CQS New City High Yield Fund Limited : Half-yea...

To:         THOMSON REUTERS
Date:      9 March 2016
From:     CQSNew City High Yield Fund Limited
Subject: Interim Report

Unaudited statement of results for the six months ended 31 December 2015

Highlights for the six months to 31 December 2015

• Net asset value total return of -0.1%.
• Ordinary share price total return of -0.3%.
• Dividend yield of 8.0%, based on dividends at an annualised rate of 4.34 pence and a share price of 54.25 pence at 7 March 2016.
• Ordinary share price at a premium of 0.4% to net asset value at 7 March 2016.
• £3.4m of equity raised.

Investment and Share Price Performance
Your Company's net asset value fell by 3.0% to 56.9 pence per share during the six months ended 31 December 2015.  When this capital measure is adjusted for the payment of dividends totalling 1.94 pence per share for the period the net asset value total return was essentially flat at -0.1%.

The share price total return for the same period was substantially the same at -0.3%, the small premium to net asset value at which your Company's shares traded at 30 June 2015 becoming a small discount at 31 December 2015.

Earnings and Dividends
The Company declared two dividends of 0.97 pence in respect of the period, an increase of 0.1% on those declared in respect of the same period last year.  Based on an annualised rate of 4.34 pence and a share price of 54.25 pence at the time of writing, this represents a yield of 8.0%.

Gearing
The Company renewed its existing £30m loan facility with Scotiabank in December 2015 at a current all-in rate of 1.25%.  The new facility is on more favourable terms than the one that it replaced.  £25m was drawn down at 31 December 2015 and the Company had an effective gearing ratio of 10%.

Rating and Fund Raising
The difficult and volatile markets that have characterised recent months have seen the premium at which your Company's shares have been accustomed to trade over recent years eroded, with, indeed, a small discount to net asset value being seen for short periods.

A significant part of the authority granted by shareholders to issue shares in March 2015 remains unused, and in order to provide the Company with flexibility to raise additional capital in due course when more normal market conditions return, the Company has announced a proposal to issue new ordinary shares and repurchase them into treasury.

Board
I am delighted to welcome Wendy Dorman, who joined us on 2 March 2016, to the Board.  Wendy is a Chartered Accountant and has over twenty years' experience within the financial services industry, both in London and in Jersey, and further strengthens the Board's credentials.  Wendy replaced Allister Carey, a founder Director, who retired on 2 March 2016 having served the Company since its inception in 2007. Allister contributed substantially to the successful evolution of the Company throughout his time in office, and I would like to thank him on behalf of shareholders and the Board for all his efforts.

Outlook
It has been a challenging six months, as our portfolio manager Ian Francis reports.  We have, however, benefited from our increased size and our portfolio diversity.  We remain well positioned to take advantage of the opportunities that short term disruption offers those with an eye to the longer term.

James G West
Chairman

8 March 2016.
.

Investment Manager's Review

The tone for the period was set early on in July with the Chinese market falling 14.7% in short order despite various measures employed by the government to turn the tide. One of the most noticeable knock on effects was the weakness in commodity prices globally. In August the Peoples Bank of China cut rates for the fifth time in eight months by 26bp to 4.6% trying to avoid a crash in asset prices. We noted at the time that the success of this action was doubtful. The volatility and weakness continued into September with the contagion putting all Asian markets into a spin and most of them hitting a 3 1/2 year low.

Away from the issues being experienced in China, the USA was faring a lot better with their Q2 GDP figure improving and Q1 being revised upwards. Adding this to the comments coming out of the Federal Reserve Bank that the economy was "expanding moderately" encouraged many commentators to forecast a September rate rise, which subsequently did not happen due to the aforementioned chaos in China and other Asian markets. With core inflation figures increasing in October, the Federal Reserve duly obliged at the December meeting and the markets took this news as a vote of confidence in the state of the US economy, further supported by the US employment data showing a fall in unemployment to 5%, the lowest level in seven and a half years, with the economy growing at a very solid 2.1%.

