Annual Financial Report

RNS Number : 3147N

BMO UK High Income Trust PLC

31 May 2022

 

To:  RNS

From:  BMO UK High Income Trust PLC

Date:  31 May 2022

LEI:   213800B7D5D7RVZZPV45

Statement of Audited Results for the year ended 31 March 2022

Financial Highlights

· Distribution yield⁽¹⁾ of 6.3% on Ordinary shares at 31 March 2022, compared to the yield on the FTSE All-Share Index of 3.1%. Total distributions increased by 2.8% to 5.45p per share compared to the prior year.

· Distribution yield⁽¹⁾ of 6.2% on B shares at 31 March 2022, compared to the yield on the FTSE All-Share Index of 3.1%. Total distributions increased by 2.8% to 5.45p per share compared to the prior year.

· Net asset value total return⁽¹⁾ per share for the financial year was +1.9%, compared to the Benchmark⁽²⁾ total return of +13.0%.

· Ordinary share price total return⁽¹⁾ per share for the financial year was +0.6%, compared to the Benchmark⁽²⁾ total return of +13.0%.

· B share price total return⁽¹⁾  per share for the financial year was +1.6% compared to the Benchmark⁽²⁾ total return of +13.0%.

(1)  Yield and total return - See Alternative Performance Measures

(2)  Benchmark - From launch on 1 March 2007, the Company's benchmark index was the FTSE All-Share Capped 5% Index.  Following shareholder approval at the Company's AGM on 5 July 2018, the benchmark was changed to the FTSE All-Share Index.

 

Chairman's Statement

· "Ninth consecutive year of dividend/capital repayment increases and at 31 March 2022 the Ordinary shares and B shares had yields of 6.3% and 6.2% respectively".

Performance

In the year to 31 March 2022 your Company produced a Net Asset Value ('NAV') total return of +1.9%. This outcome was some way behind the +13.0%totalreturnfromtheFTSEAll-ShareIndex,thebenchmarkindex.

For the Ordinary shares, the share price total return for the year was +0.6%, less than the NAV total return as the share price discount to NAV widened from 7.8% at the start of the year to 9.3% at the end. For the B shares, the equivalent return was +1.6% as the discount change was from 7.8% to 8.3%.

The underperformance occurred in the second half of the financial year - a period that saw strong performances from a number of large sectors in which your Company was either underweight or had no exposure to at all. Until then, performance was comparable to the benchmark index. 

In particular, following the invasion of Ukraine by Russian forces in February2022,theOil&GasandMiningsectorsreactedverypositively to rising Oil & Gas prices and a surge in other commodity prices. TheinvestmentportfoliohasnoexposuretothelargeintegratedOil companies and is underweight in the Mining sectors. This decision isentirelydrivenbytheFundManager'sviewonquality,returnsand sustainablecompetitiveadvantagewhicharenotmetbythesesectors.

We are in a most uncertain period with elevated levels of geopolitical risk coinciding with high and rising levels of inflation across the G8 economies. The resurgence of inflation is being met by central banks raising short term interest rates and contemplating tightening their balancesheets.Bothoftheseactionsaredesignedtoattempttoslow the surge in inflation but are being introduced at a time of significant uncertainty on a global basis.

Your Board has mentioned on a number of occasions that the structure of the investment portfolio, with approximately 35 holdings, is sufficiently differentiated from the benchmark that short term performance is unlikely to be in line with the index - on both a positive andnegativebasis.Thishasbeendemonstratedoverthepasttwoyears with periods of significant out and under performance being produced.

The Fund Manager has more detailed comments on performance and portfolioconstructioninhisreportand performance is a matter I will return to later in this Statement.

Dividends and Capital Repayments

I am pleased to report that the revenue performance of your Company was robust in the year and following a sharp reduction in revenue in the year to 31 March 2021 there was a susbstantial recovery in the year to 31 March 2022.  In fact the revenue earned increased in the year by 32% compared with 2021.  It is fair to say that the scale of the recovery exceeded the best expectations held during the depths of lockdown in 2020.

Your Board was happy to use some of the revenue reserve to not only maintainbutincreasethedividendtoOrdinaryshareholdersintheyear to 31 March 2021 and has done so again in the year to 31 March 2022. Totaldistributionstoshareholdersincreasedby2.8%to5.45ppershare comparedtotheprioryear.Inordertopaythistotaldividend,£464,000 was drawn from the revenue reserve compared with £1,512,000 in 2021. After payment of the fourth interim dividend on 6 May 2022, the revenue reserve is £2.9m, representing 3.41p per Ordinary share.

Your Company has now increased its distribution to shareholders in eachfinancialyearsince2014.Thetotaldividend/capitalrepaymentfor the year to 31 March 2022 represented a yield of 6.3% and 6.2% based on the Ordinary share price and B share price, which were 87p and 88p respectively at 31 March 2022.

Discount to NAV

At the financial year end, the Company's Ordinary share price and B share price stood at a discount to net asset value of 9.3% and 8.3% respectively. The average discount level at which the Company's Ordinary shares and B shares traded relative to net asset value in theyearwas6.9%and5.2%respectively.

The Manager and Company Name

As reported in our Interim Report, on 8 November 2021, Columbia Threadneedle Investments, part of Ameriprise Financial acquired BMO's EMEA asset management business. This included your Company's Manager,BMOInvestmentBusinessLimited.Aspartoftheacquisition agreement, permission was granted to use the BMO prefix for an interim period. The Manager is now bringing its business under the Columbia Threadneedle brand and will remove the BMO name in July. Consequently, a change of name for your Company is necessary and the Board has agreed that the simplest and clearest change for shareholders is to CT UK High Income Trust PLC. CT is the mnemonic of Columbia Threadneedle. A number of other Investment trusts previously branded BMO and also funds managed by and branded as Columbia Threadneedle will also be adopting the CT prefix. The CT brand will receive considerable marketing support from the Manager and the Savings plans will also change name from BMO to CT. Consequently, it wouldappearthattheproposedchangeofnameislogicalandsensible. Itisplannedthatthesechanges(whichwillincludetherenamingofthe Company's website and the ticker codes for its shares on the London Stock Exchange) will take effect towards the start of July and a further communication to shareholders will be made in due course. There is however no change to the personnel running the activities of your Company in terms of both fund management and administration.

Management Fees

As set out in the Report of the Directors, the Engagement and Remuneration CommitteeregularlyreviewstheManager'sappointmentandtheterms of its contract. The investment management fee for your Company has been 0.65% per annum of its net asset value since 1 April 2018. The InvestmentTrustindustryhasseenconsistentreductionsinfeelevelsfor sometimeandyourBoardandManagerarecommittedtoensuringthat the fee basis for your Company is fair and competitive. Reflecting this, it has been agreed that with effect from 1 April 2022 the investment managementfeefortheCompanywillbereducedto0.6%perannum of the net asset value.

Responsible Investment

Environmental, Social and Governance ('ESG') engagement is an activity in which your Manager has a long and respected record of achievement and these considerations lie at the core of your Manager's investment process. Our approach to Responsible Investment is set out in the Annual Report andillustratestheengagementtheManagerhashadwith investments within our portfolio.

