Half Year Report & Quarterly Dividend Declaration

RNS Number : 2222A

BMO Capital & Income Inv Tst PLC

28 May 2021

 

Date:  28 May 2021

Contact:  Julian Cane

  BMO Investment Business Limited

  020 7628 8000

LEI:   21380052ETTRKV2A6Y19

BMO Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2021

Highlights for the half-year ended 31 March 2021:

· The dividend⁽¹⁾ for this half-year of 5.25p represents an increase of 1% in comparison to the six-months ended 31 March 2020 and provides Shareholders with an annual yield⁽²⁾ of 3.8%.

· Share price total return⁽³⁾ of 26.0%. The share price ended the period at 307p.

· Net Asset Value total return⁽³⁾  of 25.4%, outperforming the benchmark FTSE All-Share Index which returned 18.5%.  Net Asset Value total return is once again ahead of the benchmark over 1, 5, 10, 20 years and since launch in 1992.

"The Company has continued to deliver unbroken growth in annual dividends, retaining its AIC Dividend Hero status. Many investors have suffered reductions in income as dividends have been cut elsewhere and interest rates are so low, but we have always put great emphasis on increasing our dividend each year."

Jonathan Cartwright

Chairman

SUMMARY OF RESULTS

	Half-year ended 31 March 2021	Half-year ended 31 March 2020
Share price total return(2)	+26.0%	-25.9%
Net Asset Value total return(2)	+25.4%	-27.5%
FTSE All-Share Index total return	+18.5%	-22.0%
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2021	(1) 2.65p	-
30 September 2020	-	2.65p
Second interim dividend in respect of year to 30 September 2021	(1) 2.60p	-
30 September 2020	-	2.55p
Total interim dividends relating to the period	5.25p	5.20p

(1)  The first interim dividend of 2.65 pence per share was paid on 31 March 2021 and the second interim dividend of 2.60 pence per share is payable on 30 June 2021 to Shareholders registered on 11 June 2021, ex-dividend date 10 June 2021.

(2)  Calculated as the total of the four most recent quarterly dividends declared divided by the period end share price.

(3)  Total Return - the return to Shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or Net Asset Value in the period. The dividends are assumed to have been re-invested in the form of shares or net assets, respectively, on the date on which the shares were quoted ex-dividend.

The Chairman, commenting on the results, said:

Dear Shareholder,

Social and economic conditions have remained truly extraordinary since my last report to you with further lockdowns preceding the rapid roll out of the highly effective vaccines. I very much hope that you and your families have stayed well. As a Company, we have continued to operate as close to 'normality' as possible. We are not fully able to insulate Shareholders from the impact on capital values caused by the volatility of the equity markets in which we are invested, but we have been able to maintain our record as an AIC Dividend Hero through once again increasing our dividend. I report in this statement on our progress over the half-year to 31 March 2021.

Total Return and Share Price Performance:

Markets in October started poorly with a rise in the number of infections in the UK leading to a second national lockdown. This led to a decline in investor confidence in the UK stock market and, as a consequence, a fall in indices. News the following month that three vaccines had been found in trials to be very successful in protecting against infection quickly restored investor confidence and swung the market substantially higher. The change in sentiment largely continued throughout the rest of the period, helped by the speed of the subsequent vaccine roll out in the UK and the real world experience of the effectiveness of the vaccines, which appears to be even greater than initially thought from the trials.

Although most countries have not returned fully to activities that would have been considered 'normal' pre-pandemic, stock markets, as usual, have moved in anticipation. Even though most companies continue to report financial results negatively impacted by the pandemic and lockdowns, this has not held back the wider market. In effect, diminished historic earnings are being valued more highly in expectation of a strong recovery.

Our own results over the six months to 31 March 2021 show gains in Net Asset Value (NAV) total return per share of 25.4% and a share price total return of 26.0%. Not only are these very strong returns in a relatively short period of time, but they are also well ahead of our benchmark, the FTSE All-Share Index, which recorded a total return of 18.5%.

