Half-year Report

RNS Number : 7005A
North American Income Trust (The)
27 September 2022
 

Legal Entity Identifier (LEI): 5493007GCUW7G2BKY360

27 September 2022

 

 

THE NORTH AMERICAN INCOME TRUST PLC

 

HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS TO 31 JULY 2022

 

 

The investment objective of The North American Income Trust plc is to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominantly of S&P 500 US equities.

 

 

Performance Highlights

 Net asset value total returnA   

 Share price total returnA  

Six months ended 31 July 2022

 Six months ended 31 July 2022  

+5.5%

+8.6%

Year ended 31 January 2022

+25.7%

 Year ended 31 January 2022

+25.6%

 Russell 1000 Value Index (in sterling terms) total return  

 Earnings per Ordinary share (revenue)   

Six months ended 31 July 2022

 Six months ended 31 July 2022  

+4.9%

6.10p

Year ended 31 January 2022

+26.3%

 Six months ended 31 July 2021

5.05p

 Dividends per Ordinary Share  

 Full year dividend yieldA  

Six months ended 31 July 2022

 As at 31 July 2022

5.00p

3.5%

 Six months ended 31 July 2021

3.80p

 As at 31 January 2022

3.6%

 A Considered to be an Alternative Performance Measure. Further details can be found below.  

 



Performance (Total return)

Net asset value per Ordinary shareA

Share price per Ordinary shareA

Russell 1000 Value Index (in sterling terms)

S&P 500 Index (in sterling terms)

A Total return represents capital return plus dividends reinvested. Considered to be an Alternative Performance Measure. Further details can be found below.

Source: abrdn, Morningstar & Lipper.

 

Financial Calendar, Dividends and Highlights

Payment dates of quarterly dividends

August 2022
October 2022
February 2023
June 2023

Financial year end

31 January 2023

Expected announcement of results for
year ended 31 January 2023

April 2023

Annual General Meeting (Edinburgh)

8 June 2023

Financial Highlights

Net asset value per Ordinary share

318.8p

+2.6

Share price per Ordinary share (mid)

283.0p

+5.3

Discount to net asset valueA

11.2%

Net gearing A

4.9%

Ongoing charges ratioA

0.95%

A Considered to be an Alternative Performance Measure. Further details can be found below.

Revenue return per Ordinary share

5.05p

+20.8

Interim dividends

3.80pB

+31.6

A Includes a first interim dividend of 2.50p paid on 5 August 2022 and a second interim dividend of 2.50p payable on 28 October 2022.

B Includes a first interim dividend of 1.90p paid on 6 August 2021 and a second interim dividend of 1.90p paid on 29 October 2021.

 

 

Chair's Statement

Market & Economic Review

Major North American equity market indices experienced significant volatility and lost ground during the six-month period ended 31 July 2022. For most of the period, investors grew concerned over the pace of the US Federal Reserve's monetary tightening. Economists warned that hiking interest rates too much, too quickly could push the US economy into recession. These worries were exacerbated by increasing lockdowns in China due to COVID-19, which further stressed an already challenged global supply chain. However, major US equity market indices rallied sharply in July 2022, buoyed in part by a positive start to the second-quarter corporate earnings season. The Russell 1000 Value Index, the Company's reference index, returned 4.9% over the review period. The energy, utilities and healthcare sectors garnered positive returns and were the top performers for the period. Conversely, the communication services, financials and technology sectors posted losses and were the primary market laggards.

Inflation in the US remained elevated during the reporting period. The US Consumer Price Index (CPI) rose by an annual rate of 8.5% in July. The year-over-year increases in the CPI ranged from 7.9% in February to 9.1% rate in June. The continued upturn in inflation during the review period was attributable mainly to sharp increases in energy costs, particularly fuel oil and gasoline, which rose at annual rates of 44% and 76%, respectively, in July. Additionally, food prices saw double-digit, year-over-year increases for five consecutive months between March and July. Rising inflation led the US Federal Reserve (Fed) to raise the federal funds rate by 25 basis points (bps) to a range of 0.25%-0.50% following its meeting in mid-March - the central bank's first rate hike since 2018. The Fed subsequently implemented additional rate hikes totalling 200 bps, lifting its benchmark interest rate to a range of 2.25% to 2.50%.

