Annual Financial Report

RNS Number : 5006T

BMO Capital & Income Inv Tst PLC

25 November 2021

 

BMO CAPITAL AND INCOME INVESTMENT TRUST PLC

Audited Statement of Results for the year ended 30 September 2021

LEI: 21380052ETTRKV2A6Y19

25 November 2021

BMO Capital and Income Investment Trust PLC ("BCI" / "the Company") today announces its results for the year ended 30 September 2021.

· BCI's Net Asset Value ("NAV") total return for the year was +37.8%, outperforming the FTSE All-Share Index (the "Benchmark") which returned +27.9% for the same period.

· Very pleasingly, Net Asset Value total return is ahead of the Benchmark over 1, 3, 5, 10, 20 years and since launch in 1992.

· BCI will pay a fourth interim dividend of 3.75 pence per share to bring the total for the year to 11.60 pence per share, an increase of 0.9%.

· This is the 28th consecutive year of increased payments maintaining the Company's status as an AIC Dividend Hero. 

The Chairman, Jonathan Cartwright, said:

  "This year we experienced the recovery of equity markets following the COVID-19 related collapse the previous year and I am pleased to report that the performance of your Company was strong.

  Whilst the future is always uncertain, it certainly feels at present as though there are more issues of potential concern than usual. Globally, supply chains are under enormous pressure, energy prices are soaring and more general inflationary pressure is building. Central Banks are talking about reducing Quantitative Easing and increasing interest rates.

  On the other hand, there are clearly opportunities to grasp.  Your investment Manager sees opportunities to invest in companies generating good returns despite the circumstances and this combined with UK stock market valuations that do not appear too demanding give confidence that we should again be able to secure our objective of long-term capital and income growth for Shareholders."

Chairman's Statement

It is fair to say that my second year as Chairman has been very different from the first. This year we experienced the recovery of equity markets following the COVID-19 related collapse the previous year and I am pleased to report that the performance of your Company was strong. The Fund Manager's Review in the Annual Report gives more detail on the movements of the UK equity market and our investment portfolio, but the headlines are all encouraging.

Over the year to 30 September 2021, the Net Asset Value (NAV) per share total return (including all income) rose by 37.8% and the share price total return (including the dividends paid) was close behind rising by 35.5%. Both of these were comfortably ahead of the FTSE All-Share Index (the Index), our benchmark, which rose 27.9%. After a difficult year in 2020, the strength of these results restores your Company's record as being ahead of its benchmark over the short, medium and long-term.

Over five years to 30 September 2021, the Company's NAV per share and share price total returns were +41.4% and +35.7% respectively, while the comparable figure for the Index was +29.8%. Normally, it might be considered somewhat irrelevant to quote long-term performance figures as there is not often such lengthy continuity in a specific investment manager's input. However as your investment manager, Julian Cane, is now in his 25th year of looking after this Company's assets it does seem appropriate and relevant. Over the 20 years to 30 September 2021, the Company's NAV per share and share price total returns were +292.9% and +327.7% respectively. These compare directly to the total return from the FTSE All-Share of +249.0% and I take this opportunity to thank Julian, not only for his very successful stewardship of the Company's portfolio since launch, but also for his continuing management and advice regarding the Company's portfolio.

Revenue, Earnings and Dividends

A look at the revenue and earnings for the year shows very strong rates of growth, but this would be a misrepresentation of the longer-term situation. At the start of the COVID-19 pandemic many companies stopped paying or reduced their dividends and as dividends from investee companies make up the portfolio's income, this led to a sharp reduction in revenue for your Company. In the year to 30 September 2020 the Company's own earnings per share fell 36.4% so in that context an increase of 26.6% to 10.56 pence per share to 30 September 2021 was positive, but only a partial rebound.

The Fund Manager's Review gives more information on the timing and rate of recovery in dividend flows from the equity market, but, barring further material disruptions, we should be well past the point of maximum dividend pressure.

