Annual Results and Quarterly Dividend Announcement

CT UK Capital and Income Investment

30 November 2023

 

CT UK CAPITAL AND INCOME INVESTMENT TRUST PLC

Audited Statement of Results for the year ended 30 September 2023

LEI: 21380052ETTRKV2A6Y19

30 November 2023

CT UK Capital and Income Investment Trust PLC ("CTUK" / (the "Company") today announces its results for the year ended 30 September 2023.

·      Net Asset Value ("NAV") per share total return of 13.1%, compared to the FTSE All-Share Index (our "Benchmark") total return of 13.8% and Share Price total return of 10.9%.

·      The Board is pleased to declare a fourth quarterly dividend of 3.90p per share ⁽¹⁾. Together with the three dividends already paid for this financial year, this takes the total dividend for the year to 12.15p per share, an increase of 3.0% compared to last year. This provides Shareholders with an annual dividend yield of 4.1% ⁽²⁾.

·      This is the 30^th consecutive year of increased annual dividend payments, maintaining the Company's status as an AIC Dividend Hero. 

(1) The fourth interim dividend will be paid on 18 December 2023 to Shareholders on the register on 8 December 2023.  The ex-dividend date is 7 December 2023.

(2) Calculated as the total of the four most recent quarterly dividends declared divided by the period end share price.

The Chair, Jane Lewis, said:

"Today, the Company is pleased to declare its 30^th consecutive annual dividend increase.  The Company is proud to be one of the AIC's Dividend Heroes and we believe that this long term dividend record provides evidence for the success of our steady, incremental approach.  

The NAV total return for the year was 13.1%. This performance over the last 12 months was helped by strong returns from a number of cyclically sensitive companies as the economy proved to be more stable than some had feared, but the rise in interest rates had a detrimental impact on others. Against this difficult background, valuations in the UK stock market in general, and our portfolio in particular, are attractive."

Chair's Statement

I am pleased to write to you with my first report as Chair following the retirement of Jonathan Cartwright on 1 July 2023. Jonathan joined the Board in 2019 and became Chair in 2020. We thank him for his leadership and guidance throughout his tenure.

Total Return - The Company offers a reliable income while at the same time seeking to grow the size of your investment

After the political turmoil of the previous year with three Prime Ministers and four Chancellors, Russia's invasion of Ukraine and then the unsettling Mini-Budget from the Truss/Kwarteng administration, the year under review was much more stable. This helped to provide a more positive background against which the UK stock market was able to record a strong return of +13.8% for the FTSE All-Share Index (the "Index"). Having been ahead of the Index at our half yearly stage and through Spring, the total return of our Net Asset Value ("NAV") of 13.1% was modestly behind the Index at our year end.

The Fund Manager's Review in the Annual Report contains greater analysis of performance and the companies identified with strong, sustainable foundations to deliver profitable growth into the future.

During the year, the transition to a new period of higher interest rates and bond yields brought about some apparently contradictory moves in the portfolio. Our performance over the last twelve months was helped by strong returns from a number of cyclically sensitive companies, such as the housebuilder Vistry and kitchen manufacturer and seller Howden Joinery, as the economy proved to be more stable than some had feared, but the rise in interest rates had a negative impact on others, such as the specialist bank OSB, property owner LXi REIT and brick manufacturer Forterra.

Our financial year end three years ago was close to the bottom of the equity market, driven by fears over the impact of COVID-19. Our recovery from that low point was initially much stronger even than that of the Index, but we subsequently lost relative performance in the latter stages, most notably during Russia's initial invasion of Ukraine and the Truss/Kwarteng administration period. Performance of the Index during the three year period has been driven largely by some of the very biggest stocks, in particular Shell (which rose 207.5% with an average weight in the FTSE All-Share Index of 6.1%) and HSBC (+145.2% with an average weight in the Index of 4.3%). Partly by virtue of their size and international exposure, these companies have been seen as quite defensive and therefore more resilient than the average UK company in difficult conditions. Our portfolio had only a relatively small investment in Shell and nothing in HSBC, so compared to the Index these positions were detrimental to our performance. Over three years, our NAV total return of 35.5% lagged that of the Index, which returned 39.8%.

