Half Yearly Report

RNS Number : 9117B

New City High Yield Fund Limited

28 February 2011

 



To:         RNS

Date:      28 February 2011

From:     New City High Yield Fund Limited

Subject: Half Yearly Report

Unaudited statement of results for the half-year ended 31 December 2010

·      Net asset value total return of 11.9 per cent since 1 July 2010.

·      Ordinary share price total return of 7.6 per cent since 1 July 2010.

·      Dividend yield of 6.4 per cent, based on dividends at an annualised rate of 3.75p and a share price of 58.50p at 31 December 2010.

·      £28.7 million raised through a block listing facility and placing with both existing and new investors.

·      Ordinary share price at a premium of 2.5 per cent to published net asset value at 31 December 2010.

Chairman's Statement

Investment Performance

Your Company enjoyed another period of strong performance, its net asset value rising by 7.8% to 57.10 pence during the 6 months to 31 December 2010.   When this capital measure is adjusted for the payment of dividends totalling 2.05 pence per share for the period, the net asset value total return was 11.9 per cent.  The share price total return was 7.6 per cent. 

At 31 December 2010 the Company's shares were trading at a 2.5 per cent premium to net asset value and they have continued to trade at a premium since the period end.

Dividends

In line with last year, two interim dividends of 0.85 pence each per share have been declared, while last year's fourth interim dividend of 1.20 pence per share was paid in August.  Based on total annual dividends of 3.75 pence and a share price of 58.50 pence at 31 December 2010, this represents a yield of 6.4 per cent.  After providing for the second interim dividend, the Company's revenue reserve stood at 2.06 pence per share as at 31 December 2010.

Fund Raising

The continuing premium rating that the market attaches to the shares of your Company enabled it, for the third year in a row, to complete in September a share issue equivalent to 10 per cent of the Company's share capital.  £8.6 million was raised from new and existing share holders and, such was the demand for shares, that the Board decided to proceed with a placing and public offer for subscription in November. A further £20.1 million was raised, taking the Company's total assets to some £120 million.  As well as a modest increase in net asset value continuing shareholders can expect to benefit from a lower total expense ratio and greater liquidity of Company's shares.  I would like to take this opportunity to welcome our new shareholders.

UK Income Trust of the Year Award

2010 ended on a high note, with public recognition of your Company's excellent performance when it won the prestigious Investment Week UK Income Investment Trust of the Year Award.  The Board would like to congratulate Ian Francis and his team and thank them for the hard work that has under-pinned this.

Background and Outlook

For the markets no sooner does the sovereign debt crisis ease, at least for the moment, with the success of Portuguese and Spanish bond auctions (with the price of gold down); than political problems in the Ivory Coast, Tunisia, and, more significantly, in Egypt and Libya move to centre stage (gold back up and oil up even further).  Markets have not been cowed, but they remain volatile and we remain cautious. 

Looking further ahead it is the threat of inflation that most gives us pause, and the Manager has taken positions such as the London Mining 8 per cent convertible bond and the floating rate notes issued by Detnor and Morpol which will afford us a measure of protection.

The Company has had a period of strong performance, and the portfolio is well positioned to make further progress.

James G West

Chairman

25 February 2011

Investment Manager's Review

The six month period covered by this report showed a good positive performance by both the Company and the High Yield sector.

As an indication of activity in the sector, the performance of the non-investment grade iTraxx generic crossover index was a very positive one, with margins coming in from 573.6 basis points at the beginning of the financial year, to close the half year at 437.2 Basis points, albeit after a volatile ride over the six months.

A lot of the volatility over the period has been caused by the debacle that has been the European peripheral Sovereign debt markets, a production with proven ability to run and run!  Greek, Irish, Portuguese and Spanish debt continues to trade either at or very close to their widest margins for the year.

A far more positive signal can be taken from equity markets over the period with the FT All Share Index up 22%, the Canadian TSX Index up 19% and the Australian All Ordinaries Index up 13%. 

Inflation in the UK has been around the 3.2% - 3.3% for the period using the Government's preferred CPI measure, somewhat below the RPI inflation measure of 4.5% - 5.0% over the same period.  We await the knock-on effect of the VAT increase to 20% with interest, curious as to whether the retailers will swallow all or part of the increase or use it as an excuse to push through a more general price increase.

For the Company it was a busy period, raising £28.7 million of new funds in two tranches which were deployed into the markets, mostly in existing holdings with a few new names added.