Annual General Meeting (AGM)

There are a number of matters that are relevant to discuss concerning the AGM which it is to be held at 12 noon on 20 July 2022 at Exchange House, Primrose Street, London EC2A 2NY.

First, it is the current intention to hold a "traditional" meeting to which allshareholdersareinvitedandaremostwelcometoattendinperson. After two years of COVID related restrictions your Board is delighted to beabletoreturntonormalandlooksforwardtomeetingshareholders in person on 20 July 2022.

Second, two of the resolutions being put to the AGM in particular, deserve further comment.

Continuation Vote

The Articles of Association of your Company require that a continuation vote be held should the net asset value total return of the Ordinary shares be less than that of the total return of the FTSE All-Share Index over a stipulated five-year period.

The most recent five-year period ended on 31 March 2022 and the relevant returns were +11.2% for the NAV total return and +25.8% fortheFTSEAll-ShareIndex.Consequently,Resolution12intheNoticeofAGMisanordinary resolution for shareholders to approve that the Company continues in existence.

Your Board closely reviews performance over a number of periods, including that for the last five years and to monitor the requirement for a Continuation Vote ('CV'). The performance deficit for the current period is substantial and in order to recommend voting in favour of the resolution the Board has to be confident that an improvement in relative performance is both likely and probable.

In reaching its decision to recommend continuation, the Board considered the following factors.

The five-year performance period since 31 March 2017 included a period in which substantial changes were made to the investment portfolio. Shareholders will recall that the remainder of the Corporate Bond portfolio was sold and there was significant change made to the structure of the equity portfolio. Consequently the "new" structure has not been running for the full five-year period.

Performance has not been consistently below the benchmark for the period and as mentioned earlier there have been periods of significant outperformance, most notably in the 2021 financial year. With only seven months until the end of the performance period remaining, the aggregate returns were comparable to the benchmark for the relevant timeframe. Unfortunately, relative performance in the later part of the financial year to 31 March 2022 has proved to be very disappointing for your Company.

The Board is supportive of the Investment Manager and its ability to successfully deliver the investment strategy for Shareholders in the future. The Board believes that the recent acquisition of the Investment Manager by Columbia Threadneedle Investments will also further broaden the resources available to the Fund Manager particularly in terms of research and corporate access.

As from 1 April 2022, a new and reduced fee rate for your Company has been introduced and the Board is pleased to note the Manager's commitment to ensuring the Company remains competitive in terms of fees and total expense ratios.

Finally, the Board is much encouraged by the revenue performance of the Company. In particular, the underweight/nil positions in Banks and Integrated Oils (which recently has harmed relative capital returns) meant that the Company had no exposure to sectors of the Index that either substantially reduced or passed their dividends altogether in 2020/21. The buoyancy in the revenue account that has allowed the Board to continue to increase distributions to Shareholders against such a difficult background is down to the Manager's portfolio positioning.

Despite the above, in reaching its decision to recommend continuation of the Company and having engaged with Shareholders, the Board did consider that it would be appropriate to make some changes to the Company's structure. Resolution 13 (which is a special resolution) proposes that new Articles of Association be approved and adopted in order that the performance measurement period for the Company be changed from five years to three years. If approved this will mean that the current performance period that commenced on 1 April 2022 will end on 31 March 2025. A CV will be required to be held at the 2025 AGM if the net asset value total return for the Company for the three-year period is below that of the FTSE All-Share Index. The Board does not expect any change to the fund management process to be made despite the shorter performance period.

Your Board has taken independent advice on the Continuation Vote and proposed changes and would encourage Shareholders to vote in favour of Resolution 12, that the Company continues in existence andResolution13,thatnewArticlesofAssociationbeapprovedand adopted, as the Directors intend to do with their shareholdings.

Board Succession

In line with the long-term succession planning for your Board and also to maintain the highest standards of corporate governance, I shall be retiring from the Board at the conclusion of the AGM on 20 July 2022. I was appointed to the Board in May 2013 and have completed nine years of service. I am delighted that Andrew Watkins, who has been a Director of your Company since 2017 will be taking over the Chair. Andrew is an experienced Chairman and has a deep knowledge of Investment Trusts and is well qualified to Chair the Company.

Stephen Mitchell, a Director since 2020 will assume the role of Senior Independent Director. A recruitment process has commenced to add an additional non-executive Director to the Board and subject to shareholders voting that the Company should continue in existence.

Outlook

Financial markets are facing the most difficult combination of circumstances since the Global Financial crisis in 2008. The Russian invasion of Ukraine and attached rhetoric has raised geopolitical risk to levels not seen since the 1960's. Inflation likewise is at recent high levels as the supply shortages and bottlenecks caused by recovery from COVID related lockdowns has been further fuelled by sharp rises in commodity prices and the potential for shortages in certain key commodities.

Some comfort can be taken from the robust income performance that the investment portfolio is showing. Many of the companies in the investment portfolio are producing a strong profits performance as the businesses are managed to best advantage in the face of rising costs. Companies with good balance sheets and strong cash flows will be best placed to deal with rising costs and interest rates. The investment portfolio is well exposed to such investments and consequently your Board considers the Company to be relatively well placed in an uncertain world.

John M Evans

Chairman

30 May 2022

Manager's Review

In the Annual Report last year, I wrote that it was one of the toughest years in my near two decades in the industry. 2022 didn't have nearly the same level of volatility, and with COVID headwinds abating, I was optimistic about the year ahead. While I am still optimistic given valuations and the quality of the investment portfolio, we face a new set of challenges with the war in Ukraine, the rising cost of living and a slowdown in growth.

For the financial year to 31 March 2022, the net asset value ('NAV') total return of the Company's shares was 1.9% as compared to the 13.0% total return from the benchmark. As explained in the Chairman's Statement, the year to 31 March 2022 was also the last year of five, over which the Company's NAV total return is measured against the total return of the FTSE All-Share index. This is illustrated below, and that over the 5-year period, the NAV total return was 11.2% as compared to the total return of the FTSE All-Share Index of 25.8%.

As the Fund Manager of the Company for the last five years, and as we approach a continuation vote, it is timely to reflect on the discrete years, and changes that the Company has been through. While performance is the ultimate measurement of success or failure, it should be evaluated over an appropriate time horizon. For a high-income strategy, such as this, where the payment of an attractive distribution is an integral part of the investment objective, then relative performance alone does not tell the full story. The changes we have made to the investment portfolio over the last five years have put the Company in a much stronger position to weather these events and pay a dividend. These changes helped to mitigate the worst of the fall in dividends experienced in the financial year to 31 March 2021 and have strengthened the resilience of the Company's revenue, enabling the Board to continue to increase the dividend to shareholders over the last five years and indeed, the last nine years.