With these results, we are announcing the intention to pay a fourth quarterly dividend of 3.75 pence per share. This will be paid on 16 December 2021 to Shareholders on the register on 3 December 2021.  The ex-dividend date is 2 December 2021. Together with the three dividends already paid for this financial year, this takes the total dividend for the year to 11.6 pence per share, an increase of 0.9% compared to last year.

Your Board took the decision last year and this to increase dividend payments to our Shareholders despite the fall in our earnings and we have drawn on our substantial Revenue Reserve in order to do so. The Revenue Reserve is the surplus of earnings over dividend payments we have accumulated over the life-time of the Company and is a distinguishing feature of investment trusts as compared to open-ended investment vehicles.  A key purpose of the Revenue Reserve is to support dividend payments when, for whatever reason, there is a shortfall in earnings. The Board repeats the assurance that it is very willing to use the Reserve when appropriate and necessary to support the payment of an increased dividend.

The shortfall in earnings for the year to 30 September 2021 relative to the dividends paid and proposed in respect of the year is 1.04 pence per share, a reduction of over 67% compared to the shortfall in the previous year. This is a clear indication of an underlying improvement. Revenue reserves have been used to support 2021 dividend payments, as they were in 2020.  However, this year only £1.1m was required to cover dividends paid in the year and the Company had revenue reserves of £10.7m at the year end.

We remain proud to be an AIC Dividend Hero as we have increased our dividend every year since launch in 1992. It is very much our intention to continue to extend this record.

Share Rating

Over the last year, the share price has on average traded at a discount to the underlying NAV per share. As noted in the interim report, it is impossible to ascribe this precisely to any particular reason, but the rating on your shares remains consistently better than that of the majority of its peers in the UK Equity Income sector.

As the Board has consistently stated, it does not think it is in Shareholders' interest that the shares of the Company should become too detached from the underlying NAV per share. In order to put these words into action, over the last year the Company has both bought back its own shares and issued new shares. The share purchases were on two separate occasions in March when the discount was threatening to widen further. A total of 150,000 shares were bought at a discount of 4.1% to the underlying NAV per share and put into treasury. We sold shares on four separate occasions, totalling 729,754 shares, all at a premium of 1.7% to the underlying NAV per share; this included re-selling from treasury in April the 150,000 shares that had been bought in March. From these transactions, it appears there is still net demand for your Company's shares and this in turn should help to keep the share price close to the NAV per share.

The Board will again be asking at the Annual General Meeting for Shareholders to give authority for the issue of shares at a premium and also to buy back shares at a discount. This will assist the Company in keeping its share price closely linked to the NAV per share and also helps to provide liquidity to Shareholders and potential investors over and beyond what may be available from traditional market makers.

Costs

Your Company is efficiently run with a cost of running the Company expressed as a percentage of average net assets of 0.59%. We believe this is amongst the most competitive in the peer group and represents very good value for Shareholders. The most significant cost incurred is the fee paid to the Investment Manager for its services; this is fixed as a percentage of the size of the assets of your Company.

Balance Sheet and Gearing

During the year, following a competitive tendering process, we renewed and extended our loan facility with Scotiabank. The Company now has potential to borrow up to £40m, an increase from £30m previously. Given the rise in our net assets, this gives us the ability to keep gearing levels at a similar percentage as before, if wanted. Through most of the first six months under review, we borrowed £20m and increased this to £25m under the new facility. At the year end the gearing level was 6.5%, a little lower than 7.1% at the start of the year.

Responsible Investment

By contrast to the sudden fashionable rush for all things Environmental, Social and Governance (ESG) related, the Board and BMO GAM have long recognised the importance of the highest standards of ESG practice in assessing investments and BMO GAM has one of the largest and longest established teams in the City dedicated to ESG. There is a detailed report on pages 24 to 27 of the Annual Report  which explains BMO GAM's ESG policies, how these are implemented in the management of the portfolio as well as its engagement with our investee companies. It is clear this area is becoming increasingly important and the Board fully supports BMO GAM in its actions on your Company's behalf.