The Company sold its holdings in BAA 9.2% 2023, well above par, reinvesting in the shorter dated BAA 7¹/₈% 2017 just below par, picking up yield and preserving capital.  The holdings in Fortescue Metals Finance 9.75% 2013 and the 10⁵/₈% 2016 were called, both well above par, providing an excellent capital gain.  The final major sales were of Scottish Widows 5¹/₈% perpetual where the running yield had fallen below 6% providing a capital gain of 85% on the original purchase price in June 2009, and 1^st Hydro Finance 9% 2021, again well over par, and, again in danger of having a negative pull on the capital account over the remaining life of the bond. 

The purchases made were spread across existing holdings, while in an effort to diversify the portfolio further we started holdings in Dixons Service Group 8³/₄% 2015 below par and in two bonds issued by our preferred Pub operator Enterprise Inns, the 6.5% 2018 and 6⁷/₈% 2021.  In Australia we opened a holding in Healthscope 11.25% Notes 2016, and in Scandinavia we added to the SAS 7.5% Convertible bond of 2015 and started a holding in Bogen Group FRN 2013, which provides ship building and repair services to the offshore oil industry. We find the latter particularly attractive at this time when interest rates are rising in Scandinavia due to their economies being further down the road to recovery than we in the UK are currently. 

We have continued to diversify the Company's portfolio since the end of the reporting period, maintain our focus on secure income and maintenance of capital.

Ian Francis

New City Investment Managers

25 February 2011

Unaudited Condensed Income Statement

For the six months ended 31 December 2010

	Six months ended 31 December 2010
		£ '000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital gains on investments
Gains on investments		-	6,009	6,009
Liquidation distribution	3	-	259	259
Exchange losses		-	(63)	(63)
Revenue
Investment Income	4	4,567	-	4,567
Total income		4,567	6,205	10,772
Expenses
Investment management fee	5	(314)	(105)	(419)
Other expenses		(174)	-	(174)
Total expenses		(488)	(105)	(593)
Profit before finance costs and taxation		4,079	6,100	10,179
Finance costs
Interest payable and similar charges		(65)	(22)	(87)
Profit before taxation		4,014	6,078	10,092
Irrecoverable withholding tax		(34)	-	(34)
Profit after taxation		3,980	6,078	10,058
Earnings per ordinary share (pence)	6	2.35p	3.58p	5.93p

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.

Unaudited Condensed Income Statement

For the six months ended 31 December 2009

	Six months ended 31 December 2009
		£'000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital gains on investments
Gains on investments		-	13,605	13,605
Exchange losses		-	(28)	(28)
Revenue
Investment Income	4	3,633	-	3,633
Total income		3,633	13,577	17,210
Expenses
Investment management fee	5	(247)	(82)	(329)
Other expenses		(164)	-	(164)
Total expenses		(411)	(82)	(493)
Profit before finance costs and taxation		3,222	13,495	16,717
Finance costs
Interest payable and similar charges		(70)	(23)	(93)
Profit before taxation		3,152	13,472	16,624
Irrecoverable withholding tax		(28)	-	(28)
Profit after taxation		3,124	13,472	16,596
Earnings per ordinary share (pence)	6	2.04p	8.79p	10.83p

Audited Condensed Income Statement

For the year ended 30 June 2010

	Year ended 30 June 2010
		£'000	£'000	£'000
	Notes	Revenue	Capital	Total
Capital gains on investments
Gains on investments		-	15,234	15,234
Exchange gains		-	55	55
Revenue
Investment Income	4	7,754	-	7,754
Total income		7,754	15,289	23,043
Expenses
Investment management fee	5	(528)	(176)	(704)
Other expenses		(367)	-	(367)
Total expenses		(895)	(176)	(1,071)
Profit before finance costs and taxation		6,859	15,113	21,972
Finance costs
Interest payable and similar charges		(117)	(39)	(156)
Profit before taxation		6,742	15,074	21,816
Irrecoverable withholding tax		(62)	-	(62)
Profit after taxation		6,680	15,074	21,754
Earnings per ordinary share (pence)	6	4.36p	9.83p	14.19p

