New City High Yield Fund Ltd : Half-yearly report
To: THOMSON REUTERS
Date: 28 February 2013
From: New City High Yield Fund Limited
Subject: Interim Report
Unaudited statement of results for the six months ended 31 December 2012
Net asset value total return of +12.4 per cent since 1 July 2012.
Ordinary share price total return of +17.2 per cent since 1 July 2012.
Dividend yield of 6.1%, based on dividends at an annualised rate of 4.07 pence and a share price of 66.38 pence at 31 December 2012.
Ordinary share price at a premium of 9.0 per cent to net asset value at 31 December 2012.
Chairman's Statement
Investment and Share Price Performance
Your Company enjoyed a good six months to 31 December 2012, as risk assets, including the high yield bonds that are the Company's core investments, performed strongly. The net asset value total return for the period was 12.4%, while the share price total return was better still at 17.2%.
At 31 December 2012 the Company's shares traded at a 9.0% premium to net asset value and they have continued to trade at a premium since the period end. I return to this subject below.
Dividends
The Company declared two dividends of 0.90 pence per share in respect of the period, an increase of 2.3% on those declared in respect of the same period last year. Based on an annualised rate of 4.07 pence and a share price of 64.63 pence at the time of writing, this represents a yield of 6.3%.
Since your Company relocated to Jersey in March 2007 the level of dividends paid has increased every year.
Rating and Fund Raising
For a number of years your Company's shares have traded at a premium. This is testimony both to the strength of the investment proposition offered, and to the sterling work of the Company's investment manager, Ian Francis, and his team. On behalf of shareholders, I would like to thank him for his efforts.
The continuing premium rating that the market attaches to the shares of your Company enabled it once again to complete a share issue under its block listing; £12.5 million was raised from new and existing shareholders in February 2013. As well as a modest increase in net asset value, continuing shareholders can expect to benefit from lower total expense ratios and greater liquidity in the Company's shares.
Outlook
January was very positive, with the FTSE All Share Index up by 6.3%. Your Company too posted a strong start to the year, delivering a net asset value total return of 4.1% during January, and, as this strength continued into February, its net asset value registered an all-time high of 64.3 pence. This is a very solid capital performance to set alongside a record of dividend growth.
There are a number of factors to suggest that this strong start may be sustained rather than fade away as it has done in each of the last four years. While the Eurozone has avoided meltdown and emerging markets post respectable growth rates, fears of deflation continue to preoccupy the minds of developed markets, especially in the United States where the mark made by the Great Depression has still to fade. There is no sign of the stimulus of Quantitative Easing being withdrawn, indeed it has spread to Japan, and against this backdrop a measure of optimism for the balance of 2013 seems justified.
James G West
Chairman
27 February 2013
Investment Manager's Review
The first three months of the new financial year continued to be dominated by the European sovereign debt crisis, with Spain in the crosshairs, and the smaller banks and the regional governments needing emergency funding to avoid becoming bankrupt. This culminated in one of the most aggressive statements from the European Central Bank (ECB) President, Mario Draghi, saying "within our mandate, the ECB is willing to do whatever it takes to preserve the Euro, and, believe me it will be enough .. " plus "To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmissions channel, they come within our mandate ..". At the time it was expected in Europe that Spain would apply for a bail out in double quick time, which would allow a period of calm to reign in Europe.
The politicians, however, managed to look hard for a banana skin; the Spanish Deputy Prime Minister duly found it, asking in a public forum "how much the ECB intended to spend on the purchase of Spanish bonds if a bail out was requested?" One may ask which part of the "unlimited", stated by Mario Draghi, did he not understand? Any figure given to markets proves a target for speculators to aim at and further destabilise the system. Add to this the dangerous game of chicken being employed by the Spanish Prime Minister by not requesting a bail out in the hope that the market continues to fund them.
The other major feature of the first quarter was the third tranche of Quantitative Easing (QE3) which had a large positive effect initially on commodity prices (gold in particular) and has had a longer term effect on equity and high yield markets.
The second quarter was all about the USA; firstly the close run Presidential election returning Barack Obama for a second term obtaining 51% of the vote, 3.8% ahead of his opponent, Mitt Romney. Once this was out of the way in early November it was all eyes on the "Fiscal Cliff" and the ability of the political lemmings to avoid the urge to jump over it! We had to put up with a lot of brinkmanship before an agreement was made early on 1st January. We await with interest the approaching Debt ceiling and the innovative ways that the US uses to either sidestep or re-set the level.
Further on the effect of QE3, the longer term positive effect has been substantial upside in high yield markets and financials in particular, with the iTraxx Europe crossover index tightening from 660.9bp at the end of June 2012 to 482.05bp at the end of December.
