Interim Results
City Natural Res High Yield Tst PLC
29 February 2008
To: RNS
From: City Natural Resources High Yield Trust plc
Date: 29 February 2008
Unaudited results for the six months ended 31 December 2007
• Net asset value total return of 42.7 per cent in 2007
• Net asset value total return of 10.7 per cent since 1 July 2007 compared
to a total return of 16.3 per cent from the benchmark index
• Ordinary share price total return since 1 July 2007 of 9.2 per cent
• Net asset value total return of 350.1 per cent since 1 August 2003
compared to a total return of 189.6 per cent from the benchmark index
• Ordinary Share price total return since 1 August 2003 of 299.2 per cent
• Discount of 10.2 per cent to fully diluted net asset value.
The Chairman, Geoff Burns, said:
Introduction
It is encouraging to be able to report steady progress at the headline level,
albeit masked somewhat by a turbulent and exciting half year.
Investment Performance and Benchmark
The six months to 31 December 2007 saw total returns in your Company's net asset
value and share price of 10.7 per cent and 9.2 per cent respectively.
We have since 1993 compared our performance to that of a composite benchmark
index weighted two-thirds to the HSBC World Mining Index (sterling adjusted) and
one third to the MSCI Euro Sterling Corporate Index (non-financials). The
latter index was discontinued during the period and, following careful research,
we have chosen to replace it with the Credit Suisse High Yield Bond Index
(sterling adjusted).
The total return on the old composite index between 1 August 2003, the date that
the reconstruction of the investment portfolio was completed following the
change to the Company's investment objective, and 30 June 2007 was 148.5 per
cent. The total return on the new composite index was 149.0 per cent.
The total return on the new composite index during the six months to 31 December
2007 was 16.3 per cent. This brought its total return since 1 August 2003 to
189.6 per cent, while the Company's net asset value total return over the same
period was 350.1 per cent and its share price total return 299.3 per cent.
I promised in my Statement at the year end not to lose sight of the importance
of income to shareholders, and this year's first two quarterly dividends of 0.55
pence per share represent a 10.0 per cent increase over last year's level.
The warrant price increased by more than 20 per cent to 107.5 pence over the six
months. Each warrant confers the right to subscribe for one new ordinary share
at 85p on 31 October * 2008 and 2009.
Investment Strategy
The Manager maintained gearing of between 20 and 25 per cent throughout the
period, but within this parameter exercised a degree of caution. This included
adding to our portfolio of natural resource convertible holdings, which
contributed to the Company's earnings per share rising from 1.34 pence to 1.53
pence per share.
Volatility in both markets and commodity prices was the dominant feature of the
period, the 10 per cent rise in our net asset value masking a low of 158 pence
in August and a high of 222 pence in early November. If uranium disappointed
(temporarily, we believe), palm oil went from strength to strength; but, it was
gold that caught the zeitgeist, and has been significant in our continued
progress. Having pushed through US $700 in September, it tested and then
breached the US $850 level, albeit on the first trading day of the New Year,
before establishing itself beyond US $900. Gold's traditional safe-haven appeal
has reasserted itself as investors adjust to a weaker dollar, lower interest
rates and inflationary concerns. Fears over reduced supply from South Africa,
resulting from the electricity shortages which are forecast to continue for a
lengthy period, have also boosted the price, with a similar impact on platinum.
At 31 December six out of our top twenty holdings were essentially gold plays,
an exposure which has underpinned our performance.
Outlook
Your Company has successfully weathered a challenging start to 2008, with
markets fluctuating wildly as the world reacted to continuing bad news from
banks exposed to the sub-prime crisis and widespread talk of a US recession.
The net asset value stands at 222.0 pence as I write, within a whisker of its
all time high.
While commodity prices have not been exempt from the maelstrom, a number of the
key indicators have held up well, with oil better than US $95 per barrel and
gold above US $950 per ounce.
The rumours surrounding Xstrata and the dawn raid which saw Chinalco become a
major shareholder in RTZ suggest that we are not alone in sensing the continuing
bull case for the commodity cycle. Markets may look unsettled; but, your
Company is well positioned to ride out any trouble and take advantage of the
opportunities that will be thrown up.
* Or if later the date being 30 days after the date in which copies of the
accounts are dispatched to shareholders.
