to the strengthening of the US$ on a
fairly linear basis against all other major currencies, an example of which would be Sterling where it opened July at $1.7150/£ and closed the year at $1.5577/£.

A further effect of the strong US$ was the weakness across bulk commodities and the spectacular fall of Oil from $112.29/bbl to $57.33 at the end of December also in a very linear fashion.  Unlike the US, Europe has had a far harder time. Over the summer months of 2014, Banco Espirito Santo defaulted and evidence emerged of economic stagnation in the Eurozone. This encouraged Mario Draghi to use his speech at Jackson Hole in August to reiterate "Use of all instruments needed" hinting at the possible implementation of QE , this rhetoric proved effective in the short term as European markets rallied strongly from that moment.

September and media and market focus was on the Scottish referendum, uncertainty in front of it, brief euphoria after it followed by a swift reality check of fundamentals and the forthcoming UK general election in May 2015.  Come October Europe's recession worries were again front and centre. The tragic West African Ebola outbreak was spooking the global travel and entertainment sectors. No new news specific to the high yield markets, but this did not prevent them weakening on previously ignored market worries. Specific to the UK in the second half of the month sentiment improved when UK growth was reported easing from 0.9% in quarter 2 to 0.7% in quarter 3, along with a speech made by Jon Cunliffe the Bank of England Deputy Chief reinforcing the view that interest rates in the UK will remain at the current low level until at least the middle of 2015. 

November and yet more negative news in the Eurozone, with inflation figures at 0.4% pa against the ECB medium term target of just under 2% pa leaving many investors worried that Europe was heading for a Japanese style lost decade of deflation and recession, as a counter to this Mario Draghi gave yet another speech very reminiscent of his "do whatever it takes" back in 2012.  Ramping up the pressure on the Germans to accept full blown QE to restart the Eurozone inflation engine.. We now know the answer to that question, the problem was too drastic even for Germany's fear of inflation to stand in the way.

December is usually a quiet month with low volumes, not this year, the previously mentioned US$ strength Oil weakness produced a major wobble.  The FTSE 100 fell 9% early on in the month before rallying to being only 2.5% down by the month end.  And in the bond space, the iTraxx Xover 5yr generic widened drastically from 305.5bp to 401.403bp mid-month before recovering to 345.805bp at month end.

For the Company, the main focus was and continues to be diversity and income generation, new holdings have been taken in PizzaExpress Financing1 8 5/8% 2022, Virgin Money 7 7/8% perpetual, Barclays 7% 2019, Personalhuset FRN 2019, Johnston Press 8 5/8% 2019, adding to equity in Greencoat UK Wind in placings by the corporate, the same with Standard Life Property Income and Newriver Retail. We reduced some of the exposure to Oil by selling Chloe Marine 12% 2016 above par in October along with selling part of the Seatrucks 9% 2018 below par.  We also sold Abbey 10 1/16% well above par and had the Healthscope bonds called by the company along with the Diamorph 12% bonds 2017. We continue to look for and find opportunities to increase diversity and provide income.

Ian Francis
New City Investment Managers
24 February 2015

Enquiries:

Ian Francis
Investment Manager
New City Investment Managers                           Tel:  [phone]

Martin Cassels
R&H Fund Services Limited                               Tel:  [phone]

Unaudited Income Statement
For the six months ended 31 December 2014

	Six months ended 31 December 2014
		£ '000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital (losses)/gains on investments
Losses on investments	3	-	(10,420)	(10,420)
Exchange gains		-	177	177
Revenue
Income	4	7,642	-	7,642
		7,642	(10,243)	(2,601)
Expenses
Investment management fee	5	(586)	(195)	(781)
Other expenses		(359)	(86)	(445)
Total expenses		(945)	(281)	(1,226)
Profit before finance costs and taxation		6,697	(10,524)	(3,827)
Finance costs
Interest payable and similar charges		(111)	(37)	(148)
Profit before taxation		6,586	(10,561)	(3,975)
Irrecoverable withholding tax		(119)	-	(119)
Profit after taxation		6,467	(10,561)	(4,034)
Earnings per ordinary share (pence)	6	2.15	(3.52)	(1.37)

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 Income Statement
For the six months ended 31 December 2013

	Six months ended 31 December 2013
		£ '000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital gains on investments
Gains on investments		-	862	862
Exchange gains		-	14	14
Revenue
Income	4	6,697	-	6,697
		6,697	876	7,573
Expenses
Investment management fee		(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.