The strongest contributor to our returns in the period was Arrow Global, a specialist investor in non-performing debt, whose shares gained 140%, initially on hopes of an improving economic background and latterly on a take-over bid by funds managed by TDR Capital. The housebuilders Vistry (+96%) and Countryside Properties (+51%) were strong contributors as building activity was not badly curtailed by restrictions, and demand for housing remains strong. This was also behind the strength of the brick manufacturers Forterra (+62%) and Ibstock (+41%). The financial companies, OSB Group and Intermediate Capital are our largest individual investments and their share prices gained 53% and 56% respectively. Of course, the strong gains in these share prices (and many others) far outstrip any rational assessment of the gain in value made by the companies over the six months. They are more reflective of how some share prices fell precipitously and more than could logically be explained in the early stages of the pandemic.

As Shareholders may recall, we suffered adverse performance in late February and early March 2020 compared with the UK stock market which itself fell steeply in response to the first wave of the virus. Our subsequent results have recovered the vast majority of that performance relative to the Index, such that our share price and NAV total returns are once again ahead of the Index over 1, 5, 10, 20 years and indeed, since our launch in 1992.

Share Price Premium / Discount:

During the six months under review, the share price on average traded at a discount of 1.6% to the underlying NAV per share. This is in contrast to our experience in recent years when our shares have generally traded at a premium. It is impossible to attribute a precise reason for the change, but it is likely to reflect, amongst other things, less investor appetite for UK equities in general and specifically the UK equity income sector over the period. It should be noted, however, that demand for our shares remains encouraging and, at the end of the period under review, the share price stood at a premium to underlying NAV per share.

Share Issuance and Buy-backs:

As the Board has stated on numerous occasions, we are willing and able to try to ensure that there is no material difference between the share price and the NAV per share. This was exemplified during the six months under review as we issued 479,754 shares to satisfy demand for the shares, mostly from dividend reinvestment, and subsequently as we undertook the Company's first share buybacks in over a decade as the discount started to widen. The total number of shares bought back into Treasury totalled 150,000 and I am pleased to report that post the reporting period end, these shares have subsequently been re-issued. As we have assured investors in the past, the shares were bought at a discount and were re-issued at a premium to their then prevailing NAV. We believe this process is advantageous both to the Company (adding very marginally to NAV per share) and also to Shareholders buying or selling our shares as it reduces the risk of trading when the share price is materially adrift from the underlying NAV per share.

Revenue, Earnings and Dividends:

Many companies' response to the pandemic was to reduce, delay or cancel dividend payments. For some it was a precautionary measure when facing the unknown, for others it was necessary to ensure liquidity and solvency, whilst still others had the decision forced on them by regulators. Our income is primarily the dividends we receive from our investments so the impact of the dividend reductions has been clearly noticeable since the start of the pandemic. In last year's interim report it was noted that dividend reductions were the main factor behind the fall in revenue return per share of 9.5%. It is even more evident in this report as the impact of the pandemic has affected all six months of the period under review rather than just the two months of the comparable reporting period; this has led to a further reduction in revenue return per share of 37.4%.

We paid an unchanged dividend for our first quarter of 2.65p per share and with this set of results, announce a dividend for the second quarter of 2.6p per share. This gives a combined dividend for the first half of 5.25p per share, an increase of 1.0% compared to the same period last year (5.2p per share).

Dividend Cover and Revenue Reserve:

With our income levels lower as a result of the pandemic, our earnings over the period are insufficient to cover fully the cost of the dividend and we have decided to use our Revenue Reserve in order to pay the uncovered balance. After this, the amount in our Revenue Reserve is £8.4m, which compares to the cost of the dividend for the financial year 2020 of £12.0m. The Revenue Reserve was accumulated in previous years when not all our net earnings were paid to Shareholders as dividends. A key purpose of the Revenue Reserve is to be able to support dividend payments when conditions are more challenging, such as now, and therefore the Board is willing to use this Reserve to support the payment of an increased dividend this half-year.

Many investors have suffered reductions in income as dividends have been cut elsewhere and interest rates are so low, but we have always put great emphasis on increasing our dividend each year; we have done this every year since launch in 1992. As a consequence of this, we are proud to be an AIC Dividend Hero and this is a record we will strive to maintain.

