Half Yearly Report

RNS Number : 7315H

F&C Capital & Income Inv Tst PLC

22 May 2014

 



Date:                22 May 2014

Contact:           Julian Cane                                                   

                        F&C Management Limited                              

                        020 7628 8000                                               

F&C Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2014

HIGHLIGHTS

·      Total return (increase in share price with dividends reinvested) for the half-year ended 31 March 2014 was 5.4%.

·      Total return (increase in net asset value per share with dividends reinvested) for the half-year ended 31 March 2014 was 3.9%.

·      1,325,000 shares were issued at a premium to net asset value during the six month period.

·      Continuing our record of increasing dividends every year since launch in 1992, interim dividends are increased by 4.7% to 4.50 pence per share and are fully covered by earnings.

SUMMARY OF UNAUDITED RESULTS

Attributable to equity shareholders	31 March 2014	30 September 2013	% Change
Net assets	£232.1m	£224.7m	+3.3
Net asset value per share	255.9p	251.4p	+1.8
Share price	262.0p	252.5p	+3.8
	Half-year ended 31 March 2014	Half-year ended 31 March 2013	% Change
Revenue return per share	5.37p	5.36p	+0.2
Net asset value total return	3.9%	14.5%	n/a
Share price total return	5.4%	13.1%	n/a
FTSE All-share index total return	4.8%	14.5%	n/a
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2014	* 2.25p	-
30 September 2013	-	2.15p
Second interim dividend in respect of year to 30 September 2014	** 2.25p	-
30 September 2013	-	2.15p
Total interim dividends relating to the period	4.50p	4.30p	+4.7

*   Paid on 31 March 2014.

** Payable on 30 June 2014 to shareholders registered on 6 June 2014.

The Chairman, commenting on the results, said:

Stock markets have had to deal with a lot over the last six months. We have seen the beginning of the normalisation of monetary policy in the US, a reasonably robust performance from the UK economy and the emergence of significant geo-political risk in the shape of the crisis in Ukraine. In these circumstances, while returns for investors have hardly raised the roof, at least they have been positive.

Capital Performance

The news in the UK has indeed been relatively benign, both in contrast with recent history and compared to elsewhere in the developed world. It looks as if the course of austerity has reached the point at which there is enough tension in the spring to allow the economy to bounce a little. Consumer inflation remains subdued, housing markets have injected a dose of optimism into the mix, and the news on employment has been broadly positive. As often turns out to be the case, of course, stock markets had foreseen a lot of this and had risen in anticipation, most particularly in the first half of 2013. When the good news actually arrives, the response is often a bit of a damp squib, and that was the case here.

For the six months, our net asset value (NAV) rose by 1.8% in capital terms and by 3.9% in total return. This compares with rises in the FTSE All-Share of 3.2% (capital only) and 4.8% (total return). The share price total return over the same period was 5.4% ahead of the benchmark and NAV as the shares traded at a larger premium.

The shortfall against the index was largely due to a single event in a single stock. Our holding in Partnership Assurance fell by two thirds over the period, contributing 0.8 percentage points of the 0.9 point shortfall. This company was a victim of the Chancellor's unexpected changes to the rules on retirement, removing the compulsion on retirees to purchase an annuity. Other holdings in life insurance were affected by leaked news of a regulatory review, leading to a poor performance by the sector as a whole. By contrast, the largest positive contribution by sector came from Non-Life Insurance.

Positive stock contributions came from Beazley, which was re-rated on strong results, and Barclays, where we benefited from not owning the shares as poor results and difficult investment banking conditions hit hard.

While the last six months' returns have lagged the index modestly, over the last three years your Company's NAV total return was 31.4% compared to a total return on the FTSE All-Share index of 28.5%. In the long term, over the last 15 years, the NAV is up by 121.7% compared to 99.6% for the index. It is these medium and long term returns which attest to the capabilities of your manager, rather than the much noisier short term data which can be distorted by individual events of the sort which derailed Partnership Assurance.

Revenue and Dividend

On an underlying basis, corporate earnings in the UK fell by 3.5% in calendar 2013 following a decline of 6.9% in 2012. Dividends, however, made headway, rising by 7.2%, reflecting robust balance sheets and the importance attached by shareholders to income in an environment where cash savings attract no reward. Our income has grown by 4.6%, benefitting from several factors.  As last year, the overall portfolio size has grown as a result of share issuance, and the use of debt has helped a little in a modestly rising market.  However, the underlying growth was partially offset by changes to some of the stocks selected in the portfolio as we looked to reinvest in companies with greater growth potential.

