Half-year Report

RNS Number : 8360F

F&C Capital & Income Inv Tst PLC

22 May 2017

 

Date:                22 May 2017

Contact:           Julian Cane                                                   

                        F&C Investment Business Limited                   

                        020 7628 8000                                               

F&C Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2017

Highlights

·      Net Asset Value per share total return* was 10.4%, compared to benchmark return of 8.1%

·      Also ahead of benchmark over one, three and five years

·      Share price total return* was 10.8%

·      Interim dividends increased by 2.1% to 4.80 pence

·      Continuing our record of consecutive dividend increases, now into our 24^th year

"Under the 20 year tenure of the Company's Fund Manager, Julian Cane, our Net Asset Value total return* is up by 303.0% compared with an index return of 263.3% and we are now into our 24^th year of consecutive dividend increases."

Steven Bates

Chairman

SUMMARY OF RESULTS

	Half-year ended 31 March 2017	Half-year ended 31 March 2016
Net asset value total return*	10.4%	4.8%
Share price total return*	10.8%	3.8%
FTSE All-Share Index total return	8.1%	3.5%
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2017	(1) 2.40p	-
30 September 2016	-	2.35p
Second interim dividend in respect of year to 30 September 2017	(2) 2.40p	-
30 September 2016	-	2.35p
Total interim dividends relating to the period	4.80p	4.70p

₍₁₎  Paid on 31 March 2017.

₍₂₎  Payable on 30 June 2017 to shareholders registered on 2 June 2017.

* Total Return - the return to shareholders calculated on a per share basis adding dividends paid in the period to the increase or decrease in the Share Price or Net Asset Value in the period. The dividends are assumed to have been re-invested on the date on which the shares were quoted ex-dividend.

The Chairman, commenting on the results, said:

If you had known in advance what would happen during the six month period covered by this statement, you might have expected stock markets to fall. The arrival of an unpredictable President in the US, confusion over policy issues, scandals and a rogue nuclear state on high alert - all would indicate a cautious strategy. In fact, of course, markets have risen and volatility has been unusually low. The dominant influence on global affairs in the past six months has been optimism that President Trump's policies would revitalise the US economy and lead the world into the sunlit uplands. As the scales have fallen from investor eyes, there has been a collective shrug and things have reverted to the status quo ante.

Your Company has had a good six months, growing NAV total return per share by 10.4% compared with an 8.1% rise in the FTSE All-Share Index total return. The share price total return (+10.8%) was more or less in line with the NAV total return as the premium increased very slightly. The performance numbers for the Company are good over the longer run as well: over three years, the NAV total return is up by 33.5%, compared with a rise of 24.9% for the index; over five years NAV total return rose 68.2%, while the index managed 58.7%; and over twenty years, which represents the entire tenure to date of your Company's fund manager, Julian Cane, the NAV total return is up by 303.0%, compared with an index return of 263.3%. You will read in the press that active fund management is a 'loser's game' and that the asset management industry exists only to enrich itself. These numbers are a testament to the fact that this opinion is at best an oversimplification, in particular as it relates to investment trusts, and to the skills of your fund manager who has been in control throughout.

Investment Background

The UK stock market is affected by international events as much as by what is happening at home. The economy here is very open and companies are typically outward looking, despite what politicians would have you believe. The international environment has been generally supportive of equity markets. Interest rates remain low, although a series of widely signalled increases has begun in the US. Economies remain subdued by the standards of past recoveries, largely because of the huge volume of debt in the system in the aftermath of the Global Financial Crisis. This fact, and the low level of inflation, continues to weigh on interest rates everywhere. In the wake of President Trump's barging onto the world stage, investors expected a series of policy initiatives which would increase the structural growth rate in the US. The checks and balances built into the US system have put paid to a rapid rollout of any of these measures, which were never likely to work anyway, and the global economy has rocked back into its neutral setting.

In the UK, BREXIT has dominated the debate, its most obvious impact being on sterling, which has weakened very sharply. In the period we are looking at here, it has fallen around 4%, mostly at the start of the financial year. This will lead to higher inflation in due course and initially led to a setback in the gilt market, where 10 year yields doubled from

0.75% to 1.5%. Rates have settled back a little as it has become clear that the rise in inflation is not yet being baked in to wage increases and so is likely to be a one off event. In the meantime, the UK consumer, perhaps anticipating higher prices, has been drawing on savings to finance spending growth. At some point, this will turn down. Unemployment remains at an 11 year low, although the UK's productivity performance has been dismal.