Condensed Balance Sheet

		As at	As at	As at
		31 December 2010	31 December 2009	30 June 2010
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Investments held at fair value		116,979	86,251	88,933
Current assets
Other receivables		2,719	2,512	2,581
Cash at bank		53	61	53
		2,772	2,573	2,634
Total assets		119,751	88,824	91,567
Current liabilities
Bank loan		(3,471)	(9,943)	(10,166)
Other payables		(127)	(193)	(161)
Total liabilities		(3,598)	(10,136)	(10,327)
Net assets		116,153	78,688	81,240
Share capital and reserves
Stated capital account		57,583	29,455	29,455
Special distributable reserve		50,385	50,385	50,385
Capital reserve		2,259	(5,421)	(3,819)
Revenue reserve		5,926	4,269	5,219
Equity shareholders' funds		116,153	78,688	81,240
Net asset value per ordinary share (pence)	7	57.10p	51.33p	52.99p

Condensed Statement of Changes in Equity

For the six months ended 31 December 2010 (unaudited)

		Stated	Special
		capital	distributable	Capital	Revenue
		account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
At 1 July 2010		29,455	50,385	(3,819)	5,219	81,240
Profit for the period		-	-	6,078	3,980	10,058
Dividends paid	2	-	-	-	(3,273)	(3,273)
Issue of shares	8	28,128	-	-	-	28,128
At 31 December 2010		57,583	50,385	2,259	5,926	116,153

For the six months ended 31 December 2009 (unaudited)

		Stated	Special
		capital	distributable	Capital	Revenue
		account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
As at 1 July 2009		29,455	50,385	(18,893)	4,134	65,081
Profit for the period		-	-	13,472	3,124	16,596
Dividends paid	2	-	-	-	(2,989)	(2,989)
At 31 December 2009		29,455	50,385	(5,421)	4,269	78,688

For the year ended 30 June 2010 (audited)

		Stated	Special
		capital	distributable	Capital	Revenue
		Account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
As at 1 July 2009		29,455	50,385	(18,893)	4,134	65,081
Profit for the year		-	-	15,074	6,680	21,754
Dividends paid	2	-	-	-	(5,595)	(5,595)
At 30 June 2010		29,455	50,385	(3,819)	5,219	81,240

Condensed Cash Flow Statement

	Six months	Six months
	ended	ended	Year ended
	31 December 2010 (unaudited)	31 December 2009 (unaudited)	30 June 2010 (audited)
	£'000	£'000	£'000
Operating activities
Profit before finance costs and taxation	10,179	16,717	21,972
Gains on investments	(6,009)	(13,605)	(15,234)
Exchange losses/(gains)	63	28	(55)
Increase in other receivables	(223)	(523)	(590)
Increase/(decrease) in other payables	51	(41)	(20)
Net cash inflow from operating activities before interest and taxation	4,061	2,576	6,073
Interest paid	(98)	(133)	(248)
Irrecoverable withholding tax paid	(24)	(27)	(62)
Net cash inflow from operating activities	3,939	2,416	5,763
Investing activities
Purchases of investments	(37,703)	(29,533)	(48,796)
Sales of investments	15,657	18,746	36,955
Net cash outflow from investing activities	(22,046)	(10,787)	(11,841)
Financing activities
Equity dividends paid	(3,273)	(2,989)	(5,595)
(Repayment)/drawdown of bank loan	(6,695)	1,943	2,166
Issue of ordinary shares	28,138	300	299
Net cash inflow/(outflow) from financing	18,170	(746)	(3,130)
Increase/(decrease) in cash and cash equivalents	63	(9,117)	(9,208)
Cash and cash equivalents at the start of the period	(10,113)	1,206	1,206
Repayment/(drawdown)of bank loan facility	6,695	(1,943)	(2,166)
Exchange (losses)/gains	(63)	(28)	55
Cash and cash equivalents at end of period	(3,418)	(9,882)	(10,113)

Notes

1.     The unaudited interim results which cover the six month period to 31 December 2010 have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the International Accounting Standards Board (IASB).  These financial statements have been prepared in accordance with (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 2010.

2.     Dividends

Amounts recognised as distributions to equity holders in the period.

	Six months ended 31 December 2010		Six months ended 31 December 2009		Year ended 30 June 2010
		Rate		Rate		Rate
	£'000	(pence)	£'000	(pence)	£'000	(pence)
In respect of the previous period
Fourth interim dividend	1,840	1.20	1,686	1.10	1,686	1.10
In respect of the period under review:
First interim dividend	1,433	0.85	1,303	0.85	1,303	0.85
Second interim dividend	-	-	-	-	1,303	0.85
Third interim dividend	-	-	-	-	1,303	0.85
	3,273		2,989		5,595

        A second interim dividend in respect of the year ended 30 June 2011 of 0.85p per ordinary share will be paid on 25 February 2011 to shareholders on the register on 28 January 2011. In accordance with IFRS this dividend has not been included as a liability in these accounts.