Audited Income Statement
For the year ended 30 June 2014

	Year ended 30 June 2014
		£'000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital gains on investments
Gains on investments		-	2,948	2,948
Exchange gains		-	57	57
Revenue
Income	4	14,269	-	14,269
		14,269	3,005	17,274
Expenses
Investment management fee		(1,037)	(346)	(1,383)
Other expenses		(567)	(90)	(657)
Total expenses		(1,604)	(436)	(2,040)
Profit before finance costs and taxation		12,665	2,569	15,234
Finance costs
Interest payable and similar charges		(211)	(70)	(281)
Profit before taxation		12,454	2,499	14,953
Irrecoverable withholding tax		(182)	-	(182)
Profit after taxation		12,272	2,499	14,771
Earnings per ordinary share (pence)	6	4.76	0.97	5.73

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.

Balance Sheet
As at 31 December 2014

		As at	As at	As at
		31 December 2014	31 December 2013	30 June 2014
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Investments held at fair value		186,341	156,956	194,441
Current assets
Other receivables		3,511	3,183	5,027
Cash at bank		4,763	1,859	-
		8,274	5,042	5,027
Total assets		194,615	161,998	199,468
Current liabilities
Bank loan facility		(15,000)	(13,184)	(15,360)
Other payables		(198)	(192)	(2,247)
Total liabilities		(15,198)	(13,376)	(17,607)
Net assets		179,417	148,622	181,861
Stated capital and reserves
Stated capital account		120,252	81,890	111,638
Special distributable reserve		50,385	50,385	50,385
Capital reserve		(4,991)	3,750	5,570
Revenue reserve		13,771	12,597	14,268
Equity shareholders' funds		179,417	148,622	181,861
Net asset value per ordinary share (pence)	7	58.77	60.85	62.41

Statement of Changes in Equity

For the six months ended 31 December 2014 (unaudited)

		Stated	Special
		capital	distributable	Capital	Revenue
		account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
At 1 July 2014		111,638	50,385	5,570	14,268	181,861
Total comprehensive income for the year:
Profit for the period		-	-	(10,561)	6,467	(4,094)
Transactions with owners recognised directly in equity:
Dividends paid	2	-	-	-	(6,964)	(6,964)
Issue of shares		8,614	-	-	-	8,614
At 31 December 2014		120,252	50,385	(4,991)	13,771	179,417

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 year:
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 year ended 30 June 2014 (audited)

			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 year:
Profit for the year				-		-	2,499	12,272	14,771
Transactions with owners recognised directly in equity:
Dividends paid		2		-		-	-	(10,507)	(10,507)
Issue of shares				29,748		-	-	-	29,748
At 30 June 2014				111,638		50,385	5,570	14,268	181,861

Cash Flow Statement
For the six months ended 31 December 2014

	Six months	Six months
	ended	ended	Year ended
	31 December 2014 (unaudited)	31 December 2013 (unaudited)	30 June 2014 (audited)
	£'000	£'000	£'000
Operating activities
(Loss)/profit before finance costs and taxation	(3,827)	6,669	15,234
Losses/(gains) on investments	10,420	(862)	(2,948)
Exchange gains	(177)	(14)	(57)
Decrease in other receivables	109	735	297
(Increase)/decrease in other payables	(5)	2	18
Net cash inflow from operating activities before interest and taxation	6,520	6,530	12,544
Interest paid	(158)	(142)	(274)
Irrecoverable withholding tax paid	(119)	(85)	(182)
Net cash inflow from operating activities	6,243	6,303	12,088
Investing activities
Purchases of investments	(31,064)	(36,114)	(102,911)
Sales of investments	28,329	35,575	67,390
Net cash outflow from investing activities	(2,735)	(539)	(35,521)
Financing activities
Equity dividends paid	(6,964)	(5,666)	(10,507)
(Repayment)/drawdown of bank loan facility	(360)	970	3,146
Issue of ordinary shares	8,614	-	29,748
Net cash inflow/(outflow) from financing	1,290	(4,696)	22,387
Increase/(decrease) in cash and cash equivalents	4,798	1,068	(1,046)
Net debt at the start of the period	(15,572)	(11,437)	(11,437)
Repayment/(drawdown) of bank loan facility	360	(970)	(3,146)
Exchange gains	177	14	57
Net debt at the end of the period	(10,237)	(11,325)	(15,572)

