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CQS Natural Res (CYN)

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Friday 11 March, 2022

CQS Natural Res

Half-year Report

RNS Number : 4016E
CQS Natural Resources Grwth&Inc PLC
11 March 2022
 

A copy of the Company's Half Year Report will shortly be available on the Company's website ( https://ncim.co.uk/wp/city-natural-resources-high-yield-trust/ ) on the National Storage Mechanism ( https://data.fca.org.uk/#/nsm/nationalstoragemechanism ) and will also be provided to those shareholders who have requested a printed or electronic copy.

 

CQS NATURAL RESOURCES GROWTH AND INCOME PLC

Interim Results Announcement

for the six months ended 31 December 2021

 

[Graphs and charts are included in the published Half-Yearly Financial Report which is available on the Company's website at https://ncim.co.uk/city-natural-resources-high-yield-trust/]

 

Our Objective

To provide shareholders with capital growth and income predominantly from a portfolio of mining and resource equities and of mining, resource and industrial fixed securities.

 

Financial Highlights

Total Return

Six months ended
31 December 2021

Six months ended
31 December 2020

Year to
30 June 2021

Period from
31 December
2016 to
31 December 2021

Net asset value

15.16%

47.06%

83.10%

62.69%

Ordinary share price

0.61%

61.67%

109.63%

62.71%

Composite index

0.18%

18.11%

27.52%

77.37%

EMIX Global Mining Index (sterling adjusted)

(0.36)%

21.70%

32.47%

95.00%

Credit Suisse High Yield Index [sterling adjusted]

3.57%

0.65%

3.47%

20.77%

 

Capital Values

31 December 2021

30 June 2021

% change period

Net asset value per share

195.2p

172.4p

13.23%

Ordinary share price (mid market)

155.5p

160.5p

(3.12)%

 

Revenue and Dividends

Six months ended
31 December 2021

Six months ended
31 December 2020

Earnings per ordinary share

2.45p

1.25p

Dividends per ordinary share

2.52p

2.52p

Dividend Yield*

3.6%

4.5%

Discount (difference between share price and fully diluted net asset value)

20.3%

11.9%

Gearing

 

 

Gearing

10.9%

12.9%

Ongoing charges (as a percentage of average shareholders' funds)

1.7%

1.8%

 

Period's Highs/Lows

Six months ended
31 December 2021
High

Six months ended
31 December 2020
Low

Net asset value

205.7p

154.9p

Ordinary share price (mid market)

171.8p

128.3p

Discount

23.7%

7.4%

 

Dividend History

Rate

Ex dividend date

Record date

Payment date

Second interim dividend 2022*

1.26p

27January 2022

28 January 2022

25 February 2022

First interim dividend 2022*

1.26p

28 October 2021

29 October 2021

30 November 2021

Total

2.52p

 

 

 

Fourth interim dividend 2021

1.82p

29 July 2021

30 July 2021

31 August 2021

Third interim dividend 2021

1.26p

29 April 2021

30 April 2021

28 May 2021

Second interim dividend 2021

1.26p

21 January 2021

22 January 2021

26 February 2021

First interim dividend 2021

1.26p

22 October 2020

23 October 2020

30 November 2020

Total

5.60p

 

 

 

 

*based on an annualised dividend of 5.60p (31 December 2020: 5.60p)

 

Chairman's Statement

Overview

The six-month period under review to 31 December 2021 has seen the major global stock markets rise although worrying signs of higher inflation began to be seen towards the calendar year-end. Commodity markets were strong and interestingly for the sector higher interest rate expectations are supporting a broad market rotation into value, which is supportive for mining and energy equity values, given their current strong free cash flow generation.

Investment, Share Performance and Discount

The NAV total return for the six months to 31 December 2021 was +15.16% which compares to a increase in the composite benchmark of 0.18%. The Fund benefited from good asset allocation from its overweight positions in copper, shipping and lithium. On the individual stock positions, we saw excellent returns from Talon Metals, Sigma Lithium Resources, Foran Mining and NexGen.

The Company's share price return was more disappointing with a total return of -0.61% for the six months to 31 December 2021. The discount at which the shares traded has widened from 3.5% at the end of June 2021 to 20.3% as at 31 December 2021. This is a major concern for the Board and we have been working with our advisors to better promote the excellent returns we have seen over the last 18 months. At the time of writing the position has improved and the discount currently stands at 15.3%.