AGM

The 2021 Annual General Meeting (AGM) of the Company was held on 16 February 2021. Due to travel and gathering restrictions arising from the COVID-19 pandemic, Shareholders were not able to attend physically. However, Shareholders were able to view online a presentation by our Fund Manager Julian Cane and participate in a live question and answer session with him and me. I would like to thank those Shareholders who participated.

I am pleased to report that it is anticipated that our 2022 AGM will revert to our normal practices. The AGM will be held at the London Offices of the Manager, Exchange House, Primrose Street, London, EC2A 2NY on Thursday 10 March 2022 at 12.30pm and will include a presentation from Julian on the Company and its investment portfolio.

We do strongly advise all Shareholders to consider their own personal circumstances before attending the AGM in person. For Shareholders who choose not to attend, any questions they may have regarding the resolutions proposed at the AGM or the performance of the Company can be directed to a dedicated email account, [e-mail], by Thursday 3 March 2022. We will endeavour to ensure that all such questions are fully addressed during the meeting. In addition, the meeting will be recorded and will be available to view on the Company's website, www.bmocapitalandincome.com shortly thereafter.

To ensure that your votes will count, I would encourage all Shareholders that cannot attend in person to complete and submit their Form of Proxy or Form of Direction in advance of the AGM.

I do however note that as the situation with regard to the COVID-19 pandemic remains uncertain, if circumstances were to change prior to 10 March 2022 and laws or regulations no longer permitted physical attendance, the Company will communicate to Shareholders any changes to arrangements by a London Stock Exchange announcement and through updates to the Company's website detailed above.

Ownership of the Manager

On 12 April 2021 BMO announced that it had reached an agreement to sell its asset management business in Europe, the Middle East and Africa to Columbia Threadneedle, the global asset management business of Ameriprise Financial, Inc.  This acquisition completed on 8 November 2021.

During this acquisition process the Board has sought and received confirmation from senior management at Columbia Threadneedle of the importance of maintaining stability and continuity of the teams which presently support your Company.  The Board welcomes these assurances and will ensure that Shareholders are kept informed of developments as this new relationship develops.

Outlook

Whilst the future is always uncertain, it certainly feels at present as though there are more issues of potential concern than usual notwithstanding the initial success of the UK Government's COVID-19 vaccine rollout. At the time of writing, the rate of new COVID-19 infections appears to have abated somewhat in the UK. However, as we are seeing in Europe, the possibility of restrictions being reimposed cannot be ruled out. After the success of the vaccination programmes to date, this would clearly be a retrograde step for social and economic reasons and would not appear to be built into market forecasts.

Globally, supply chains are under enormous pressure, energy prices are soaring and more general inflationary pressure is building. Central Banks are talking about reducing Quantitative Easing and increasing interest rates, while at the same time government debt has risen substantially. None of these points would normally be expected to improve investors' confidence and they certainly give grounds for some caution.

On the other hand, there are clearly opportunities to grasp.  It seems likely that supply chain issues will abate, albeit in an uncertain timeframe, thus reducing some inflationary pressure. It also seems unlikely that interest rates will be increased significantly over the short term as there is little logic in trying to stem 'cost-push' inflation by raising interest rates. Having anticipated that conditions would have returned closer to previous normality by now, it is disappointing that has not fully happened, but it surely leaves some recovery potential to come.  Your investment Manager sees opportunities to invest in companies generating good returns despite the circumstances and this combined with UK stock market valuations that do not appear too demanding give confidence that we should again be able to secure our objective of long-term capital and income growth for Shareholders.

Jonathan Cartwright

Chairman

24 November 2021

 

Principal Risks and Future Prospects

The principal risks together with their mitigations are set out below. The Board's processes for monitoring them and identifying emerging risks are set out on pages 46 to 47 and in note 21 of the Report & Accounts.

