TIDMCMPG
RNS Number : 8096H
CT Global Managed Portfolio Trust
01 August 2023
To: RNS
Date: 1 August 2023
From: CT Global Managed Portfolio Trust PLC
LEI: 213800ZA6TW45NM9YY31
Statement of Audited Results for the year ended 31 May 2023
Income shares - financial highlights
- Annual dividend increased by 8.3% to 7.20p per Income share compared to the prior year.
- Dividend yield(1) of 6.0% at 31 May 2023, based on total
dividends for the financial year of 7.20p per Income share. This
compares to the yield on the FTSE All-Share Index of 3.7%.
Dividends are paid quarterly.
- Net asset value total return(2) per Income share of -7.4% for
the financial year, underperforming the total return of the FTSE
All-Share Index of +0.4% by -7.8% points.
- Share price total return(2) per Income share of -2.1% for the
financial year, underperforming the total return of the FTSE
All-Share Index of +0.4% by -2.5% points.
- Net asset value total return per Income share of +143.3% since
launch on 16 April 2008, the equivalent of +6.1% compound per year.
This has outperformed the total return of the FTSE All-Share Index
of +128.0%, the equivalent of +5.6% compound per year.
Growth shares - financial highlights
- Net asset value total return per Growth share of -5.8% for the
financial year, underperforming the total return of the FTSE
All-Share Index of +0.4% by -6.2% points.
- Share price total return per Growth share of -7.8% for the
financial year, underperforming the total return of the FTSE
All-Share Index of +0.4% by -8.2% points.
- The net asset value per Growth share has increased by +134.8%
since launch on 16 April 2008, the equivalent of +5.8% compound per
year. This has outperformed the total return of the FTSE All-Share
Index of +128.0%, the equivalent of +5.6% compound per year.
Notes:
(1) Dividend yield - based on dividends at the annual rate of
7.20p per Income share for the financial year to 31 May 2023 and
the Income share price of 121.0p at 31 May 2023.
(2) Total return - the return to shareholders calculated on a
per share basis taking into account both the reinvestment of any
dividends paid in the period and the increase or decrease in the
share price or NAV in the period.
Chairman's Statement
Performance
For the Company's financial year to 31 May 2023 the NAV total
return (capital performance plus the reinvestment of any dividends
paid) was -7.4% for the Income shares and -5.8% for the Growth
shares, both of which underperformed the +0.4% total return for the
FTSE All-Share Index, the benchmark index for both share classes.
Of relevance and for interest, the FTSE Closed End Investment
Companies Index total return was -4.4% for the year.
The dominant influence on performance over the past year was
what happened to discounts of share prices to net asset values of
many underlying investments. The average discount for the
investment trust sector steadily widened from 8% at the start of
the year to 16% by the end. There is no one reason that caused
discounts to widen, however the overall economic environment, with
sharply rising inflation and the response from monetary authorities
to raise interest rates after more than a decade of being at very
low levels, was an important factor. Performance is discussed more
fully in the Investment Manager's Review, however most companies
experienced a fall in their share price over the year and this
transmitted uncertainty through to investors. Uncertainty created
adverse sentiment amongst investors who became very risk averse and
cautious. This was reflected in widening discounts of share prices
to net asset values across the investment company universe.
For Income shareholders, I am pleased to report that dividends
have now been increased in each of the last twelve years. For
Growth shareholders seeking long term performance, while the last
two financial years have been difficult, it is pleasing to note
that their net asset value compound annual growth rates to 31 May
2023 have been 6.3% over ten years and 5.8% from launch on 16 April
2008, outperforming the compound annual growth rates for the FTSE
All-Share Index for the same periods.
Revenue and Dividends
For the financial year ended 31 May 2023, four interim dividends
have now been paid, totalling 7.20p per Income share, which
represents an increase of 8.3% from the prior financial year (2022:
6.65p per Income share). This has been achieved while adding
GBP353,000 to the revenue reserve. The fourth interim dividend was
paid after the year-end on 7 July 2023.
This is the twelfth consecutive year of increase and the yield
on the Income shares was 6.0% on the year-end Income share price,
compared with 3.7% for the FTSE All-Share Index.
From an income perspective, the revenue return per Income share
of 7.96p (2022: 6.85p) illustrated continuing growth. It has been a
genuinely encouraging feature that many holdings, especially in the
Income Portfolio, increased dividends. The increase in exposure to
UK equity investment companies, in both portfolios also enhanced
revenue growth.
In the absence of unforeseen circumstances, it is the Board's
current intention, in accordance with the Company's stated dividend
policy to pay four quarterly interim dividends; and each of at
least 1.80p per Income share so that the aggregate dividends for
the financial year to 31 May 2024 will be at least 7.20p per Income
share.
After allowing for the payment of the fourth interim dividend,
CT Global Managed Portfolio Trust has a revenue reserve of GBP2.5
million, approximately 70% of the current annual dividend cost (at
7.20p per Income share). In addition, the GBP29.6 million
distributable reserve (the 2022 special reserve, which was created
following the cancellation of the share premium account) is
attributable to the Income Portfolio. These reserves can be drawn
on to support the payment of dividends to Income shareholders if
and when considered appropriate by the Board.
Performance Fee
Since the launch of the Company in 2008, in addition to an
annual investment management fee based on the total assets of each
Portfolio, if certain conditions were met a performance fee had
been payable to Columbia Threadneedle Investment Business Limited
(the 'Manager'). The performance fee, in respect of any one
financial year, was capped at 0.35% of the total assets of the
relevant Portfolio.