Dividends and Income

The Board considers that the dividend policy is very attractive to shareholders and therefore provides an element of share price stability especially whilst other companies have been forced to cut dividends. The Company has continued to maintain the dividend and has paid two quarterly dividends of 1.26p each per share during the year to date.

Since the Manager is focused on generating capital growth and income from the portfolio the dividend may not always be completely covered by income and in those circumstances the Board will use distributable reserves to meet any shortfall. The yield on the Company's shares is 2.9% as at 9 March 2022.

Gearing

As at 31 December 2021 the gearing was 10.9% but has increased to 11.6% as at 9 March 2022. The Scotiabank facility was renewed during the six-month period and a new two-year facility for £20 million was agreed in September 2021. The amount drawdown under the Scotiabank facility is currently £19 million.

Board Changes

I have been a Director of the Company since 2006 and became Chairman in March 2018. I will be stepping down as a Director of the Company on 31 March 2022. Helen Green will be taking over as Chair on that date and I wish her and my colleagues on the Board my best wishes for the Company going forwards.

Outlook

Just as the global economy was beginning to recover after the pandemic the unprovoked invasion of Ukraine by Russia has resulted in extreme volatility in financial markets and significant increases in energy prices.

The severe sanctions imposed by the West on Russia has accelerated governments to rethink energy, defence and food security policies. The transition to low carbon economy will be at the forefront of these policies.

Commodity prices were already rising prior to Russia's invasion of Ukraine but now these raw materials are centre stage for investors forward planning. The Manager has articulated these trends in more detail in their report and the Fund was well positioned to take advantage of these before the crisis in Ukraine deepened.

Inflationary pressures are now rising along with these commodity price increases, and the Fund is also protected with a significant exposure to gold and other precious metals.

The closed end structure of the Fund has enabled it to take positions in less obvious and liquid stocks and expect these to provide very positive returns.

Since the year end the net asset value of the Fund has increased by 15.3% to 224.94 per share.

I would like to conclude again by extending my thanks to the Manager and all the shareholders for their continued support.

 

Richard Prickett

Chairman

10 March 2022

 

Investment Manager's Review

Raw materials at forefront of investor thinking

Recent commodity price moves have pushed raw material supply to the forefront of investor thinking. Against a backdrop of recovering economic growth and supply constraint inflationary pressures have been building for some time. In such an environment the Trust has performed well. The Fund returned 15% in the second half of 2021 and at the time of writing, year-to-date returns have risen a further 12%.

Behind these figures the composition of performance has changed. Strong gains by metals exposed to energy transition such as copper together with lithium and rare earth metal miners have latterly shifted more in favour of traditional sources of energy. The Fund has seen some rebalancing of exposure over the last year that continues to offer protection against ongoing inflation which may take time to resolve. 

Resource vulnerabilities reshape the outlook

Following a decade of underinvestment and exacerbated by Russia-Ukraine events, persistently high input prices have shattered complacency towards the sector. Notwithstanding government response to Russia's aggression, the extent of commodity price moves is reshaping fundamental thinking with regards government policy, economic growth and the composition of growth. In addition to addressing commodity supply deficits, the lack of diversification in the sources of supply, to better manage raw material availability and help mitigate extreme commodity price volatility, will become more integral to long-term strategic planning. Importantly, the Fund portfolio had already adjusted to reflect such shifts, itself becoming more diversified to more appropriately balance the short and long-term outlook for various commodities: in the short-term there is an immediate need to responsibly source energy; longer-term we expect commodity price moves to reset expectations regarding the pace at which energy transition evolves.

At the time of writing exposure to copper, oil & gas production and precious metals, each stand at around 20% of assets. Energy storage minerals such as rare earth metals, lithium and nickel represent nearer 15% of assets. Exposure to shipping, which is biased towards transportation of energy, stands at around 8% of assets. Elsewhere, by virtue of strong performance, the Fund's exposure to nuclear power has become a more meaningful position as investors recognise the value inherent in existing clean, baseload generating capacity which has recaptured credence as many country's reassess their energy policies.