It is important to remember that while we sterling-based folk bask in the sunshine of decent returns, investors from overseas have had a torrid time in the UK market. This combination of factors has kept sterling assets denominated in US dollars or euros at bargain prices, and this has triggered a lot of merger and acquisition activity (e.g. the failed bid for Unilever), but sometimes, ironically, from UK buyers - witness Booker, bid for by Tesco. Both of these bids benefited the portfolio during the period.

The impending general election will ensure that BREXIT remains centre stage, and debate about what sort of divorce we end up with will no doubt continue for years. It is beyond the scope of this statement to make any predictions, but there can be no doubt that companies will face some important strategic decisions in the years ahead and will need certainty pretty soon about where things are headed. It can only be hoped that the complexity of the negotiations and the inevitability of a long transition period do not unsettle markets. The economic impact is also far from certain - the leads and lags in the economy from seismic shifts in policy are surprisingly long.

Portfolio

Returns during this period do not reflect overarching themes. The good numbers are rather the result of contributions from individual stocks. In the Financials sector, for example, OneSavings Bank benefited from the housing market remaining reasonably strong, and positive contributions from Arrow Global and Intermediate Capital outweighed some bad news from IG Group, which faces a regulatory investigation. In the Industrials sector, Melrose was notably helpful, while other positives came from Treatt, a specialist flavours and fragrances business, and Booker, because of its takeover.

On the other side of the ledger, operational problems at Berendsen had a cost to the portfolio, and the holding has now been sold. Dunelm, which is itself performing well, suffered from weakness in the homewares market, while the strength of HSBC from its international exposure was not fully reflected in our portfolio as our holding is small relative to the index. Media stocks were expensive for us in relative terms, as the sector remained static, although there were no developments of note.

During this period, there were a number of high profile profit warnings, one or two of which affected the portfolio, but Julian continues to focus on identifying companies which can deliver capital growth and income in what remains a challenging environment. Not only is the analysis of economic conditions and so profit growth unusually treacherous, but also many industries face existential issues from disruptive technology and new business models. Having said this, I would emphasise the Board's view that the portfolio is well structured and designed to deliver on its core objectives.

Operational Matters

We are now into our 24^th year of consecutive dividend increases. The Company has paid one dividend for the financial year so far and will be paying a second on 30 June 2017. Each of these is for 2.4 pence per share, which represents an increase of 2.1% on the same period last year. I appreciate that this does not sound dramatic, but it is closely in line with inflation over the past year (CPI 2.3%). Our forecast for income over the balance of the financial year points to an ability to continue with the increases we have seen in recent years. It is worth noting we have income reserves in excess of the cost of a full year of dividend payments to ensure that we can continue a smooth progression in the dividend should any shortfall need to be met.

During the half year, we issued 1 million shares at the customary premium to NAV. This brings our overall market capitalisation to £305 million. I will repeat what I have said in previous years that the Company gains two advantages from being larger. The first is that stock market liquidity is better; the second that our fixed expenses are spread over a larger asset base.

Gearing has helped returns over the period. It stood at £20 million at the end of March, which translates into a gearing ratio of 7%. We continue to deploy our available gearing conservatively, with its use determined primarily by what we see as the available returns on our investments.

Outlook

There is plenty of excitement out there if you choose to look for it. Nevertheless, it is sometimes surprising how little impact the geopolitical events in the world affect stock markets. At the moment this reflects the reality that equities, which are by no means in the bargain bin, are still a lot more interesting as investments than cash or bonds. Sometimes this 'one way' market leads to complacency and these are moments when a correction is due.

Beyond the political sphere, it is certainly true that the global economy remains unbalanced with the capacity to deliver a credit crunch or banking crisis. Those of us who worry about such things fret about imbalances in China, the risks of revisiting the Eurozone debacle and a host of others. It is notable that the economic cycle which began in 2009 is now long in the tooth and is already one of the longest expansions on record, but it is also one of the weakest. As time goes by, the risks of a cyclical downturn increase but nothing looks imminent. The year ahead will have some road bumps, as it always does, but a car crash looks unlikely.

Steven Bates

22 May 2017

Forward -looking statements

This half-yearly report may contain forward-looking statements with respect to the financial condition, results of operations and business of the Company. Such statements involve risk and uncertainty because they relate to future events and circumstances that could cause actual results to differ materially from those expressed or implied by forward-looking statements. The forward looking statements are based on the Directors' current view and on information known to them at the date of this report. Nothing should be construed as a profit forecast.