Over recent years, the use of performance fees, which are often
complicated and costly, has reduced across the investment company
sector. As was explained in my Chairman's Statement in the Interim
Report to 30 November 2022, during the year, the Board and the
Manager discussed the appropriateness of the performance fee and
were pleased to agree its cessation with effect from 29 September
2022. Both the Board and Manager believe this to be in
shareholders' best interests as it simplifies and reduces the level
of fees incurred by the Company in the future. The last performance
fee generated and payable to the Manager was in the year to 31 May
2021. There was no change made to the annual investment management
fee which remains at 0.65% per annum of the total assets of each
Portfolio, subject to being reduced to 0.325% per annum on any
assets which are invested in other investment vehicles managed by
the Manager.
Borrowing
The Company has a GBP5 million unsecured term loan at a fixed
interest rate of 2.78% (which is fully drawn down in the Income
Portfolio) and a GBP5 million unsecured revolving credit facility
('RCF'), both with The Royal Bank of Scotland International
Limited, which are available until 10 February 2025. At the
year-end GBP2 million of the RCF had also been drawn down in the
Income Portfolio, resulting in total borrowings of GBP7 million in
the Income Portfolio (10.4% of its gross assets) and zero in the
Growth Portfolio.
The Board is responsible for the Company's gearing strategy and
sets parameters within which the Investment Manager operates.
Borrowings are not normally expected to exceed 20% of the total
assets of the relevant Portfolio; in practice they have been modest
and primarily used to enhance income in the Income Portfolio.
Management of Share Price Premium and Discount to NAV
In normal circumstances we aim to ensure the discount to NAV at
which our shares trade is no more than 5%. In practice over the
years the shares have generally traded close to NAV and, during the
financial year to 31 May 2023, the Income shares traded at an
average premium of 0.7% and the Growth shares traded at an average
discount of -0.4%.
We are active in issuing shares to meet demand and buying back
shares when this is appropriate. During the financial year
1,665,000 new Income shares and 190,000 new Growth shares were
issued from the Company's block listing facilities at an average
premium to their respective NAVs of 1.6% and 1.5%. In addition, and
primarily in the second half of the financial year, 815,000 Growth
shares were bought back into treasury at an average discount to NAV
of 3.7%. No Income shares were bought back.
The Board is seeking shareholders' approval to renew the powers
to allot shares, buy back shares and sell shares from treasury at
the forthcoming Annual General Meeting ('AGM'). Specifically, the
Board is seeking approval to allow the Company to issue up to 20%
of its Income shares and up to 20% of its Growth shares without
rights of pre-emption and in this respect there are two resolutions
proposed. Each resolution is for up to 10% and, therefore, for an
aggregate of up to 20% of each of the Income shares and Growth
shares. This approach allows any shareholder who may not wish to
give approval to an aggregate limit higher than that recommended by
corporate governance guidelines the ability to approve the first
resolution for up to 10% and to also consider the second resolution
separately for a further 10%. The Board believes the ability to
issue and buy back shares helps to reduce the volatility in the
premium or discount of the share prices to the underlying NAVs and
the 20% overall share allotment authority and the 14.99% buy back
authority with respect to both the Income shares and Growth shares
are therefore in the best interests of all shareholders.
Share Conversion Facility
Shareholders have the opportunity to convert their Income shares
into Growth shares or their Growth shares into Income shares
annually subject to minimum and maximum conversion thresholds which
may be reduced or increased at the discretion of the Board.
The ability to convert without incurring UK capital gains tax
should be an attractive facility for shareholders who wish to do
so, and the next conversion date (subject to minimum and maximum
thresholds) will be on 26 October 2023. Information is provided in
the Annual Report and Financial Statements and full details will be
provided on the Company's website (ctglobalmanagedportfolio.co.uk)
from 7 August 2023.
Board Changes
Following the Annual General Meeting on 29 September 2022, David
Harris retired from the Board. David was the Senior Independent
Director and Sue Inglis now fulfils this role. As part of its
succession plan, the Board was pleased to appoint Shauna Bevan as a
non-executive Director with effect from 9 June 2022.
Company Name
As reported in my statement in the Annual Report to 31 May 2022,
following the acquisition of the Company's Manager by Columbia
Threadneedle Investments, part of Ameriprise Financial, during the
financial year the Board resolved to change the Company's name to
CT Global Managed Portfolio Trust PLC with effect from 29 June
2022. There has, however, been no change to the personnel running
the activities of your Company in terms of both fund management and
administration.
Change of Auditor
As was explained in my Chairman's Statement in the Interim
Report to 30 November 2022, in view of increasing audit fees, it
was agreed to conduct a competitive audit tender during the
financial year. This was no reflection on the quality of the
incumbent Auditor's work or any issue other than cost. Following
this process, KPMG LLP resigned as the Company's Auditor, having
served since its appointment in September 2017. The Board then
appointed BDO LLP and it has now completed the audit for the
financial year to 31 May 2023. Shareholders will be asked to
approve its re-appointment at the forthcoming AGM on 28 September
2023.
AGM
The Annual General Meeting is scheduled to be held on 28
September 2023 at Exchange House, Primrose Street, London, EC2A 2NY
at 11.30am. Peter Hewitt, the Investment Manager, will as usual
give a presentation and provide an overview of the financial year
together with his view on the outlook.
Voting on all resolutions at the AGM will be held on a poll, the
results of which will be announced and posted on the Company's
website following the meeting. All shareholders are therefore
encouraged to make use of the proxy form or form of direction
provided, in order that they can lodge their votes.
Should shareholders have any questions or comments in advance,
these can be raised with the Company Secretary
(MPTCoSec@columbiathreadneedle.com). Following the AGM, the
Investment Manager's presentation will be available on the
Company's website ctglobalmanagedportfolio.co.uk
Continuation Vote
At the Annual General Meeting, shareholders will be asked to
vote to approve an ordinary resolution to the effect that the
Company continues as an investment trust. The requirement to put a
resolution to shareholders at the 2023 AGM (being five years since
the last continuation vote) is set out in the Company's Articles of
Association.