Perhaps most notably, the Fund began increasing exposure directly into traditional fossil-based energy over the summer of 2021 as the perceived risks to energy supply increased. Investment in low cost, rapid response US shale production figured highly in this rotation. Names such as Precision Drilling were added in anticipation of a pick-up in North American oil and gas production given a more expedient need for a sizeable supply response than seen thus far in the post-covid recovery. Other companies added to the portfolio include EOG, Diamond Back and Vermilion Energy, that owns significant Europe facing gas production. Cognisant of the risks, in late summer 2021 the Fund took a small position in Gazprom, a pressure point for the supply of gas into Europe.Following its suspension from the London Stock Exchange this investment has been written down to zero.

Some modest exposure to coal production was also added. This was largely funded by a reduction in exposure to industrial metals such as copper which was already in the process of being reduced as potential risks emerged from China's property slowdown. The Fund also took some profits on soon-to-be lithium producer, Sigma Lithium, which has made an outstanding contribution to performance.

The Fund retains exposure to precious metals. While the contribution to performance was muted in the six months to end-December, with gold and related equities trading in narrow range as markets grappled with the competing forces of rising inflation and rising interest rates, the prospect of stubbornly high inflation and less hawkish rate outlook has latterly seen a return of investment flows into the precious metal sector. Precious metal valuations remain extremely attractive. Exposure continues to provide cheap insurance should the tragedy in Ukraine escalate further while also protecting against stagflation risks should raw material prices remain high despite decelerating demand growth. More immediately, the shift in the EU's industrial competitiveness brought about by higher energy prices is already feeding into the ECB's mind set; it comes as little surprised that ECB monetary policy has become less hawkish which has prompted some increased attention on precious metals.

Recent events accentuate trends already underway

Commodity prices rises over the interim period have more recently accelerated. Recent events, in particular the  invasion of Ukraine, has served to accentuate rising commodity price trends that have been underway since the post-covid process of reopening economies took hold in early 2021. Combined with rising demand during the unlocking process the more recent Russian incursion has seen a broader scramble for energy which has, at least temporarily, upended the clean energy investment theme. Long-term goals to reduce fossil fuel consumption have been demoted as regions scramble to ensure energy is available for immediate needs.

Nowhere has this been felt more acutely than in energy markets in regions such as Europe, which has found itself squeezed by an extreme energy shortage. The global drive to reduce fossil fuel consumption has not only discouraged investment in traditional fuels curbing underlying supply but many utilities also wound down fossil fuel inventories to the lowest level on record. The region has found itself exposed to extreme supply shortages in the post covid economic rebound. Furthermore, Europe's energy policies placed considerably more reliance on imported fuel, notably from Russia, to meet future gas needs. Even without deliveries from the now stalled Nordstream II gas pipeline, Russia provided approximately 40% of the Europe's gas.

As illustration, one year forward gas prices in Europe, for delivery in December 2022, had risen nearly four-fold in the calendar year to end-December 2021, the majority of this rise occurring in the second half of the year. Since Russia's invasion of Ukraine, the price of gas for December 2022 delivery has risen a further 160% as sanctions on trade bite. Alternate fuels sought to fill the energy supply gap have seen similar price moves. The thermal coal market, another sector in which Russia has a dominant 20%+ share of global export trade, has seen seaborne benchmark prices (FOB Australia) rising over 60% during calendar 2021 and prices have since doubled in the year-to-date. Analogous moves have also impacted crude markets. The price of Brent crude, which had risen nearly 50% in 2021, has now more than doubled and at the time of writing stood at US$126 per barrel.

At the vanguard of economic growth, supply shortages and energy price rises continue to exert inflationary pressures that may take time to address. The Fund is well positioned to sustain returns in a fast changing world reconfiguring to blend short-term energy requirements with longer-term environmental goals. Our closed ended structure, which allows a focus on more attractively valued, less liquid investments, provides another dimension to this.

