Half-year Report

RNS Number : 2510P

F&C Capital & Income Inv Tst PLC

25 May 2018

 

Date:                25 May 2018

Contact:           Julian Cane                                                   

                        F&C Investment Business Limited                   

                        020 7628 8000                                               

LEI:                  21380052ETTRKV2A6Y19

F&C Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2018

Highlights

The returns for the half-year continue a sustained period of outperformance against the benchmark:

·      Share price total return* was -0.1% compared to the FTSE All-Share Index of -2.3%

·      Net asset value per share total return* of -0.5%

·      Interim dividends increased by 2.1% to 4.90 pence ₍₂₎

"The Company's track record remains strongly positive. We are ahead of the Index benchmark over three, five and ten years and our intention is to extend our record of 24 consecutive years of dividend growth."

Steven Bates

Chairman

SUMMARY OF RESULTS

	Half-year ended 31 March 2018	Half-year ended 31 March 2017
Share price total return*	-0.1%	10.8%
Net asset value per share total return*	-0.5%	10.4%
FTSE All-Share Index total return	-2.3%	8.1%
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2018	(1) 2.45p	-
30 September 2017	-	2.40p
Second interim dividend in respect of year to 30 September 2018	(2) 2.45p	-
30 September 2017	-	2.40p
Total interim dividends relating to the period	4.90p	4.80p

₍₁₎  Paid on 29 March 2018.

₍₂₎  A dividend of 2.45p per share has been declared and is payable on 29 June 2018 to Shareholders registered on 8 June 2018.

* 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 in the form of shares or net assets, respectively, on the date on which the shares were quoted ex-dividend.

The Chairman, commenting on the results, said:

Looking at performance over the last few months it would be tempting to think nothing much had happened. Total returns (including reinvested dividends) for the Company's share price and Net Asset Value per share (NAV) were more or less unchanged, showing -0.1% and -0.5% respectively. These figures, although providing no real absolute gain for

Shareholders, are positive when viewed against our main benchmark, the FTSE All-Share Index, which experienced a total return of -2.3% over the same period.

The end to end result may show little change, but the stock market did experience a rise of around 5% through to mid-January and then a sharp sell-off of over 10% before staging a smaller recovery. Somewhat ironically in the context of our static results, one of the investment themes of the half-year was sharply increased volatility after having been subdued for a long while. The pick-up in volatility of the prices of individual shares and stock market indices had a number of origins, perhaps the most important of which was the unwinding of speculative positions which used complex trading strategies to target low rates of volatility. Products designed to exploit this lost almost all their value very quickly and exacerbated the sell-off. A number of profit warnings and take-overs also had an impact on the volatility of individual shares. The other major theme was the long-anticipated rise in interest rates and bond yields as central banks look to remove gradually some of the monetary stimulus put in place to respond to the Global Financial Crisis a decade ago. This inevitably provided a headwind for equity performance.

The half-year returns continue a sustained period of outperformance and your Board commends Julian Cane, your Fund Manager, for his contribution. The Company's track record remains strongly positive over longer periods, with our share price and NAV total returns being 51.8% and 50.0% over the last five years, compared to 37.6% for the Index, and over ten years our figures being 116.8% and 103.4% respectively, compared to 90.6% for the Index.

Earnings and Dividends

Dividends paid and announced for the first six months of our financial year total 4.9p per share, an increase of 2.1% compared to the same period last year. Our earnings per share are 6.6% lower than the equivalent period the previous year. This reflects two factors - first, we have received fewer special dividends. By definition, these reflect exceptional gains from our investee companies and therefore cannot be anticipated each and every year - some variation is naturally expected. Secondly, the portfolio has been repositioned to have less exposure to some of the very largest companies with largely static dividends in order to invest in more interesting opportunities which should provide us with better capital returns and higher levels of dividend growth in future, albeit with a modest reduction in our earnings in the short term. With our Revenue Reserve well in excess of a full year's dividend payments, it is very much our intention to extend our record of 24 consecutive years of dividend growth.