Since the beginning of 2020 the global economy has suffered considerable disruption due to the effects of the COVID-19 pandemic. The Directors continue to review the key risk register for the Company which identifies the risks that the Company is exposed to, the controls in place and the actions being taken to mitigate them.

The principal risks identified as most relevant to the assessment of the Company's future prospects and viability are detailed below.

· Risk description: Unfavourable markets or asset allocation, sector and stock selection and use of gearing and derivatives are inappropriate giving rise to investment underperformance as well as impacting capacity to pay dividends.

No change in overall risk during the year.

Mitigation: The portfolio of quoted securities is diversified and the Company's structure enables it to take a long-term view. Investment policy, performance, revenue and gearing are reviewed at each Board meeting. The Manager's Performance and Risk Oversight team provides independent oversight on investment risk management. The Board regularly considers operating costs along with underlying dividend income and the implications for the dividend payment capacity of the Company taking into account revenue reserves.

· Risk description: Errors, fraud or control failures at service providers or loss of data through increasing cyber threats or business continuity failure could damage reputation or investors' interests or result in losses.

No change in overall risk during the year.

Mitigation: The Board receives regular control reports from the Manager covering risk and compliance including oversight of third party service providers. The Board has access to the Manager's Risk Manager and requires any significant issues directly relevant to the Company to be reported immediately. The Depositary is specifically liable for loss of any of the Company's securities and cash held in custody.

· Risk description:  Inappropriate business or marketing strategy particularly in relation to investor needs or sentiment giving rise to a share price discount to NAV per share.

No change in overall risk during the year.

Mitigation:  To gauge investor sentiment, the Board holds a Shareholder satisfaction survey which is conducted every five years ahead of a vote on whether the Company should continue. The Board holds a separate annual meeting to consider the Company's strategy and performance together with opportunities and threats to its business. The appointment of the Manager is also reviewed annually in terms of sustainable long-term growth in capital and income which includes the growing recognition of the importance of the application of high standards of ESG practice. Share buybacks can be employed to help moderate discount volatility, while share issues can be made when the shares are trading at a premium. At each Board meeting the Directors receive an update on the marketing activities undertaken by the Manager. This includes details of the level of maturing Child Trust Funds and the decisions, if any, taken by their holders. The Company's Broker provides periodic updates to the Board relating to the Company's trading in the wider market.

Five Year Horizon

Through a series of connected stress tests ranging from moderate to extreme scenarios and based on historical  information, but forward looking over the five years commencing 1 October 2021, the Board assessed the risks of:

· potential illiquidity of the Company's portfolio;

· the effects of any substantial future falls in investment values and income receipts on the ability to repay and re-negotiate borrowings;

· potential breaches of loan covenants, the maintenance of dividend payments and retention of investors; and

· the potential need for extensive share buybacks in the event of share price volatility and a move to a wide discount.

In accordance with the UK Code, the Directors have assessed the future prospects of the Company over the coming five years. Based on this assessment, and in the context of the Company's business model, strategy and operational arrangements, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period ending November 2026. For this reason, the Board also considers it appropriate to continue adopting the going concern basis in preparing these financial statements.

Statement of Directors' Responsibilities 
 

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

· the financial statements, prepared in accordance with applicable accounting standards give a true and fair view of the assets, liabilities, financial position and profit of the Company;

· the Strategic report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face; and

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Jonathan Cartwright

Chairman

24 November 2021

 