 

 

Ian Francis, Keith Watson and Rob Crayfourd

New City Investment Managers

10 March 2022

 

Classification of Investment Portfolio by Sector

[Graphs and charts are included in the published Half-Yearly Financial Report which is available on the Company's website at https://ncim.co.uk/city-natural-resources-high-yield-trust/]

 

Investment Portfolio

As at 31 December 2021

Company

Sector

Valuation
£'000

Total Investments
%

First Quantum Minerals ** (Note 1)

Copper

11,281

7.9

Sigma Lithium Resources

Lithium

9,415

6.6

West African Resources

Gold

8,304

5.8

Foran Mining

Copper

6,417

4.5

Metals X

Base Metals

6,379

4.5

REA Holdings ** (Note 2)

Palm Oil

5,718

4.0

Lynas Corporation

Rare Earth

5,454

3.8

Euronav NV** (Note 3)

Shipping

5,048

3.5

NexGen Energy

Uranium

4,768

3.3

Talon Metals (Note 4)

Nickel

4,203

2.9

Top ten investments

 

66,987

46.8

Precision Drilling

Oil & Gas

4,164

2.9

Diversified Energy

Oil & Gas

3,859

2.7

Ero Copper

Copper

3,650

2.5

Firefinch

Lithium

3,645

2.5

Emerald Resources

Gold

3,083

2.2

BW LPG

Shipping

2,907

2.0

2020 Bulkers

Shipping

2,873

2.0

Teck Resources

Diversified Miner

2,745

1.9

Gazprom

Oil & Gas

2,729

1.9

Trevali Mining

Zinc

2,415

1.7

Top twenty investments

 

99,057

69.1

Capstone Mining Corporation

Copper

2,339

1.6

Fortuna Silver Mines

Silver

2,050

1.4

Galena Mining

Base Metals

1,954

1.4

Central Asia Metals

Copper

1,899

1.3

Adventus Mining

Copper

1,819

1.3

Raven Russia

Property

1,774

1.2

MAG Silver

Silver

1,734

1.2

Ascendant Resources **

Zinc

1,677

1.2

Goodbulk **

Shipping

1,461

1.0

EOG Resources

Oil & Gas

1,345

1.0

Top thirty investments

 

117,109

81.7

Peyto Exploration & Development

Oil & Gas

1,320

0.9

Base Resources

Mineral Sands

1,317

0.9

Integra Resources

Gold

1,296

0.9

IGO

Base Metals

1,258

0.9

Calidus

Gold

1,227

0.9

Ur-Energy

Uranium

1,185

0.8

Odyssey Energy

Oil & Gas

1,152

0.8

PetroTal Corp

Oil & Gas

1,111

0.8

Palladium One Mining

Platinum

1,080

0.8

Red 5

Gold

1,077

0.7

Top forty investments

 

129,132

90.1

Calibre Mining

Gold

1,037

0.7

Stavely Minerals

Gold

995

0.7

Westgold Resources

Gold

970

0.7

Fission Uranium

Uranium

949

0.7

Fenix Resources

Iron

932

0.7

Thungela Resources

Coal

764

0.5

Oceanagold

Gold

695

0.5

Vintage Energy

Oil & Gas

655

0.5

Americas Gold and Silver

Silver

648

0.4

Peabody Energy

Coal

558

0.4

Top fifty investments

 

137,335

95.9

 

Company

Sector

Valuation
£'000

Total Investments
%

Platinum Group Metals

Platinum

503

0.4

Bluestone Resources

Gold

497

0.3

Castile Resources Property

Gold

462

0.3

Oklo Resources

Gold

414

0.3

Galiano Gold

Gold

398

0.3

Peregrine Gold

Gold

392

0.3

Tharisa

Platinum

380

0.3

Gold Resource Corp

Gold

364

0.2

Diamondback Energy

Oil & Gas

358

0.2

Jupiter Mines

Iron

320

0.2

Top sixty investments

 

141,423

98.7

Denison Mines

Uranium

319

0.2

Aurcana Silver Corporation

Silver

317

0.2

Ora Banda Mining

Gold

252

0.2

Sabina Gold & Silver

Gold

167

0.1

Silver Lake Resources

Gold

145

0.1

Sherritt International Corp 8.5% 30/11/2026 **

Nickel

120

0.1

Goldenstar Resources

Gold

104

0.1

Oilflow SPV 1 DAC 12% 13/01/2022 **

Oil & Gas

88

0.1

ValOre Metals

Gold

87

0.1

Pure Gold Mining

Gold

57

0.1

Top seventy investments

 