The Board believes that the Company has proved a very effective
vehicle for shareholders to gain exposure to a wide range of
markets and sectors:
-- over the five years to 31 May 2023, the NAV total return for
the Income shares and Growth shares has been +11.8% and +11.6%
respectively. Whilst positive, these returns are behind the total
return of +15.2% from the FTSE All-Share Index, largely due to
investment company share price discounts widening since late
2021;
-- the NAV total return of both the Income shares and Growth
shares has outperformed the FTSE All-Share Index since launch on 16
April 2008;
-- the NAV total return of both the Income shares and Growth
shares have equalled or bettered the benchmark index in eleven of
the fifteen financial years since launch;
-- excluding the one-off special dividend which was paid in
2018, the total annual dividend to Income shareholders has risen by
26.3% over the last five years which compares favourably to
Consumer Price Inflation which has risen by 24.1% over the same
period;
-- the annual dividend on the Income shares has been increased
in each of the last twelve years. This dividend represents an
attractive yield of 6.0% based on the share price at the
year-end;
-- since the Company's launch, both the Income shares and Growth
shares have traded at close to NAV (average premium of 0.4% and
discount of 0.1% respectively);
-- annually the Company offers the ability to switch between the
Growth shares and Income shares, and vice versa, in a tax efficient
and cost-effective manner to suit investors' needs; and
-- the ongoing charges of running the Company, excluding the
costs of the underlying investments, have reduced from 1.50% at
launch to 1.17% for the Income shares and 1.07% for the Growth
shares for the year just ended, and the Performance fee, which cost
up to 0.35% of total assets in some years, has been removed.
Accordingly, the Board strongly believes that it is in the best
interests of shareholders for the Company to continue and
encourages shareholders to vote in favour of the resolution, as
they intend to do in respect of their own shareholdings.
Outlook
As with last year, there is a heightened level of uncertainty
pervading through financial markets. The war in Ukraine, political
upheavals in the UK and elsewhere and levels of inflation not
previously experienced this century are all factors. In order to
combat the latter, interest rates have been raised faster and
higher, and look likely to remain higher for longer than had been
expected. The fear of recession is also a headwind to progress in
stock markets which, not surprisingly lack confidence. Investment
companies have been de-rated, as measured by average share price
discounts, to levels not seen since the global financial crisis of
2008/2009.
Whilst the chances of a recession over the next year have
increased, valuations of UK companies in particular have already
gone some way to take account of this possibility. They are at
historically low levels both in absolute and relative terms and on
a longer-term perspective offer the patient investor the prospect
of attractive returns. As always, the Manager's focus is on
selecting only the highest quality investment companies with
experienced managers in the belief that this will serve
shareholders' interests best.
David Warnock
Chairman
31 July 2023
Investment Manager's Review
Stock Market Background
The past twelve months have been a period of considerable
turmoil in financial markets. Inflation, which had begun to rise
sharply in the second half of the last financial year, proved
anything but "transitory" and has continued to rise for much longer
than had been anticipated, peaking in the UK at over 11% last
autumn. Only recently has it begun to start trending lower. In
response, central banks everywhere increased interest rates. In the
case of the UK, the Bank of England raised rates from 1% at the
start of the period under review to 4.5% by the end. This has meant
a 350% rise in the absolute cost of money over a relatively short
time period which has had ramifications on asset prices generally,
and on discounts across the investment company sector.
Equity markets have been stalked throughout the year by the fear
of recession with investors concerned with what that could mean for
prospective corporate profitability and valuations of equity
markets. And yet, despite sharp rises in interest rates, economies,
even that of the UK, did not slump into recession. Key factors
behind this were buoyant consumer demand coupled with extremely
tight labour markets throughout most developed economies, which
meant unemployment remained at very low levels. The ongoing war in
Ukraine, political turmoil in the UK and the all-embracing cost of
living crisis which affected both the corporate sector and the
wider population kept investor sentiment very adverse and raised
investor uncertainty to high levels.
This was reflected in bursts of volatility for most equity
markets which limited positive returns to modest levels.
Total Return by Region for Year to 31 May 2023 (sterling
adjusted)
FTSE Europe ex UK +8.5%
FTSE Japan +6.8%
S&P 500 (US) +4.7%
FTSE World ex UK +4.0%
FTSE All-Share +0.4%
FTSE Pacific ex Japan -4.3%
MSCI Emerging Markets -6.5%
Source: Columbia Threadneedle Investments
The table above highlights that the UK market reverted once
again to its role as one of the lower performers in the league
table of equity market returns for global stock markets. Another
long-term relative underperformer has been the Japanese stock
market; however, over the past year, it appears as one of the
better relative performers. In local currency terms, performance
was even stronger, however the Yen (which for many years had been a
strong currency) weakened, declining by 7% against Sterling (one of
the traditionally weaker currencies).
The table below highlights the performance trends within the UK
equity market over the past year. They are a continuation of the
trends that became evident during the second half of the Company's
previous financial year and marked a reversal of the trends within
the market that had existed since the Brexit referendum. Leadership
within the UK stock market has come from the very biggest companies
which are in the FTSE 100 Index. This trend has been mirrored with
other developed economy stock markets in the US and Europe.
Total Returns for Year to 31 May 2023
FTSE 100 Index +1.7%
FTSE 250 Index -5.4%
FTSE Small Cap (ex Investment Companies) Index -8.7%
FTSE Closed End Investment Companies Index -4.4%
The FTSE 100 Index comprises 84% of the FTSE All-Share Index by
market value and has heavy weightings in sectors like oils, banks,
pharmaceuticals, utilities and consumer staples. With the possible
exception of pharmaceuticals, these are viewed as mature "old
economy" sectors with low growth characteristics. However, during
times of acute uncertainty, investors can exhibit a preference for
larger companies which are perceived as less volatile, safer and
better placed to survive an adverse environment of rising inflation
and interest rates. Taking a longer perspective, it is these very
sectors which dominate the UK stock market that have been a key
element behind the long-term underperformance of UK equities.