The Company announced and paid its fourth interim dividend for last year at 1.37p, up from 1.32p the year previous, to make a total of 4.01p for the financial year versus 3.87p in the previous year - an increase of 3.62%. The Company also announced and paid its first interim dividend of the new financial year at 0.9p up from 0.88p in the previous year - an increase of 2.27%.
Regarding the portfolio, earlier in the period we added Moto Finance 10.25% 2017, and increased holdings in Southern Water 8.50% 2019, House of Fraser 8.875% 2018, Cable and Wireless 8.625% 2019 replacing Phones 4U 9.50% 2018, Tullett Prebon 7.04% 2016 and the Cable and Wireless 5.75% Convertible which was called in early July. In the latter half of the period we participated in new issues by Arcelor Mittal 8.75% Perpetual, Louis Dreyfus 8.50% Perpetual, Tizir 9% 2017 and two convertible bonds, Lake Shore Gold Corporation 6.25% CB 2017 and Gran Columbia Gold 10% CB 2017.
The company continued to look for opportunities to take profits in bonds which had served their purpose in our opinion, examples of which would be AlliancePharma 8% Convertible 2013 and British Airways 8.75% 2016, and where possible reinvest in similar opportunities below par, in the case of British Airways their 6.75% Euro Preference Share.
We continue to believe that the Global High Yield market offers opportunities in relation to the investment grade sector.
Enquiries:
Ian Francis
Investment Manager
New City Investment Managers Tel: 0207 201 6900
Martin Cassels
R&H Fund Services Limited Tel: 0131 625 2951
Beth Harris
Newgate Threadneedle Tel: 0207 653 9853
Unaudited Condensed Income Statement
For the six months ended 31 December 2012
| Six months ended 31 December 2012 | ||||
| £ '000 | £'000 | £'000 | ||
| Notes | Revenue | Capital | Total | |
| Capital gains on investments | ||||
| Gains on investments | 3 | - | 9,903 | 9,903 |
| Exchange losses | - | (18) | (18) | |
| Revenue | ||||
| Income | 4 | 6,052 | - | 6,052 |
| Total income | 6,052 | 9,885 | 15,937 | |
| Expenses | ||||
| Investment management fee | 5 | (409) | (136) | (545) |
| Other expenses | (235) | - | (235) | |
| Total expenses | (644) | (136) | (780) | |
| Profit before finance costs and taxation | 5,408 | 9,749 | 15,157 | |
| Finance costs | ||||
| Interest payable and similar charges | (89) | (30) | (119) | |
| Profit before taxation | 5,319 | 9,719 | 15,038 | |
| Irrecoverable withholding tax | (85) | - | (85) | |
| Profit after taxation | 5,234 | 9,719 | 14,953 | |
| Earnings per ordinary share (pence) | 6 | 2.38p | 4.41p | 6.79p |
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 Condensed Income Statement
For the six months ended 31 December 2011
| Six months ended 31 December 2011 | ||||
| £ '000 | £'000 | £'000 | ||
| Notes | Revenue | Capital | Total | |
| Capital losses on investments | ||||
| Losses on investments | - | (12,336) | (12,336) | |
| Exchange gains | - | 13 | 13 | |
| Revenue | ||||
| Income | 5 | 5,914 | - | 5,914 |
| Total income | 5,914 | (12,323) | (6,409) | |
| Expenses | ||||
| Investment management fee | 5 | (375) | (125) | (500) |
| Other expenses | (243) | - | (243) | |
| Total expenses | (618) | (125) | (743) | |
| Profit/(loss) before finance costs and taxation | 5,296 | (12,448) | (7,152) | |
| Finance costs | ||||
| Interest payable and similar charges | (86) | (28) | (114) | |
| Profit/(loss) before taxation | 5,210 | (12,476) | (7,266) | |
| Irrecoverable withholding tax | (36) | - | (36) | |
| Profit/(loss) after taxation | 5,174 | (12,476) | (7,302) | |
| Earnings per ordinary share (pence) | 6 | 2.49p | (6.01)p | (3.52)p |
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 Condensed Income Statement
For the year ended 30 June 2012
| Year ended 30 June 2012 | ||||
| £'000 | £'000 | £'000 | ||
| Notes | Revenue | Capital | Total | |
| Capital losses on investments | ||||
| Losses on investments | - | (7,350) | (7,350) | |
| Exchange losses | - | (21) | (21) | |
| Revenue | ||||
| Income | 4 | 11,916 | - | 11,916 |
| Total income | 11,916 | (7,371) | 4,545 | |
| Expenses | ||||
| Investment management fee | 5 | (776) | (259) | (1,035) |
| Other expenses | (464) | - | (464) | |
| Total expenses | (1,240) | (259) | (1,499) | |
| Profit/(loss) before finance costs and taxation | 10,676 | (7,630) | (3,046) | |
| Finance costs | ||||
| Interest payable and similar charges | (157) | (52) | (209) | |
| Profit/(loss) before taxation | 10,519 | (7,682) | 2,837 | |
| Irrecoverable withholding tax | (63) | - | (63) | |
| Profit/(loss) after taxation | 10,456 | (7,682) | 2,774 | |
| Earnings per ordinary share (pence) | 6 | 4.89p | (3.59)p | 1.30p |
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.