143,079

100.0

Other investments

 

195

-

Total investments

 

143,274

100.0

 

Note 1 - Includes First Quantum Minerals valued at £10,521,000 and First Quantum Minerals 7.5% 01/04/2025 ** valued at £760,000.
Note 2 - Includes REA Holdings 9% preference shares valued at £4,975,000, REA Finance 8.75% 31/08/2025 ** valued at £452,000, REA Holdings valued at £256,000 and REA Holdings warrants valued at £35,000.
Note 3 - Includes Euronav valued at £4,444,000, Euronav Luxembourg SA 6.25% 14/09/26 ** valued at £454,000 and Euronav Luxembourg SA 7.5% 31/05/2022 ** valued at £150,000.
Note 4 - Includes Talon Metals valued at £4,203,000 and Talon Metals Warrants valued at £nil.

** Denotes a Level 2 security

 

Top Ten Largest Holdings

 

Valuation
30 June 2021
£'000

Purchases
£'000

Sales
£'000

Appreciation/
(depreciation)
£'000

Valuation
30 December 2021
£'000

First Quantum ** (Note 1)
Primarily a copper producer with mines in Africa and with a large project recently brought into production in Panama. The group also has inventories of gold, nickel and cobalt.

10,547

379

(92)

447

11,281

Sigma Lithium Resources
Explores and produces lithium for the electric vehicle-bus industry serving clients in Canada and Brazil.

6,961

-

(667)

3,121

9,415

West African Resources
Has transitioned into a gold producer having brought its Sanbrado discovery discovery in Burkina Faso into production under budget and on schedule.

6,282

-

-

2,022

8,304

Foran Mining
Copper-Zinc developer in Canada, progressing toward a construction decision. The company targets being the first carbon neutral copper miner.

6,687

-

(220)

(50)

6,417

Metals X
A diversified group mining, developing and exploring for minerals and metals in Australia

3,026

-

(1,190)

4,543

6,379

REA Holdings ** (Note 2)
Cultivates oil palms and produces crude palm oil and other palm products. The group's core plantations are located in Indonesia.

4,492

-

-

1,226

5,780

Lynas Corporation
Lynas Rare Earths Ltd is an Australian rare-earths mining company.

3,098

-

-

2,356

5,454

Euronav NV** (Note 3)
The world's largest independent crude oil tanker company

4,847

717

(459)

(57)

5,048

NexGen Energy
A uranium exploration and development company with a portfolio of projects that span the Athabasca Basin in Saskatchewan, Canada.

4,387

-

-

381

4,763

Talon Metals
A base metals explorer earning into a 51% interest on the high-grade Tamarack Nickel-Copper-Cobalt Project, located in Minnesota in the US, from Rio Tinto. The group has the option to earn a larger 60% interest by 2025.

3,643

-

-

560

4,203

Top ten investments

53,970

1,096

(2,628)

14,549

66,987

 

At 31 December 2021, these investments totalled £66,987,000 or 46.8% of the investment portfolio.

Condensed Income Statement

 

 

Six months ended
31 December 2021
(unaudited)

Six months ended
31 December 2020
(unaudited)

Six months ended
31 June 2021
(audited)

 

Notes

Revenue
£'000

Capital
£'000

Total
£'000

Revenue
£'000

Capital
£'000

Total
£'000

Revenue
£'000

Capital
£'000

Total
£'000

Gains on investments

3

-

16,331

16,331

-

29,892

29,892

-

52,048

52,048

Exchange gains/(losses)

 

-

1

1

-

(14)

(14)

-

(25)

(25)

Income

4

2,195

-

2,195

1,345

-

1,345

3,080

-

3,080

Investment management fee

 

(185)

(555)

(740)

(122)

(366)

(488)

(285)

(854)

(1,139)

Other expenses

 

(284)

-

(284)

(288)

-

(288)

(563)

-

(563)

Net return before finance costs and taxation

 

1,726

15,777

17,503

935

29,512

30,447

2,232

51,169

53,401

Interest payable and similar charges

 

(30)

(84)

(114)

(24)

(73)

(97)

(51)

(152)

(203)

Net return on ordinary activities before taxation

 

1,696

15,693

17,389

911

29,439

30,350

2,181

51,017

53,198

Tax on ordinary activities

 

(55)

-

(55)

(72)

-

(72)

(110)

-

(110)

Net return attributable to equity shareholders

5

1,641

15,693

17,334

839

29,439

30,278

2,071

51,017

53,088

Return per ordinary share

 

2.45p

23.46p

25.91p

1.25p

44.01p

45.26p

3.10p

76.27p

79.37p

 

The 'total' column of this statement represents the Company's profit and loss account, prepared in accordance with UK GAAP.

