Half-year Report

RNS Number : 0246Z

F&C Capital & Income Inv Tst PLC

23 May 2016

 

Date:                23 May 2016

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 2016

Highlights

·      Net Asset Value per share total return was 4.8%, compared to benchmark return of 3.5%

·      Ahead of benchmark over six months, one, three and five years

·      Share price total return was 3.8%

·      Interim dividends increased by 2.2% to 4.70 pence

·      Continuing our record of consecutive dividend increases, now into our 23^rd year

SUMMARY OF RESULTS

Attributable to equity shareholders	31 March 2016	30 September 2015	% Change
Net assets	£245.4m	£236.9m	+3.6
Net asset value per share	256.9p	250.5p	+2.6
Share price	260.0p	256.0p	+1.6
	Half-year ended 31 March 2016	Half-year ended 31 March 2015	% Change
Revenue return per share	5.36p	4.98p	+7.6
Net asset value total return	4.8%	5.9%	n/a
Share price total return	3.8%	6.0%	n/a
FTSE All-Share Index total return	3.5%	5.3%	n/a
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2016	* 2.35p	-
30 September 2015	-	2.30p
Second interim dividend in respect of year to 30 September 2016	** 2.35p	-
30 September 2015	-	2.30p
Total interim dividends relating to the period	4.70p	4.60p	+2.2

*   Paid on 31 March 2016.

** Payable on 30 June 2016 to shareholders registered on 3 June 2016.

The Chairman, commenting on the results, said:

If you only looked at the stock market at the beginning and end of the half year, you would have saved yourself a lot of anguish. Over this period on a total return basis, the Company's Net Asset Value per share (NAV) rose by 4.8% against the FTSE All-Share return of 3.5%, a perfectly respectable result. On the same basis, the share price of the Company rose 3.8% as the premium to NAV fell from 2.2% to 1.2%. What lies behind the headlines, however, is that the share price peaked on 2nd December at 270 pence before dropping nearly 15% by 20th January to a low for the period of 234 pence. The subsequent recovery was swift and decisive; the reasons for what happened will be examined in the next section of this report.

Not only are the results for the half year ahead of the Company's benchmark, but longer term total returns also show good relative performance (Source: Thomson Reuters Datastream): over 1 year, the NAV is up by 2.2%, while the benchmark is down by 3.9%; over three years, numbers are +15.7% for NAV and +11.4% for benchmark; and over five years +42.7% against +31.9%. In an era when active management is routinely discredited, these results are a useful riposte and a credit to Julian Cane, your fund manager.

Investment Background

It is now eight years since the start of the Global Financial Crisis. At that time, there were some things which seemed likely to flow from what has shaped up to be the most significant financial crisis of our lifetimes. The first was that there would be a long period of adjustment which was needed to correct the excesses of debt that had built up in the financial system. In turn, this would nurture an environment of low growth and very subdued inflation.

Eight years on, are we any closer to a return to normality? Most investors think that current policies represent normality. Unfortunately they don't. The unorthodox monetary policy which has generally been referred to as Quantitative Easing (QE) is itself evidence that things aren't normal.

The first half of your Company's financial year gave us a rather unpleasant preview of what might happen if and when monetary policy does begin to return to normal. At the end of 2015, the Federal Reserve in the US, which had been signalling a rise in interest rates for many months, acted to tighten monetary policy. At the start of 2016, weakness in the Chinese economy together with a strong dollar and very weak commodity prices combined to set off a significant tumble in the markets. Global financial conditions are not robust enough to deal with an economic slowdown, and various actions were taken to remove the negative influences. By the end of March, the ship had stabilised and things were back to 'normal', if that is the right word for a world of low growth, deflation and negative interest rates.

In the UK, economic activity has been reasonably good in a cyclical sense, with fiscal consolidation (or austerity) an important factor in boosting investor confidence. In the short run, this is being unsettled by BREXIT considerations which have affected currency markets and economic activity. This represents an increase in the risk premium demanded by investors for holding assets in the UK and is likely to persist until after the referendum or until markets become convinced as to the outcome.

In the meantime, some companies are struggling to maintain sales and earnings. There have been significant downgrades in what were typically over-optimistic expectations. Global growth is not strong enough to see volume increases and pricing remains difficult given that consumers, while employed, are not seeing the level of income growth which would normally characterise a typical economic expansion of the duration we are experiencing. As a result of this, dividends in certain sectors (for example, oil, mining, banks) are under pressure and the manager keeps a wary eye on the implications for our income account of this concern. The current weakness of Sterling is a possible offset to the pressure on earnings and could both support dividends and provide a short-term boost to inflation. Over the longer term, the level of the currency will depend, amongst other things, on the BREXIT vote.

It seems likely that, in the absence of a macro-economic shock such as BREXIT, monetary policy in the UK is set to be very relaxed for the foreseeable future as the Government continues to attempt to reduce the size of the State. This is a reasonably benign environment for equity markets.