Looking at longer term performance, we are ahead of the benchmark over both 10 and 25 years, with our performance in more stable or rising markets outweighing the more challenging periods. This is evidence that our investment process and its attention to long term fundamentals does generate attractive investment returns, an important component of which is our track record of annual dividend growth.

Income Growth - The Company has increased its dividend every year since it was launched, through the market's ups and downs

During the year, in addition to rebounding capital values, the increase in dividends from our investee companies led to growth in our revenue return per share of 10.2%. This is encouraging as it is clearly a strong rate of growth for any one year. In these more inflationary times, companies with pricing power for their services and products should be able to raise their prices, protect their profits and pay increased dividends. In this way, they should be able to provide some cover against inflation for their shareholders.

With these results, the Board is declaring a dividend for our fourth quarter of 3.9 pence per share to give a total for the year of 12.15p. Over one year, this is a rate of growth for our dividend of 3.0%, which compares to the Consumer Price Index ("CPI") of 6.7% and growth in the implied dividend from the FTSE All-Share Index of 9.1%. While our dividend growth may lag these two comparators in the short term, there are echoes of Aesop's Fable of the Tortoise and the Hare as we, the Tortoise, aim to grow our dividend each and every year - and have done so over our 30 years since launch. So, while the Index, the Hare, may grow its dividend rapidly some years, there are other periods (such as during COVID-19 and in response to the Global Financial Crisis) when the dividend from the market is cut sharply.

Our long term dividend record provides evidence for the success of our steady, incremental approach. Over 30 years, our dividend has grown 257.4%, providing considerably greater growth than either CPI at 103.7% or the FTSE All-Share Index at 169.7%. In addition to our dividend growing faster than the dividend from the Index over the long term, our dividend yield as at the financial year end was 4.1%, which is above the yield from the Index of 3.8%.

Translating these figures to compound annual rates of growth, over 30 years we have grown our dividend by a rate of 4.3%, compared to 2.4% for CPI and 3.4% for the FTSE All-Share Index.

In addition to our dividend growing faster than the dividend from the Index over the long term, our dividend yield as at the financial year end was 4.1%, which is above the yield from the Index of 3.8%.

We are proud to be one of the Association of Investment Companies' ("AIC") Dividend Heroes as we have increased our dividend every year since launch in 1992. It remains firmly our intention to continue to extend this record and the recovering strength of our Revenue Reserve of £12.3 million or 11.8 pence per share gives us considerable confidence that this will be achievable.

Share Price discount to NAV

The Board has long believed it is in Shareholders' interests that the Company's shares should not trade at a price that is too detached from the underlying NAV per share. In order to try to create the right conditions for this, the Company has the ability to buy back its own shares if the price stands at a discount compared to the underlying NAV per share and to issue its own shares if the price is at a premium. In total during the year, the Company bought back almost 2.5 million shares at an average discount of 4.1% and issued 75,000 shares at an intraday premium of 1.7%.

Over the year the shares traded on average at a discount of 3.1% to the underlying NAV, with the share price trading in a range between being in line with the NAV and a 6.0% discount.

At the forthcoming Annual General Meeting, the Board will again ask Shareholders to renew its authority to issues shares at a premium and buy back at a discount. This will assist the Company in continuing to protect the discount to NAV at which the shares may trade.

Gearing

Throughout the year we have borrowed additional money to invest in our portfolio, with the amount borrowed ranging from £24 million to £29 million. This is decided on an assessment of the returns available from the portfolio and individual investments in comparison with the cost of borrowing. Our interest costs for the borrowing are linked to short term interest rates, so with the increases in the Bank of England Base Rate, these have been increasing during the course of the year. Overall, the cost of our borrowing was lower than the returns achieved from the portfolio so gearing has been advantageous for shareholders.