Balance Sheet and Gearing:

Throughout the majority of the six months under review, we borrowed £20m under our loan facility. The additional returns gained from investing this in our portfolio helped to contribute to our performance, over and above the gains from the stock selection decisions made by Julian Cane, our fund manager. This loan facility expired at the end of March and after a competitive tendering process, we opted to renew the facility with Scotiabank and enlarge the amount we can potentially borrow from £30m to £40m. Given the increase in assets over the last six months, this will allow us to keep gearing at a similar percentage as before. At the half-year end we were borrowing £25m from the new facility and our gearing level was 6.4% compared to 7.1% as at 30 September 2020.

Ownership of the Manager:

As you may be aware, on 12 April 2021 BMO announced that it had reached an agreement to sell its asset management business in Europe, the Middle East and Africa which will, subject to completion, become part of Columbia Threadneedle Investments, the global asset management business of Ameriprise Financial, Inc. Details have not yet been finalised and published but both companies have confirmed the importance of maintaining the stability and continuity of the teams which presently support your Company.

Your Board welcomes that assurance of stability and continuity and remains focused as always on ensuring the delivery of the highest levels of performance and standards of service for our Shareholders as the new relationship develops. We shall ensure that you are kept informed of developments.

Outlook:

UK stock markets have recovered most of the ground that had been lost as a result of the pandemic, and in some specific areas, such as the FTSE Mid 250 and FTSE Small Cap, share prices are generally back to or above pre-pandemic levels. This strongly suggests that stock market price increases from this point will not be anything like as strong as the recovery-fuelled gains experienced in the immediate past. Furthermore economic and social conditions need to return to those occurring pre-pandemic in order to justify current stock market valuations overall.

Our portfolio is well diversified and we believe the companies within it should be able to generate attractive returns. Although their success is largely expected to be driven by their own efforts, we are conscious the companies do not operate in a vacuum and benefit from a wider, healthy and liquid economy.

Although Government enforced restrictions on activity are still in place, the path to a post-pandemic environment is becoming clearer and this is leading to many companies having sufficient confidence to restart or grow their dividends. We fully expect this to have a positive impact on our income and earnings in the second half of our financial year. We believe there are interesting opportunities to invest in a good number of companies at still attractive valuations.

On behalf of the Board

Jonathan Cartwright

28 May 2021

Forward -looking statements

This interim report may contain forward-looking statements with respect to the financial condition, results of operations and business of the Company. Such statements involve risk and uncertainty because they relate to future events and circumstances that could cause actual results to differ materially from those expressed or implied by forward-looking statements. The forward-looking statements are based on the Directors' current view and on information known to them at the date of this report. Nothing should be construed as a profit forecast.

Directors' Statement of Principal Risks and Uncertainties

Most of the Company's principal risks and uncertainties are market related and no different from those of other investment trusts investing primarily in listed equities. They are described in more detail under the heading "Principal risks and future prospects" within the Strategic Report in the Company's Annual Report for the year ended 30 September 2020.

The principal risks identified in the Annual Report were:

·	Unfavourable markets or asset allocation, sector and stock selection and use of gearing and derivatives are inappropriate giving rise to investment underperformance as well as impacting capacity to pay dividends;
·	Errors, fraud or control failures at service providers, or loss of data through increasing cyber-threats or business continuity failure could damage reputation or investors interests or result in losses; and
·	An inappropriate business or marketing strategy particularly in relation to investor needs or sentiment giving rise to a share price discount to NAV per share.

Since the beginning of 2020 the global economy has suffered considerable disruption due to the effects of the COVID-19 pandemic. The Directors continue to review the key risk register for the Company which identifies the risks that the Company is exposed to, the controls in place and the actions being taken to mitigate them.

The Board considers that since the beginning of the COVID-19 pandemic the threat from the principal risks has increased and have considered this in relation to going concern.

Directors' Statement of Responsibilities in Respect of the Half-Yearly Financial Report

In 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 UK Accounting Standards on a going concern basis and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;
·	the half-yearly report includes a fair review of the development and performance of the Company and 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 a fair review of the related party transactions that have taken place in the first six months of the financial year.