The US economy contracted by 0.6% in the second quarter of 2022. This marked the second consecutive quarterly decline in GDP - which fell 1.6% in the first quarter - meeting the definition of a 'technical recession'. The decrease in GDP resulted mainly from reductions in inventory investment (a measurement of the change in inventory levels in the economy) and residential fixed investment, which more than offset increases in exports and consumer spending.

Performance

The Company returned 5.5% on a net asset value total return basis in sterling terms for the six-month period ended 31 July 2022, outperforming the 4.9% total return of its reference index, the Russell 1000 Value Index (in sterling terms). The revenue account remained healthy, building upon the record established in prior years.

The Company's performance relative to the reference index for the period benefited from stock selection in the industrials and real estate sectors, along with an overweight position in energy. The largest contributors among individual holdings were multinational pharmaceutical firm Bristol-Myers; gaming-focused REIT Gaming and Leisure Properties; and biopharmaceutical company Abbvie.

Bristol-Myers' approval of a key drug, mavacamten, released an overhang which had pressured the shares. Gaming and Leisure Properties announced a plan to acquire two Rhode Island casino properties - Bally's Twin River Lincoln Casino Resort and Bally's Tiverton Casino & Hotel - from Bally's Corp. for US$1 billion. Shares of Abbvie outperformed despite guidance for its new drug, Rinvoq, drove longer-term sales expectations higher after the loss of patent protection for its key drug Humira.

Despite the portfolio's overweight position to the energy sector, which outperformed the market during the quarter, stock selection within the energy sector was a drag on performance. Our stock picks in the financials sector and overall positioning in utilities also weighed on the Company's relative performance. The largest individual stock detractors from performance included Canadian financial services company CI Financial, and apparel maker Hanesbrands, as well as the absence of a position in the oil and gas company ExxonMobil.

CI Financial continues to execute well on its turnaround story but pressure on equity markets and fees weighed on the stock price.

Shares of Hanesbrands underperformed as several major retailers and the company's corporate customers lowered guidance throughout the period to account for lower consumer demand and elevated inventories. The lack of exposure to ExxonMobil weighed on the company's relative performance as the stock price rose sharply despite the company delivering generally positive results for the first two quarters of its 2022 fiscal year, attributable mainly to strength in its Upstream segment.

Portfolio Activity

The Company's investments remained consistent with our high-quality, cash-generative stock selection process and market volatility created new opportunities to add quality companies into the portfolio at attractive prices. During the review period, we initiated an equity position in CVS Healthcare, a retail drugstore chain operator and pharmacy benefit manager. We believe that the company is making significant improvements to the quality of the business, pivoting the business towards more attractive, structurally growing areas of healthcare. The key strategic initiative is to decrease its retail pharmacy footprint and invest to build out primary care delivery, where there is significant opportunity for growth, as 30% of Americans do not have a primary care provider, and the industry is moving towards value-based care, which offers more attractive returns.

Positions that the Company exited during the review period included agricultural products maker Nutrien Corp. and Michigan-based regional utility company CMS Energy. We sold the Company's holding in Nutrien after a rally in fertilizer prices drove the company's earnings to what we believe to be unsustainably high levels, which we expect to revert to lower levels over time, along with the stock price. We exited the position in CMS Energy as the valuation reached peak levels, subsequently lowered the dividend yield to the point there was minimal total return potential. Finally, we sold the Company's holding in freight railroad operator Union Pacific (UNP) given multiple quarters of mixed performance due to operational challenges, combined with a high relative valuation. UNP remains a high-quality operator, but at its current valuation, we believe that there is better risk/reward potential in other cyclical companies.

Within the Company's corporate bond portfolio over the review period, we initiated a holding in Norwegian Cruise Lines Corporation, Ltd. corporate bonds, which we felt were attractively priced. We did not exit any positions during the period. The investment team continues to work closely with abrdn fixed income specialists to monitor credits and market conditions.