Costs

One of our objectives is to run your Company as efficiently as possible. This year there was an increase in the ratio of ongoing charges which was a combination of two effects. First, although the management fee was lower (reflecting the fact that assets were on average lower across the last four quarter ends than the previous year), other expenses did rise. While total recurring expenses rose 4.6%, this was lower than CPI for the year. Secondly, average daily net assets were lower year on year. This reflects the timing of market movements and also the impact of share buy backs reducing the size of the Company. The cost ratio at 0.66%, although a little higher than the previous eight years, still remains at a very competitive level.

ESG

Consideration of Environmental, Social and Governance ("ESG") issues have long been an important part of the investment process of your investment manager, which has one of the largest and longest established teams dedicated to ESG issues. There is a detailed commentary on pages 24 to 27 of the Annual Report which explains Columbia Threadneedle's ESG policies, how these are implemented with respect to management of the investment portfolio, and its engagement with our investee companies.

Directorate Change

The Board recognises the value in both attracting fresh talent and the maintenance of continuity and accordingly a plan has been developed to ensure an orderly succession as Directors retire.

As part of this plan, at the Annual General Meeting to be held on 7 March 2024, Tim Scholefield, the Company's Senior Independent Director will retire from the Board. Tim has served as a Director since November 2014. I wish to place on record the Board's appreciation for his support and guidance throughout his tenure and to thank him for his contribution to the Company's success. Upon his retirement Nicky McCabe will be appointed Senior Independent Director.

With Tim Scholefield's forthcoming retirement, a search company was commissioned to find a replacement. Following this selection process, the Board is pleased to announce that Christopher Metcalfe, will be appointed to the Board and its committees with effect from 8 March 2024.

Christopher is Chairman of Martin Currie Global Portfolio Trust plc and the Senior Independent Non Executive Director of JP Morgan US Smaller Companies Investment Trust plc. He has extensive equity fund management and investment trust experience having previously worked in senior positions at Newton Investment Management, Schroder Investment Management and Henderson Administration Group.

AGM

The Annual General Meeting ("AGM") will be held at 12.30pm on 7 March 2024 at the offices of Columbia Threadneedle Investments, Cannon Place, 78 Cannon Street, London, EC4N 6AG. This will be followed by a presentation by our manager, Julian Cane, on the Company and its investment portfolio.

For Shareholders who are unable 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 29 February 2024. We will endeavour, in so far as reasonably practicable, to address all such questions at the meeting. In addition, the meeting will be recorded and will be available to view on the Company's website, www.ctcapitalandincome.co.uk shortly thereafter.

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

Outlook

The immediate economic background is far from promising with growth expected to be at only very pedestrian levels in the UK and many other developed economies, but as we have seen over the last year and many years in the past, it would be wrong to believe that stock market performance is linked too closely to domestic economic growth. On a more positive front, inflation and interest rates are widely expected to fall and this should be supportive of markets.

Over the next twelve months, the UK is likely to have another General Election and most probably, on present polling, to face a change in government. It seems though, whichever political party is in power, that the government of the day will be fairly heavily constrained in the actions it can take by a range of factors. Moreover, it is far from just the UK that is facing elections as it is estimated that 2024 will be the biggest election year in history with more than 40% of the world's population having the chance to cast a ballot.

There have been a number of substantial challenges for the UK and international economies and stock markets to face in recent years, most obviously the impact of COVID-19, Russia's invasion of Ukraine, rising inflation and interest rates. Since our financial year end, Hamas's attack on Israel has increased the chance of war in the Middle East, while China, experiencing rapid economic deterioration of its own, has ongoing aspirations with regard to Taiwan.