Over on this side of the Atlantic, Europe started the period with a large sigh of relief with the thirty seconds to midnight deal keeping Greece within the Euro, evidenced by the 4% rally in European equity markets and recovery in peripheral government bond markets. Europe spent most of the period trying to kick-start the inflation engine, with Mario Draghi hinting at the extension of QE in terms of size, composition and duration. By November some evidence of this starting to work albeit in a small way with Composite PMI up 50bp to 54.4 which would imply GDP growth in Q4 of 0.4%, and German GDP coming in at 0.3% being the best level since early summer 2014.

Come the global market fallout in August, the UK was not immune with the FTSE 100 falling by 13.5% at one point before ending down 7.5% on the month. In October the UK had a further wobble with the economy deflating by 0.1% in both CPI and RPI series. We did get some positive news in the month in the form of the fall of the unemployment figure to just 5.4% which was a seven year low, but this was soon forgotten with a lacklustre GDP figure coming in at 0.5% which we noted at the time would probably put us some 12-15 months behind the USA when it came to increasing interest rates. This was further supported by downward revised figures coming out of the Office for National Statistics for both Q2 growth down to 0.5% from 0.7% and annual growth to 2.1% from 2.3% on the back of sluggish performance from the service sector.

Calendar year 2016 looks to be a volatile and stressful year ahead with the continuation of the factors affecting the last six month period at least continuing and more likely increasing. This will provide the Company with investment opportunities.

For the Company's portfolio we continued to take profits on Phoenix 7 1/4%, General Accident 8 7/8% preferred and British Airways 6 3/4% preferred with the proceeds being recycled into Perform Group 8.5% 2020 and Old Mutual 7 .875% 2025. We had five bonds called during the period including Europcar 9.375% 2018,  AA 9.5% 2019 and House of Fraser 8 7/8% 2018; the proceeds were mostly invested into IDH finance 8 1/2% 2019 (Europe's largest Dental chain), Co-op Bank 8 1/2% 2025, Iceland 6 3/4% 2024 and Barclays 7.875% perpetual.

Ian Francis
New City Investment Managers
8 March 2016

Enquiries:

Ian Francis
Investment Manager
New City Investment Managers                           Tel:  [phone]

Martin Cassels
R&H Fund Services Limited                               Tel:  [phone]

Unaudited Income Statement

For the six months ended 31 December 2015

	Six months ended 31 December 2015
	Notes	Revenue	Capital	Total
		£ '000	£'000	£'000
Capital losses on investments
Losses on investments	3	-	(8,711)	(8,711)
Exchange losses		-	(6)	(6)
Revenue
Income	4	9,864	-	9,864
Total income		9,864	(8,717)	1,147
Expenses
Investment management fee	5	(665)	(222)	(887)
Other expenses		(358)	(34)	(392)
Total expenses		(1,023)	(256)	(1,279)
Loss before finance costs and taxation		8,841	(8,973)	(132)
Finance costs
Interest payable and similar charges		(157)	(52)	(209)
Loss before taxation		8,684	(9,025)	(341)
Irrecoverable withholding tax		(185)	-	(185)
Loss after taxation		8,499	(9,025)	(526)
Earnings per ordinary share (pence)	6	2.38	(2.53)	(0.15)

The total column of this statement represents the Company's Income Statement, prepared in accordance with IFRS.  The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

No operations were acquired or discontinued during the period.

Unaudited Income Statement

For the six months ended 31 December 2014

	Six months ended 31 December 2014
	Notes	Revenue	Capital	Total
		£ '000	£'000	£'000
Capital losses on investments
Losses on investments	3	-	(10,420)	(10,420)
Exchange gains		-	177	177
Revenue
Income	4	7,642	-	7,642
Total income		7,642	(10,243)	(2,601)
Expenses
Investment management fee	5	(586)	(195)	(781)
Other expenses		(359)	(86)	(445)
Total expenses		(945)	(281)	(1,226)
Loss before finance costs and taxation		6,697	(10,524)	(3,827)
Finance costs
Interest payable and similar charges		(111)	(37)	(148)
Loss before taxation		6,586	(10,561)	(3,975)
Irrecoverable withholding tax		(119)	-	(119)
Loss after taxation		6,467	(10,561)	(4,094)
Earnings per ordinary share (pence)	6	2.15	(3.52)	(1.37)

The total column of this statement represents the Company's Income Statement, prepared in accordance with IFRS.  The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

No operations were acquired or discontinued during the period.