Revenue Account

Total revenue from equity holdings in the portfolio over the period rose over 15% to £9.1 million (the same period in 2021 - £7.9 million). The Company's holdings continued to build upon an established track record of dividend growth during the review period. Lender OneMain Holdings boosted its quarterly pay-out by 36%, representing a 10.5% annualised yield. Derivatives exchange operator CME Group raised its dividend by 11%, resulting in a 2.0% yield. Semiconductor vendor Analog Devices announced a 10% increase in its payment, equivalent to a 1.8% yield. Motor vehicle parts distributor Genuine Parts boosted its quarterly pay-out by 10%, with a yield of 2.3%. Aerospace and defence technology company L3Harris Technologies also raised its dividend by 10%, resulting in a 1.9% yield. Royal Bank of Canada raised its dividend by 9.6%, equivalent to a 4.0% annualised yield.  Medical device maker Medtronic announced a 7.4% increase in its dividend, resulting in a 2.9% annualised yield. The oil and gas company Phillips 66 raised its quarterly dividend by 5.1%, resulting in an annualised yield of 4.4%.

In addition, the Company received premiums totalling £2.0 million (same period in 2021 - £1.5 million) in exchange for entering into stock option transactions. This option income, the generation of which remains consistent with the Manager's company-focused investment process, represented 17.4% of total income (same period in 2021 - 15.7%). The Company continues to hold a small portfolio of corporate bonds and interest income from investments representing 0.7% of total income (2021 - 0.6%). Income from bonds and option premiums will remain secondary sources of income and dividends will continue to provide the main source of income available for distribution.

Dividend

The Board is declaring a second quarterly dividend for the year to 31 January 2023 of 2.5p per share (2022- 1.9p), giving total dividends for the first half of the year of 5.0p per share (2022 - 3.8p). The increase reflects the change in the dividend payment policy announced last year, which works to even out the level of the quarterly dividends. The second quarterly dividend is payable on 28 October 2022 to shareholders on the register on 7 October 2022. It is expected that the third interim dividend, which will be paid in February 2023, will be 2.5p per share and the fourth interim dividend will continue to act as a balancing figure and will be determined once the income for the year has been determined. At the time of writing,
the strong dividend growth from the companies in the Company's portfolio, which was attributable to increased payouts as well as US dollar strength, gives the Board confidence that the dividend for the year will be covered by the net revenue return for the year.

Management of Premium and Discount

The Company's share price rose by 5.3% to 298p and ended the half year at an 8.9% discount to total net asset value, compared with an 11.2% discount at the end of the 2022 financial year. Over the six month review period, the Company's shares mainly traded at a discount between -6.0% to -10%, on a cumulative income basis. During the period 441,185 shares were bought back and cancelled at a weighted average price of 281.9p and a weighted average discount of 11.7%. The total cost was £1.25 million. The Company has not bought back any shares since the period end.

Gearing

The Board believes that sensible use of gearing should enhance returns to shareholders over the longer term. In December 2020, the Company entered into a long-term financing agreement for US$50 million with MetLife for two loans of US$25 million with terms of 10 and 15 years. As a result, net gearing at 31 July 2022 stood at 5.6% (31 January 2022 - 4.9%).

Promotional Activity

The Board continues to promote the Company through a variety of engagement activities and initiatives, including the Manager's savings schemes through which savers can invest in the Company in a low-cost and convenient manner (see page 29 of the Half-Yearly Financial Report). Up-to-date information about the Company, including monthly factsheets, interviews with the Manager and the latest net asset value and price of the Ordinary shares may be found on the Company's website northamericanincome.co.uk which has been updated and refreshed over the last couple of months.

Board

On 1 July 2022 Patrick Edwardson was appointed a Director of the Company. Patrick has a wealth of investment management experience, including managing the Scottish American Investment Company plc for 10 years having worked for Baillie Gifford for 27 years. The Board look forward to working with him. He will stand for election to the Board at the Company's Annual General Meeting in June 2023.

Outlook

The investment environment has become more challenging given the recession "warning signs" that are flashing, as well as the fact that a period of aggressive interest-rate tightening is well underway. However, periods of positive returns are possible during recessions particularly when companies become undervalued. Although July was overall a very positive month for the US equity market, there are still several headwinds, including the ongoing Russia-Ukraine conflict and questions over the ability of central banks globally to strike the right balance between bringing inflation under control and stymying economic growth.