On a per share basis, the increase has been diluted, leading to a broadly unchanged revenue return per share of 5.37 pence. This comfortably covers the two dividends declared during the period, each of 2.25 pence, an increase of 4.7% over last year. The second of these payments is being declared with these results and will be paid on 30 June. For reference, the rate of Consumer Price Inflation was 1.6% for the year ending 31 March.

Loan Facility, Gearing & Derivatives

We have two borrowing facilities available to us. The first is for a fixed term £20 million loan which remained drawn and mostly invested during the period. The second is a flexible £15 million facility which has as yet not been utilised. While the interest rates on these loans are attractive, we take a conservative view of gearing and recognise that its use will not always lead to higher returns. Nevertheless, with interest rates as low as they are, the income available on sound shares generally exceeds the cost of borrowing and, as long as market prospects remain reasonable, your Board believes that some judicious use of these facilities is in shareholders' interests. We will draw down the second facility if and when we and the manager believe that investment opportunities are sufficiently attractive.

Your investment manager has continued with the policy of writing options when the premia are attractive and where he is comfortable that having the option exercised against us is consistent with his investment view on the relevant company. During the period the Company wrote three options, all on Barclays, generating total premium income of £250,000. Two of these have been exercised against us, equivalent to our buying shares in Barclays at prices the manager considers attractive.

Rating of the Shares & New Share Issuance

The shares have traded at a premium to NAV throughout the period, which does allow the issuance of shares and the application of our expenses over a larger capital base. Although there are many possible reasons why the shares trade at this premium, your Board will respond to market demand, either by issuing new shares, or by buying shares back should a material discount emerge.

There have been seven share issues during the half year, issuing a total of 1,325,000 shares, equivalent to about 1.5% of outstanding share capital. A further 700,000 shares have been issued since 31 March. These shares are issued at a price which ensures that there is no possibility of dilution for existing shareholders.

The Investment Manager

The acquisition of F&C by the Bank of Montreal completed earlier this month bringing an end to any uncertainty over the future ownership of the investment manager. Corporate activity of this nature is always unsettling for those employed in the business and I would like to record our gratitude to the steady calm shown by your manager, as well as to the team which works behind the scenes to ensure your Company is professionally administered and governed. While it is early days, we do not expect any significant changes to the way your Company is managed or administered as a result of the change in ownership of the investment manager.

Outlook

The UK economy remains fairly well set ahead of the Scottish referendum in the Autumn and the General Election next year. Inflation is subdued and interest rates seem unlikely to rise in the near future. The deflationary trend is a surprise to some as it is counter-intuitive in an era of very loose monetary policy, but the inflation in the economy as a whole is visible in asset prices rather than in consumer goods.  Low interest rates are also necessary because the underlying fiscal dynamics of the economy haven't changed much since the Global Financial Crisis, and the capacity to withstand a contraction is limited. These factors lie behind what remains a reasonable equity market story, with valuations attractive particularly in contrast to cash and bonds. Most of the market rise in recent years has been on the back of increasing valuation, rather than earnings growth and so it is fortunate that the earnings outlook is somewhat better on the back of an improving economy. We are moderately optimistic about the prospects of further progress in equity markets.

Steven Bates

22 May 2014

Forward -looking statements

This interim 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 2013. 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 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.

·              In light of the controls and monitoring processes that are in place, the Company has adequate resources and arrangements to continue operating within its stated objective policy for the foreseeable future. Accordingly, the accounts continue to be drawn up on the basis that the Company is a going concern.

On behalf of the Board

Steven Bates

Chairman

22 May 2014

Unaudited Condensed Income Statement

Half-year ended 31 March 2014

Half-year ended 31 March 2013

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Gains on investments and derivatives	-	4,246	4,246	-	24,014	24,014
	Foreign exchange gains/(losses)	3	(24)	(21)	50	(584)	(534)
	Income	5,554	-	5,554	5,311	-	5,311
	Management fee	(253)	(253)	(506)	(223)	(223)	(446)
	Other expenses	(249)	(5)	(254)	(353)	(3)	(356)
	Net return before finance costs and taxation	5,055	3,964	9,019	4,785	23,204	27,989
	Finance costs	(136)	(136)	(272)	(53)	(53)	(106)
	Net return on ordinary activities  before taxation	4,919	3,828	8,747	4,732	23,151	27,883
	Taxation on ordinary activities	(91)	-	(91)	(12)	-	(12)
	Net return attributable to shareholders	4,828	3,828	8,656	4,720	23,151	27,871
2	Return per share - pence	5.37	4.26	9.63	5.36	26.30	31.66

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 total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above

            Statement.