Discrete Performance
Year to 31 March	2018	2019	2020	2021	2022	Full 5 years
NAV total return	-2.5%	3.5%	-21.4%	37.4%	1.9%	11.2%
FTSE All-Share Index TR	1.2%	6.4%	-18.5%	26.7%	13.0%	25.8%
- Deficit/Surplus	-3.7%	-2.9%	-2.9%	10.7%	-11.1%	-14.6%
Distribution per share	4.88p	5.04p	5.21p	5.30p	5.45p

Source: BMO GAM

While the investment portfolio has evolved, there have been some structural changes that have also taken place. For those of you that have been invested for the full five years, you will perhaps remember the hybrid vehicle of predominately equities, with a fixed income component.

We exited the remainder of the fixed income portfolio at the start of 2018, focusing the mandate on a pure equity strategy; with the main changes taking place within the equity portfolio. When I assumed management of the investment portfolio it had 53 holdings and followed what is typically called a traditional UK equity income style strategy - i.e. value orientated and comprised most of the top 20 market constituents.

With the support of the Board and the provision that the dividend payment to Shareholders could not be reduced, I undertook a repositioning of the investment portfolio, taking over two years to execute. This wasn't an easy undertaking against the backdrop of Brexit, and with the UK and value very out of favour. I was reticent to rotate too heavily toward growth given the valuation gap, and unwillingness to buy at the top of the cycle. The quantum of this undertaking shouldn't be underestimated. Of the 53 holdings I inherited in 2017, only 13 remain. This level of change for the investment portfolio was always going to take time to bed in properly. This is not an excuse for the five-year performance, but I believe that our concentrated (35 names), differentiated strategy will come to the fore over the longer term. Given the time it took to implement these changes I feel a longer period of performance is however needed to fully assess the strategy.

Performance

As illustrated in the preceding table, the early years of my tenure were challenging. The Company gave up 3-4% of performance against the benchmark each year. 2021 was the first year when we saw our style bear fruit, and proof of how differentiated a strategy this has become. The Chairman alluded to this in his report - we have built a portfolio that will not behave like the index, or my peers who are in the main, value investors.

As most of you are aware, we have been transitioning away from the low-growth mega-cap sectors. The breakdown of the portfolio is more balanced today with the FTSE 100 accounting for 44% of investments and the FTSE 250, 32%. These mid-cap 250 names are better quality, have a sustainable competitive advantage and offer superior growth over the medium term. A further 11% of investments are non-index/AIM and around 13% is now in European names. Europe further diversifies and differentiates the portfolio and taps into my skill set as a pan-European investor. The strategy with the European holdings is to own business models that provide a unique, or where I see, a quality or valuation opportunity. The current holdings include ASML, Richemont and Scout24. These are all high-quality growth assets that I have initiated at attractive valuations.

The performance in the financial year to 31 March 2021 was very broad-based with technology, or online plays particular beneficiaries of the pandemic lockdown. We also benefitted from significant declines from some of the UK's largest sectors as dividends were cut or suspended. In the case of Shell, the dividend was reduced for the first time since WWII. We had continued to hold onto this performance until around the summer of 2021 when the rotation towards value commenced, coupled with a recovery in some sectors which had been hardest hit by the pandemic.

The war in Ukraine has been another headwind to our performance given our zero weighting to the oil and gas sector. I had felt that the near 100% recovery we had seen in oil & gas, or the very strong rise in mining, was already priced in. This, however, was not the case, with oil spiking to new highs, inflation grabbing hold, and with a sell-off in pandemic winning technology companies, we have been hit by a near perfect short-term storm.

What now?

Having felt we were emerging from the bleak COVID lockdowns, despite the new and contagious Omicron variant, we now face a new set of challenges. Markets were rocked by the tragic and unjustified invasion of Ukraine, inflation has spiked to a multi-decade high and central banks are reacting by raising interest rates. The question we are all trying to answer is how will the rising cost of living impact the consumer and in turn global growth?

While we face many challenges, the backdrop isn't all negative. Employment levels and activity indicators, for now, remain robust. We are seeing low single-digit wage inflation and consumers have built up significant savings during the pandemic. Demand also seems to be holding firm, and consumers are also looking forward to their first restriction-free summer for a few years, which may buoy travel and leisure sectors.

Turning to markets, the FTSE All-Share reacted negatively to the start of the Ukraine war. Having bottomed in early March, we have seen it recover all the losses, trading back at pre-invasion levels. While this may seem anomalous, this is more to do with the composition of the index, and the mega-cap FTSE 100 sectors. Most of the large sectors have been beneficiaries; oil & gas/mining have been supported by strong commodity prices, pharmaceuticals and tobacco by improving earnings trajectories and the defensive nature of their earnings. Banks are the one sector the portfolio doesn't own that has been weak, although the largest index constituent, HSBC, has been particularly strong, rising over 100% from the pandemic lows. This has masked some of the weaker parts of the market. The FTSE 250, which has a more domestic earnings bias, is down approximately 10% since the onset of the war and to give you an idea of the disparity at a stock specific level, in the first five months of 2022, British American Tobacco is up 32% and Delivery Hero down 63%.

The table below illustrates the relative return of the top 20 constituents of the FTSE All-Share Index by weight, and why whenever possible, I choose not to hold the traditional income mega-caps. These behemoths often lack the qualities I seek in my investments, struggle to deliver growth in earnings or dividends, and in a number of cases are at the mercy of underlying commodity prices. I also wanted to outline how extreme the year-to-date had been, the first time in a decade that they have outperformed by double-digits. This has been driven in the main by rising commodity prices and the fallout from the war in Ukraine. While I have no insight into where the oil price will settle, the share price growth we have seen from the commodity sector is not sustainable over the medium-term.

Calendar Year	FTSE All-Share Index Total Return %	Top 20 - Weighted Average Relative Return
2022 (to 29 April)	0.95	13.12
2021	18.30	3.46
2020	-9.67	-1.92
2019	19.25	-3.93
2018	-9.41	3.41
2017	13.15	1.31
2016	16.85	5.61
2015	0.97	0.33
2014	1.29	-1.16
2013	20.88	-1.71
2012	12.35	-5.05

Source: BMO GAM

This polarisation makes the headline index irrelevant for the Company, this is all about stock picking. For a Manager this should be the perfect environment to set your portfolio up as fear dominates the backdrop. Against this backdrop I have taken the opportunity to initiate quality growth positions at valuations I haven't seen since I took over the investment management for the Company. This is the market I have been waiting for when my style is out of favour even if we are facing some shorter-term headwinds.

This is also a time where you can be contrarian. Several of the Company's technology holdings are offering what I believe is a once in a decade opportunity to buy quality assets at heavily discounted valuations.  Many of you will have heard me say this before but in the space of a few months these businesses have gone from being loved to hated.

Asos is one such name. Investors are reticent to own this given the consumer backdrop, but this is a business that is quite focussed on the 20-something consumer who they believe don't face the same inflationary pressures as the rest of the market due to rising interest rates and energy bills. Asos have also had supply-chain issues and shortages of the right inventory, in particular dresses, which they have rectified for summer. While I can't tell you how long this will take to sort, I feel many of the headwinds are transitory in nature and despite this backdrop they still believe they can grow the revenue 10-15% in 2022. For a market-leading business with very strong positions in the UK and Europe and a US business with potential, you are paying 14/11x P/E for 2023/24 expected earnings. This is not an isolated example, there are several in the technology sector. It's not a very comfortable place to sit at the moment as there are pressures on earnings but for the patient investor this is exactly the decision you should be taking given the attractive valuations on offer.

