Half Yearly Report

RNS Number : 9005N

F&C Capital & Income Inv Tst PLC

21 May 2015

 



Date:                21 May 2015

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 2015

Highlights

·    Share price total return (with dividends reinvested) 6.0%.

·    Net Asset Value per share total return (with dividends reinvested) 5.9%.

·    Interim dividends are increased by 2.2% to 4.60 pence per share, continuing the 22 year record of rising annual dividends.

SUMMARY OF UNAUDITED RESULTS

Attributable to equity shareholders	31 March 2015	30 September 2014	% Change
Net assets	£245.4m	£231.4m	+6.1
Net asset value per share	261.2p	251.8p	+3.7
Share price	268.0p	258.0p	+3.9
	Half-year ended 31 March 2015	Half-year ended 31 March 2014	% Change
Revenue return per share	4.98p	5.37p	-7.3
Net asset value total return	5.9%	3.9%	n/a
Share price total return	6.0%	5.4%	n/a
FTSE All-Share Index total return	5.3%	4.8%	n/a
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2015	* 2.30p	-
30 September 2014	-	2.25p
Second interim dividend in respect of year to 30 September 2015	** 2.30p	-
30 September 2014	-	2.25p
Total interim dividends relating to the period	4.60p	4.50p	+2.2

*   Paid on 31 March 2015.

** Payable on 30 June 2015 to shareholders registered on 5 June 2015.

The Chairman, commenting on the results, said:

We live in extraordinary times. Against a backdrop where oil prices more than halved and interest rates in a number of major European countries dropped through zero, stock markets have carried on serenely, even if there has been a lot of paddling below the surface. In the first six months of our financial year, the share price rose by 3.9%, while the Net Asset Value ("NAV") rose by 3.7%, compared with 3.7% for the FTSE All-Share Index. Adding in the effect from income to give the total return yields a result of 6.0% for the share price, 5.9% for NAV and 5.3% for the Index. These are very respectable returns in both absolute and relative terms. In the longer run, on a five year view, the NAV on a total return basis has been more or less in line with the Index, each rising by around 54%, while on a fifteen year basis, the NAV is up by just over 120%, while the index has risen by 94%. Our history of dividend progression also continues with an increase in each of our first two interim dividends.  This extends our record of annual dividend growth into its 22^nd consecutive year.

Investment Background

We have become used to very low interest rates, but what is happening now is straight out of Alice in Wonderland. The introduction of quantitative easing ("QE") in the Eurozone, which began in March and is expected to run until September 2016, will lead to the purchase by the European Central Bank of about €60 billion of bonds per month. This incremental demand has pushed interest rates below zero for borrowing tenors out to eight years in some countries. Even countries which were in intensive care three years ago, such as Spain and Portugal, have rates hovering around zero.

It is perhaps worth revisiting how QE works: a central bank can create money (often referred to as printing money) by simply making an entry on an electronic ledger. It can then use that artificially generated cash to buy assets. These assets are typically Government or corporate bonds owned by banks. This pushes the price of the bonds up (yields down) and there is a parallel effect on equity prices, which look good relative value and attract flows from the QE process through financial intermediation. There is a debate on whether QE has benefited the global economy or not, but it has had an electrifying effect on asset prices. On balance, those economies which have led the way on QE (US and UK) have had better growth than those which have lagged (particularly the EU), but given the scale of the stimulus, that growth is still disappointing.  We now see in both Japan and the EU significant QE efforts which have the combined effect of debasing the currency and lifting asset prices.

The UK market has benefited over recent years from this very benign liquidity environment and undoubtedly continues to do so. Providing a more solid foundation, furthermore, the economy has delivered respectable growth in a world where growth is in short supply. Inflation is very subdued, with the Consumer Prices Index for March showing no change in prices over the previous year, helped to a large degree by the unexpected fall in the price of oil. At the moment, this so called 'good' deflation, combined with rising incomes and lower unemployment, has increased the disposable income in the average pocket. The evil twin of good deflation is where debt becomes unserviceable, so called debt deflation, because incomes are falling and returns on investment are too low to maintain the borrowing. Thankfully, we are not there, but it is important to note that the macro-economic conditions which support the market are very far from normal and require careful watching. 