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

A statement of other comprehensive income is not presented as all gains and losses of the Company have been reflected in the above Condensed Income Statement.

The accompanying notes are an integral part of the financial statements.

Condensed Balance Sheet

 

Notes

As at
31 December 2021
(unaudited)
£'000

As at
31 December 2020
(unaudited)
£'000

As at
31 June 2021
(audited)
£'000

Fixed assets

 

 

 

 

Investments at fair value through profit or loss

 

143,274

104,691

129,353

Current assets

 

 

 

 

Debtors

 

234

376

475

Cash at bank

 

3,686

3,499

2,887

 

 

3,920

3,875

3,362

Creditors: amounts falling due within one year

 

 

 

 

Other payables

 

(601)

(371)

(1,396)

Loan: amount falling due within one year

7

(16,000)

(14,000)

(16,000)

 

 

(16,601)

(14,371)

(17,396)

Net current liabilities

 

(12,681)

(10,496)

(14,034)

Net assets

 

130,593

94,195

115,319

Capital and reserves

 

 

 

 

Called-up share capital

 

16,722

16,722

16,722

Special distributable reserve

 

28,449

29,322

28,868

Share premium

 

4,851

4,851

4,851

Capital reserve

 

80,571

43,300

64,878

Revenue reserve

 

-

-

-

Equity shareholders' funds

6

130,593

94,195

115,319

Net asset value per share

6

195.2p

140.8p

172.4p

 

The accompanying notes are an integral part of the financial statements.

 

Condensed Statement of Changes in Equity

For the 6 months to 31 December 2021 (unaudited)

 

Share
capital
£'000

Share
premium
account
£'000

Special
distributable
reserve
£'000

Capital
reserve
£'000

Revenue
reserve
£'000

Total
£'000

Balance at 30 June 2021

16,722

4,851

28,868

64,878

-

115,319

Return on ordinary activities after taxation

-

-

-

15,693

1,641

17,334

Transfer from special distributable reserve

-

-

(419)

-

419

-

Dividends paid

-

-

-

-

(2,060)

(2,060)

Balance at 31 December 2021

16,722

4,851

28,449

80,571

-

130,593

 

For the 6 months to 31 December 2020 (unaudited)

 

Share
capital
£'000

Share
premium
account
£'000

Special
distributable
reserve
£'000

Capital
reserve
£'000

Revenue
reserve
£'000

Total
£'000

Balance at 30 June 2020

16,722

4,851

30,386

13,861

157

65,977

Return on ordinary activities after taxation

-

-

-

29,439

839

30,278

Transfer from special distributable reserve

-

-

(1,064)

-

1,064

-

Dividends paid

-

-

-

-

(2,060)

(2,060)

Balance at 31 December 2020

16,722

4,851

29,322

43,300

-

94,195

 

The special distributable reserve and the revenue reserve represents the amount of the Company's reserves distributable by way of dividend.

The accompanying notes are an integral part of the financial statements.

Condensed Cash Flow Statement

 

Six months ended
31 December 2021
(unaudited)
£'000

Six months ended
31 December 2020
(unaudited)
£'000

Year ended
30 June 2021
(audited)
£'000

Operating activities

 

 

 

Investment income received

2,251

1,361

3,022

Investment management fees paid

(595)

(508)

(1,138)

Other cash payments

(319)

(282)

(428)

Net cash inflow from operating activities

1,337

571

1,456

Investing activities

 

 

 

Purchases of investments

(21,002)

(4,459)

(20,484)

Disposals of investments

22,635

6,531

20,862

Net cash inflow from investing activities

1,633

2,072

378

Financing activities

 

 

 