Activity

We have been opportunistic on the recent deployment of capital given the uncertainty caused by the war in Ukraine. We have conducted calls with all our holdings that had exposure to either Ukraine or Russia. The exposure has been minimal, less than 2% of sales and less of profits in most cases.

In the majority of cases, they have ceased or are in the process of selling operations in the region. We had announcements from Imperial Tobacco, Asos, Compass Group and Wizz Air. Wizz Air have diverted a fleet of five aircraft to other bases across the network where they see higher levels of demand. Wizz Air has been one of the harder hit names due to the conflict, indirectly through a rising oil price. We cut our holding on the first day of trading post the invasion. We have no insight into where the oil price will end up, but the risks are for a higher-than-normal level until we find a more balanced solution to our energy needs, most of which will mean a lower dependence on Russian oil.

I have been adding to some of the global names in the investment portfolio, where earnings are more diversified. This helps to mitigate the earnings risk from an escalation of the crisis in Ukraine and the direct impact a higher energy price will have across Europe. The US is much more insulated, given the consumer focus of the growth, oil independence and $3 trillion of excess lockdown savings. I added to Diageo, Compass and Kerry Group, all of which provide this exposure.

I also initiated a position in Experian post a period of weakness.  I have wanted to own this for some time and felt this was a great opportunity to own a quality asset at an attractive valuation. Experian is the world's leading provider of information and credit bureau services. The group uses customer data and technology to help businesses manage credit risk, originate new customers, collect bills and prevent fraud. With information on 1.3bn consumers and 166m businesses, they are well positioned to continue to grow in most environments. They have a strong balance sheet and generate a lot of cash flow, which should support investment and higher cash returns in the future.

In February I also initiated a position in ASML, a new European holding. ASML is the world market-leader in the manufacturing of lithography machines. Their lithography technology is fundamental to mass production of semiconductor chips. Their technology allows the world's top chipmakers to create microchips that are more powerful, faster and more energy efficient. The chances are whatever device, PC, tablet or phone you are reading this on will have a chip that is manufactured with ASML's machines. They have a monopoly position in leading-edge technology, an orderbook that spans over a year, and are ramping up production to meet the very high demand for these critical components.

Towards the Company's year end, Brewin Dolphin received a bid approach from Royal Bank of Canada (RBC). The £1.6bn, £5.15 per share bid was at a 62% premium to the previous day's share price. Brewin was a top 10 position in the portfolio at 4.6% of NAV, reflecting the qualities of the business model and the value we saw in the asset. The acquisition price valued Brewin at 2.8% of its £55bn of AUM, which we saw as a full and fair price.

This is a reminder of how cheap UK assets are, especially if an acquirer thinks they can make a return after paying such a substantial premium. Given how cash rich private equity is, I wouldn't be surprised to see more M&A activity. Scout24, the German Rightmove, has been the subject of speculation of a bid although no tangible offer has yet been made and I would expect M&A to be a bigger focus over the coming 12-18 months.

Gearing

We have gone from a position of being nearly fully geared with £13m invested in December 2021, to being in a neutral position. As we exited lockdowns and with a lot of value on offer, this stance made a lot of sense but with a change in policy from central banks around the interest rate cycle, and more recently the war in Ukraine, we no longer felt this as a sensible stance.

Should we get more clarity on these issues, I can opportunistically deploy this capital again, raising some of the positions that have dipped below my minimum 2% threshold. This would also help to add to our dividend income further, but for now we feel downside protection is the sensible course of action.

Dividend

As stated at the outset of this report, capital performance is only part of the story. The work we have done to reposition the portfolio protected us from the worst of the dividend decline during the pandemic.

The UK market saw a very strong dividend recovery from the pandemic lows. Headline dividends rose 46.1% year-on-year to £94.1bn, although this was boosted by £16.9bn of special dividends, three times the normal level. If we strip out these special payments, the underlying growth was a more modest 21.9% year-on-year.  Looking ahead, Link Asset Monitor are forecasting underlying dividend growth - excluding special dividends - of 5% for calendar 2022.

While the Company benefitted from special dividends from Rio Tinto and Berkeley Group in 2021, I'm encouraged by our initial conservative forecasts for the year ahead. There are several dividends that have not fully recovered from pre-pandemic levels, and several of the investment portfolio's larger names that have already announced significantly higher returns for 2022. I do have to caveat this statement given the backdrop of Ukraine, and the fact that special dividends are unlikely to be of the same level as in the previous year.

Given the backdrop and volatility, quality business models with rock solid balance sheets and high levels of dividend cover will protect you if we do see a slowdown, or a recession.

Outlook

At this point in the year, and with a lot of uncertainty ahead, we are seeing a very cautious outlook from management teams. There are still supply chain constraints coupled with pent-up demand, but the rising cost of living will weigh on the consumer.

Pricing is the topic of discussion and who has managed to pass through inflation to mitigate the margin pressure. In the main, the businesses that have a brand, IP or a sustainable competitive advantage have a much stronger position and have to date managed this exceptionally well. The focus has also shifted to high recurring revenue stream business models, where the decision is non- discretionary, for example software or healthcare where you have no choice.

That said, I did talk about Asos, and I do feel that the valuations on some of the consumer names are pricing a lot of distress. This comes back to simple 'fear and greed', when all are fearful that may well be your opportunity, especially for the patient investor. This contrarian stance in quality businesses will I believe be the right strategy to adopt which is why I am opportunistically adding to these names on weakness.

The investment portfolio has therefore faced a perfect storm of events which I do not believe will recur in the coming years. I'm not saying this is an easy path to walk in the short-term, but quality business models, at current attractive valuations, will emerge in a stronger competitive position.

Philip Webster

Fund Manager

BMO Investment Business Limited

30 May 2022

Statement of Comprehensive Income

		Year to 31 March 2022
	Note	Revenue	Capital	Total
		£'000	£'000	£'000
Capital losses on investments
Losses on investments held at fair value through profit or loss		-	(1,087)	(1,087)
Exchange gains		-	5	5
Revenue
Income		5,013	-	5,013
Total income		5,013	(1,082)	3,931
Expenditure
Investment management fee		(227)	(529)	(756)
Other expenses		(506)	-	(506)
Total expenditure		(733)	(529)	(1,262)
Profit/(loss) before finance costs and tax		4,280	(1,611)	2,669
Finance costs
Interest on bank loans		(78)	(183)	(261)
Total finance costs		(78)	(183)	(261)
Profit/(loss) before tax		4,202	(1,794)	2,408
Taxation		(24)	-	(24)
Profit/(loss) and total comprehensive income for the  year		4,178	(1,794)	2,384
Earnings per share	2	3.61p	(1.55)p	2.06p

The total column of this statement represents the Company's Income Statement and Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards. 