3.     Liquidation Distribution

        As a result of the European Court of Justice decision that investment management fees payable by investment trusts are not, and should never have been, liable to value added tax ('VAT'), the Company recovered during the six months ended 31 December 2010 VAT of £259,000 in respect of investment management fees paid by its predecessor, New City High Yield Trust plc.  The Company expects to recover another significantly smaller amount but as the exact amount is uncertain, it has not been recognised as an asset in the accounts.

4.     Income

        The breakdown of income was as follows:

                                                                        Six months ended  Six months ended            Year ended

                                                                               31 December         31 December                 30 June

                                                                                           2010                     2009                      2010

                                                                                    £'000                     £'000                     £'000

        Income from investments

        Dividend income                                                              396                       298                       648

        Interest on fixed interest securities                                 4,171                    3,335                     7,106

Total income                                                                4,567                    3,633                     7,754

5.   Investment Management Fee

The Company's investment manager is CQS Cayman Limited Partnership who has delegated this function to its wholly owned subsidiary New City Investment Managers. 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. During the period investment management fees of £419,000 were incurred, of which £81,000 was payable at the period end.

6..   Earnings per ordinary share

       The revenue earnings per ordinary share is based on the profit after taxation of £3,980,000 (31 December 2009: £(3,124,000); 30 June 2010: £(6,680,000) and on a weighted average of 169,648,833 (31 December 2009: 153,303,028; 30 June 2010: 153,303,028) ordinary shares in issue throughout the period.

       The capital profit per ordinary share is based on a net capital profit of £6,078,000; 31 December 2009: £13,472,000; 30 June 2010: £15,074,000 and on a weighted average of 169,648,833 (31 December 2009: 153,303,028; 30 June 2010: 153,303,028) ordinary shares in issue throughout the period.

7.   Net asset value per ordinary share

       The net asset value per ordinary share is based on net assets at the period end of £116,153,000 (31 December 2009: £78,688,000; 30 June 2010: £81,240,000) and on 203,404,249

(31 December 2009: 153,303,028; 30 June 2010: 153,303,028) ordinary shares, being the number of ordinary shares in issue at the period end.

8.   Share Issues

15,330,302 ordinary shares were issued at a price of 56.33p per share pursuant to the Company's block listing facility on 13 September 2010, raising £8.6 million.

34,770,919 ordinary shares were issued at a price of 57.7p per share pursuant to a placing and public offer for subscription on 23 Novemer 2010, raising £20.1 million.  The expenses of this share issue were £0.6 million.

9.   Related Parties

        Mr G Ross is a Director of the Company Secretary and Administrator, R&H Fund Services (Jersey) Limited which receives fees from the Company. During the period fees of £8,000 were incurred (excluding the director's fee to G Ross).

        Mr G Ross is also a Director of the Registrar, Computershare Investor Services (Jersey) Limited which receives fees from the Company. During the period fees and expenses of £5,000 were incurred.

        Canaccord Genuity Limited provides advisory and brokerage services to the Company. 

Mr J West is Chairman of Canaccord Genuity Limited.

10.  Financial information

        The results for the half-years ended 31 December 2010 and 31 December 2009 which have not been audited or reviewed by auditors pursuant to the Audit Practices Board guidance on the review of interim financial information, constitute non-statutory accounts.  The full audited accounts for the period ended 30 June 2010, which were unqualified, have been lodged with the Registrar of Companies.

11.   The report and accounts for the six months ended 31 December 2010 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 strategic, regulatory, operational matters and financial controls.  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 2010.  The Company's principal risks and uncertainties have not changed materially since the date of the report.

Statement of Directors' Responsibilities in Respect of the Financial Statements

The 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 International Accounting Standards and gives a true and fair view of the assets, liabilities, financial position and return of the Company;

·      the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·      the Directors' Statement of Principal Risks and Uncertainties shown above, is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

·      the half-yearly report includes details of related party transactions.

On behalf of the Board

J G West

Chairman

25 February 2011

Enquiries:

Ian Francis, New City Investment Managers:                    020 7201 5366

Graeme Ross, Company Secretary:                                01534 825 200

 

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