Notes to the Accounts

1.     The unaudited interim results which cover the six month period to 31 December 2014 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 2014.

2.     Dividends
Amounts recognised as distributions to equity holders in the period.

	Six months ended 31 December 2014		Six months ended 31 December 2013		Year ended 30 June 2014
		Rate		Rate		Rate
	£'000	(pence)	£'000	(pence)	£'000	(pence)
In respect of the previous period
Fourth interim dividend	4,225	1.45	3,419	1.40	3,419	1.40
In respect of the period under review:
First interim dividend	2,739	0.94	2,247	0.92	2,247	0.92
Second interim dividend	-	-	-	-	2,247	0.92
Third interim dividend	-	-	-	-	2,594	0.92
	6,964	2.39	5,666	2.32	10,507	4.16

       
        A second interim dividend in respect of the year ended 30 June 2015 of 0.96p per ordinary share will be paid on 27 February 2015 to shareholders on the register on 30 January 2015. In accordance with International Financial Reporting Standards ('IFRS') this dividend has not been included as a liability in these accounts.

3.       Included within losses on investments for the period ended 31 December 2014 are realised losses of £1,052,000 and unrealised losses of £9,368,000.

4.       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
                                                                                           2014                     2013                      2014

                                                                                    £'000                     £'000                     £'000

        Income from investments:
        Dividend income                                                             414                       167                       379
        Preference share income                                                 954                       667                     1,547
        Interest on fixed interest securities                                6,274                    5,863                   12,343
       

Total income                                                                7,642                    6,697                   14,269

5. 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 up to and including £200,000,000 and 0.7 per cent per annum above this.  During the period investment management fees of £781,000 were incurred, of which £130,000 was payable at the period end.

6.       Earnings per ordinary share

       The revenue earnings per ordinary share is based on the profit after taxation of £6,467,000 (31 December 2013: £5,760,000 and 30 June 2014: £12,272,000) and on a weighted average of 300,388,821 (31 December 2013: 244,239,339 and 30 June 2014: 257,812,038) ordinary shares in issue throughout the period.

       The capital return per ordinary share is based on a net capital loss of £10,561,000 (31 December 2013: a net capital gain of £679,000 and 30 June 2014: a net capital gain of £2,499,000) and on a weighted average of 300,388,821 (31 December 2013: 244,239,339 and 30 June 2014: 257,812,038) ordinary shares in issue throughout the period.

7.       Net asset value per ordinary share

       The net asset value per ordinary share is based on net assets at the period end of £179,417,000 (31 December 2013: £148,622,000 and 30 June 2014: £181,861,000) and on 305,299,173 (31 December 2013: 244,239,339 and 30 June 2014: 291,405,541) ordinary shares, being the number of ordinary shares in issue at the period end.

8.       Related parties

Mr G Ross is a director of the Company Secretary and UK Administrator, R&H Fund Services (Jersey) Limited and R&H Fund Services Limited, which both receive fees from the Company.  During the period fees of £93,000 were incurred (excluding Director's fees to Mr Ross).

9. Post balance sheet events

On 6 February 2015 the Company allotted 11,250,000 ordinary shares of no par value for cash at 60.50p per share.

1. 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 2014 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 2014 have been reported on by the Company's auditors or delivered to the Registrar of Companies.

1. The report and accounts for the six months ended 31 December 2014 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 2014.  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
24 February 2015

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
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

HUG#1896988