Loan Facility

The Company's previous loan facility expired recently and has been replaced with a new revolving facility that is both cheaper and offers greater flexibility. This is definitely advantageous to Shareholders, but, of course, the real issue with the use of leverage is the performance of the equities into which it is invested. Over the last six months, the use of debt was not positive as returns generated by the portfolio were below even the low cost of our borrowing, but over longer periods the use of gearing has been helpful to returns. The amounts borrowed under the new facility are currently the same as under the expired facility. At the end of the period, the Company was 6% geared, with £20 million of the borrowing facility in use.

Portfolio

Returns at the level of underlying stocks were considerably more variable than at the benchmark Index level. The strongest contributor to our performance was Beazley, the specialist insurer, which gained 21%. With an average position size of 2.7%, this contributed 0.6% to our return. Xpediator, a logistics company, saw the greatest share price gain with a return of 110% in just six months, and contributed 0.4% to our return. Ibstock, the brick manufacturer, and IG Group, the online financial trading company, gained 24% and 26% respectively, which given their position sizes were the third and fourth largest contributors.

Whilst we avoided many of the companies which gave profit warnings, we were not entirely immune, suffering the collapse of Conviviality, the drinks retailer and distributor. This was the largest detractor to our performance during the six-month period costing -0.6%. Dunelm, the homeware retailer, and Arrow Global, the debt purchaser, had weak share prices (-22% and -18% respectively), but in both these cases we still hold a positive view of their longer-term prospects.

We continue to try to identify companies which can deliver capital and income growth, almost regardless of the economic environment. Many industries are facing very challenging circumstances which makes it more important than ever to choose stocks and build the portfolio with great care.

Operational Matters

During the half-year, our shares traded at an average premium to their NAV of 2.3%. This, together with strong demand for our shares, allowed us to issue 1,475,000 new shares at the customary premium to NAV. This brings the total number of shares in issue to over 100 million. There are a number of advantages to Shareholders of the Company from issuing new shares. The first is that fixed costs can be spread over a larger asset base - in this sense, a larger company is more efficient. Secondly, liquidity should be improved and thirdly, a Shareholder reinvesting dividends may be issued new shares at a modest premium to NAV, rather than potentially having to pay a larger premium in the market if we were not able to issue.

Outlook

As already discussed, a background of rising interest rates and bond yields is a more difficult environment for equities. However, this is certainly not to say that equities will make no progress or go backwards as valuations still appear attractive when compared to bonds or cash and are not at overly stretched levels in absolute terms either.

Earnings and dividend progression from the stock market and our investee companies will be important and although the current economic cycle of growth has been running a long time by historic standards, the recovery from the Global Financial Crisis has been rather muted and therefore might be expected to continue at least a while longer. There are bound to be a number of economic and political challenges to negotiate in the coming months, but even if there are short-term problems, history suggests that with a reasonably long-term perspective we should be able to negotiate them satisfactorily.

Steven Bates

24 May 2018

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 2017. The risks 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.

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. Also included are risks in relation to 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 Half-Yearly Financial Report

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 net 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

24 May 2018

Condensed Income Statement

Half-year ended 31 March 2018  (Unaudited)

Half-year ended 31 March 2017 (Unaudited)

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	(Losses)/gains on investments	-	(5,889)	(5,889)	-	22,792	22,792
	Foreign exchange gains / (losses)	1	(6)	(5)	5	(7)	(2)
	Income	5,493	-	5,493	5,610	-	5,610
	Management fee	(336)	(336)	(672)	(307)	(307)	(614)
	Other expenses	(260)	(10)	(270)	(266)	(1)	(267)
	Net return before finance costs and taxation	4,898	(6,241)	(1,343)	5,042	22,477	27,519
	Finance costs	(136)	(136)	(272)	(147)	(147)	(294)
	Net return on ordinary activities before taxation	4,762	(6,377)	(1,615)	4,895	22,330	27,225
	Taxation on ordinary activities	-	-	-	109	-	109
	Net return attributable to Shareholders	4,762	(6,377)	(1,615)	5,004	22,330	27,334
2	Net return per share - pence	4.79	(6.42)	(1.63)	5.13	22.91	28.04