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 derive from continuing operations.

No operations were acquired or discontinued in the year.

Statement of Comprehensive Income

		Year to 31 March 2021
	Note	Revenue	Capital	Total
		£'000	£'000	£'000
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	29,988	29,988
Exchange losses		-	(35)	(35)
Revenue
Investment income		3,788	-	3,788
Total income		3,788	29,953	33,741
Expenditure
Investment management fee		(212)	(494)	(706)
Other expenses		(480)	-	(480)
Total expenditure		(692)	(494)	(1,186)
Profit before finance costs and tax		3,096	29,459	32,555
Finance costs
Interest on bank loans		(69)	(160)	(229)
Total finance costs		(69)	(160)	(229)
Profit before tax		3,027	29,299	32,326
Taxation		(7)	-	(7)
Profit and total comprehensive income for the    year		3,020	29,299	32,319
Earnings per share	2	2.59p	25.16p	27.75p

The total column of this statement represents the Company's Income Statement and Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards. 

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 derive from continuing operations.

No operations were acquired or discontinued in the year.

Statement of Financial Position

as at 31 March

		2022		2021
		Note	£'000		£'000
Non-current assets
Investments held at fair value through profit or loss			111,362		123,249
Current assets
Receivables			3,210		990
Cash and cash equivalents			4,686		2,310
			7,896		3,300
Total assets			119,258		126,549
Current liabilities
Payables			(543)		(542)
Bank loan			(7,500)		(3,500)
			(8,043)		(4,042)
Non-current liabilities
Bank loan			-		(7,500)
			-		(7,500)
Total liabilities			(8,043)		(11,542)
Net assets			111,215		115,007
Equity attributable to equity shareholders
Share capital			134		134
Share premium			153		153
Capital redemption reserve			5		5
Buy back reserve			80,394		80,394
Special capital reserve			11,704		13,340
Capital reserves			14,598		16,392
Revenue reserve			4,227		4,589
Equity shareholders' funds			111,215		115,007
Net asset value per Ordinary share		6	95.97p		99.25p
Net asset value per B share		6	95.97p		99.25p

Cash Flow Statement

for the year to 31 March

	Year to 31 March 2022	Year to 31 March 2021
	£'000	£'000
Cash flows from operating activities
Profit before taxation	2,408	32,326
Adjustments for:
Losses/(gains) on investments held at fair value through profit or loss	1,087	(29,988)
Exchange (gains)/losses	(5)	35
Interest income	(5)	(1)
Interest received	5	1
Dividend income	(5,008)	(3,787)
Dividend income received	4,935	3,638
(Increase)/decrease in receivables	(5)	8
Increase in payables	2	33
Finance costs	261	229
Overseas tax suffered	(49)	(21)
Cash flows from operating activities	3,626	2,473
Cash flows from investing activities Purchases of investments Sales of investments	(10,594) 19,264	(19,430) 18,849
Cash flows from investing activities	8,670	(581)
Cash flows before financing activities	12,296	1,892
Cash flows from financing activities
Dividends paid on Ordinary shares	(4,540)	(4,465)
Capital returns paid on B shares	(1,636)	(1,605)
Shares purchased for treasury	-	(763)
Interest on bank loans	(249)	(217)
(Repayment)/drawdown of loan	(3,500)	3,500
Cash flows from financing activities	(9,925)	(3,550)
Net increase/(decrease) in cash and cash equivalents	2,371	(1,658)
Cash and cash equivalents at the beginning of the year	2,310	4,003
Effect of movement in foreign exchange	5	(35)
Cash and cash equivalents at the end of the year	4,686	2,310
Represented by:
Cash at bank	77	161
Short term deposits	4,609	2,149
	4,686	2,310

Statement of Changes in Equity

for the year to 31 March 2022

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 31 March 2021	134	153	5	80,394	13,340	3,083	13,309	4,589	115,007
Movement during the year ended 31 March 2022
Profit/(loss) for the year	-	-	-	-	-	4,918	(6,712)	4,178	2,384
Total comprehensive income for the year	-	-	-	-	-	4,918	(6,712)	4,178	2,384
Transactions with owners of the Company recognised directly in equity
Dividends paid on Ordinary shares	-	-	-	-	-	-	-	(4,540)	(4,540)
Capital returns paid on B shares	-	-	-	-	(1,636)	-	-	-	(1,636)
Balance as at 31 March 2022	134	153	5	80,394	11,704	8,001	6,597	4,227	111,215

Statement of Changes in Equity

for the year to 31 March 2021

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 31 March 2020	134	153	5	81,157	14,945	1,819	(14,726)	6,034	89,521
Movement during the year ended 31 March 2021
Profit for the year	-	-	-	-	-	1,264	28,035	3,020	32,319
Total comprehensive income for the year	-	-	-	-	-	1,264	28,035	3,020	32,319
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury	-	-	-	(763)	-	-	-	-	(763)
Dividends paid on Ordinary shares	-	-	-	-	-	-	-	(4,465)	(4,465)
Capital returns paid on B shares	-	-	-	-	(1,605)	-	-	-	(1,605)
Balance as at 31 March 2021	134	153	5	80,394	13,340	3,083	13,309	4,589	115,007

BMO UK High Income Trust PLC

Principal Risks and Uncertainties and Viability Statement

Most of the Company's principal risks and uncertainties that could threaten its objective, strategy, future performance, liquidity and solvency are market related and comparable to those of other investment companies investing primarily in listed securities.

A summary of the Company's risk management and internal control arrangements is included within the Report of the Audit Committee in the Annual Report. By means of the procedures set out in that summary, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. Any emerging risks that are identified and that are considered to be of significance would be included on the Company's risk register with any mitigations. These significant risks, emerging risks and other risks, are regularly reviewed by the Audit Committee and the Board. Consideration has been given to the impact from Coronavirus (COVID-19) and is referred to in Financial Risk. They have also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period.

As explained in the Chairman's Statement, BMO GAM (EMEA) has been acquired by Ameriprise and its business is to be merged with Columbia Threadneedle Investments. The Board looks favourably upon this transaction and expects there to be little change for your Company. Nevertheless, an acquisition such as this may introduce some uncertainty, until the integration of systems is fully implemented. Therefore, the Board is treating this aspect as an emerging risk that it will monitor closely.

The principal risks and uncertainties faced by the Company, and the Board's mitigation approach are described below.

Financial Risk.

The Company's assets consist mainly of listed equity securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk.

Since early 2020 there has been increased uncertainty in markets due to the effect of COVID-19 and more recently the war in Ukraine, which has led to volatility in the Company's NAV.

Climate change is likely to have an impact on some of our investee companies in the coming years potentially affecting their operating models for example, supply chains and energy costs.

Increase in overall risk given the war in Ukraine and continuing economic and market uncertainty.

Mitigation:  

The Board regularly considers the composition and diversification of the Investment Portfolio and considers individual stock performance together with purchases and sales of investments. Investments and markets are discussed in detail at each meeting with the Manager.