The value of the portfolio and the strength of the revenue account were enhanced by the continuing strength of the US dollar relative to sterling, which approached parity in late September. The factors that drive relative exchange rate movements, including the ongoing structural impact of Brexit and the recent budget changes announced by the Chancellor of the Exchequer, could lead to an environment where the US dollar will maintain its relative strength against sterling in the near term. Your Manager believes that this latest move of sterling to the dollar is currently a benefit to the Company's Net Asset Value; however, currency markets are inherently volatile.

We continue to engage with companies on ESG matters and monitor their evolution in this area.  More information on your Manager's approach to ESG engagement can be found on pages 25 to 29 of the Company's Annual Report and at abrdn.com/en/uk/investor/responsible-investing .

For now, we have been comforted by the strength of the second-quarter earnings season in the US and the fact that the management teams with whom the Manager has recently spoken remain reasonably confident in their forecasts for the current year.

 

 

Dame Susan Rice
Chair
26 September 2022



Other Matters

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has considered the principal risks and uncertainties facing the Company together with a description of the mitigating actions it has taken. They can be summarised under the following headings:

-  Market Risk

-  Pandemic or Systemic Shock

-  Income and Dividend Risk

-  Operational Risk

-  Regulatory Risk

-  Gearing Risk

-  Discount Volatility

-  Derivatives

-  Potential Impact of ESG Investment Principles

Details of these risks are provided on pages 12 to 15 of the 2022 Annual Report. 

The Board monitors these principal risks closely and has a process to identify and assess emerging risks, such as climate change and geopolitical developments.

The increasing political and economic uncertainty which could affect markets, particularly in reaction to higher interest rates and the volatility associated with the conflict in Ukraine, received particular focus in the reporting period.

The Board is also aware of the elevated threat posed by climate change and continues to monitor, through the Investment Manager, the potential risk that the companies in the portfolio may fail to adapt to changes in policy and regulation.

In all other respects, the Company's principal risks and uncertainties have not changed nor are they expected to change in the second half of the financial year ending 31 January 2023.

Going Concern

In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business, the Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and, in most circumstances, are realisable within a short timescale. 

In December 2020, the Company entered into a long-term financing agreement for US$50 million with MetLife, comprising two loans of US$25 million with terms of 10 and 15 years.

The Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and the ability to meet all its liabilities and ongoing expenses from its assets.  Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate.

Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Directors' Responsibility Statement

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-  the condensed set of financial statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting);

-  the Half-Yearly Board Report, comprising the Chair's Statement, Other Matters and Portfolio Information, includes a fair review of the information required by rule 4.2.7R of the Disclosure Guidance and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

-  the financial statements include a fair review of the information required by 4.2.8R of the Disclosure Guidance and Transparency Rules (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

The Half-Yearly Financial Report for the six months ended 31 July 2022 comprises the Half-Yearly Board Report, the Directors' Responsibility Statement and a condensed set of financial statements which has not been reviewed or auditor by the Company's auditor.

For and on behalf of the Board
of The North American Income Trust plc

Dame Susan Rice,
Chair
26 September 2022



Ten Largest Investments

 

As at 31 July 2022

CVS Health Corporation provides health care and retail pharmacy services. The Company offers prescription medications, beauty, personal care, cosmetics, and health care products, as well as pharmacy benefit management (PBM), disease management, and administrative services.

Omega Healthcare Investors, Inc. is a real estate investment trust (REIT). The Company invests in and provides financing to the long-term care industry. Omega operates healthcare facilities in the United States which are operated by independent healthcare operating companies.

Baker Hughes Company provides oilfield products and services. The Company engages in surface logging, drilling, pipeline operations, petroleum engineering, and fertilizer solutions, as well as offers gas turbines, valves, actuators, pumps, flow meters, generators, and motors. Baker Hughes

serves oil and gas industries worldwide.

Phillips 66 is a downstream energy company. The Company's
operations include oil refining, marketing, and transportation.

Bristol-Myers Squibb Company is a global biopharmaceutical company. The Company develops, licences, manufactures, markets, and sells pharmaceutical and nutritional products.

Gaming and Leisure Properties, Inc. owns and leases casinos and other entertainment facilities.