Portfolio

In the context of a good relative return, one or two sectors stand out: an underweight position in banks helped as the sector fell; an underweight position in mining stocks was painful as the sector experienced a rollercoaster ride which saw Glencore, not held by your Company, rise by over 70%. More important than sector movements, though, were individual stock returns. In particular, Informa (a publishing and events business), Glanbia (an Irish food business), WPP (advertising and media) and Intermediate Capital (a specialist asset manager) were the biggest contributors over the period, while in addition to Glencore, BG which was taken over and not held, hurt the portfolio.

Julian continues to seek companies which can deliver capital growth and growth in income. As explained, though, many companies are struggling to grow earnings in the current climate and it is difficult to identify a large number of opportunities which meet his demanding criteria. During the last 6 months he has taken advantage of the volatility of share prices to add to a number of existing holdings where the valuation and prospects look attractive. He also added a small number of new holdings to the portfolio, the largest of which was Secure Income REIT. This is the owner of a mixture of hospitals and leisure assets which are leased to strong tenants on attractive terms and should provide a good and growing income stream. The additions were funded by drawing down a further £5m from our loan facility, together with sales of existing holdings where either prospects have diminished or the valuation no longer looks sufficiently attractive.

Operational Matters

Despite my comments on dividends at the underlying portfolio holdings, we have paid a first interim dividend of 2.35 pence per share during the period of the current year, which represents an increase of 2.2% over last year. While this may not sound dramatic, it is still ahead of inflation. We are declaring, in conjunction with these results, a second payment of 2.35 pence per share, which will be paid on 30 June. Encouragingly, our own revenue return per share increased by 7.6% to 5.36 pence per share, but this rate of growth should not be extrapolated into the future as it includes the impact of increased borrowings on a larger portfolio and a number of special dividends, which by their nature may not recur.

During  the  half  year,  we  issued  1  million shares  in  two  tranches  at  the  customary premium to NAV. This brings our overall market capitalisation to £248 million and reflects issuance over the last 12 years of 21 million shares. Your Company benefits from greater size both through an increase in stock market liquidity and because those management expenses which are fixed are applied across a larger base.

Gearing has helped the returns and income account somewhat during the period and at the end of March, it stood at £25 million, which translates into a gearing ratio of 11.5%. While we think that some gearing has a role in your Company, we continue to deploy it quite conservatively and do not expect to increase its level simply to offset any shortfall in the income account - its deployment reflects rather the balance of opportunity and expected return, which takes into account the level of valuation, inter alia.

Outlook

Some investors will no doubt remember the 'Goldilocks' markets of the 1990's - a golden era when the economy was not too hot, not too cold, but just right. This fostered high returns in equity markets which we can only view with nostalgia. Today's reality is that the adjustment to the global economy which began after the Global Financial Crisis still has many more years to run. The corollary of this is that growth will remain sub-par, as will inflation and interest rates. Profits at companies may be subdued, but equity markets are not down and out in this climate. Instead, low or even negative interest rates encourage investors to take risks and there are few assets of any sort which offer prospective real returns in the way that dividend paying equities can.

There remain problems in the financial system and of course in geo-politics with any number of possible hotspots, including our very own contribution to the genre in the shape of a potential BREXIT. Nevertheless, the capacity and desire of both governments and central banks to avoid a meltdown is a signal that, for now, we remain on an even keel, even if absolute returns are unlikely to be especially generous.

Steven Bates

23 May 2016

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.

Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of UK listed securities and its principal risks are therefore market related.

The Company can invest in overseas companies and so is exposed to currency risk in respect of these investments.

Other key risks faced by the Company relate to investment strategy, investment management resources, regulatory issues, operational and financial controls and counterparty (including the custodian) failure. These risks, and the way in which they are managed, are described in more detail under the heading "Principal Risks and Uncertainties and Risk Management" within the Strategic Report contained within the Company's annual report for the year ended 30 September 2015. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company's financial year.

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 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  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

23 May 2016

Condensed Income Statement

Half-year ended 31 March 2016  (Unaudited)

Half-year ended 31 March 2015 (Unaudited)

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Gains on investments	-	6,643	6,643	-	9,602	9,602
	Foreign exchange (losses) / gains	(2)	(9)	(11)	5	(39)	(34)
	Income	5,832	-	5832	5,316	-	5,316
	Management fee	(270)	(270)	(540)	(259)	(259)	(518)
	Other expenses	(298)	(3)	(301)	(278)	(6)	(284)
	Net return before finance costs and taxation	5,262	6,361	11,623	4,784	9,298	14,082
	Finance costs	(161)	(161)	(322)	(136)	(136)	(272)
	Net return on ordinary activities  before taxation	5,101	6,200	11,301	4,919	3,828	8,747
	Taxation on ordinary activities	-	-	-	(9)	-	(9)
	Net return attributable to shareholders	5,101	6,200	11,301	4,639	9,162	13,801
2	Return per share - pence	5.36	6.51	11.87	4.98	9.84	14.82