Audited Income Statement

For the year ended 30 June 2015

	Year ended 30 June 2015
	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Capital losses on investments
Losses on investments	3	-	(12,898)	(12,898)
Exchange gains		-	130	130
Revenue
Income	4	16,602	-	16,602
Total income		16,602	(12,768)	3,834
Expenses
Investment management fee	5	(1,241)	(414)	(1,655)
Other expenses		(749)	(94)	(843)
Total expenses		(1,990)	(508)	(2,498)
Profit before finance costs and taxation		14,612	(13,276)	1,336
Finance costs
Interest receivable		7	-	7
Interest payable and similar charges		(208)	(69)	(277)
Profit before taxation		14,411	(13,345)	1,066
Irrecoverable withholding tax		(264)	-	(264)
Profit after taxation		14,147	(13,345)	802
Earnings per ordinary share (pence)	6	4.51	(4.25)	0.26

The total column of this statement represents the Company's Income Statement, prepared in accordance with IFRS.  The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

No operations were acquired or discontinued during the year.

Balance Sheet

As at 31 December 2015

		As at	As at	As at
		31 December 2015	31 December 2014	30 June 2015
	Notes	(unaudited)	(unaudited)	(audited)
		£'000	£'000	£'000
Non-current assets
Investments held at fair value		218,896	186,341	223,365
Current assets
Other receivables		4,412	3,511	3,543
Cash at bank		4,878	4,763	6,220
		9,290	8,274	9,763
Total assets		228,186	194,615	233,128
Current liabilities
Bank loan facility	7	(25,000)	(15,000)	(23,000)
Other payables		(214)	(198)	(1,452)
Total liabilities		(25,214)	(15,198)	(24,452)
Net assets		202,972	179,417	208,676
Stated capital and reserves
Stated capital account		154,398	120,252	150,963
Special distributable reserve		50,385	50,385	50,385
Capital reserve		(16,800)	(4,991)	(7,775)
Revenue reserve		14,989	13,771	15,103
Equity shareholders' funds		202,972	179,417	208,676
Net asset value per ordinary share (pence)	9	56.86	58.77	58.63

Statement of Changes in Equity

For the six months ended 31 December 2015 (unaudited)

		Stated	Special
		capital	distributable	Capital	Revenue
		account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
At 1 July 2015		150,963	50,385	(7,775)	15,103	208,676
Total comprehensive income for the year:
Profit for the period		-	-	(9,025)	8,499	(526)
Transactions with shareholders recognised directly in equity:
Dividends paid	2	-	-	-	(8,613)	(8,613)
Issue of shares		3,435	-	-	-	3,435
At 31 December 2015		154,398	50,385	(16,800)	14,989	202,972

For the six months ended 31 December 2014 (unaudited)

		Stated	Special
		capital	distributable	Capital	Revenue
		account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
At 1 July 2014		111,638	50,385	5,570	14,268	181,861
Total comprehensive income for the year:
Profit for the period		-	-	(10,561)	6,467	(4,094)
Transactions with shareholders recognised directly in equity:
Dividends paid	2	-	-	-	(6,964)	(6,964)
Issue of shares		8,614	-	-	-	8,614
At 31 December 2014		120,252	50,385	(4,991)	13,771	179,417

For the year ended 30 June 2015 (audited)

			Stated		Special
			capital		distributable		Capital	Revenue
			Account		reserve		reserve	reserve	Total
	Notes		£'000		£'000		£'000	£'000	£'000
At 1 July 2014			111,638		50,385		5,570	14,268	181,861
Total comprehensive income for the year:
Profit for the year				-		-	(13,345)	14,147	802
Transactions with shareholders recognised directly in equity:
Dividends paid		2		-		-	-	(13,312)	(13,312)
Issue of shares				39,325		-	-	-	39,325
At 30 June 2015				150,963		50,385	(7,775)	15,103	208,676