Citigroup Inc. is a diversified financial services holding company that provides a broad range of financial services to consumer and corporate customers.

Comcast Corporation provides media and television broadcasting services. The company offers video streaming, television programming, high-speed Internet, cable television and communication services. Comcast serves customers worldwide.

MetLife, Inc. provides individual insurance, employee benefits, and financial services with operations throughout the United States and the regions of Latin America, Europe,
and Asia Pacific.

Air Products and Chemicals, Inc. produces industrial atmospheric and specialty gases and performance materials and equipment. The Company's products include oxygen, nitrogen, argon, helium, specialty surfactants and amines, polyurethane, epoxy curatives, and resins.



List of Investments

As at 31 July 2022

CVS Health 

Health Care Providers & Services

Omega Healthcare Investors

Equity Real Estate Investment Trusts (REITs)

Baker Hughes

Energy Equipment & Services

Phillips 66 

Oil, Gas & Consumable Fuels 

Bristol-Myers Squibb

Pharmaceuticals 

Gaming & Leisure Properties

Equity Real Estate Investment Trusts (REITs)

Citigroup

Banks

Comcast

Media

MetLife

Insurance 

Air Products & Chemicals

Chemicals 

Philip Morris 

Tobacco

L3 Harris Technologies

Aerospace & Defence

Medtronic

Health Care Equipment & Supplies

Emerson Electric

Electrical Equipment

Huntington Bancshares

Banks

Cisco Systems 

Communications Equipment 

Analog Devices

Semiconductors & Semiconductor Equipment

Hanesbrands

Textiles, Apparel & Luxury Goods

FMC

Chemicals 

Cogent Communications

Diversified Telecommunication

American International

Insurance

Gilead Sciences 

Biotechnology 

AbbVie

Biotechnology

Restaurant Brands International

Hotels, Restaurants & Leisure

Broadcom 

Semiconductors & Semiconductor Equipment 

Home Depot

Specialty Retail

CI Financial USD

Capital Markets

VF

Textiles, Apparel & Luxury Goods

TC Energy CAD

Oil, Gas & Consumable Fuels 

Coca-Cola

Beverages 

OneMain

Consumer Finance

Hannon Armstrong Sustainable 

Mortgage Real Estate Investment Trusts (REITS)

Texas Instruments 

Semiconductors & Semiconductor Equipment

Royal Bank of Canada 

Banks

JPMorgan Chase & Co.

Banks

Genuine Parts 

Distributors

CME Group 

Capital Markets

TC Energy USD

Oil, Gas & Consumable Fuels 

CI Financial CAD

Capital Markets

Qwest Cap Funding 7.75% 15/02/31 

Telecommunications

Goodyear Tire & Rubber 5% 15/07/29

Consumer Durables

NCL 5.875% 15/02/27 

Consumer Discretionary

 

Geographical Analysis

As at 31 July 2022

Canada

8.7

-

8.7

USA

90.8

0.5

91.3

99.5

0.5

100.0

 

Investment Case Studies

Emerson Electric

Emerson Electric is a diversified industrial company selling primarily electrical equipment into industrial and residential end markets. At the time of writing, Emerson Electric pays a 2.8% dividend and has raised the dividend for 65 consecutive years.

The company's Automation Solutions segment, at roughly two thirds of the business, includes automation instrumentation and software used in a variety of applications such as fluid processing (energy, industrial gasses, hydrogen, LNG) and product manufacturing (pharmaceuticals, food and beverage, automotive). The other segment consists mainly of power tools, HVAC products, and other home appliances. The company's automation expertise and narrow set of competitors has led to a sizable installed base of its equipment which generates a meaningful portion of replacement revenues and aftermarket service revenues.

The position in Emerson Electric was initiated due to its leading position in end markets poised for strong demand growth, something which was not being adequately reflected in the share price. Organic revenue growth has historically been in the 4-6% range which should accelerate closer to 10% over the medium term due to the need for greater production of LNG, hydrogen, oil and gas, and other energy resources. The company's robust internal decarbonisation targets have permeated its own product development, leveraging its process automation technology for clean energy end markets such as hydrogen, solar, and wind. This should allow the company to become a winner in the energy transition and help to drive clean energy technology costs down, maintaining its leading position in process automation. Lastly, continuous operational improvement and the exit of low-quality businesses has led to structurally higher earnings power on top of its growing revenue base which we view to be sustainable over time.