On behalf of the Board

Jonathan Cartwright

Chairman

28 May 2021

Condensed Income Statement

Half-year ended 31 March 2021  (Unaudited)

Half-year ended 31 March 2020 (Unaudited)

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Gains/(losses) on investments	-	64,732	64,732	-	(97,277)	(97,277)
	Foreign exchange (losses)/gains	(2)	20	18	-	-	-
	Income	4,030	-	4,030	5,912	-	5,912
	Management fee	(339)	(339)	(678)	(319)	(319)	(638)
	Other expenses	(258)	-	(258)	(318)	(1)	(319)
	Net return before finance costs and taxation	3,431	64,413	67,844	5,275	(97,597)	(92,322)
	Finance costs	(56)	(56)	(112)	(51)	(51)	(102)
	Net return before taxation	3,375	64,357	67,732	5,224	(97,648)	(92,424)
	Taxation	-	-	-	-	-	-
	Net return attributable to Shareholders	3,375	64,357	67,732	5,224	(97,648)	(92,424)
2	Return per share - basic and diluted (pence)	3.15	60.14	63.29	5.03	(93.99)	(88.96)

The total column of this statement is the profit and loss account of the Company.  The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 

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

  A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

Condensed Statement of Changes in Equity

		Share	Capital				Total
	Share	premium	redemption	Special	Capital	Revenue	Shareholders'
Half-year ended 31 March 2021 (Unaudited)	capital	account	reserve	Reserve	Reserve	reserve	Funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2020	26,677	139,814	4,146	4,434	79,475	11,849	266,395
Movements during the half-year ended 31 March 2021
Dividends paid	-	-	-	-	-	(6,844)	(6,844)
Ordinary shares issued	120	1,250	-	-	-	-	1,370
Ordinary shares bought back and held in treasury	-	-	-	-	(445)	-	(445)
Net return attributable to Shareholders	-	-	-	-	64,357	3,375	67,732
Balance at 31 March 2021	26,797	141,064	4,146	4,434	143,387	8,380	328,208
Half-year ended 31 March 2020 (Unaudited)
Balance at 30 September 2019	25,696	130,197	4,146	4,434	158,561	15,115	338,149
Movements during the half-year ended 31 March 2020
Dividends paid	-	-	-	-	-	(6,600)	(6,600)
Ordinary shares issued	316	3,802	-	-	-	-	4,118
Net return attributable to Shareholders	-	-	-	-	(97,648)	5,224	(92,424)
Balance at 31 March 2020	26,012	133,999	4,146	4,434	60,913	13,739	243,243
Year ended 30 September 2020 (Audited)
Balance at 30 September 2019	25,696	130,197	4,146	4,434	158,561	15,115	338,149
Movements during the year ended 30 September 2020
Dividends paid	-	-	-	-	-	(12,024)	(12,024)
Ordinary shares issued	981	9,617	-	-	-	-	10,598
Net return attributable to Shareholders	-	-	-	-	(79,086)	8,758	(70,328)
Balance at 30 September 2020	26,677	139,814	4,146	4,434	79,475	11,849	266,395

Condensed Balance Sheet

	31 March 2021	31 March 2020	30 September 2020
	(Unaudited)	(Unaudited)	(Audited)
	£'000s	£'000s	£'000s
Fixed assets
Investments	347,692	263,473	284,843
Current assets
Debtors	2,012	2,016	731
Cash and cash equivalents	3,889	-	1,183
Total current assets	5,901	2,016	1,914
Current liabilities
Creditors: amounts falling within one year	(385)	(325)	(362)
Bank Overdraft	-	(1,921)	-
Loan	(25,000)	(20,000)	(20,000)
Total current liabilities	(25,385)	(22,246)	(20,362)
Net current liabilities	(19,484)	(20,230)	(18,448)
Net assets	328,208	243,243	266,395
Capital and reserves
Share capital	26,797	26,012	26,677
Share premium account	141,064	133,999	139,814
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserve	143,387	60,913	79,475
Revenue reserve	8,380	13,739	11,849
Total Shareholders' funds	328,208	243,243	266,395
Net Asset Value per ordinary share - pence	306.62	233.78	249.65