Cash Flow Statement

For the six months ended 31 December 2015

	Six months	Six months
	ended	ended	Year ended
	31 December 2015 (unaudited)	31 December 2014 (unaudited)	30 June 2015 (audited)
	£'000	£'000	£'000
Operating activities
(Loss) / profit before finance costs and taxation	(132)	(3,827)	1,336
Losses on investments	8,711	10,420	12,898
Exchange losses/(gains)	6	(177)	(130)
(Increase)/decrease in other receivables	(869)	109	77
(Decrease) / increase in other payables	(4)	(5)	35
Net cash inflow from operating activities before interest and taxation	7,712	6,520	14,216
Interest received	-	-	7
Interest paid	(209)	(158)	(306)
Irrecoverable withholding tax paid	(185)	(119)	(264)
Net cash inflow from operating activities	7,318	6,243	13,653
Investing activities
Purchases of investments	(35,736)	(31,064)	(88,626)
Sales of investments	30,294	28,329	47,588
Net cash outflow from investing activities	(5,442)	(2,735)	(41,038)
Financing activities
Equity dividends paid	(8,613)	(6,964)	(13,312)
Drawdown/(repayment) of bank loan facility	2,000	(360)	7,640
Issue of ordinary shares	3,435	8,614	39,325
Net cash (outflow)/inflow from financing	(3,178)	1,290	33,653
(Decrease)/increase in cash and cash equivalents	(1,302)	4,798	6,268
Net debt at the start of the period	(16,814)	(15,572)	(15,572)
(Drawdown) / repayment of bank loan facility	(2,000)	360	(7,640)
Exchange (losses) / gains	(6)	177	130
Net debt at the end of the period	(20,122)	(10,237)	(16,814)

Notes to the Accounts

1. Basis of Preparation

The unaudited interim results which cover the six month period to 31 December 2015 have been prepared in accordance with International Accounting Standard ('IAS') 34 - 'Interim Financial Reporting', and the accounting polices as set out in the statutory accounts of the Company for the year ended 30 June 2015.

Going concern
The condensed consolidated financial statements have been prepared on the going concern basis.  In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.  After making enquiries and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

2.     Dividends

Amounts recognised as distributions to equity holders in the period.

	Six months ended 31 December 2015		Six months ended 31 December 2014		Year ended   30 June 2015
		Rate		Rate		Rate
	£'000	(pence)	£'000	(pence)	£'000	(pence)
In respect of the previous period:
Fourth interim dividend	5,161	1.45	4,225	1.45	4,225	1.45
In respect of the period under review:
First interim dividend	3,452	0.97	2,739	0.94	2,739	0.94
Second interim dividend	-	-	-	-	2,931	0.96
Third interim dividend	-	-	-	-	3,417	0.96
	8,613	2.42	6,964	2.39	13,312	4.31

       
        A second interim dividend in respect of the year ended 30 June 2016 of 0.97p per ordinary share was paid on 29 February 2016 to shareholders on the register on 29 January 2016. In accordance with International Financial Reporting Standards ('IFRS') this dividend has not been included as a liability in these accounts.

3.       Investment Losses
Included within losses on investments for the period ended 31 December 2015 are realised gains of £1,051,000 and unrealised losses of £9,726,000.

4.       Income

        The breakdown of income for the period was as follows:

	Six months ended 31 December 2015		Six months ended 31 December 2014		Year ended   30 June 2015
		£'000		£'000		£'000
Income from investments:
Dividend income		800		414		945
Preference share income		1,110		954		1,865
Interest on fixed interest securities		7,954		6,274		13,792
Total income		9,864		7,642		16,602

5. Investment Management Fee

The Company's investment manager is CQS which has delegated this function to NCIM.  The contract between the Company and CQS may be terminated by either party giving not less than 12 months' notice of termination.  CQS receive a basic monthly fee at the rate of 0.8 per cent per annum of the Company's total assets (less current liabilities other than bank borrowings), payable in arrears up to and including £200,000,000 and 0.7 per cent per annum above this.  During the period investment management fees of £886,591 were incurred, of which £151,000 was payable at the period end.

6.       Earnings per Ordinary Share

       The revenue earnings per ordinary share is based on the net profit after taxation of £8,499,000 (31 December 2014: £6,467,000 and 30 June 2015: £14,147,000) and on a weighted average of 356,988,325 (31 December 2014: 300,388,821 and 30 June 2015: 313,955,040) ordinary shares in issue throughout the period.