MetLife ("MET")

Metlife provides life insurance, employee benefits, and financial services both in the US and internationally. MET has taken actions to simplify its business model in recent years, including spinning off Brighthouse in 2017, selling the P&C business to Farmers, and creating MetLife Holdings, a segment which includes run-off businesses such as variable annuities, defined contribution, and fixed annuities. What is left is a collection of businesses which the Manager believes have favourable growth characteristics (less capital markets and less macro sensitive) and that should provide a higher return profile.

The Manager believes that this level of growth can be sustained over the cycle driven by international growth, particularly in Latin America and China, where MET has strong distribution partnerships and the penetration of life insurance is lower than in developed countries. In addition, growth in the US will provide some support, mainly in Group insurance, where MET has a leading market share, but is still underpenetrated in small business.

Despite the strong growth and return characteristics, MET continues to trade at a discount to peers with less favourable growth and return profiles. The Manager believes that this discount will close over time. It sees material upside on a combination of sustained book value growth, a solid dividend yield, and an eventual multiple re-rating.



Condensed Statement of Comprehensive Income (unaudited)

Net gains on investments

-

63,725

63,725

Net currency (losses)/gains

-

301

301

Income

2

9,379

221

9,600

Investment management fee

(452)

(1,056)

(1,508)

Administrative expenses

3

(376)

-

(376)

8,551

63,191

71,742

Finance costs

(153)

(357)

(510)

8,398

62,834

71,232

Taxation

4

(1,204)

92

(1,112)

7,194

62,926

70,120

6

5.05

44.21

49.26

The total column of the Condensed Statement of Comprehensive Income is the profit and loss account of the Company.  

All revenue and capital items in the above statement derive from continuing operations.

The accompanying notes are an integral part of the financial statements.



Condensed Statement of Financial Position (unaudited)

Investments at fair value through profit or loss

11

470,974

Debtors and prepayments

5,712

Cash and short-term deposits

13,875

19,587

Traded options

11

(24)

Other creditors

(4,883)

(4,907)

14,680

485,654

Senior Loan Notes

(37,191)

448,463

Called-up share capital

7,034

Share premium account

51,806

Capital redemption reserve

15,582

Capital reserve

8

350,388

Revenue reserve

23,653

448,463

9

318.79

The accompanying notes are an integral part of the financial statements.



Condensed Statement of Changes in Equity (unaudited)

 Six months ended 31 July 2022  

 Balance at 31 January 2022

 Buyback of Ordinary shares

 Return after taxation

 Dividends paid (note 5)

 Six months ended 31 July 2021  

 Balance at 31 January 2021

7,151

51,806

15,465

277,403

23,591

375,416

 Buyback of Ordinary shares

(72)

-

72

(3,743)

-

(3,743)

 Return after taxation

-

-

-

62,926

7,194

70,120

 Dividends paid (note 5)

-

-

-

-

(9,126)

(9,126)

7,079

51,806

15,537

336,586

21,659

432,667

 The accompanying notes are an integral part of the financial statements.  



Condensed Statement of Cash Flows (unaudited)

Net return before taxation

71,232

Adjustments for:

Net gains on investments

(63,685)

Net losses/(gains) on foreign exchange transactions

(301)

Increase in dividend income receivable

(248)

(Increase)/decrease in fixed interest income receivable

62

Increase/(decrease) in derivatives

(42)

(Increase)/decrease in other debtors

33

Increase/(decrease) in other creditors

(809)

Tax on overseas income

(1,112)

Amortisation of fixed income book cost

-

5,130

Purchases of investments

(72,308)

Sales of investments

84,170

11,862

Equity dividends paid

(9,126)

Buyback of Ordinary shares

(3,879)

(13,005)

3,987

Opening balance

9,239

Effect of exchange rate fluctuations on cash held

(152)

(Decrease)/increase in cash as above

3,987

13,074

The accompanying notes are an integral part of the financial statements.



Notes to the Financial Statements (unaudited)

For the year ended 31 July 2022

1.