Engagement on environmental, social and governance matters is undertaken by the Manager.

The Board has, in particular, considered the impact of market volatility during the COVID-19 pandemic and the recent war in Ukraine and is discussed in the Chairman's Statement and Manager's Review. As a closed-end investment trust the Company is not constrained by asset sales to meet redemptions and is well suited to investors seeking longer term returns and to remain invested through volatile market conditions.

An explanation of these risks and the way in which they are managed are contained in the notes to the financial statements.

Investment and strategic risk .

Incorrect strategy, asset allocation, stock selection, inappropriate capital structure, insufficient monitoring of costs, failure to maintain an appropriate level of discount/premium and the use of gearing could all lead to poor returns for shareholders including impacting the capacity to pay dividends.

No change in overall risk.

Mitigation:

The Company's objective and investment policy and performance against peers and the benchmark are considered by the Board at each meeting and strategic issues are considered regularly. The Investment Portfolio is diversified and comprises listed securities and its composition is reviewed regularly with the Board. BMO GAM's Investment Risk team provides oversight on investment risk management.

Market intelligence is maintained via the Company's broker and the effectiveness of the marketing strategy together with the level of discount to NAV at which the Company's shares trade are also reviewed at each meeting. The Manager also meets with major shareholders.

The Board regularly considers ongoing charges combined with underlying dividend income from portfolio companies and the consequent dividend paying capacity of the Company.

Regulatory.

Breach of regulatory rules could lead to the suspension of the Company's Stock exchange listing, financial penalties, or a qualified audit report. Breach of section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains. Changes to tax regulations could alter the market competitiveness of the Company's B shares.

No change in overall risk.

Mitigation:

The Board liaises with advisors to ensure compliance with laws or regulations.

The Manager and its Business Risk department provide regular reports to the Board and Audit Committee on their monitoring and oversight of such rules and are reviewed by the Board. This includes the conditions to maintain investment trust status including the income distribution requirement.

The Board has access to the Manager's Head of Business Risk and requires any significant issues directly relevant to the Company to be reported immediately.

Operational.

Failure of the Manager's systems or disruption to its business, or that of an outsourced or third party service provider, could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets leading to a potential breach of the Company's investment mandate or loss of shareholders' confidence.

This risk includes failures or disruption as a consequence of external events such as the COVID-19 pandemic.

External cyber attacks could cause such failure or could lead to the loss or sabotage of data.

No change in overall risk but due to the impact of COVID-19 on working practices and the eventual integration with Columbia Threadneedle's systems this risk remains heightened.

Mitigation:

The Board has considered the acquisition of BMO GAM (EMEA) by Columbia Threadneedle Investments during the year and has met with senior management to discuss this.  Comfort was taken from its long-term financial strength and resources and commitment towards BMO GAM's investment trust business.

The Board meets regularly with the management of the Manager and its Business Risk team to review internal control and risk reports which includes oversight of third party service providers. The Manager's appointment is reviewed annually and the contract can be terminated with six months' notice. The Manager has a business continuity plan in place to ensure that it is able to respond quickly and effectively to an unplanned event that could affect the continuity of its business.

The Manager has outsourced trade processing, valuation and middle office tasks and systems to State Street Bank and Trust Company ('State Street') and supervision of such third party service providers, including SS&C who administer the BMO savings plans, has been maintained by the Manager. This includes the review of IT security and heightened cyber threats.

Following the easing of government COVID-19 related restrictions, the Manager has moved from a remote 'working from home' arrangement to a hybrid model with staff also returning to work in office locations.  Throughout the pandemic the Manager has continued to serve clients and keep operations running effectively and in compliance with its regulatory obligations. These arrangements have and continue to operate without incident or interruption. The Manager also closely monitors the performance of its technology platform to ensure it is functioning within acceptable service levels. The Company's other third party service providers have also implemented similar arrangements to ensure no disruption to their service. Having considered these arrangements and reviewed the service levels over the last year, the Board is confident that the Company continues to operate as normal and expected service levels will be maintained.

Custody Risk.

Safe custody of the Company's assets may be compromised through control failures by the custodian.

No change in overall risk but due to the impact of COVID-19 on working practices this risk remains heightened.

Mitigation:

The Board receives quarterly reports from the Depositary confirming safe custody of the Company's assets and cash and holdings are reconciled to the Custodian's records. The Custodian's internal controls reports are also reviewed by the Manager and key points reported to the Audit Committee.  The Board also receives periodic updates from the custodian on its own cyber-security controls.

The Depositary is specifically liable for loss of any of the Company's assets that constitute financial instruments under the AIFMD.

Viability assessment and statement

In accordance with the UK Corporate Governance Code, the Board is required to assess the future prospects for the Company, and has considered that a number of characteristics of its business model and strategy were relevant to this assessment:

· The Board looks to long-term outperformance rather than short-term opportunities.

· The Company's investment objective, strategy and policy, which are subject to regular Board monitoring, mean that the Company is invested mainly in liquid listed securities and that the level of borrowing is restricted.

· The Company is a closed-end investment trust, whose shares are not subject to redemptions by shareholders.

· Subject to shareholder continuation votes, in the event that the net asset value total return performance of the Company is less than that of the FTSE All-Share Index over the relevant period, the Company's business model and strategy is not time limited. The first such resolution will be proposed at the forthcoming AGM on 20 July 2022.

Also relevant were a number of aspects of the Company's operational arrangements:

· The Company retains title to all assets held by the Custodian under the terms of the formal agreement with the Custodian and Depositary.

· The borrowing facilities, which remain available until September 2022, are also subject to formal agreements, including financial covenants with which the Company complied in full during the year.

· Revenue and expenditure forecasts are reviewed by the Directors at each Board Meeting.

· Cash is held with banks approved and regularly reviewed by the Manager.

· The operational robustness of key service providers and the effectiveness of business continuity plans in place in particular given the impact of COVID-19.

· That alternative service providers could be engaged at relatively short notice if necessary.

In considering the viability of the Company, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's objective and strategy, future performance, liquidity and solvency.  This included the impact of COVID-19 and the recent war in Ukraine and the impact of a significant fall in equity markets on the Company's investment portfolio.  These risks, their mitigations and the processes for monitoring them are set out above within Principal Risks and Uncertainties and in the Report of the Audit Committee and in the notes of the financial statements within the Annual Report.

The Directors have also considered:

· The level of ongoing charges incurred by the Company which are modest and predictable and total 0.98% of average net assets,

· Future revenue and expenditure projections,

· The Company's borrowing and liquidity in the context of the fixed rate loan which is due to mature in September 2022 and that the Board does not anticipate any difficulty either extending or replacing this with an appropriate level of borrowing,

· Its ability to meet liquidity requirements given the Company's investment portfolio consists mainly of readily realisable listed equity securities which can be realised to meet liquidity requirements if required,

· The ability to undertake share buybacks if required,

· Whether the Company's objective and policy continue to be relevant to investors,

· The effect of significant future falls in investment values and the ability to maintain dividends and capital repayments, particularly given the impact of the COVID-19 pandemic and its impact on the global economy and

· The resolution that the Company continues in existence which will be proposed at the forthcoming AGM and that they have a reasonable expectation that this resolution will be supported by the Company's shareholders. 