The Manager, Richard Lockwood, said:
In our last report we referred to the sub prime debacle in America and the
effect that it was likely to have on the US dollar. We went on to suggest that
this might prove to be the catalyst for an assault by precious metals on new
high ground. In the event, the financial problems which prompted the Fed to
make substantial interest rate cuts caused the dollar to fall significantly and
brought about our eagerly anticipated rise in both gold and platinum which hit
all time highs. Somewhat belatedly the silver price followed suit.
Gold shares had a good, but not sensational, six months. Given the percentage
increase in the prices of these precious metals, we looked for a rampant bull
market; we have made good money, but we still await the frenetic conditions
which will signal its arrival. They will come. We are certainly committed to
this sector with six investments in the top twenty portfolio, namely Gold Eagle
Mines, Goldcorp, Randgold Resources, Allied Gold, Avoca and Kinross.
The second sector where our enthusiasm has increased is energy. The oil
producers, especially in the Middle East and Nigeria, have adopted a much more
aggressive attitude towards pricing and appear to be less influenced by American
entreaties to engineer prices lower. There is a strong market feeling that US
$100 per barrel is as high as oil will go, but we would not be surprised to see
it prove higher levels during 2008. Uranium fared less well in the period under
review with the price per pound falling from US $125 to $75. We believe that
the current year will see a strong rebound reflecting production difficulties
with Cameco, ERA and Uranium One Inc. We expect a major shortage of supply
during the current year and confidently predict a return to previous high
levels. Coal has also been affected by production difficulties and prices have
moved ahead sharply. In the energy sector our principal holdings are Riversdale
Coal, Nido Petroleum, Horizon, European Gas and, in the uranium sector, Extract
and Kalahari Minerals.
Finally, but certainly not lastly, we turn to palm oil. Its price has doubled
in the last year and we expect the impressive returns from our four main
holdings, New Britain, REA, Anglo Eastern Plantations and MP Evans, to continue.
Subsequent to the year end it has been announced that the Chinese rapeseed
crop will be 40 per cent below expectations and this will further influence the
palm oil price.
As the Chairman has reported, we increased our dividend by 10%. This was
achieved by both dividends paid to us from new producers and income derived from
our holdings in various natural resource convertibles. While some of the
convertibles are quoted, others such as Mano River, Metals Exploration, GMA
Resources, Pike River Coal and Great Panther are not, although, in each of these
cases, the relevant ordinary shares are quoted on recognised Stock Exchanges.
Looking to the future we are generally relaxed about the constitution of the
portfolio. This is an actively managed Company, and its shape will continue to
reflect changing emphases in the natural resource sectors. It is our belief
that corporate activity will continue to be a major influence on the market -
our portfolio has already benefited from the takeover of Jubilee Mines. The
income stream looks encouraging and we remain sanguine about our ability to pay
our quarterly dividends. Since the Company was established the overall returns
have been highly rewarding. Our confidence in the future remains undiminished.
Enquiries:
Richard Lockwood
Investment Manager
New City Investment Managers Limited Tel: 0207 201 5365
Martin Cassels
Company Secretary
F&C Asset Management plc Tel: 0207 628 8000
Unaudited Income Statement for the six months ended 31 December 2007
2007 2007 2007
Revenue Capital Total
£'000 £'000 £'000
Realised gains on investments sold - 16,552 16,552
Decrease in fair value of investments - (2,806) (2,806)
Exchange losses - (213) (213)
Income 1,998 - 1,998
Investment management fee (202) (606) (808)
Other expenses (229) - (229)
Net revenue before finance costs and taxation 1,567 12,927 14,494
Interest payable and similar charges (216) (649) (865)
Net revenue on ordinary activities before taxation 1,351 12,278 13,629
Tax on ordinary activities (377) 368 (9)
Net revenue on ordinary activities after taxation 974 12,646 13,620
Earnings per share - basic 1.55p 20.11p 21.66p
- fully diluted 1.53p 19.88p 21.41p
Amounts recognised as dividends in the period
Six months Six months
ended ended
31 December 31 December
2007 2006
(unaudited) (unaudited)
£'000 £'000
Fourth interim dividend for the year ended
30 June 2006 of 0.65p per share - 409
First interim dividend for the year ended