Accounting policies

The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. Annual financial statements are prepared under Financial Reporting Standard 102.

The condensed interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements.

 

2.

Income

Dividend income

6,790

REIT income

1,059

Interest income from investments

59

7,908

Traded option premiums

1,471

Deposit interest

-

1,471

9,379

 

3.

Administrative expenses

Directors' fees

66

Secretarial fees

60

Promotional activities

86

Auditor's remuneration:

- fees payable to the Company's auditor for the audit of the annual report

15

Custody and bank charges

10

Registrar's fees

17

Professional fees

28

Depositary charges

21

Other expenses

73

376

 

4.

Taxation

The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on the estimated annual tax rate expected for the full financial year. The estimated annual corporation tax rate used for the year to 31 January 2023 is 19% (2022 - 19%).

Detailed below is an analysis of the tax charge for each period.

UK corporation tax

-

-

-

Double tax relief

-

-

-

Overseas tax suffered

1,079

33

1,112

Tax relief to capital

125

(125)

-

Deferred tax

18

-

18

Double tax relief on deferred tax items

(18)

-

1,204

(92)

 

5.

Dividends

3rd interim dividend for 2022 - 2.5p (2021 - 1.9p)

2,718

Final dividend for 2022 - 4.0p (2021 - 4.5p)

6,408

9,126

The Company pays four dividends per year. The first interim dividend of 2.50p (2022 - 1.90p) for the year ending 31 January 2023 was paid on 5 August 2022 to shareholders on the register at 22 July 2022, with an ex-dividend date of 21 July 2022. A second interim dividend of 2.50p (2022 - 1.90p) for the year ending 31 January 2023, will be paid on 28 October 2022 to shareholders on the register at 7 October 2022, with an ex-dividend date of 6 October 2022.

 

6.

Return per Ordinary share

Based on the following figures:

Revenue return

7,194

Capital return

62,926

70,120

142,338,417

Revenue return per Ordinary share

5.05

Capital return per Ordinary share

44.21

49.26

 

7.

Transaction costs

During the six months ended 31 July 2022 expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within net gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:

Purchases

36

Sales

57

93

 

8.

Capital reserve

The capital reserve reflected in the Condensed Statement of Financial Position at 31 July 2022 includes gains of £34,295,000 (31 January 2022 - gains £45,111,000) which relate to the revaluation of investments held at the reporting date.

 

9.

Net asset value per Ordinary share

Net assets attributable (£'000)

448,463

Number of Ordinary shares in issue

140,675,934

Net asset value per Ordinary share (p)

318.79

 

 10.

 Analysis of changes in net debt  

 Cash and short-term deposits

 Debt due after more than one year

 Cash and short-term deposits

9,239

(152)

3,987

-

13,074

 Debt due after more than one year

(36,336)

453

-

(7)

(35,890)

(27,097)

301

3,987

(7)

(22,816)

A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis.

 

11.

Fair value hierarchy

FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications:

: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.

inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

The financial assets and liabilities measured at fair value in the Condensed Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:

Quoted equities

a)

Quoted bonds

b)

Derivatives

c)

Quoted equities

a)

469,332

-

-

469,332

Quoted bonds

b)

-

1,642

-

1,642

469,332

1,642

-

470,974

Derivatives

c)

-

(24)

-

(24)

469,332

1,618

-

470,950

The fair value of the Company's investments in quoted equities has been determined by reference to their quoted prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

The fair value of the Company's investments in quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets

The Company's investment in exchange traded options have been fair valued using quoted prices and have been classified as Level 2 as they are not considered to trade in active markets.

 

12.

Transactions with the Manager.

The Company has an agreement with abrdn Fund Managers Limited ("aFML" or the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional activity services.

The annual management fee is charged on gross assets after deducting current liabilities and borrowings and excluding commonly managed funds (net assets), on a tiered basis. Up to 30 April 2021 the annual management fee was charged at 0.75% of net assets up to £350 million, 0.6% between £350 million and £500 million, and 0.5% over £500 million, payable quarterly. From 1 May 2021 the annual management fee is charged at 0.75% of net assets up to £250 million, 0.6% between £250 million and £500 million, and 0.5% over £500 million, payable quarterly. The fee is allocated 30% to revenue and 70% to capital. During the period £1,546,000 (31 July 2021 - £1,508,000) of investment management fees were payable to the Manager, with a balance of £1,546,000 (31 July 2021 - £749,000) being due to aFML at the period end.