Income Statement

for the year ended 30 September	2021			2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains/(losses) on investments	-	89,657	89,657	-	(79,247)	(79,247)
Foreign exchange (losses)/gains	(4)	13	9	2	(25)	(23)
Income	12,697	58	12,755	10,097	938	11,035
Management fee	(721)	(721)	(1,442)	(609)	(609)	(1,218)
Other expenses	(535)	(2)	(537)	(583)	(2)	(585)
Net return before finance costs and taxation	11,437	89,005	100,442	8,907	(78,945)	(70,038)
Finance costs	(114)	(114)	(228)	(141)	(141)	(282)
Net return before taxation	11,323	88,891	100,214	8,766	(79,086)	(70,320)
Taxation	(13)	-	(13)	(8)	-	(8)
Net return attributable to Shareholders	11,310	88,891	100,201	8,758	(79,086)	(70,328)
Earnings per share - basic and diluted	10.56p	82.95p	93.51p	8.34p	(75.33p)	(66.99p)

The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

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

A statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

 

Statement of Changes in Equity

for the year ended 30 September 2021
		Share	Capital				Total
	Share	premium	redemption	Special	Capital	Revenue	Shareholders'
	capital	account	reserve	reserve	reserve	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2020	26,677	139,814	4,146	4,434	79,475	11,849	266,395
Movements during the year    ended 30 September 2021
Dividends paid	-	-	-	-	-	(12,424)	(12,424)
Ordinary shares issued	145	1,549	-	-	-	-	1,694
Ordinary shares issued from   treasury	-	29	-	443	-	-	472
Ordinary shares bought back   and held in treasury	-	-	-	(445)	-	-	(445)
Costs relating to broker	-	(18)	-	-	-	-	(18)
Net return attributable to   Shareholders	-	-	-	-	88,891	11,310	100,201
Balance at 30 September 2021	26,822	141,374	4,146	4,432	168,366	10,735	355,875

for the year ended 30 September 2020
		Share	Capital				Total
	Share	premium	redemption	Special	Capital	Revenue	Shareholders'
	capital	account	reserve	reserve	reserve	reserve	Funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2019	25,696	130,197	4,146	4,434	158,561	15,115	338,149
Movements during the year    ended 30 September 2020
Dividends paid	-	-	-	-	-	(12,024)	(12,024)
Ordinary shares issued	981	9,648	-	-	-	-	10,629
Costs relating to broker	-	(31)	-	-	-	-	(31)
Net return attributable to   Shareholders	-	-	-	-	(79,086)	8,758	(70,328)
Balance at 30 September 2020	26,677	139,814	4,146	4,434	79,475	11,849	266,395

Balance Sheet

at 30 September	2021	2020
	£'000s	£'000s
Fixed assets
Investments	378,420	284,843
Current assets
Debtors	1,087	731
Cash and cash equivalents	1,813	1,183
Total current assets	2,900	1,914
Current liabilities
Creditors: amounts falling due within one year	(445)	(362)
Bank Loan	(25,000)	(20,000)
Total current liabilities	(25,445)	(20,362)
Net current liabilities	(22,545)	(18,448)
Total assets less current liabilities	355,875	266,395
Capital and reserves
Share capital	26,822	26,677
Share premium account	141,374	139,814
Capital redemption reserve	4,146	4,146
Special reserve	4,432	4,434
Capital reserve	168,366	79,475
Revenue reserve	10,735	11,849
Total Shareholders' funds	355,875	266,395
Net asset value per ordinary share - pence	331.70	249.65

 

Statement of Cash Flows

for the year ended 30 September	2021	2020
	£'000s	£'000s
Cash flows from operating activities before dividends received and interest	(2,038)	(1,111)
Dividends received	12,279	10,649
Interest received	15	11
Interest paid	(227)	(282)
Cash flows from operating activities	10,029	9,267
Investing activities
Purchase of investments	(42,713)	(48,257)
Sale of investments	39,028	27,395
Other capital charges	(2)	(2)
Cash flows from investing activities	(3,687)	(20,864)
Cash flows before financing activities	6,342	(11,597)
Financing activities
Equity dividends paid	(12,424)	(12,024)
Net proceeds from issuance of new shares	1,694	10,629
Net proceeds from issuance of shares held in treasury	472	-
Costs associated with the issue of new shares	(18)	(31)
Cost of shares bought back and held in treasury	(445)	-
Drawdown of bank loan	5,000	10,000
Cash flows from financing activities	(5,721)	8,574
Net movement in cash and cash equivalents	621	(3,023)
Cash and cash equivalents at the beginning of the year	1,183	4,229
Effect of movement in foreign exchange	9	(23)
Cash and cash equivalents at the end of the year	1,813	1,183
Represented by:
Cash at bank	3	43
Short term deposits	1,810	1,140
	1,813	1,183