Performance
For the year to 31 May 2023 the FTSE All-Share Index managed a
marginal 0.4% rise (in total return terms). Over the same period
the net asset value ('NAV') of the Growth shares declined by 5.8%
whilst that of the Income shares experienced a 7.4% fall (again
both in total return terms).
There are three key factors which help to explain this
performance.
The first and perhaps the most important factor, which has
caused the investment company sector (along with both the Growth
Portfolio and Income Portfolio) to lag the benchmark has been what
has happened to discounts. The principal way share prices of
investment companies are valued by the stock market is by reference
as to whether the share price trades at a discount or premium to
the underlying net asset value of the investment company in
question. There was a steady widening of the average sector
discount over the past year from 8% to 16% as at 31 May 2023.
Although this figure is an average, with a few investment companies
maintaining a consistently tight rating, the vast majority of
investment companies across a wide variety of sectors experienced a
widening of their share price discounts in relation to net asset
values. Whilst there is no single element that caused this, one
that has played a significant role has been overall uncertainty
about the investment environment which has translated through to
very adverse sentiment amongst retail investors who are a key
audience for investment companies. To help put in perspective the
magnitude of the movement in the average sector discount, aside
from a very brief period at the start of the COVID lockdown in
March 2020, the average sector discount is now at its widest for a
decade.
Second, the sharp rise in interest rates over the past year has
severely affected the valuations of many investment companies in
the wider alternatives sector. The term "alternatives" refers to
investment companies in infrastructure, renewables, property,
private equity and a series of new smaller sub sectors such as
royalty income. The common theme is that their assets are valued by
reference to a discount rate which is applied to the cash flows
generated by underlying assets. When interest rates rose rapidly
this was also reflected in a rise in the discount rates used which
often led to a corresponding reduction in asset value. Some
investment companies in these areas were trading at premiums (e.g.
renewables) but have since moved to discounts. In the case of
property and private equity trusts, discounts of 40%-50% are now
not uncommon. Given that there has been a great deal of issuance in
these sectors over the past decade, the wider alternatives sector
accounts for nearly half of the total assets of the investment
company sector. The Income Portfolio has a number of these
companies where dividends form a large part of their total return.
Whilst the dividends have generally continued to be paid, and in
certain cases increased, asset values and share prices have fallen,
which is a key reason why the Income Portfolio has underperformed
over the past year.
The third factor which has worked against performance for active
fund managers is best illustrated by the earlier table of the
performance of various UK Indices split by size over the past year.
When the largest companies outperform, it is difficult for active
fund managers, who for reasons of risk and diversity will not wish
to have too concentrated a portfolio dominated by holdings in a few
very large companies. Typically, they tend to prefer medium and
smaller sized companies which grow faster and tend to outperform
over the longer term. As explained earlier, this has not been the
case over the past year. Similar trends have been evident in
European and US stock markets. This has resulted in many equity
focused investment companies lagging benchmarks over the past
year.
As is explained in the Chairman's Statement, at the forthcoming
AGM, shareholders will be asked to approve an ordinary resolution
that the Company continues as an investment trust. Over the past
five years, since the last continuation vote, the NAV total return
of both the Growth shares and Income shares are behind the
benchmark. This is entirely the result of the magnitude of the
reversal in performance, due to reasons outlined earlier, which has
occurred over the past eighteen months. However, since the
Company's launch (in April 2008) to 31 May 2023, the NAV total
return of both the Income shares and Growth shares are ahead of the
FTSE All-Share Index, the benchmark index, and have also equalled
or bettered the benchmark in eleven of the fifteen financial years
since launch.
Growth Portfolio - Leaders and Laggards
Starting with the underperformers, an interesting theme is that
none of the laggards is a conventional investment company investing
into listed equities. The Schiehallion Fund C shares declined by
45% over the past twelve months. Managed by Baillie Gifford, it
invests in late-stage private companies principally in the
technology sector. Whilst underlying revenue growth across its
portfolio is in excess of 50% most of its key holdings (Space X,
ByteDance, Wise and Stripe) are not yet profitable and, in an
environment of rising interest rates and higher discount rates,
have had their valuations severely marked down. At the same time,
the share price has moved from a premium to a discount of over 40%
to the net asset value. Encouragingly, the managers have frequently
revalued the holdings so valuations are not historic but current.
Despite the performance of the shares the underlying portfolio
retains very exciting prospects for growth. Schroders Capital
Global Innovation Trust experienced a 38% fall in its share price.
At 0.3% of net assets, it is one of the smallest holdings in the
Growth Portfolio and trades at a near 50% discount to net assets.
There are some companies with significant potential, such as the
largest holding Oxford Nanopore. However, evidence of progress in
the trust's net asset value is needed before the wide discount will
narrow. Against an adverse background for UK and European listed
property companies TR Property Investment Trust had a 29% decline
in its share price. As has been mentioned earlier, valuations moved
lower as the effect of rising interest rates fed through to yields
on property assets. Share prices of property companies experienced
significant widening of their discount to net asset value. There
are early signs, however, that valuations are stabilising,
particularly where rental growth is still evident. TR Property
Investment Trust has a strong long-term record of growth in both
its net asset value and dividends and remains a core holding.