The secretarial fee of £129,000 per annum is chargeable 100% to revenue and is payable monthly in arrears. During the period £65,000 (31 July 2021 - £60,000) of secretarial fees were payable to the Manager, with a balance of £22,000 (31 July 2021 - £10,000) being due to aFML at the period end.

The promotional activities fee is based on a current annual amount of £215,000, payable quarterly in arrears. During the period £107,000 (31 July 2021 - £86,000) of fees were payable, with a balance of £72,000 (31 July 2021 - £100,000) being due to aFML at the period end.

 

13.

Segmental information

The Company is engaged in a single segment of business, which is to invest in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.

 

14.

Subsequent events

At the date of this Report, there were 140,234,749 Ordinary shares in issue, the same as at the period end.

 

15.

Half-Yearly Financial Report

The financial information in this Report does not comprise statutory accounts within the meaning of Section 434 - 436 of the Companies Act 2006. The financial information for the year ended 31 January 2022 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the Company's auditor was unqualified and contained no statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The condensed interim financial statements have been prepared using the same accounting policies as contained within the preceding annual financial statements.

The financial information for the six months ended 31 July 2022 and 31 July 2021 have not been audited or reviewed by the Company's auditor.

 

16.

This Half-Yearly Financial Report was approved by the Board on 26 September 2022.

 

17.   The Half-Yearly Financial Report is available on the Company's website, www.northamericanincome.co.uk.  The Half-Yearly Report will be posted to shareholders in October 2022 and copies will be available from the Company Secretary.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

For The North American Income Trust plc

Aberdeen Asset Management PLC, Company Secretary

For further information, please contact:-

Company Secretary, abrdn

Tel: 0131 372 2200



Alternative Performance Measures ("APMs")

Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.  

Discount to net asset value

The discount is the amount by which the share price is lower than the net asset value per share with debt at fair value, expressed as a percentage of the net asset value with debt at fair value.

NAV per Ordinary share (p)

a

318.79p

Share price (p)

b

283.00p

Discount

(a-b)/a

11.2%

Dividend yield

Dividend yield is calculated using the Company's historic annual dividend per Ordinary share divided by the share price, expressed as a percentage.

31 January 2022

Annual dividend per Ordinary share (p)

a

10.30p

Share price (p)

b

283.00p

Dividend yield

a/b

3.6%

Net gearing

Net gearing measures total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the period end as well as cash and short term deposits.  

31 January 2022

Borrowings (£'000)

a

37,191

Cash (£'000)

b

13,875

Amounts due to brokers (£'000)

c

3,840

Amounts due from brokers (£'000)

d

5,031

Shareholders' funds (£'000)

e

448,463

(a-b+c-d)/e

4.9%

Ongoing charges ratio

The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC which is defined as the total of investment management fees and administrative expenses and expressed as a percentage of the average published daily net asset values with debt at fair value throughout the year. The ratio for 31 July 2022 is based on forecast ongoing charges for the year ending 31 January 2023.

31 January 2022

Investment management fees (£'000)

3,033

Administrative expenses (£'000)

735

Less: non-recurring expensesA (£'000)

(10)

3,758

429,283

0.88%

0.07%

0.95%

A Professional services considered unlikely to recur.

B Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis.

The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which includes finance costs and transaction charges.

Total return

NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. Share price and NAV total returns are monitored against open-ended and closed-ended competitors, and the Reference Index, respectively.  

Opening at 1 February 2022

a

283.0p

Closing at 31 July 2022

b

298.0p

Price movements

c=(b/a)-1

5.3%

Dividend reinvestmentA

d

3.3%

c+d

+8.6%

Opening at 1 February 2021

a

234.0p

Closing at 31 January 2022

b

283.0p

Price movements

c=(b/a)-1

20.9%

Dividend reinvestmentA

d

4.7%

c+d

+25.6%

A NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.  

 

 

 

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