These matters were assessed over a five year period to May 2027, and the Board will continue to assess viability over five year rolling periods. As part of this assessment the Board considered a number of stress tests and scenarios which considered the impact of severe stock market volatility on shareholders' funds over a five year period. The results demonstrated the impact on the Company's net assets and its expenses and its ability to meet its liabilities over that period. A rolling five year period represents the horizon over which the Directors believe they can form a reasonable expectation of the Company's prospects, balancing the Company's financial flexibility and scope with the current outlook for longer-term economic conditions affecting the Company and its shareholders.

Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period to May 2027.

Statement of Directors' Responsibilities in Relation to the Annual Report and Financial Statements

The Directors confirm, in respect of the Annual Report and Financial Statements for the year ended 31 March 2022 of which this statement of results is an extract, that to the best of their knowledge:

· the financial statements contained within the Annual Report have been prepared in accordance with UK-adopted International Accounting Standards, give a true and fair view of the assets, liabilities, financial position and return of the Company;

· the Strategic Report and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that they face ; and

· taken as a whole, the annual report and financial statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, strategy and business model of the Company.

On behalf of the Board

John M. Evans

Chairman

30 May 2022

Notes

1.  The financial statements of the Company which are the responsibility of, and were approved by, the Board on 30 May 2022, have been prepared on a going concern basis and in accordance with the Companies Act 2006 and UK-adopted International Accounting Standards.

The Company's subsidiary undertaking Investors Securities Company Limited has not been consolidated in the financial statements as it is exempt in accordance with Section 405(2) of the Companies Act 2006 on grounds of materiality. Investors Securities Company Limited has been classified at fair value through profit or loss in the Statement of Financial Position.

Where presentational guidance set out in the Statement of Recommended Practice (''SORP'') for investment trusts issued by the Association of Investment Companies (''AIC'') is consistent with the requirements of UK-adopted International Accounting Standards, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

2.  The Company's earnings per share are based on the profit for the year of £2,384,000 (year to 31 March 2021: £32,319,000) and on 85,172,653 Ordinary shares (2021: 85,648,406) and 30,708,750 B shares (2021: 30,802,860), being the weighted average number of shares in issue of each share class during the year. 

The Company's revenue earnings per share are based on the revenue profit for the year of £4,178,000 (year to 31 March 2021: £3,020,000) and on the weighted average number of shares in issue as above.

The Company's capital earnings per share are based on the capital loss for the year of £1,794,000 (year to 31 March 2021 profit: £29,299,000) and on the weighted average number of shares in issue as above.

3.  A fourth interim dividend in respect of the year ended 31 March 2022 of 1.55p per Ordinary share was paid on 6 May 2022 to Ordinary shareholders on the register on 8 April 2022. A fourth capital repayment in respect of the year ended 31 March 2022 of 1.55p per B share was paid on 6 May 2022 to B shareholders on the register on 8 April 2022.

4.  The Company has a £7.5 million unsecured term loan from Scotiabank Europe plc until 28 September 2022 and at a fixed interest rate of 2.58 per cent per annum. The Company also has a £7.5 million unsecured multicurrency revolving credit facility ("RCF") with Scotiabank (Ireland) Designated Activity Company available until 28 September 2022. None of the RCF was drawn down at 31 March 2022 (£3.5 million at 31 March 2021). Arrangement and legal fees of £60,000 were incurred and are being amortised over the term of these facilities.

The loan agreements contain certain financial covenants with which the Company must comply. These include a financial covenant with respect to the ratio of the Adjusted Net Asset Value (as defined in the loan agreements) to the level of debt and also that the Net Asset Value does not fall below £65 million. The Company complied with the required financial covenants throughout the period since drawdown.

The fair value of the £7.5 million term loan, calculated using a discounted cashflow technique, is not materially different from the value reflected in the Statement of Financial Position.

5.  During the year the Company bought back nil Ordinary Shares (2021: 750,000 Ordinary shares) to hold in treasury at a cost of £nil (2021: £634,000) and nil B shares (2021: 150,000 B shares) to hold in treasury at a cost of £nil (2021: £129,000).

At 31 March 2022 the Company held 16,894,491 Ordinary Shares (2021: 16,894,491 Ordinary shares) and 1,367,953 B shares (2021: 1,367,953 B shares) in treasury.

6.  The Company's basic net asset value per share of 95.97p (2021: 99.25p) is based on the equity shareholders' funds of £111,215,000 (2021: £115,007,000) and on 115,881,403 equity shares, consisting of 85,172,653 Ordinary Shares and 30,708,750 B Shares (2021: 115,881,403 equity shares, consisting of 85,172,653 Ordinary Shares and 30,708,750 B Shares), being the number of shares in issue at the year end.

The Company's shares may also be traded as units, each unit consisting of three Ordinary Shares and one B Share. The basic net asset value per unit as at 31 March 2022 was therefore 383.88p (2021: 397.00p).

The Company's treasury net asset value per share, incorporating the 16,894,491 Ordinary Shares and 1,367,953 B Shares held in treasury at the year end (2021: 16,894,491 Ordinary Shares and 1,367,953 B Shares), was 95.97p (2021: 99.25p). The Company's treasury net asset value per unit at the end of the year was 383.88p (2021: 397.00p). The Company's current policy is to only re ‑ sell shares held in treasury at a price not less than the net asset value per share.

7.  Financial Instruments

The Company's financial instruments comprise equity investments, cash balances, receivables and payables that arise directly from its operations and borrowings. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings to achieve enhanced returns. The downside risk of borrowings can be mitigated by raising the level of cash balances held.

The Company may use derivatives for efficient portfolio management from time to time. No derivative financial instruments were used during the current year or prior year. The Company may also write call options over some investments held in the Investment Portfolio. There were no call options written during the current year or prior year.

The fair value of the financial assets and liabilities of the Company at 31 March 2022 is not materially different from their carrying value in the financial statements.

The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, market price risk, liquidity risk, interest rate risk and foreign currency risk.

The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and have remained unchanged for the year under review.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

The Company's principal financial assets are bank balances and cash and other receivables, whose carrying amounts in the Statement of Financial Position represent the Company's maximum exposure to credit risk in relation to financial assets. The Company did not have any exposure to any financial assets which were past due or impaired at the current or prior year end.

The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities which the Company has delivered. A list of pre-approved counterparties used in such transactions is maintained and regularly reviewed by the Manager, and transactions must be settled on a basis of delivery against payment. Broker counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable quality of the brokers used. The rate of default in the past has been insignificant.

All of the investments of the Company are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to the securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

The Company has no significant concentration of credit risk with exposure spread over a number of counterparties and financial institutions.