Sterling has had mixed fortunes. It has been weak against a strong US Dollar, falling by around 10% over the half year, but strong against the Euro, rising by nearly 10%. This divergent performance reflects the market's assessment of when interest rates will rise, with the US expected to be in the vanguard, the UK next and with European rate rises not on the agenda for the next five years. The weak Euro, in particular, acts as a headwind for UK export performance and it is no coincidence that the current account deficit, at 5.5% of national income, is the largest since records began. Currency strength is of itself a monetary tightening, and other things being equal, postpones the likelihood of interest rate rises.

One of the surprising corollaries of a low interest rate, low growth environment is that mergers and acquisitions have been booming. Capital spending on new capacity has been depressed and companies are finding it less risky and cheaper to buy one another. This may not grow wealth overall, but rearranges it, sometimes to our advantage; and it has had a positive effect on markets. The UK General Election delivered a somewhat surprising result, returning a majority Conservative Government albeit with a slim margin. Market reaction has been positive, but initial euphoria may fade as the scale of the constitutional and economic challenges becomes clear. Putting all this together, the FTSE 100 Index set a new high towards the end of the period, passing its previous record set 16 years ago in 1999.

Portfolio

Looking at the half year, the single largest positive contribution by sector to the relative return of the portfolio came from an underweight position in the Oil & Gas sector.  This was not because we had foresight that the oil price was about to collapse, but more because, even at the then higher oil price, the returns and growth profiles of many of the oil majors and explorers seemed unattractive.  This underweight position was bolstered by good stock selection, in particular holding no BG and being underweight in Royal Dutch Shell. The Consumer Services sector was the largest negative contributor, reflecting the absence of Tesco and International Airlines Group, both of which bounced during the period.

On a stock specific basis, I would note good performance from Glanbia, the specialist Irish food business, which had excellent results, and OneSavings Bank, which grew nicely. On the other side of the ledger, Total, the French listed oil major, fell on the back of the weak oil price and ISG, a construction services business, suffered from a profit warning on the back of older UK construction contracts.

The portfolio saw modest reorganisation during the period, as your fund manager Julian Cane continues with a well thought through, relatively cautious investment policy. Given that the portfolio is expected to deliver capital growth and growth in income, a lot of analysis goes into identifying companies which have the capacity to grow earnings and dividends ahead of inflation over the medium term. As the market has become more expensive, and at a time when earnings growth is under pressure, it is increasingly hard to find attractive growth opportunities which meet the criteria. Indeed, many companies with high dividends are those companies at risk of dividend cuts because of the absence of growth. Julian navigates this channel well, in the Board's view, and will continue with his relatively conservative approach.

Income Account, Gearing, Derivatives and Share Issuance

We paid a first interim dividend of 2.3 pence per share during the period in respect of the current year. This represents an increase over the corresponding period last year of 2.2%, ahead of the inflation rate, which has been running around zero. We are declaring, in conjunction with these results, a second payment of 2.3 pence per share, which will be paid on 30 June. As has been the case in recent years, we have more shares outstanding than last time, having issued 2,050,000 during the period (at our customary premium). The income account has continued to be enhanced by the use of gearing, which ended the period at 7.2% of net assets. There was no derivative income during the half year as option prices appeared too cheap to sell for the level of risk that would have been taken on.

Outlook

We expect to remain in a very low interest rate environment for some time to come. Even in the event that rates do rise, that rise is expected to be very modest. In this sort of world, investors are being actively encouraged to take more risk with their investments in order to generate any sort of return. In normal monetary circumstances, this would be dangerous behaviour, but in the unprecedented conditions which prevail today, it is rational. Of course, risks abound. A messy resolution to the Greek tragedy; geopolitical disruption; further dislocation in commodity markets; a hard landing in China; political and ecomonic challenges at home - any of these could cause indigestion or even upset. Nevertheless, overall the winds look set to stay favourable, we remain optimistic and see value opportunities for shareholders.

Steven Bates

21 May 2015

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 2014. 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

21 May 2015

Unaudited Condensed Income Statement

Half-year ended 31 March 2015

Half-year ended 31 March 2014

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Gains on investments	-	9,602	9,602	-	4,246	4,246
	Foreign exchange gains/(losses)	5	(39)	(34)	3	(24)	(21)
	Income	5,316	-	5,316	5,554	-	5,554
	Management fee	(259)	(259)	(518)	(253)	(253)	(506)
	Other expenses	(278)	(6)	(284)	(249)	(5)	(254)
	Net return before finance costs and taxation	4,784	9,298	14,082	5,055	3,964	9,019
	Finance costs	(136)	(136)	(272)	(136)	(136)	(272)
	Net return on ordinary activities  before taxation	4,648	9,162	13,810	4,919	3,828	8,747
	Taxation on ordinary activities	(9)	-	(9)	(91)	-	(91)
	Net return attributable to shareholders	4,639	9,162	13,801	4,828	3,828	8,656
2	Return per share - pence	4.98	9.84	14.82	5.37	4.26	9.63