Condensed Statement of Cash Flows

	Half-year ended	Half-year ended
	31 March 2021 (Unaudited)	31 March 2020 (Unaudited)
	£'000s	£'000s
Cash flows from operating activities before dividends received and interest	(1,033)	(1.087)
Dividends received	2,781	5,148
Interest received Interest paid	- (109)	10 (101)
Cash flows from operating activities	1,639	3,970
Investing activities
Purchase of investments	(22,152)	(35,290)
Sale of investments	24,120	17,653
Other capital charges	-	(1)
Cash flows from investing activities	1,968	(17,638)
Cash flows before financing activities	3,607	(13,668)
Financing activities
Equity dividends paid	(6,844)	(6,600)
Net proceeds from issuance of new shares	1,370	4,118
Costs of shares bought back and held in treasury	(445)	-
Drawdown of bank loan	5,000	10,000
Cash flows from financing activities	(919)	7,518
Net movement in cash and cash equivalents	2,688	(6,150)
Cash and cash equivalents at the beginning of the period	1,183	4,229
Effect of movement in foreign exchange	18	-
Cash and cash equivalents at the end of the period	3,889	(1,921)
Represented by:
Cash at bank	9	-
Short term deposits	3,880	-
Bank overdraft	-	(1,921)
	3,889	(1,921)

Notes

1  Basis of preparation

These condensed financial statements, which are unaudited, have been prepared on a going concern basis in accordance with the Companies Act 2006, FRS 102, Interim Financial Reporting (FRS104) and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by the AIC in October 2019.

The accounting policies applied in the condensed set of financial statements are set out in the Company's annual report for the year ended 30 September 2020.

2  Net return per ordinary share

Return per ordinary share attributable to Shareholders reflects the overall performance of the Company in the period.  Net revenue recognised in the first six months is not necessarily indicative of the total likely to be received in the full accounting year.

	Half-year ended 31 March 2021 £'000s	Half-year ended 31 March 2020 £'000s
Revenue return	3,375	5,224
Capital return	64,357	(97,648)
Total return	67,732	(92,424)
	Number	Number
Weighted average ordinary shares in issue	107,026,853	103,899,595
Total return per share - pence	63.29	(88.96)

3  Dividend

The second interim dividend of 2.60 pence per share in respect of the year ending 30 September 2021 will be paid on 30 June 2021 to all Shareholders on the register at close of business on 11 June 2021, with an ex-dividend date of 10 June 2021. The total cost of this dividend, based on 107,289,022 shares in issue, and entitled to the dividend on 11 June 2021 is £2,790,000.

4  Going concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have also considered the Company's objective, strategy and policy, the current cash position of the Company, the availability of the loan facility and compliance with its covenants and the operational resilience of the Company and its service providers.

At present the global economy is suffering considerable disruption due to the effects of the COVID-19 pandemic and the Directors have given careful consideration to the consequences for this Company. The Company has a number of banking covenants and at present the Company's financial position does not suggest that any of these are close to being breached.

The primary risk is that there is a very substantial decrease in the Net Asset Value of the Company in the short to medium term. The Directors have considered the remedial measures that are open to the Company if such a covenant breach appears possible. As at 26 May 2021, the last practicable date before publication of this report, borrowings amounted to £25 million. This is in comparison to a Net Asset Value of £352.1 million. In accordance with its investment policy the Company is mainly invested in readily realisable, FTSE All-Share listed securities. These can be realised, if necessary, to repay the loan facility and fund the cash requirements for future dividend payments

The Company operates within a robust regulatory environment. The Company retains title to all assets held by the Custodian. Cash is held with banks approved and regularly reviewed by the Manager and the Board. The Directors have noted that home working arrangements have been implemented at the Manager and many of the Company's key suppliers without any impact upon service delivery and operations.

Based on this information the Directors believe that the Company has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, these financial statements have been prepared on a going concern basis.

5  Results

The results for the half-year ended 31 March 2021 and 31 March 2020, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 September 2020; the report of the independent auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 September 2020 are an extract from those accounts.

6  Half-yearly report and accounts

The Company's report and accounts are available on the internet at www.bmocapitalandincome.com.

Printed copies may be obtained by contacting the Company Secretary at the Company's Registered Office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

BMO Investment Business Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

28 May 2021

 

END

 

 

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