Market price risk

The fair value of equity and other financial securities held in the Company's portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. Other external events such as protectionism, inflation or deflation, economic recessions and terrorism could also affect share prices in particular markets. The Company's strategy for the management of market price risk is driven by the Company's investment policy. The Board sets policies for managing this risk and meets regularly to review full, timely and relevant information on investment performance and financial results. The management of market price risk is part of the fund management process and is typical of equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Investment performance is discussed in more detail in the Manager's Review in the Annual Report.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given the liquid nature of the portfolio of investments and the level of cash and cash equivalents ordinarily held. Cash balances are held with a spread of reputable banks with a credit rating of normally A or higher, usually on overnight deposit. The Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting.

In certain circumstances, the terms of the Company's bank loans entitle the lender to demand early repayment and, in such circumstances, the Company's ability to maintain dividend levels and the net asset value attributable to equity shareholders could be adversely affected. Such early repayment may be required on the occurrence of certain events of default which are customary for facilities of this type. These include events of non-payment, breach of other obligations, misrepresentations, insolvency and insolvency proceedings, illegality and a material adverse change in the financial condition of the Company.

Interest rate risk

Some of the Company's financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Company's exposure to floating interest rates gives cashflow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.

Floating rate

When the Company retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate, which was 0.75 per cent at 31 March 2022 (2021: 0.1 per cent).

Fixed rate

At 31 March 2022 and 31 March 2021, the Company's Investment Portfolio did not contain any fixed interest or floating rate interest assets. At 31 March 2022 and 31 March 2021, the Company had fixed interest liabilities.

The £7.5 million term loan carries a fixed interest rate of 2.58 per cent per annum.

Foreign currency risk

It is not the Company's policy to hedge any overseas currency exposure on equity investments.

8.  Going Concern

The Company's investment objective and policy which is subject to regular Board monitoring processes, is designed to ensure that the Company is invested mainly in liquid, listed securities. The value of these investments exceeds the Company's liabilities by a significant margin. The Company retains title to all assets held by its custodian and has agreements relating to its borrowing facilities with which it has complied during the year. Cash is only held with banks approved and regularly reviewed by the Manager.

As explained in the Chairman's Statement, an ordinary resolution (Resolution 12) will be proposed at the Annual General Meeting on 20 July 2022 to seek approval from shareholders that the Company continues in existence and the Directors have a reasonable expectation that this will be supported by the Company's shareholders.

The Directors believe, having assessed the principal risks and other matters, including the COVID-19 pandemic and in light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets and revenue and expenditure projections, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

9.  The Directors of the Company are considered a related party. There are no transactions with the Board other than aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report within the financial statements. There are no outstanding balances with the Board at year end. The beneficial interests of the Directors in the Ordinary shares and B shares of the Company are disclosed in the Annual Report and Financial Statements.

Transactions between the Company and BMO Investment Business Limited are detailed in the notes to the financial statements. The existence of an independent Board of Directors demonstrated that the Company is free to pursue its own financial and operating policies and therefore under the AIC SORP, the Manager is not considered a related party.

10.  This statement was approved by the Board on 30 May 2022. It is not the Company's full statutory financial statements in terms of Section 434 of the Companies Act 2006. The statutory annual report and financial statements for the year ended 31 March 2022 has been approved and audited and received an unqualified audit report and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report. This will be sent to shareholders in early June 2022 and will be available for inspection at 6^th Floor, Quartermile 4, 7a Nightingale Way, Edinburgh, EH3 9EG the registered office of the Company.  

The full annual report and financial statements are available on the website maintained on behalf of the Company at www.bmoukhighincome.com .

The audited financial statements for the year to 31 March 2022 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 20 July 2022.

Alternative Performance Measures ("APMs")

The Company uses the following Alternative Performance Measures ("APMs"):

Discount/Premium - the share price of an Investment Trust is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the net asset value (NAV) per share of the underlying assets less liabilities of the Company. If the share price is lower than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers of shares than buyers. Shares trading at a price above NAV per share are deemed to be at a premium.

		At 31 March 2022
		Ordinary shares	B shares	Units
Net asset value per share	(a)	95.97p	95.97p	383.88p
Share price	(b)	87.00p	88.00p	336.00p
(Discount) (c=(b-a)/(a))	(c)	-9.3%	-8.3%	-12.5%

Ongoing Charges - all operating costs expected to be incurred in future and that are payable by the Company, expressed as a proportion of the average net assets of the Company over the reporting year. The costs of buying and selling investments and derivatives are excluded, as are interest costs, taxation, non‑recurring costs and the costs of buying back or issuing shares.

Ongoing charges calculation

		31 March 2022 £'000
Total expenditure		1,262
Less management fee at rate of 0.65% of NAV		(756)
Add management fee at revised rate of 0.6% of NAV		667
Less revolving credit facility commitment fee		(20)
Less non-recurring expenses		(16)
Total	(a)	1,137
Average daily net assets	(b)	116,551
Ongoing charges (c = a/b)	(c)	0.98%

Gearing - represents the excess amount above shareholders' funds of total investments, expressed as a percentage of the shareholders funds.  If the amount calculated is negative, this is a 'net cash' position and no gearing.

		31 March 2022 £'000
Investments held at fair value through profit or loss	(a)	111,362
Net assets	(b)	111,215
Gearing (c = (a/b)-1)%	(c)	0.1%

Total return - the theoretical return to shareholders calculated on a per share basis by adding dividends/capital repayments paid in the period to the increase or decrease in the Share Price or NAV in the period. The dividends/capital repayments 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 effect of reinvesting these dividends/capital repayments on the respective ex‑dividend dates and the share price total returns and NAV total returns are shown below.

	31 March 2022
	Ordinary shares/ B shares	Units
NAV per share at start of financial year	99.25p	397.00p
NAV per share at end of financial year	95.97p	383.88p
Change in the year	-3.3%	-3.3%
Impact of dividend/capital repayment reinvestment†	+5.2%	+5.2%
NAV total return for the year	+1.9%	+1.9%

^† During the year to 31 March 2022 dividends/capital repayments totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went ex dividend.

	31 March 2022
	Ordinary shares	B shares	Units
Share price per share at start of financial year	91.5p	91.5p	365.0p
Share price per share at end of financial year	87.0p	88.0p	336.0p
Change in the year	-4.9%	-3.8%	-7.9%
Impact of dividend/capital repayment reinvestment†	+5.5%	+5.4%	+5.3%
Share price total return for the year	+0.6%	+1.6%	-2.6%

^† During the year to 31 March 2022 dividends/capital repayments totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went ex dividend.

Yield - The total annual dividend/capital repayment expressed as a percentage of the year end share price.

		31 March 2022
		Ordinary shares	B shares	Units
Annual dividend/capital repayment	(a)	5.45p	5.45p	21.80p
Share price	(b)	87.00p	88.00p	336.00p
Yield = (c=a/b)	(c)	6.3%	6.2%	6.5%

For further information, please contact:

Philip Webster 

Fund Manager to BMO UK High Income Trust PLC  Tel:  [phone]

Ian Ridge

For BMO Investment Business Limited

Company Secretary to BMO UK High Income Trust PLC  Tel:  [phone]

 

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