Equity dividends paid

(2,060)

(2,060)

(3,746)

Loan funding

-

2,000

4,000

Loan interest

(112)

(97)

(203)

Net cash (outflow)/inflow from financing activities

(2,172)

(157)

51

Increase in net cash

798

2,486

1,885

Reconciliation of net cash flow to movement in net cash

 

 

 

Increase in cash in the period

798

2,486

1,885

Exchange movements

1

(14)

(25)

Movement in net cash in the period

799

2,472

1,860

Opening net cash at 1 July

2,887

1,027

1,027

Closing net cash at 31 December / 30 June

3,686

3,499

2,887

 

The accompanying notes are an integral part of the financial statements.

Notes to the Accounts

1. The unaudited half-yearly results which cover the six months to 31 December 2021 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the year ended 30 June 2021.

Foreign currency

Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the period end are reported at the rates of exchange prevailing at the period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in either the capital or revenue column of the Statement of Comprehensive Income depending on whether the gain or loss is of a capital or revenue nature respectively.

2. A first interim dividend of 1.26p per share was paid on 30 November 2021 and a second interim was paid on 25 February 2022.

3. Included within gains on investments for the period ended 31 December 2021 are realised gains of £7,096,000 and unrealised gains of £9,235,000.

4. The breakdown of income for the six months to 31 December 2021, 31 December 2020 and year to 30 June 2021 was as follows:

 

Six months ended
31 December 2021
£'000

Six months ended
31 December 2020
£'000

Six months ended
31 June 2021
£'000

Income from investments:

 

 

 

UK dividend income

257

53

176

Preference share dividend income

86

84

169

Overseas dividend income

1,663

892

2,102

Overseas fixed interest

190

316

633

Total income

2,195

1,345

3,080

 

5. 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.

 

Six months ended
31 December 2021
£'000

Six months ended
31 December 2020
£'000

Six months ended
31 June 2021
£'000

Revenue return

1,641

839

2,071

Capital return

15,693

29,439

51,017

Total return

17,334

30,278

53,088

 

Number

Number

Number

Weighted average ordinary shares in issue

66,888,509

66,888,509

66,888,509

 

6. Net asset value per ordinary share

 

31 December 2021

31 December 2020

30 June 2021

Net asset value per share

195.2p

140.8p

172.4p

Net assets attributable at end of period

£130.6m

£94.2m

£115.3m

Ordinary shares of 25p each in issue at end of period

66,888,509

66,888,509

66,888,509

 

7. Bank loan facility

 

31 December 2021
£'000

31 December 2020
£'000

30 June 2021
£'000

Bank loan Facility

(16,000)

(14,000)

(16,000)

 

The Company has a short term unsecured loan facility with Scotiabank Europe Plc ("Scotiabank").

As at 31 December 2021 the unsecured loan facility had a limit of £20 million of which £13 million at an estimated interest rate of 1.4951% and £3 million with an estimated interest rate of 1.6437%, were drawn down at the period end.

During the year the covenants of the loan facility have been met. The following are the covenants for the facility:

• the borrower shall not permit the adjusted asset coverage to be less than 3.5 to 1

• the borrower shall not permit the net asset value to be less than £35,000,000

• the loan facility is rolled over every three months and can be cancelled at any time

8. Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities

 

Six months ended
31 December 2021
£'000

Six months ended
31 December 2020
£'000

Year ended
30 June 2021
£'000

Net return before finance costs and taxation

17,503

30,447

53,401

Adjust for returns from non-operating activities:

 

 

 

- Gains on investments

(16,331)

(29,892)

(52,048)

- Exchange (gains)/losses

(1)

14

25

- Effective yield

18

64

-

Return from operating activities

1,189

633

1,378

Adjust for non-cash flow:

 

 

 

- Decrease in accrued income

121

74

102

- Increase in debtors

(11)

(32)

(1)

- Increase in creditors

109

4

130

- Withholding tax

(71)

(108)

(153)

Net cash inflow from operating activities

1,337

571

1,456

 

9. With effect from 19 May 2019, CQS (UK) LLP, trading as New City Investment Managers, became the Company's Investment Manager. The Investment Manager receives a monthly fee at the rate of 0.1 per cent of the Company's gross assets (excluding cross-holdings) less current liabilities and any borrowings, payable in arrears. During the period investment management fees of £740,000 were incurred, of which £260,000 was payable at the period end.