 

Notes

1  Return per ordinary share

Revenue return

The revenue return per share of 10.56p (2020: 8.34p) is based on the revenue return attributable to Shareholders of £11,310,000 profit (2020: £8,758,000 profit).

Capital return

The capital return per share of 82.95p (2020: -75.33p) is based on the capital return attributable to Shareholders of £88,891,000 profit (2020: £79,086,000 loss).

Total return

The total return per share of 93.51p (2020: -66.99p) is based on the total return attributable to Shareholders of £100,201,000 profit (2020: £70,328,000 loss).

Weighted average ordinary shares in issue

The returns per share are based on a weighted average of 107,151,511 (2020: 104,977,759) ordinary shares in issue during the year.

2  Dividends

The Directors have declared a fourth interim dividend in respect of the year ended 30 September 2021 of 3.75 pence per share, payable on 16 December 2021 to all Shareholders on the register at close of business on 3 December 2021, ex-dividend 2 December 2021.

3  Financial risk management

The Company is an investment company, listed on the London Stock Exchange, and conducts its affairs so as to qualify in the United Kingdom ("UK") as an investment trust under the provisions of section 1158 of the Corporation Tax Act. In so qualifying, the Company is exempted in the UK from corporation tax on capital gains on its portfolio of investments.

The Company's investment objective is to secure long-term capital and income growth from a portfolio consisting mainly of FTSE All-Share companies. The Company can also have exposure to leading overseas companies, with the value of the non-UK portfolio not exceeding 10% of the Company's gross assets. In pursuing this objective, the Company is exposed to financial risks which could result in a reduction of either or both of the value of the net assets and the profits available for distribution by way of dividend. These financial risks are principally related to the market (currency movements, interest rate changes and security price movements), liquidity and credit. The Board, together with the Manager, is responsible for the Company's risk management.

The full details of financial risks are contained in note 21 of the Report and Accounts.

4  Annual general meeting

The 2022 Annual General Meeting ("AGM") of the Company will be held at 12.30pm on Thursday 10 March 2022 at Exchange House, Primrose Street, London EC2A 2NY.

We do strongly advise all Shareholders to consider their own personal circumstances before attending the AGM in person. For Shareholders who choose not to attend, any questions they may have regarding the resolutions proposed at the AGM or the performance of the Company can be directed to a special email account, [e-mail], by Thursday 3 March 2022. We will endeavour to ensure that all such questions are fully addressed during the meeting. In addition, the meeting will be recorded and will be available to view on the Company's website, www.bmocapitalandincome.com shortly thereafter.  

To ensure that your votes will count we would encourage all Shareholders that cannot attend in person to complete and submit their Form of Proxy or Form of Direction in advance of the AGM.

However please note that as the situation with regard to the COVID-19 pandemic remains uncertain, if circumstances were to change prior to 10 March 2022 and laws or regulations no longer permitted physical attendance, the Company will communicate to Shareholders any changes to arrangements by a London Stock Exchange announcement and through updates to the Company's website detailed above.

5  Report and accounts

The report and accounts for the year ended 30 September 2021 will be posted to Shareholders and made available on the website www.bmocapitalandincome.com shortly. Copies may also be obtained by mailing the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

BMO Investment Business Limited, Secretary

24 November 2021

 

END

 

 

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