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 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
Half-year ended 31 March 2015 (Unaudited)
Balance at 30 September 2014	22,977	101,615	4,146	4,434	88,229	9,986	231,387
Movements during the half-year ended 31 March 2015
Dividends paid	-	-	-	-	-	(5,031)	(5,031)
Ordinary shares issued	513	4,735	-	-	-	-	5,248
Return attributable to equity Shareholders	-	-	-	-	9,162	4,639	13,801
Balance at 31 March 2015	23,490	106,350	4,146	4,434	97,391	9,594	245,405
Year  ended 30 September 2015 (Audited)
Balance at 30 September 2014	22,977	101,615	4,146	4,434	88,229	9,986	231,387
Movements during the year ended 30 September 2015
Dividends paid	-	-	-	-	-	(9,381)	(9,381)
Ordinary shares issued	663	6,170	-	-	-	-	6,833
Return attributable to equity Shareholders	-	-	-	-	(1,438)	9,475	8,037
Balance at 30 September 2015	23,640	107,785	4,146	4,434	86,791	10,080	236,876

Condensed Balance Sheet

	31 March 2016	31 March 2015	30 September 2015
	(Unaudited)	(Unaudited)	(Audited)
	£'000s	£'000s	£'000s
Fixed assets
Investments	272,116	263,570	260,898
Current assets
Debtors	2,192	2,065	1,704
Cash at bank and short-term deposits	-	2,289	-
	2,192	4,354	1,704
Creditors amounts falling within one year	(3,861)	(2,519)	(5,726)
Net current (liabilities) /  assets	(1,669)	1,835	(4,022)
Total assets less current liabilities	270,447	265,405	256,876
Creditors amounts falling due after more than one year Loans	(25,000)	(20,000)	(20,000)
Net assets	245,447	245,405	236,876
Capital and reserves
Share capital	23,890	23,490	23,640
Share premium account	110,087	106,350	107,785
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserves	92,991	97,391	86,791
Revenue reserve	9,899	9,594	10,080
Total shareholders' funds	245,447	245,405	236,876
Net asset value per ordinary share - pence	256.85	261.18	250.51

Condensed Statement of Cash Flows

	Half-year ended	Half-year ended
	31 March 2016	31 March 2015
	£'000s (Unaudited)	£'000s (Unaudited*)
Net cash inflow from operating activities	4,046	3,582
Investing activities
Purchase of investments	(33,155)	(35,169)
Sales of investments	27,232	25,275
Other capital charges	(1)	(7)
Cash flows from investing activities	(5,924)	(9,901)
Cash flows before financing activities	(1,878)	(6,319)
Financing activities
Equity dividends paid	(5,282)	(5,031)
Net proceeds from issuance of new shares	2,552	5,248
Interest paid	(458)	(136)
Increase in loan	5,000	-
Cash flows from financing activities	1,812	81
Net movement in cash and cash equivalents	(66)	(6,238)
Cash and cash equivalents at the beginning of the period	(3,276)	8,561
Effect of movement in foreign exchange	(11)	(34)
Cash and cash equivalents at the end of the period	(3,353)	2,289
Represented by:
Cash at bank / (overdrafts)	(3,353)	2,289

*See note 1

Notes

1    Accounting policies

For the period ended 31 March 2016 (and the year ending 30 September 2016), the Company is applying, for the first time, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, which forms part of the revised Generally Accepted Accounting Practice ("New UK GAAP") issued by the Financial Reporting Council ("FRC") in 2012 and 2013.

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 2015 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.

As a result of the first time adoption of New UK GAAP and the revised SORP, presentation formats have been amended where required. The net return attributable to shareholders and total shareholders' funds remain unchanged from under old UK GAAP basis, as reported in the preceding annual and interim reports. The Statement of Cash Flows has been amended to reflect presentational changes required under FRS 102 and does not include any other material changes.

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 2015. However, the references to prior individual FRSs should now be taken to reference FRS 102.

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 2016 £'000s	Half-year ended 31 March 2015 £'000s
Revenue return	5,101	4,639
Capital return	6,200	9,162
Total return	11,301	13,801
	Number	Number
Weighted average ordinary shares in issue	95,227,028	93,078,499

3    Dividend

The second interim dividend in respect of the year ending 30 September 2016 of 2.35p per share will be paid on 30 June 2016 to shareholders registered on 3 June 2016. The total cost of this dividend, based on 96,209,268 shares in issue and entitled to the dividend on 23 May 2016 is £2,261,000.

4    Results

The results for the half-year ended 31 March 2016 and 31 March 2015, 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 2015; 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 2015 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    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

23 May 2016

 

END

 

 

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