Hipgnosis Songs Fund ('Hipgnosis') owns song catalogues which
generate royalty income from a variety of sources but principally
from streaming services, the growth of which is key to growing its
royalty income. It has built a unique catalogue of over 65,000 song
copyrights from artists and song writers. Whilst the net asset
value has grown rapidly, the share price has declined by 25% as the
market is uncertain whether the discount rate used to value the
portfolio has reflected the wider changes in the investment
environment. Hipgnosis had a series of equity issues to acquire
song catalogues and also used gearing for this purpose. Gearing has
risen and will not be used to fund further acquisitions. Management
are exploring ways of corroborating the value of its song portfolio
which they believe will underscore the reported asset value. At a
discount of over 45% the share price offers attractive value. RIT
Capital Partners has been a long-term holding; however, it had a
disappointing year with a share price decline of 23%. Over the past
decade the trust has built a strong long term performance record by
capturing most of the upside in equity
markets and materially less than the market in down phases. Last
year, in part due to the private equity element of the portfolio,
the net asset value performed slightly worse than global equities
which caused the share price to decline and the discount to widen
out to 22%. At the widest discount the shares have traded at for
many years, the trust offers outstanding long-term value.
Turning to the better performers, the leader was private equity
company Oakley Capital Investments ('Oakley') whose share price
gained 22% over the year. Oakley's focus is European companies in
the education, technology and consumer sectors. Most of their
investments are in founder-led smaller or medium-sized companies so
competition for deals from other private equity companies is much
less. Oakley achieved strong growth over the year with prospects
that this will continue for the current year. Despite the good
performance the shares trade on a discount of over 30%. Perhaps
surprisingly, after a challenging calendar 2022 for the technology
sector, Polar Capital Technology Trust and Allianz Technology Trust
achieved share price gains of 14% and 11% respectively. All of
these gains happened in the last quarter of the financial year and
were driven by the mega tech holdings in both of their portfolios.
These are the companies which are likely to be the major
beneficiaries of the boom in Artificial Intelligence applications
which will become a major source of future growth. It should be
noted that technology companies which are not profitable in the
early stages of their growth and only generating revenues are still
out of favour, both in the listed and unlisted sectors. This
recovery in the technology sector is confined to existing very
large companies which have substantial amounts of cash on their
balance sheets and the resources to take advantage of new
opportunities. Finsbury Growth & Income Trust, which is in the
UK equity income sector, experienced a share price gain of 13%
which also marked a welcome recovery after a difficult 2022. Its
highly concentrated portfolio is focused on UK companies with
consistent earnings growth. There is exposure to global consumer
brands through Diageo, Unilever and Burberry and also to data
analytics and platform services through RELX, London Stock Exchange
and Sage. Having been de-rated in 2022, the inflation resilience of
much of the portfolio, along with inherent growth prospects, have
been rewarded with a strong recovery over the past year. Finally, a
better performance from European stock markets provided a tail wind
for Henderson European Focus Trust to record an 11% share price
return. Its portfolio is balanced between significant exposure to
the oil and industrial sectors and also the pharmaceutical and
luxury goods sectors where Europe has a strong roster of leading
companies.
Income Portfolio - Leaders and Laggards
Turning to the laggards in the Income Portfolio. The shares in
Digital 9 Infrastructure produced a return of -42.3% which was not
due to the net asset value declining, but rather a wide share price
discount of 45% opening up. Digital 9 Infrastructure owns subsea
fibre assets, the infrastructure for terrestrial television and
radio broadcasting in the UK and Ireland's largest wireless
internet provider. However, the jewels in the crown are data
centres mainly in Iceland and Finland which are powered by
renewables. These data centres require a great deal of power so if
renewables can be used this makes them very attractive. However,
they also require a significant capital expenditure to exploit the
opportunity ahead for them. When its shares initially moved to a
small discount, the possibility of raising funds via an equity
issue disappeared and the market began to be concerned over levels
of gearing that would be needed to fund future growth. Management
are evolving a plan to complete the strategy and, if successful,
there is considerable upside. LXI REIT came into the portfolio when
it acquired our long time holding Secure Income REIT in June 2022.
However, the problems that have affected many companies in the
property sector were manifest here. The net asset value fell 15% as
property yields moved upwards reducing the asset value. In tandem,
the shares moved to a wide discount, currently around 30%. A
positive indication of financial health was that the dividend was
increased 5% and the company forecast an increase for next year,
also of 5%, which gives a prospective dividend yield of 6.5%.
Hipgnosis Songs Fund, which returned -25%, was covered in the
Growth Portfolio section. Encouragingly, from an income perspective
the fund has continued to pay the dividend which gives an
attractive 6.3% yield. The final two in the laggards list are both
Swiss-based, listed on the Zurich Stock Exchange and biotech
specialists. HBM Healthcare Investments fell by 18% whilst BB
Biotech was down by 17% over the year. Both investment companies
have good long-term records. However, both suffered as the biotech
sector in general fell out of favour in the second half of the
financial year. Both funds pay dividends out of capital, albeit in
both cases they were reduced. However, they remain well managed
with considerable investment resource underpinning them and by
paying a dividend, enable a fund with an income element to the
objective to gain exposure to a potentially exciting sector with
considerable growth prospects.
The leading positive performer was Biopharma Credit with a total
return of 10%. The trust is a specialist lender to medium-sized
pharmaceutical companies where they often need significant cash
resources to fund research and development programmes. The funds
are lent against royalties from existing pharmaceutical products
that are already in the market generating revenues. In addition,
should the company they have lent to be acquired, often Biopharma
has an equity option arrangement where it benefits from the deal.
This is what happened last year with Biopharma paying its regular
7% dividend yield and then a sizeable special dividend to
shareholders following the acquisition of one of the companies to
which it had made a loan. Scottish American Investment Company also
returned 10% over the year. The trust is in the global equity
income sector and has built an impressive long-term performance
record both in capital and income. Most of the equity portfolio is
invested in companies with reliable compounding earnings records,
strong competitive positions and proven management. Around 15% is
invested in property and bonds and, although it has a relatively
low dividend yield of 2.7%, the dividend grew at a healthy 9% last
year. Scottish American Investment Company should be viewed as a
core position. CC Japan Income & Growth Trust, which is managed
by Japanese specialist boutique Coupland Cardiff, delivered a 9%
return last year. One aspect of much improved corporate governance
in Japan is the increasing importance of dividends in shareholder
returns. Over half of listed companies in the TOPIX Index have net
cash, yet, Japanese companies have the lowest pay-out ratio of all
developed stock markets. CC Japan Income & Growth Trust's
portfolio is well balanced across a range of sectors and is
constructed to capture both strong dividend and capital growth.