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'
Half-year ended 31 March 2018 (Unaudited)	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2017	24,634	117,822	4,146	4,434	149,140	12,287	312,463
Movements during the half-year ended 31 March 2018
Dividends paid	-	-	-	-	-	(5,859)	(5,859)
Ordinary shares issued	368	4,426	-	-	-	-	4,794
Net return attributable to equity Shareholders	-	-	-	-	(6,377)	4,762	(1,615)
Balance at 31 March 2018	25,002	122,248	4,146	4,434	142,763	11,190	309,783
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
Net 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
Year ended 30 September 2017 (Audited)
Balance at 30 September 2016	24,196	112,997	4,146	4,434	115,205	11,049	272,027
Movements during the year ended 30 September 2017
Dividends paid	-	-	-	-	-	(10,221)	(10,221)
Ordinary shares issued	438	4,825	-	-	-	-	5,263
Net return attributable to equity Shareholders	-	-	-	-	33,935	11,459	45,394
Balance at 30 September 2017	24,634	117,822	4,146	4,434	149,140	12,287	312,463

Condensed Balance Sheet

	31 March 2018	31 March 2017	30 September 2017
	(Unaudited)	(Unaudited)	(Audited)
	£'000s	£'000s	£'000s
Fixed assets
Investments	328,221	316,061	326,719
Current assets
Debtors	2,330	2,138	1,215
Cash at bank and short-term deposits	-	-	4,962
Total current assets	2,330	2,138	6,177
Current liabilities
Creditors: amounts falling within one year	(768)	(1,453)	(433)
Loan	(20,000)	(20,000)	(20,000)
Total current liabilities	(20,768)	(21,453)	(20,433)
Net current liabilities	(18,438)	(19,315)	(14,256)
Net assets	309,783	296,746	312,463
Capital and reserves
Share capital	25,002	24,446	24,634
Share premium account	122,248	115,637	117,822
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserves	142,763	137,535	149,140
Revenue reserve	11,190	10,548	12,287
Total Shareholders' funds	309,783	296,746	312,463
Net asset value per ordinary share - pence	309.75	303.47	317.11

Condensed Statement of Cash Flows

	Half-year ended	Half-year ended
	31 March 2018	31 March 2017
	£'000s (Unaudited)	£'000s (Unaudited)
Cash flows from operating activities before dividends received and interest paid	(914)	(712)
Dividends received	4,321	4,602
Interest paid	(276)	(300)
Cash flows from operating activities	3,131	3,590
Investing activities
Purchase of investments	(26,055)	(24,090)
Sales of investments	18,664	27,415
Other capital charges	(10)	(7)
Cash flows from investing activities	(7,401)	3,318
Cash flows before financing activities	(4,270)	6,908
Financing activities
Dividends paid	(5,859)	(5,505)
Net proceeds from issuance of new shares	4,794	2,890
Drawdown of loan	20,000	-
Repayment of loan	(20,000)	(5,000)
Cash flows from financing activities	(1,065)	(7,615)
Net movement in cash and cash equivalents	(5,335)	(707)
Cash and cash equivalents at the beginning of the period	4,962	(340)
Effect of movement in foreign exchange	(5)	(2)
Cash and cash equivalents at the end of the period	(378)	(1,049)
Represented by:
Bank overdraft	(378)	(1,049)

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, Interim Financial Reporting (FRS 104) 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 February 2018.

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 2017.

2    Net 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 2018 £'000s	Half-year ended 31 March 2017 £'000s
Revenue return	4,762	5,004
Capital return	(6,377)	22,330
Total return	(1,615)	27,334
	Number	Number
Weighted average ordinary shares in issue	99,367,098	97,453,499
Total return per share	(1.63)p	28.04p

3    Dividend

The second interim dividend of 2.45p per share in respect of the year ending 30 September 2018 will be paid on 29 June 2018 to Shareholders on the register on 8 June 2018. The total cost of this dividend, based on 100,759,268 shares in issue and entitled to the dividend on 24 May 2018 is £2,469,000.

4    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.

5    Results

The results for the half-year ended 31 March 2018 and 31 March 2017, 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 2017; 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 2017 are an extract from those accounts.

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

24 May 2018

 

END

 

 

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