Against this somewhat uncertain and difficult background we remain confident that valuations in our portfolio are attractive and with a combination of its dividend generating capacity and our revenue reserve we will strive to extend our record of dividend growth into the future.

Jane Lewis

Chair

29 November 2023

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 page 51 and in note 21 of the Annual Report & Accounts.

The global economy continues to suffer considerable disruption due to the effects of the war in Ukraine, recent events in Israel and Gaza and inflationary pressures.

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.

·      Market and Political Risks

Risk description:  Macroeconomic and geopolitical risk including rising international tensions arising from the war in Ukraine, dispute in the South China Sea and recent events in Israel and Gaza.

Increase in overall risk during the year.

Mitigation:   The Company has a clearly defined and approved strategy which is reviewed and approved on an annual basis. The Board can hold additional board meetings at short notice to discuss the impact of significant changes in the macroeconomic and geopolitical environment. The Company maintains a portfolio of diversified stocks.

Forward looking stress tests ranging from moderate to extreme scenarios are provided by the Manager to the Board to support the Five-Year Horizon Statement.

·      Investment Performance Risk

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 notwithstanding the current market volatility. Investment policy, performance, revenue and gearing are reviewed at each Board meeting. The Manager's Investment Risk 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. The Company had no derivative exposure during the year.

·      Cyber, Legal and Regulatory Risk

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.

·      Product Strategy Risk

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 an investor 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.

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 2023, 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.

Five Year Horizon

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 2028. 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, each of the Directors listed on page 36 of the Annual Report confirm to the best of their knowledge that:

·      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

Jane Lewis

Chair

29 November 2023

Income Statement

for the year ended 30 September	2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains/(losses) on investments	-	25,619	25,619	-	(57,259)	(57,259)
Foreign exchange (losses)/gains	(4)	4	-	(1)	-	(1)
Income	16,179	-	16,179	14,495	-	14,495
Management fee	(693)	(693)	(1,386)	(714)	(714)	(1,428)
Other expenses	(742)	(1)	(743)	(680)	(1)	(681)
Net return before finance costs and taxation	14,740	24,929	39,669	13,100	(57,974)	(44,874)
Finance costs	(662)	(662)	(1,324)	(192)	(192)	(384)
Net return before taxation	14,078	24,267	38,345	12,908	(58,166)	(45,258)
Taxation	(22)	-	(22)	(18)	-	(18)
Net return attributable to Shareholders	14,056	24,267	38,323	12,890	(58,166)	(45,276)
Return per share - basic and diluted	13.26p	22.89p	36.15p	12.03p	(54.29p)	(42.26p)

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 2023
		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 2022	26,822	141,380	4,146	2,642	110,200	11,093	296,283
Movements during the year      ended 30 September 2023:
Dividends paid	-	-	-	-	-	(12,819)	(12,819)
Ordinary shares issued from     Treasury	-	-	-	224	-	-	224
Ordinary shares bought back     and held in treasury	-	-	-	(2,866)	(4,380)	-	(7,246)
Costs relating to broker	-	(13)	-	-	(5)	-	(18)
Net return attributable to     Shareholders	-	-	-	-	24,267	14,056	38,323
Balance at 30 September 2023	26,822	141,367	4,146	-	130,082	12,330	314,747

for the year ended 30 September 2022
		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 2021	26,822	141,374	4,146	4,432	168,366	10,735	355,875
Movements during the year      ended 30 September 2022:
Dividends paid	-	-	-	-	-	(12,532)	(12,532)
Ordinary shares issued from     treasury	-	21	-	568	-	-	589
Ordinary shares bought back     and held in treasury	-	-	-	(2,358)	-	-	(2,358)
Costs relating to broker	-	(15)	-	-	-	-	(15)
Net return attributable to     Shareholders	-	-	-	-	(58,166)	12,890	(45,276)
Balance at 30 September 2022	26,822	141,380	4,146	2,642	110,200	11,093	296,283