JPMorgan Global Growth & Income is also in the global equity
income sector and achieved an 8% return over the past year. The
trust has built a good long-term performance record and in the past
year, Scottish Investment Trust has been successfully merged into
it. The management team effectively utilises the JPMorgan team of
analysts located around the globe for their best ideas, which are
then incorporated into the portfolio. The trust has become a core
holding for the Income Portfolio. NB Private Equity Partners was in
the list of better performers last year and has managed to retain
that position this year with a return of 7%. The trust is managed
in the US and that is where the majority of the portfolio is
invested. The investment strategy is to focus on co-investments
with other private equity firms. The portfolio is well diversified
across a variety of sectors and has returned 13.6% p.a. in dollar
terms over the last five years. The balance sheet is cautiously
managed with gearing of only 6%. Despite this strong performance
the shares are on a discount of around 30%.
(all share prices are total return)
Investment Strategy and Prospects
The outlook for equity markets continues to be challenging.
Writing in last year's Annual Report it was thought then that
developed economies would likely be in recession by the middle of
2023. This has not proven to be the case and even the UK economy
has managed to retain a positive momentum. What has been more
difficult has been inflation. There are signs it is beginning to
come down in the US. However, although the fall back in energy
prices has, from double-digit levels, turned inflation lower in the
UK, it is of concern that core inflation remains sticky. Whilst for
the Federal Reserve in the US the policy of raising interest rates
to combat inflation may be close to a peak, it appears that may not
be the case in the UK, Eurozone and other developed economies. The
higher for longer scenario raises the chances that a recession
could occur, later this year or in 2024.
These are headwinds for financial markets and, although
corporate profits have been more resilient than expected, the
uncertainty created by the fear of recession will be a key
influence affecting equity markets over the next year.
In terms of strategy, the steady increase in exposure to
investment companies focused on UK equities has been a continuing
theme for both portfolios over the course of the year. The UK
market has been unloved and has in relative terms underperformed
most global equity markets since the Brexit referendum in 2016,
such that it is the only major stock market that is valued below
its long-term average. As an illustration, the current estimated
forward (next 12 months) price/earnings ratio is around 10.5x
against a long-term average of 14x. All other major equity markets,
particularly that of the US, are valued at premiums to their
long-term average. This is not simply due to a few lowly rated mega
cap companies at the top end of the FTSE 100 Index (e.g. oils,
banks and tobaccos) but also to the FTSE 250 Index where a majority
of the genuine growth companies in the UK are listed. This segment
of the UK stock market has also been significantly de-rated, yet
the growth prospects of many of the underlying companies are
unchanged. Amongst smaller listed companies in the UK, the
de-rating has been particularly severe. That UK equities offers
very attractive value is no guide to whether it will outperform in
the near term; however, it is a good indicator that over the medium
to long term excellent returns can be achieved from these very
modest valuation levels.
Both Portfolios have sought to increase exposure in this area.
As an example, the Growth Portfolio has acquired a new holding in
Aberforth Smaller Companies Trust (on a 13% discount to NAV) and
added to existing positions in Henderson Smaller Companies
Investment Trust, Lowland Investment Company, Henderson
Opportunities Trust and to the already significant position in
Finsbury Growth & Income Trust. The Growth Portfolio also has
substantial holdings in Fidelity Special Values, Law Debenture
Corporation and Aurora Investment Trust, all UK equity
specialists.
Similarly, the Income Portfolio has also increased exposure to
investment companies focused on UK equities and which also offer an
attractive dividend yield. In this case all are additions to
existing holdings. Examples are The Merchants Trust, Mercantile
Investment Trust, Lowland Investment Company, Murray Income Trust,
Henderson High Income Trust and Invesco Perpetual UK Smaller
Companies Investment Trust.
In the prior financial year (to 31 May 2022), the Growth
Portfolio reduced exposure to a series of investment companies
which were invested in companies offering secular growth prospects,
particularly in the technology, biotechnology, healthcare and
digital platform sectors. It is important to note that holdings in
these type of investment companies have been maintained at lower
weightings in the portfolio. The reason for this is that, although
a period of higher inflation and higher interest rates creates a
headwind in terms of recent performance, over the long-term it is
from investment companies with these secular growth characteristics
that returns many times the original investment can be achieved.
Examples of holdings with these characteristics are: Polar Capital
Technology Trust, Allianz Technology Trust, Monks Investment Trust,
Biotech Growth Trust, Scottish Mortgage Investment Trust, Edinburgh
Worldwide Investment Trust, Impax Environmental Markets and
Worldwide Healthcare Trust.
A positive feature over the last year for the Income Portfolio
has been the revenue performance from the underlying holdings. A
series of global equity income funds (e.g. Murray International
Trust, JPMorgan Global Growth & Income, Scottish American
Investment Company and Henderson International Income Trust) have
come through with solid dividends, whilst UK equity income funds
(e.g. The Merchants Trust, City of London Investment Trust, Lowland
Investment Company and Murray Income Trust), all of which managed
to edge ahead their dividends through the pandemic, have continued
to grow them over the past year. The largest holding Law Debenture
Corporation increased its dividend by over 5%.