10. After making enquires and having considered the Company's investment objective, nature of the investment portfolio, bank facility and expenditure projections, the Directors consider that the Company has adequate resources to continue in operation for the foreseeable future. For this reason, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing this report.

11. The results for six months ended 31 December 2021 and 31 December 2020, which have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on "Review of Interim Financial Information", constitute non-statutory accounts in terms 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 June 2021; the report of the 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 June 2021 are an extract from those accounts.

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

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

There are no transactions with the Board other than aggregated remuneration for services as Directors. The balance due to Directors for fees at the period end was £7,000.

Details of the fee arrangement with the Investment Manager are disclosed in note 9.

13. The report and accounts for the six months ended 31 December 2021 will be posted to shareholders and made available on the website www.ncim.co.uk.

Interim Management Report and Responsibility Statement

The Chairman's Statement and the Investment Manager's Review give details of the important events which have occurred during the period and their impact on the financial statements.

Principal Risks and Uncertainties

The Company's assets consist principally of listed equities and fixed interest securities and its principal risks are therefore market related. The Company is also exposed to currency risk in respect of the markets in which it invests. Other key risks faced by the Company relate to investment and strategy, market, sector, financial, earnings and dividend, operational, regulatory and political. These risks, and the way in which they are managed, are described in more detail under the heading 'Principal risks and risk mitigation' within the Strategic Review contained within the Company's annual report and accounts for the year ended 30 June 2021. The Company's principal risks and uncertainties have not changed materially since the date of the report and are not expected to change materially for the rest of the Company's financial year.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Going Concern

The Directors, having considered the Company's investment objective, the nature and liquidity of the portfolio and the income and expenditure projections, consider that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and is financially sound. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.

Statement of Directors' Responsibilities in Respect of the Interim Report

The Board of Directors confirms that, to the best of its knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

• the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

• the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

• the interim management statement and condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

 

On behalf of the Board

Richard Prickett

Chairman

 

Corporate Information  

Registered Number

02978531

Registered in England & Wales

 

Registered Office

10 Harewood Avenue

London

NW1 6AA

 

Directors

Richard Ö Prickett (Chairman)

Carole Cable

Christopher Casey

Alun G Evans

Helen F Green*

 

Investment Manager

CQS (UK) LLP

4th Floor

One Strand

London WC2N 5HR

 

Secretary

BNP Paribas Securities Services Jersey Branch

IFC 1

The Esplanade

St Helier

Jersey

JE1 5BP

 

Administrator

BNP Paribas Securities Services

9 Luna Place

Dundee

DD2 1TP

 

Solicitors

Dentons UK and Middle East LLP

One Fleet Place

London EC4M 7WS

 

Financial Adviser and Corporate Broker

finnCap Limited

1 Bartholomew Close

London EC1A 7BL

 

Bankers

BNP Paribas S.C.A

10 Harewood Avenue

London NW1 6AA

Scotiabank

201 Bishopsgate

London EC2M 3NS

 

Custodian and Depositary

BNP Paribas

10 Harewood Avenue

London

NW1 6AA

 

Auditor

BDO LLP

55 Baker Street

London W1U 7EU

 

Tax Advisor

KPMG LLP

20 Castle Street

Edinburgh EH1 2EG

 

AIFM

CQS (UK) LLP

4th Floor

One Strand

London WC2N 5HR

 

Registrars

Equiniti

Aspect House

Spencer Road, Lancing

West Sussex BN99 6DA

Shareholder helpline UK: 0371 384 2410**

Shareholder helpline overseas: +44 121 415 7047

 

Shareholder Information

Net Asset Value/Share Price

The net asset value of the Company's ordinary shares may be

obtained by contacting CQS on 0207 201 6900 or by email at

[email protected] or alternatively by visiting the

Company's web site at www.ncim.co.uk .

 

Website

www.ncim.co.uk

*Chair of the Audit Committee

**Calls from outside the UK will be charged at international rates.

Other telephone provider costs may vary. Lines open 8.30am to

5.30pm, Monday to Friday.

 

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