Balance Sheet

at 30 September	2023	2022
	£'000s	£'000s
Fixed assets
Investments	336,112	318,796
Current assets
Debtors	2,833	5,106
Cash and cash equivalents	2,378	906
Total current assets	5,211	6,012
Current liabilities
Creditors: amounts falling due within one year	(1,576)	(4,525)
Bank Loan	(25,000)	(24,000)
Total current liabilities	(26,576)	(28,525)
Net current liabilities	(21,365)	(22,513)
Total assets less current liabilities	314,747	296,283
Capital and reserves
Share capital	26,822	26,822
Share premium account	141,367	141,380
Capital redemption reserve	4,146	4,146
Special reserve	-	2,642
Capital reserve	130,082	110,200
Revenue reserve	12,330	11,093
Total Shareholders' funds	314,747	296,283
Net asset value per ordinary share - pence	301.67	277.66

Statement of Cash Flows

for the year ended 30 September	2023	2022
	£'000s	£'000s
Cash flows from operating activities before dividends and interest	(2,162)	(2,241)
Dividends received	15,777	14,133
Interest received	91	9
Interest paid	(1,298)	(376)
Cash flows from operating activities	12,408	11,525
Investing activities
Purchase of investments	(20,000)	(22,303)
Sale of investments	27,924	25,189
Other capital charges	(1)	(1)
Cash flows from investing activities	7,923	2,885
Cash flows before financing activities	20,331	14,410
Financing activities
Equity dividends paid	(12,819)	(12,532)
Net proceeds from issuance of shares held in treasury	224	589
Broker costs associated with share issues and buybacks	(18)	(15)
Cost of shares bought back and held in treasury	(7,246)	(2,358)
Drawdown / (repayment) of bank loan	1,000	(1,000)
Cash flows from financing activities	(18,859)	(15,316)
Net movement in cash and cash equivalents	1,472	(906)
Cash and cash equivalents at the beginning of the year	906	1,813
Effect of movement in foreign exchange	-	(1)
Cash and cash equivalents at the end of the year	2,378	906
Represented by:
Cash at bank	88	36
Short-term deposits	2,290	870
	2,378	906

Notes

1    Return per ordinary share

Revenue return

The revenue return per share of 13.26p (2022: 12.03p) is based on the revenue return attributable to Shareholders of £14,056,000 profit (2022: £12,890,000 profit).

Capital return

The capital return per share of 22.89p (2022: -54.29p) is based on the capital return attributable to Shareholders of £24,267,000 profit (2022: £58,166,000 loss).

Total return

The total return per share of 36.15p (2022: -42.26p) is based on the total return attributable to Shareholders of £38,323,000 profit (2022: £45,276,000 loss).

Weighted average ordinary shares in issue

The returns per share are based on a weighted average of 106,023,426 (2022: 107,131,967) 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 2023 of 3.90 pence per share, payable on 18 December 2023 to all Shareholders on the register at close of business on 8 December 2023, ex-dividend 7 December 2023.

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 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 2024 Annual General Meeting ("AGM") of the Company will be held at 12.30pm on Thursday 7 March 2024 at the offices of Columbia Threadneedle Investments, Cannon Place, 78 Cannon Street, London EC4N 6AG. This will be followed by a presentation by our manager Julian Cane on the Company and its investment portfolio.

For Shareholders who are unable 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 29 February 2024. We will endeavour, in so far as reasonably practicable, to address all such questions at the meeting. In addition, the meeting will be recorded and will be available to view on the Company's website, www.ctukcapitalandincome.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.

5      Report and accounts

The report and accounts for the year ended 30 September 2023 will be posted to Shareholders and made available on the website www.ctcapitalandincome.co.uk shortly. Copies may also be obtained by mailing the Company's registered office, Cannon Place, 78 Cannon Street, London EC4N 6AG.

By order of the Board

Columbia Threadneedle Investment Business Limited, Secretary

29 November 2023

 

END