Developed economies and equity markets have done better than
expected in the first half of calendar 2023. Growth has been
stronger than anticipated and this fed through to profits and
earnings from the corporate sector also being more resilient than
had been estimated. Looking ahead, however, prospects appear
fraught with uncertainties. Inflation everywhere, but especially in
the UK, has proved much more sticky. In the biggest economy, the
US, interest rates may be within one or two more rises of being at
a peak. However, in the UK and Europe, Central Banks have more work
to do and interest rates have further to rise. The big uncertainty
is whether this reduces demand enough to lead to recession and if
so the likely depth and duration of any slowdown. This has led to
extreme caution amongst investors.
Against this background, the UK stock market has once again
underperformed and whilst this may continue in the near-term,
valuations of UK equities are discounting the most pessimistic of
outcomes and are substantially below long-term averages. There is
no doubt that patience is required, and will likely be tested.
However, there is a significant opportunity for positive returns
from UK equities which is reflected in both Portfolios increasing
exposure to UK equity-focused investment companies, particularly
those with exposure to medium and smaller companies. The other key
theme is remaining invested in secular growth investment companies
exposed to the technology, biotechnology, healthcare and digital
platform sectors. Taking a longer view, it is from these type of
investment companies that strong performance will most likely be
achieved. Meantime, it is important to exercise caution in terms of
investment strategy and only holding the highest quality investment
companies with strong balance sheets and experienced, proven
management.
Peter Hewitt
Investment Manager
Columbia Threadneedle Investment Business Limited
31 July 2023
Income Statement
For the Year Ended 31 May 2023
Notes Revenue Capital Total
GBP'000 GBP'000 GBP'000
-------- --------------------- -----------
Losses on investments - (13,698) (13,698)
Foreign exchange losses - (5) (5)
Income 5,019 - 5,019
Investment management fee (293) (730) (1,023)
Other expenses (689) - (689)
-------- --------------------- -----------
Return on ordinary activities
before
finance costs and tax 4,037 (14,433) (10,396)
Finance costs (95) (143) (238)
-------- --------------------- -----------
Return on ordinary activities
before tax 3,942 (14,576) (10,634)
Tax on ordinary activities (11) - (11)
-------- --------------------- -----------
Return attributable to shareholders 3,931 (14,576) (10,645)
-------- --------------------- -----------
Return per Income share - basic
and diluted 3 7.96p (18.16p) (10.20p)
Return per Growth share - basic
and diluted 3 - (14.51p) (14.51p)
-------- --------------------- -----------
The total column of this statement is the Profit and Loss
Account of the Company. The supplementary revenue and capital
columns are prepared under guidance published by The Association of
Investment Companies.
Segmental analysis, illustrating the two separate portfolios of
assets, the Income Portfolio and the Growth Portfolio, is shown in
note 2 to the financial statements.
All revenue and capital items in the Income Statement derive
from continuing operations.
Return attributable to shareholders represents the profit/(loss)
for the year and also total comprehensive income
Income Statement
For the Year Ended 31 May 2022
Notes Revenue Capital Total
GBP'000 GBP'000 GBP'000
-------- --------------------- -----------
Losses on investments - (15,724) (15,724)
Foreign exchange losses - (2) (2)
Income 4,384 - 4,384
Investment management fee (322) (818) (1,140)
Other expenses (723) - (723)
-------- --------------------- -----------
Return on ordinary activities
before
finance costs and tax 3,339 (16,544) (13,205)
Finance costs (61) (92) (153)
-------- --------------------- -----------
Return on ordinary activities
before tax 3,278 (16,636) (13,358)
Tax on ordinary activities (14) - (14)
-------- --------------------- -----------
Return attributable to shareholders 3,264 (16,636) (13,372)
-------- --------------------- -----------
Return per Income share - basic
and diluted 3 6.85p (8.95p) (2.10p)
Return per Growth share - basic
and diluted 3 - (32.28p) (32.28p)
-------- --------------------- -----------
The total column of this statement is the Profit and Loss
Account of the Company. The supplementary revenue and capital
columns are prepared under guidance published by The Association of
Investment Companies.
Segmental analysis, illustrating the two separate portfolios of
assets, the Income Portfolio and the Growth Portfolio, is shown in
note 2 to the financial statements.
All revenue and capital items in the Income Statement derive
from continuing activities.
Return attributable to shareholders represents the profit/(loss)
for the year and also total comprehensive income.
Balance Sheet
As at 31 May 2023
Income Growth
shares shares Total
Notes GBP'000 GBP'000 GBP'000
---------- -------- ----------
Fixed assets
Investments at fair value 64,183 82,360 146,543
---------- -------- ----------
Current assets
Debtors 198 68 266
Cash at bank and on deposit 3,002 5,610 8,612
3,200 5,678 8,878
---------- -------- ----------
Creditors:
Amounts falling due within one
year (3,650) (518) (4,168)
---------- -------- ----------
Net current (liabilities)/ assets (450) 5,160 4,710
---------- -------- ----------
Creditors:
Amounts falling due in more than
one year (5,000) - (5,000)
---------- -------- ----------
Net assets 58,733 87,520 146,253
---------- -------- ----------
Capital and reserves:
Called-up share capital 3,247 2,500 5,747
Share premium 1,917 428 2,345
Capital redemption reserve 1,760 1,553 3,313
2022 special reserve 29,588 29,581 59,169
2008 special reserve 19,422 14,930 34,352
Capital reserves (853) 38,528 37,675
Revenue reserve 3,652 - 3,652
---------- -------- ----------
Shareholders' funds 58,733 87,520 146,253
Net asset value per share (pence) 6 116.41p 230.12p
---------- -------- ----------
Balance Sheet
As at 31 May 2022
Income Growth
shares shares Total
Notes GBP'000 GBP'000 GBP'000
---------- -------- ----------
Fixed assets
Investments at fair value 69,874 89,258 159,132
---------- -------- ----------
Current assets
Debtors 697 95 792
Cash at bank and on deposit 1,549 5,929 7,478
2,246 6,024 8,270
---------- -------- ----------
Creditors:
Amounts falling due within one
year (2,428) (303) (2,731)
---------- -------- ----------