Unaudited Condensed Reconciliation of Movements in Shareholders' Funds

		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 2014
Balance at 30 September 2013	22,346	95,614	4,146	4,434	88,915	9,253	224,708
Movements during the half-year ended 31 March 2014
Dividends paid	-	-	-	-	-	(4,717)	(4,717)
Ordinary shares issued	331	3,166	-	-	-	-	3,497
Return attributable to Shareholders	-	-	-	-	3,828	4,828	8,656
Balance at 31 March 2014	22,677	98,780	4,146	4,434	92,743	9,364	232,144
Half-year ended 31 March 2013
Balance at 30 September 2012	21,971	92,250	4,146	4,434	64,789	7,522	195,112
Movements during the half-year ended 31 March 2013
Dividends paid	-	-	-	-	-	(4,401)	(4,401)
Ordinary shares issued	75	630	-	-	-	-	705
Return attributable to Shareholders	-	-	-	-	23,151	4,720	27,871
Balance at 31 March 2013	22,046	92,880	4,146	4,434	87,940	7,841	219,287
Year  ended 30 September 2013
Balance at 30 September 2012	21,971	92,250	4,146	4,434	64,789	7,522	195,112
Movements during the year ended 30 September 2013
Dividends paid	-	-	-	-	-	(8,210)	(8,210)
Ordinary shares issued	375	3,364	-	-	-	-	3,739
Return attributable to Shareholders	-	-	-	-	24,126	9,941	34,067
Balance at 30 September 2013	22,346	95,614	4,146	4,434	88,915	9,253	224,708

Unaudited Condensed Balance Sheet

	31 March 2014	31 March 2013	30 September 2013
	£'000s	£'000s	£'000s
Fixed assets
Investments	240,861	232,501	232,570
Current assets
Debtors	2,032	2,306	4,472
Cash at bank and short-term deposits	9,859	5,306	8,183
	11,891	7,612	12,655
Creditors amounts falling within one year
Derivatives	(148)	-	-
Other creditors	(460)	(826)	(517)
	(608)	(826)	(517)
Net current assets/(liabilities)	11,283	6,786	12,138
Total assets less current liabilities	252,144	239,287	244,708
Creditors amounts falling due after more than one year Fixed term Loan	(20,000)	(20,000)	(20,000)
Net assets	232,144	219,287	224,708
Capital and reserves
Share capital	22,677	22,046	22,346
Share premium account	98,780	92,880	95,614
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserves	92,743	87,940	88,915
Revenue reserve	9,364	7,841	9,253
Total shareholders' funds	232,144	219,287	224,708
Net asset value per ordinary share - pence	255.92	248.67	251.40

Unaudited Condensed Summary Cash Flow Statement

	Half-year ended	Half-year ended
	31 March 2014	31 March 2013
	£'000s	£'000s
Net cash inflow from operating activities	4,248	3,378
Interest paid	(272)	(108)
Equity dividends paid	(4,717)	(4,401)
Net cash outflow from purchases and sales of investments and derivatives	(2,071)	(11,304)
Net cash outflow before use of liquid resources and Financing	(2,812)	(12,435)
(Increase)/decrease in short-term deposits	(1,290)	5,460
Net cash inflow from financing	4,512	12,282
Increase in cash	410	5,307
Reconciliation of net cash flow to movement in net debt
Increase in cash	410	5,307
Increase/(decrease) in short-term deposits	1,290	(5,460)
Increase in loans	-	(11,577)
Exchange movement	(24)	(584)
Movement in net debt	1,676	(12,314)
Net debt at the beginning of the period	(11,817)	(2,380)
Net debt at the end of the period	(10,141)	(14,694)
Represented by:
Cash at bank	459	5,306
Short-term deposits	9,400	-
Loans	(20,000)	(20,000)
	(10,141)	(14,694)

Notes

1    Accounting policies

These financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 September 2013.  These accounting policies are expected to be followed throughout the year ending 30 September 2014.

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 2014 £'000s	Half-year ended 31 March 2013 £'000s
Revenue return	4,828	4,720
Capital return	3,828	23,151
Total return	8,656	27,871
	Number	Number
Weighted average ordinary shares in issue	89,859,955	88,030,935

3    Dividend

The second interim dividend in respect of the year ending 30 September 2014 of 2.25 pence per share will be paid on 30 June 2014 to shareholders registered on 6 June 2014. The total cost of this dividend, based on 91,409,268 shares in issue and entitled to dividend on 21 May 2014, is £2,057,000.

4    Results

The results for the half-year ended 31 March 2014 and 31 March 2013, 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 2013; 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 2013 are an extract from those accounts.

5    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 Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

22 May 2014

 

END

 

 

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