Condensed Balance Sheet
As at 31 December 2012
| As at | As at | As at | ||
| 31 December 2012 | 31 December 2011 | 30 June 2012 | ||
| (unaudited) | (unaudited) | (audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Non-current assets | ||||
| Investments held at fair value | 142,414 | 119,947 | 127,544 | |
| Current assets | ||||
| Other receivables | 3,181 | 3,448 | 4,739 | |
| Cash at bank | - | - | 55 | |
| 3,181 | 3,448 | 4,794 | ||
| Total assets | 145,595 | 123,395 | 132,338 | |
| Current liabilities | ||||
| Bank loan facility | (11,331) | (5,314) | (7,463) | |
| Other payables | (162) | (132) | (726) | |
| Total liabilities | (11,493) | (5,446) | (8,189) | |
| Net assets | 134,102 | 117,949 | 124,149 | |
| Share capital and reserves | ||||
| Stated capital account | 66,680 | 66,680 | 66,680 | |
| Special distributable reserve | 50,385 | 50,385 | 50,385 | |
| Capital reserve | 7,506 | (7,007) | (2,213) | |
| Revenue reserve | 9,531 | 7,891 | 9,297 | |
| Equity shareholders' funds | 134,102 | 117,949 | 124,149 | |
| Net asset value per ordinary share (pence) | 7 | 60.88p | 53.55p | 56.36p |
Condensed Statement of Changes in Equity
For the six months ended 31 December 2012 (unaudited)
| Stated | Special | |||||
| capital | distributable | Capital | Revenue | |||
| account | reserve | reserve | reserve | Total | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 July 2012 | 66,680 | 50,385 | (2,213) | 9,297 | 124,149 | |
| Profit for the period | - | - | 9,719 | 5,234 | 14,953 | |
| Dividends paid | 2 | - | - | - | (5,000) | (5,000) |
| At 31 December 2012 | 66,680 | 50,385 | 7,506 | 9,531 | 134,102 | |
For the six months ended 31 December 2011 (unaudited)
| Stated | Special | |||||
| capital | distributable | Capital | Revenue | |||
| account | reserve | reserve | reserve | Total | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 July 2011 | 57,567 | 50,385 | 5,469 | 7,192 | 120,613 | |
| (Loss) / profit for the period | - | - | (12,476) | 5,174 | (7,302) | |
| Dividends paid | 2 | - | - | - | (4,475) | (4,475) |
| Issue of shares | 9,113 | - | - | - | 9,113 | |
| At 31 December 2011 | 66,680 | 50,385 | (7,007) | 7,891 | 117,949 | |
For the year ended 30 June 2012 (audited)
| Stated | Special | |||||||
| capital | distributable | Capital | Revenue | |||||
| Account | reserve | reserve | reserve | Total | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| As at 1 July 2011 | 57,567 | 50,385 | 5,469 | 7,192 | 120,613 | |||
| (Loss) / profit for the year | - | - | (7,682) | 10,456 | 2,774 | |||
| Dividends paid | 2 | - | - | - | (8,351) | (8,351) | ||
| Issue of shares | 9,113 | - | - | - | 9,113 | |||
| At 30 June 2012 | 66,680 | 50,385 | (2,213) | 9,297 | 124,149 | |||
Condensed Cash Flow Statement
For the six months ended 31 December 2012
| Six months | Six months | ||
| ended | ended | Year ended | |
| 31 December 2012 (unaudited) | 31 December 2011 (unaudited) | 30 June 2012 (audited) | |
| £'000 | £'000 | £'000 | |
| Operating activities | |||
| Profit/(loss) before finance costs and taxation | 15,157 | (7,152) | 3,046 |
| (Gains)/losses on investments | (9,903) | 12,336 | 7,350 |
| Exchange losses/(gains) | 18 | (13) | 21 |
| Decrease/(increase) in other receivables | 593 | (127) | (454) |
| (Decrease) / increase in other payables | (5) | (10) | 3 |
| Net cash inflow from operating activities before interest and taxation | 5,860 | 5,034 | 9,966 |
| Interest paid | (109) | (144) | (226) |
| Irrecoverable withholding tax paid | (85) | (36) | (63) |
| Net cash inflow from operating activities | 5,666 | 4,854 | 9,677 |
| Investing activities | |||
| Purchases of investments | (35,603) | (17,489) | (45,347) |
| Sales of investments | 31,032 | 15,582 | 40,433 |
| Net cash outflow from investing activities | (4,571) | (1,907) | (4,914) |
| Financing activities | |||
| Equity dividends paid | (5,000) | (4,475) | (8,351) |
| Drawdown/(repayment) of bank loan facility | 3,164 | (7,613) | (5,464) |
| Issue of ordinary shares | - | 9,113 | 9,113 |
| Net cash outflow from financing | (1,836) | (2,975) | (4,702) |
| (Decrease) / increase in cash and cash equivalents | (741) | (28) | 61 |
| Net debt at the start of the period | (7,408) | (12,912) | (12,912) |
| (Drawdown)/repayment of bank loan facility | (3,164) | 7,613 | 5,464 |
| Exchange (losses)/gains | (18) | 13 | (21) |
| Net debt at the end of the period | (11,331) | (5,314) | (7,408) |
Notes to the Accounts
The unaudited interim results which cover the six month period to 31 December 2012 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 2012.