30 June 2007 of 0.5p per share - 314
Fourth interim dividend for the year ended
30 June 2007 of 0.85p per share 534 -
First interim dividend for the year ended
30 June 2008 of 0.55p per share 346 -
880 723
Unaudited Income Statement for the six months ended 31 December 2006
2006 2006 2006
Revenue Capital Total
£'000 £'000 £'000
Realised gains on investments sold - 1,744 1,744
Increase in fair value of investments held - 20,964 20,964
Exchange gains - 4 4
Income 1,627 - 1,627
Investment management fee (144) (431) (575)
Other expenses (162) - (162)
Net revenue before finance costs and taxation 1,321 22,281 23,602
Interest payable and similar charges (145) (435) (580)
Net revenue on ordinary activities before taxation 1,176 21,846 23,022
Tax on ordinary activities (321) 271 (50)
Net revenue on ordinary activities after taxation 855 22,117 22,972
Earnings per share - basic 1.36p 35.19p 36.55p
- fully diluted 1.34p 34.52p 35.86p
Audited Income Statement for the year ended 30 June 2007
2007 2007 2007
Revenue Capital Total
£'000 £'000 £'000
Realised gains on investments sold - 15,616 15,616
Increase in fair value of investments held - 35,968 35,968
Exchange losses - (91) (91)
Income 3,567 - 3,567
Investment management fee (304) (912) (1,216)
Other expenses (333) - (333)
Net revenue before finance costs and taxation 2,930 50,581 53,511
Interest payable and similar charges (322) (967) (1,289)
Net revenue on ordinary activities before taxation 2,608 49,614 52,222
Tax on ordinary activities (818) 581 (237)
Net revenue on ordinary activities after taxation 1,790 50,195 51,985
Earnings per share - basic 2.85p 79.84p 82.69p
- fully diluted 2.78p 77.97p 80.75p
Balance Sheet
31 December 31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fixed assets
Investments 163,430 117,698 148,455
Current assets
Debtors 2,484 1,236 3,514
Cash at bank and on deposit 220 1,155 427
2,704 2,391 3,941
Creditors: amounts falling due within one year (27,467) (22,546) (26,468)
Net current liabilities (24,763) (20,155) (22,527)
Net Assets 138,667 97,543 125,928
Capital and reserves
Called-up share capital 15,721 15,719 15,719
Special distribution reserve 30,386 30,386 30,386
Share premium 34 22 22
Warrant reserve 2,336 2,342 2,342
Capital reserve 88,685 47,969 76,048
Revenue reserve 1,505 1,105 1,411
Equity shareholders' funds 138,667 97,543 125,928
Net asset value per share - basic 220.51p 155.14p 200.28p
Net asset value per share - fully diluted 212.44p 150.96p 193.42p
Reconciliation of Movements in Shareholders' Funds
Six months Six months Year
ended ended Ended
31 December 31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Opening equity shareholders' funds 125,928 75,278 75,278
Exercise of warrants 9 16 16
Return on ordinary activities after taxation 13,620 22,972 51,985
Dividends paid (880) (723) (1,351)
Capitalised expenses (10) - -
Closing equity shareholders' funds 138,667 97,543 125,928
Summarised Statement of Cash Flows
Six months ended Six months ended Year
31 December 2007 31 December 2006 ended 30 June
(unaudited) (unaudited) 2007
(audited)
£'000 £'000 £'000
Net cash inflow from operating activities 1,007 448 2,252
Net cash outflow from servicing of finance (1,007) (585) (1,278)
Taxation (paid) / recovered (96) 40 (107)
Net cash outflow from financial investment (1,027) (3,037) (7,022)
Equity dividends paid (880) (723) (1,351)
Net cash outflow before financing (2,003) (3,857) (7,506)
Net cash inflow from financing 2,009 4,500 7,516
Increase in cash 6 643 10
Reconciliation of net cash flow to movement in net debt
Increase in cash 6 643 10
Drawdown of loans (2,000) (4,500) (7,500)
Exchange (losses) / gains (213) 4 (91)
Movement in net debt in the period (2,207) (3,853) (7,581)
Opening net debt at 1 July (24,573) (16,992) (16,992)
Closing net debt at 31 December/ 30 June (26,780) (20,845) (24,573)
Represented by:
Cash at bank 220 1,155 427
Debt falling due within one year (27,000) (22,000) (25,000)
(26,780) (20,845) (24,573)
Reconciliation of operating revenue to net cash flow from
operating activities
Net revenue before interest payable and taxation 14,494 23,602 53,511
Gains on investments (13,746) (22,708) (50,384)
Increase in accrued income (245) (268) (786)
Decrease / (increase) in other debtors 281 (24) (132)
Increase / (decrease) in other creditors 19 (80) 48
Exchange losses / (gains) 213 (4) 91
Overseas witholding tax suffered (9) (70) (96)
Net cash inflow from operating activities 1,007 448 2,252
Notes
1. The unaudited interim results which cover the six months to
31 December 2007 have been prepared in accordance with applicable accounting
standards and adopting the accounting policies set out in the statutory accounts
of the Company for the year ended 30 June 2007.