 

Directors' Statement of Principal Risks and Uncertainties

Most of the Company's principal risks and uncertainties are market related and no different from those of other investment trusts investing primarily in listed equities. They are described in more detail under the heading "Principal risks and future prospects" within the strategic report in the Company's annual report for the year ended 30 September 2016. The risks have not changed materially since the date of that report and are not expected to change materially for the reminder of the Company's financial year.

The risks include: having an inappropriate strategy in relation to investor needs; failure on the part of the Manager to continue to operate effectively; unfavourable markets or inappropriate asset allocation, sector and stock selection, currency exposure and use of gearing and derivatives leading to investment underperformance; and errors, fraud or control failures at service providers, or loss of data through cyber-threats or business continuity failure.

Directors' Statement of Responsibilities in Respect of the Financial Statements

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

·              the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards on a going concern basis and gives a true and fair view of the assets, liabilities, financial position and return of the Company;

·              the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·              the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

·              the half-yearly report includes a fair review of the related party transactions that have taken place in the first six months of the financial year.

On behalf of the Board

Steven Bates

Chairman

22 May 2017

 

Condensed Income Statement

Half-year ended 31 March 2017  (Unaudited)

Half-year ended 31 March 2016 (Unaudited)

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Gains on investments	-	22,792	22,792	-	6,643	6,643
	Foreign exchange gains / (losses)	5	(7)	(2)	(2)	(9)	(11)
	Income	5,610	-	5,610	5,832	-	5,832
	Management fee	(307)	(307)	(614)	(270)	(270)	(540)
	Other expenses	(266)	(1)	(267)	(298)	(3)	(301)
	Net return before finance costs and taxation	5,042	22,477	27,519	5,262	6,361	11,623
	Finance costs	(147)	(147)	(294)	(161)	(161)	(322)
	Net return on ordinary activities  before taxation	4,895	22,330	27,225	5,101	6,200	11,301
	Taxation on ordinary activities	109	-	109	-	-	-
	Net return attributable to shareholders	5,004	22,330	27,334	5,101	6,200	11,301
2	Net Return per share - pence	5.13	22.91	28.04	5.36	6.51	11.87

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.

 

Condensed Statement of Changes in Equity

		Share	Capital				Total
	Share	premium	redemption	Special	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Half-year ended 31 March 2017 (Unaudited)
Balance at 30 September 2016	24,196	112,997	4,146	4,434	115,205	11,049	272,027
Movements during the half-year ended 31 March 2017
Dividends paid	-	-	-	-	-	(5,505)	(5,505)
Ordinary shares issued	250	2,640	-	-	-	-	2,890
Return attributable to equity Shareholders	-	-	-	-	22,330	5,004	27,334
Balance at 31 March 2017	24,446	115,637	4,146	4,434	137,535	10,548	296,746
Half-year ended 31 March 2016 (Unaudited)
Balance at 30 September 2015	23,640	107,785	4,146	4,434	86,791	10,080	236,876
Movements during the half-year ended 31 March 2016
Dividends paid	-	-	-	-	-	(5,282)	(5,282)
Ordinary shares issued	250	2,302	-	-	-	-	2,552
Return attributable to equity Shareholders	-	-	-	-	6,200	5,101	11,301
Balance at 31 March 2016	23,890	110,087	4,146	4,434	92,991	9,899	245,447
Year  ended 30 September 2016 (Audited)
Balance at 30 September 2015	23,640	107,785	4,146	4,434	86,791	10,080	236,876
Movements during the year ended 30 September 2016
Dividends paid	-	-	-	-	-	(9,816)	(9,816)
Ordinary shares issued	556	5,212	-	-	-	-	5,768
Return attributable to equity Shareholders	-	-	-	-	28,414	10,785	39,199
Balance at 30 September 2016	24,196	112,997	4,146	4,434	115,205	11,049	272,027

 