2. Dividends
Amounts recognised as distributions to equity holders in the period.
| Six months ended 31 December 2012 | Six months ended 31 December 2011 | Year ended 30 June 2012 | ||||
| Rate | Rate | Rate | ||||
| £'000 | (pence) | £'000 | (pence) | £'000 | (pence) | |
| In respect of the previous period | ||||||
| Fourth interim dividend | 3,018 | 1.37 | 2,685 | 1.32 | 2,685 | 1.32 |
| In respect of the period under review: | ||||||
| First interim dividend | 1,982 | 0.90 | 1,790 | 0.88 | 1,790 | 0.88 |
| Second interim dividend | - | - | - | - | 1,938 | 0.88 |
| Third interim dividend | - | - | - | - | 1,938 | 0.88 |
| 5,000 | 4,475 | 8,351 | ||||
A second interim dividend in respect of the year ended 30 June 2013 of 0.90p per ordinary share was paid on 22 February 2013 to shareholders on the register on 1 February 2013. In accordance with International Financial Reporting Standards ('IFRS') this dividend has not been included as a liability in these accounts.
Included within gains on investments for the period ended 31 December 2012 are realised gains of £2,838,000 and unrealised gains of £7,065,000.
Income
The breakdown of income for the period was as follows:
Six months ended Six months ended Year ended
31 December 31 December 30 June
2012 2011 2012
£'000 £'000 £'000
Income from investments:
Dividend income 514 627 1,220
Interest on fixed interest securities 5,537 5,287 10,696
Other income:
Deposit interest 1 - -
Total income 6,052 5,914 11,916
Investment Management Fee
The Company's investment manager is CQS Cayman Limited Partnership ('CQS') which 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 £545,000 were incurred, of which £82,000 was payable at the period end.
Earnings per ordinary share
The revenue earnings per ordinary share is based on the profit after taxation of £5,234,000 (31 December 2011: £5,174,000 and 30 June 2012: £10,456,000) and on a weighted average of 220,267,581 (31 December 2011: 207,620,082 and 30 June 2012: 213,909,275) ordinary shares in issue throughout the period.
The capital profit per ordinary share is based on a net capital gain of £9,719,000 (31 December 2011: a net capital loss of £12,476,000 and 30 June 2012: a net capital loss of 7,682,000) and on a weighted average of 220,267,581 (31 December 2011: 207,620,082 and 30 June 2012: 213,909,275) ordinary shares in issue throughout the period.
Net asset value per ordinary share
The net asset value per ordinary share is based on net assets at the period end of £134,102,000 (31 December 2011: £117,949,000 and 30 June 2012: £124,149,000) and on 220,267,581 (31 December 2011: 220,267,581 and 30 June 2012: 220,267,581) ordinary shares, being the number of ordinary shares in issue at the period end.
Related Parties
Mr G Ross is a Director of the Company Secretary and Administrators, R&H Fund Services (Jersey) Limited and R&H Fund Services Limited, which both receive fees from the Company. During the period fees of £66,000 were incurred (excluding the director's fee to Mr G Ross).
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 2012 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 the period after 30 June 2012 have been reported on by the Company's auditors or delivered to the Registrar of Companies.
The report and accounts for the six months ended 31 December 2012 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, 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 2012. 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
The Directors are responsible for preparing 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' and give a true and fair view of the assets, liabilities, financial position and return of the Company;
· 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
27 February 2013
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: New City High Yield Fund Ltd via Thomson Reuters ONE
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