2. A first interim dividend of 0.55p per share was paid on 23
November 2007. A second interim dividend of 0.55p per share will be paid on 29
February 2007.
3. The breakdown of income for the six months to 31 December
2007, 31 December 2006 and the year to 30 June 2007 was as follows:
31 December 31 December 30 June
2007 2006 2007
£'000 £'000 £'000
Income from investments
UK dividend income 31 55 147
Overseas dividends 280 241 423
Interest on fixed interest securities 1,657 1,316 2,961
1,968 1,612 3,531
Other income
Deposit interest 26 15 35
Other income 4 - 1
Total income 1,998 1,627 3,567
4. The basic revenue return per Ordinary Share is based on a
net revenue on ordinary activities after taxation of £974,000 (31 December 2006
- £855,000 and 30 June 2007 - £1,790,000) and on a weighted average of
62,878,089 (31 December 2006 - 62,857,143 and 30 June 2007 - 62,857,143)
Ordinary Shares in issue throughout the period.
The basic capital return per Ordinary Share is based on a net capital gain of
£12,646,000 (31 December 2006 - £22,117,000 and 30 June 2007 - £50,195,000) and
on a weighted average of 62,878,089 (31 December 2006 - 62,857,143 and 30 June
2007 - 62,857,143) Ordinary Shares in issue throughout the period.
5. The basic net asset value per Ordinary Share is based on net assets
at the end of the period of £138,667,000 (31 December 2006 - £97,543,000, 30
June 2007 - £125,928,000) and on 62,885,643 Ordinary Shares (31 December 2006 -
62,875,643, 30 June 2007 - 62,875,643), being the total number of Ordinary
Shares in issue at the end of the period. The basic net asset value per
Ordinary Share at 31 December 2007 was 220.51p.
The fully diluted net asset value per Ordinary share for 31 December
2007 was 212.44p. As at 31 December 2007 there were 3,971,500 (30 June 2007 -
3,981,500) Warrants in issue. Each Warrant confers the right to subscribe for
one new ordinary share at 85 pence on 31 October (or, if later, the date being
30 days after the date in which copies of the Company accounts are dispatched to
shareholders) in any of the years 2008 to 2009. The warrant price as at 31
December 2007 was 107.5 pence.
6. On 16 November 2007 the Company issued 10,000 ordinary shares of 25
pence, following the exercise of 10,000 warrants.
7. The Company no longer pays VAT on its management fees. It stands to
recover some of the VAT that it has paid and not received on management fees in
the past. The mechanics and timing of the recovery are uncertain, as is the
amount - although it is expected to be less that 0.2 per cent of net assets.
This amount has been treated as a contingent asset and not included within
debtors at 31 December 2007.
8. The financial information for the six months ended 31 December 2007
and 31 December 2006 comprises non-statutory accounts within the meaning of
Section 240 of the Companies Act 1985. The financial information for the year
ended 30 June 2007 has been extracted from published accounts that have been
delivered to the Registrar of Companies and on which the report of the auditors
was unqualified.
Directors' Responsibility Statement in Respect of the Half-yearly Financial
Report
We confirm that to the best of our knowledge:
The condensed set of financial statements has been prepared in accordance with
the Statement 'Half-yearly financial reports' issued by the UK Accounting
Standards Board;
The Interim Management Report includes a fair review of the information required
by:
(a) DTR 4.2.7R of the Disclosure 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 year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position of
performance of the company during that period; and any changes in the related
party transactions described in the last Annual Report that could do so.
By order of the Board
F&C Asset Management plc
Secretaries
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