       The capital return per ordinary share is based on a net capital loss of £9,025,000 (31 December 2014: a net capital loss of £10,561,000 and 30 June 2015: a net capital loss of £13,345,000) and on a weighted average of 356,988,325 (31 December 2014: 300,388,821 and 30 June 2015: 313,955,040) ordinary shares in issue throughout the period.

7.       Bank Loan Facility

	December 2015	December 2014	June 2015
	£'000	£'000	£'000
Bank loan facility	25,000	15,000	23,000

The Company has a short term loan facility with Scotiabank.
As at the period end the unsecured loan facility had a limit of £30 million of which £25 million was drawn down as at 31 December 2015.

8. Stated Capital Account

Authorised
The authorised share capital of the Company is represented by an unlimited number of ordinary shares of no par value.

Allotted, called up and fully-paid	Number of	2015
	Ordinary shares	£'000
Total issued share capital at 1 July 2015	355,903,477	150,963
5,870,940 ordinary shares of no par value issued on 27 November 2015	5,870,940	3,435
Expense of share issues	-	(34)
Total issued share capital at 31 December 2015	361,774,417	154,364

On 27 November 2015 the Company allotted 5,870,940 ordinary shares of no par value, under its placement programme, for cash at 58.50p per share.

9.       Net Asset Value per Ordinary share

       The net asset value per ordinary share is based on net assets at the period end of £202,972,000 (31 December 2014: £179,417,000 and 30 June 2015: £208,676,000) and on 356,988,325 (31 December 2014: 305,299,173 and 30 June 2015: 355,903,477) ordinary shares, being the number of ordinary shares in issue at the period end.

10.    Related Parties

The following are considered related parties: the Board of Directors ("the Board") and CQS/New City Investment Managers ("the Investment Manager").

Mr G Ross who was a director of the Company during the year, is also a director of the Company Secretary and Administrators, R&H Fund Services (Jersey) Limited and also the UK Administrator R&H Fund Services Limited, which receive fees from the Company. 

All transactions with related parties are carried out at an arms length basis.

There are no other transactions with the Board other than aggregated remuneration for services as Directors.  There are no outstanding balances to the Board at the period end.

Details of the fee arrangement with the Investment Manager is disclosed in note 5.
                                                                            

11. Post Balance Sheet Events

Under the current placement programme, on 4 March 2016 the Company issued 36,177,441 shares at 56.60 pence per share, representing 10% of issued share capital. The shares were immediately bought back at the same price to be held in Treasury.

12. Financial Information

These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and have not been audited or reviewed by the Company's auditors.  The information for the year ended 30 June 2015 has been extracted from the latest published financial statements which received an unqualified audit report and have been filed with the Registrar of Companies.  No statutory accounts in respect of any period after 30 June 2015 have been reported on by the Company's auditors or delivered to the Registrar of Companies.

13. The report and accounts for the six months ended 31 December 2015 will be posted to shareholders and made available on the website www.ncim.co.uk.  Copies may also be obtained from the Company's registered office, Ordnance House, 31 Pier Road, St. Helier, Jersey, JE4 8PW, Channel Islands.

Directors' Statement of Principal Risks and Uncertainties

The Company's assets consist principally of listed fixed interest securities and its principal risks are therefore market related.  The Company is also exposed to currency risk in respect of the markets in which it invests. Other key risks faced by the Company relate to investment and strategy, market, financial, earnings and dividend, operational and regulatory matters.  These risks, and the way in which they are managed, are described in more detail under the heading 'Principal risks and risk management' within the Directors' Report and Business Review contained within the Company's annual report and accounts for the year ended 30 June 2015.  The Company's principal risks and uncertainties have not changed materially since the date of the report and are not expected to change materially for the rest of the Company's financial year.

Directors' Responsibility Statement in Respect of the Interim Report

We confirm that to the best of our knowledge:

· the condensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

· the Chairman's Statement includes a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of 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 information required by DTR 4.2.7R; and

· the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or 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.

On behalf of the Board

J G West
Chairman

8 March 2016

---

This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: CQS New City High Yield Fund Limited via Globenewswire

HUG#1992847