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 2015
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
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 equity 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
Year  ended 30 September 2014
Balance at 30 September 2013	22,346	95,614	4,146	4,434	88,915	9,253	224,708
Movements during the year ended 30 September 2014
Dividends paid	-	-	-	-	-	(8,842)	(8,842)
Ordinary shares issued	631	6,001	-	-	-	-	6,632
Return attributable to equity Shareholders	-	-	-	-	(686)	9,575	8,889
Balance at 30 September 2014	22,977	101,615	4,146	4,434	88,229	9,986	231,387

Unaudited Condensed Balance Sheet

	31 March 2015	31 March 2014	30 September 2013
	£'000s	£'000s	£'000s
Fixed assets
Investments	263,570	240,861	241,039
Current assets
Debtors	2,065	2,032	2,691
Cash at bank and short-term deposits	2,289	9,859	8,561
	4,354	11,891	11,252
Creditors amounts falling within one year
Derivatives	-	(148)	-
Other creditors	(2,519)	(460)	(904)
	(2,519)	(608)	(904)
Net current assets	1,835	11,283	10,348
Total assets less current liabilities	265,405	252,144	251,387
Creditors amounts falling due after more than one year Fixed term Loan	(20,000)	(20,000)	(20,000)
Net assets	245,405	232,144	231,387
Capital and reserves
Share capital	23,490	22,677	22,977
Share premium account	106,350	98,780	101,615
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserves	97,391	92,743	88,229
Revenue reserve	9,594	9,364	9,986
Total shareholders' funds	245,405	232,144	231,387
Net asset value per ordinary share - pence	261.18	255.92	251.76

Unaudited Condensed Summary Cash Flow Statement

	Half-year ended	Half-year ended
	31 March 2015	31 March 2014
	£'000s	£'000s
Net cash inflow from operating activities	3,582	4,248
Interest paid	(136)	(272)
Equity dividends paid	(5,031)	(4,717)
Net cash outflow from purchases and sales of investments and derivatives	(9,896)	(2,071)
Net cash outflow before use of liquid resources and financing	(11,481)	(2,812)
Decrease/(increase) in short-term deposits	6,530	(1,290)
Net cash inflow from financing	5,248	4,512
Increase in cash	297	410
Reconciliation of net cash flow to movement in net debt
Increase in cash	297	410
(Decrease)/increase in short-term deposits	(6,530)	1,290
Exchange movement	(39)	(24)
Movement in net debt	(6,272)	1,676
Net debt at the beginning of the period	(11,439)	(11,817)
Net debt at the end of the period	(17,711)	(10,141)
Represented by:
Cash at bank	419	459
Short-term deposits	1,870	9,400
Loans	(20,000)	(20,000)
	(17,711)	(10,141)

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 2014.  These accounting policies are expected to be followed throughout the year ending 30 September 2015.

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 2015 £'000s	Half-year ended 31 March 2014 £'000s
Revenue return	4,639	4,828
Capital return	9,162	3,828
Total return	13,801	8,656
	Number	Number
Weighted average ordinary shares in issue	93,078,499	89,859,955

3    Dividend

The second interim dividend in respect of the year ending 30 September 2015 of 2.30 pence per share will be paid on 30 June 2015 to shareholders registered on 5 June 2015. The total cost of this dividend, based on 94,559,268 shares in issue and entitled to the dividend on 21 May 2015, is £2,175,000.

4    Results

The results for the half-year ended 31 March 2015 and 31 March 2014, 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 2014; 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 2014 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, UK 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.

Shareholders voted at the Company's AGM in 2013 for the continuation of the Company and will be asked to vote again in 2018. The Directors believe, taking into account the Company's robust controls and review processes, that it has adequate liquid financial resources to meet its liabilities, and has satisfactory agreements and arrangements, to enable it to continue to operate within its stated objective and policy for at least the next twelve months.  In addition the Directors believe that the Company's objective and policy continue to be relevant to investors and that this, together with a robust regulatory environment within which the Company operates, supports the Company's long-term future prospects. 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

21 May 2015

 

END

 

 

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