Condensed Balance Sheet

	31 March 2017	31 March 2016	30 September 2016
	(Unaudited)	(Unaudited)	(Audited)
	£'000s	£'000s	£'000s
Fixed assets
Investments	316,061	272,116	296,594
Current assets
Debtors	2,138	2,192	1,193
Current liabilities
Creditors amounts falling within one year	(1,453)	(3,861)	(760)
Loans	(20,000)	-	-
Net current (liabilities) / assets	(19,315)	(1,669)	433
Total assets less current liabilities	296,746	270,447	297,027
Creditors amounts falling due after more than one year Loans	-	(25,000)	(25,000)
Net assets	296,746	245,447	272,027
Capital and reserves
Share capital	24,446	23,890	24,196
Share premium account	115,637	110,087	112,997
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserves	137,535	92,991	115,205
Revenue reserve	10,548	9,899	11,049
Total shareholders' funds	296,746	245,447	272,027
Net asset value per ordinary share - pence	303.47	256.85	281.06

 

Condensed Statement of Cash Flows

	Half-year ended	Half-year ended
	31 March 2017	31 March 2016
	£'000s (Unaudited)	£'000s (Unaudited)
Net cash inflow from operating activities	3,890	4,046
Investing activities
Purchase of investments	(24,090)	(33,155)
Sales of investments	27,415	27,232
Other capital charges	(7)	(1)
Cash flows from investing activities	3,318	(5,924)
Cash flows before financing activities	7,208	(1,878)
Financing activities
Equity dividends paid	(5,505)	(5,282)
Net proceeds from issuance of new shares	2,890	2,552
Interest paid	(300)	(458)
(Decrease) / increase in loan	(5,000)	5,000
Cash flows from financing activities	(7,915)	1,812
Net movement in cash and cash equivalents	(707)	(66)
Cash and cash equivalents at the beginning of the period	(340)	(3,276)
Effect of movement in foreign exchange	(2)	(11)
Cash and cash equivalents at the end of the period	(1,049)	(3,353)
Represented by:
Bank overdraft	(1,049)	(3,353)

 

Notes

1    Significant accounting policies

These condensed financial statements, which are unaudited, have been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, FRS 102, FRS 104 Interim Financial Reporting issued by the FRC in March 2016 and the revised Statement of Recommended Practice ("SORP") "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the AIC in November 2014 and updated in January 2017.

The accounting policies applied in the condensed set of financial statements are set out in the Company's annual report for the year ended 30 September 2016.

2    Return per ordinary share

Return per ordinary share attributable to ordinary shareholders reflects the overall performance of the Company in the period.  Net revenue recognised in the first six months is not necessarily indicative of the total likely to be received in the full accounting year.

	Half-year ended 31 March 2017 £'000s	Half-year ended 31 March 2016 £'000s
Revenue return	5,004	5,101
Capital return	22,330	6,200
Total return	27,334	11,301
	Number	Number
Weighted average ordinary shares in issue	97,453,499	95,227,028
Total return per share	28.04p	11.87p

3    Dividend

The second interim dividend in respect of the year ending 30 September 2017 of 2.40p per share will be paid on 30 June 2017 to shareholders registered on 2 June 2017. The total cost of this dividend, based on 97,934,268 shares in issue and entitled to the dividend on 16 May 2017 is £2,350,000.

4    Results

The results for the half-year ended 31 March 2017 and 31 March 2016, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 September 2016; the report of the independent auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 September 2016 are an extract from those accounts.

5    Going concern

The Company's investment objective, strategy and policy are subject to a process of regular Board monitoring and are designed to ensure that the Company is invested mainly in readily realisable, listed securities and that the level of borrowings is restricted. The Company retains title to all assets held by the Custodian and an agreement covers its borrowing facility. Cash is held with banks approved and regularly reviewed by the Manager and the Board.

The Directors believe that: the Company's objective and policy continue to be relevant to investors; the Company operates within a robust regulatory environment; and the Company has sufficient resources and arrangements to continue operating within its stated policy for the 12 month period commencing from the date of this report. Accordingly, the financial statements have been drawn up on the basis that the Company is a going concern.

6    VAT case

The Company reported in its annual report and accounts to 30 September 2016, an interest in a case brought against HMRC to recover VAT paid on management fees in the period 1997 to 2000. On 11 April 2017, the Supreme Court issued a judgement in favour of HMRC. As a consequence, neither the Company nor its subsidiary in liquidation, F&C Income Growth Investment Trust plc, will be entitled to any recoveries of VAT paid in the relevant period.

7    Half-yearly report and accounts

The half-yearly report and accounts will be posted to shareholders and made available on the internet at www.fandccit.com shortly.  Copies may be obtained during normal business hours from the Company's Registered Office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Investment Business Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

22 May 2017

 

END

 

 

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