Net current (liabilities)/ assets (182) 5,721 5,539
---------- -------- ----------
Creditors:
Amounts falling due in more than
one year (5,000) - (5,000)
---------- -------- ----------
Net assets 64,692 94,979 159,671
---------- -------- ----------
Capital and reserves:
Called-up share capital 4,596 3,692 8,288
Share premium - - -
Capital redemption reserve 257 365 622
2022 special reserve 29,588 29,581 59,169
2008 special reserve 18,980 17,199 36,179
Capital reserves 8,109 44,142 52,251
Revenue reserve 3,162 - 3,162
---------- -------- ----------
Shareholders' funds 64,692 94,979 159,671
Net asset value per share (pence) 6 133.67p 244.41p
---------- -------- ----------
Cash Flow Statement
Year to 31 May 2023
Notes Income Growth
shares shares Total
GBP'000 GBP'000 GBP'000
-------- ---------- ----------
Net cash outflow from operations before
dividends and interest (775) (1,006) (1,781)
Dividends received 3,409 1,556 4,965
Interest received 70 169 239
Interest paid (220) - (220)
-------------------------------------------- ------ -------- ---------- ----------
Net cash inflow from operating activities 2,484 719 3,203
Investing activities
Purchases of investments (9,793) (5,367) (15,160)
Sales of investments 9,690 6,174 15,864
-------------------------------------------- ------ -------- ---------- ----------
Net cash flows from investing activities (103) 807 704
-------------------------------------------- ------ -------- ---------- ----------
Net cash flows before financing activities 2,381 1,526 3,907
-------------------------------------------- ------ -------- ---------- ----------
Financing activities
Equity dividends paid 4 (3,441) - (3,441)
Proceeds from issuance of new shares 2,049 446 2,495
Share conversion - Income to Growth (155) 155 -
Share conversion - Growth to Income 619 (619) -
Shares purchased to be held in treasury - (1,827) (1,827)
Net cash flows from financing activities (928) (1,845) (2,773)
-------------------------------------------- ------ -------- ---------- ----------
Net movement in cash and cash equivalents 1,453 (319) 1,134
Cash and cash equivalents at the beginning
of the year 1,549 5,929 7,478
Cash and cash equivalents at the end
of the year 3,002 5,610 8,612
-------------------------------------------- ------ -------- ---------- ----------
Represented by:
Cash at bank and short-term deposits 3,002 5,610 8,612
-------------------------------------------- ------ -------- ---------- ----------
Cash Flow Statement
Year to 31 May 2022
Income Growth
shares shares Total
GBP'000 GBP'000 GBP'000
---------- ---------- ----------
Net cash outflow from operations before
dividends and interest (1,234) (1,463) (2,697)
Dividends received 3,126 1,174 4,300
Interest received 1 9 10
Interest paid (181) - (181)
------------------------------------------------- ---------- ---------- ----------
Net cash inflow / (outflow) from operating
activities 1,712 (280) 1,432
Investing activities
Purchases of investments (5,154) (15,865) (21,019)
Sales of investments 4,025 15,180 19,205
------------------------------------------------- ---------- ---------- ----------
Net cash flows from investing activities (1,129) (685) (1,814)
------------------------------------------------- ---------- ---------- ----------
Net cash flows before financing activities 583 (965) (382)
------------------------------------------------- ---------- ---------- ----------
Financing activities
Equity dividends paid (3,155) - (3,155)
Proceeds from issuance of new shares 2,120 3,086 5,206
Share conversion - Income to Growth (212) 212 -
Share conversion - Growth to Income 173 (173) -
Net cash flows from financing activities (1,074) 3,125 2,051
------------------------------------------------- ---------- ---------- ----------
Net movement in cash and cash equivalents (491) 2,160 1,669
Cash and cash equivalents at the beginning
of the year 2,040 3,769 5,809
Cash and cash equivalents at the end
of the year 1,549 5,929 7,478
------------------------------------------------- ---------- ---------- ----------
Represented by:
Cash at bank and short-term deposits 1,549 5,929 7,478
------------------------------------------------- ---------- ---------- ----------
Statement of Changes in Equity
For the Year ended 31 May 2023
Capital 2022 2008 Total
Share Share redemption special special Capital Revenue shareholders'
capital premium reserve reserve reserve reserves reserve funds
Income shares GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
As at 31 May
2022 4,596 - 257 29,588 18,980 8,109 3,162 64,692
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Increase in
share
capital in
issue,
net of share
issuance
expenses 132 1,917 - - - - - 2,049
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Share
conversion 22 - - - 442 - - 464
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Cancellation
of
deferred
shares (1,503) - 1,503 - - - - -
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Transfer of
net
income from
Growth
to Income
Portfolio - - - - - - 1,187 1,187
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Transfer of
capital
from Income
to
Growth
Portfolio - - - - - (1,187) - (1,187)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Dividends paid - - - - - - (3,441) (3,441)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Return
attributable
to
shareholders - - - - - (7,775) 2,744 (5,031)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
As at 31 May
2023 3,247 1,917 1,760 29,588 19,422 (853) 3,652 58,733
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Growth shares
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
As at 31 May
2022 3,692 - 365 29,581 17,199 44,142 - 94,979
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Increase in
share
capital in
issue,
net of share
issuance
expenses 18 428 - - - - - 446
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Share
conversion (22) - - - (442) - - (464)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Cancellation
of
deferred
shares (1,188) - 1,188 - - - - -
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Transfer of
net
income from
Growth
to Income
Portfolio - - - - - - (1,187) (1,187)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Transfer of
capital
from Income
to
Growth
Portfolio - - - - - 1,187 - 1,187
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Shares
purchased
for treasury - - - - (1,827) - - (1,827)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Return
attributable
to
shareholders - - - - (6,801) 1,187 (5,614)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
As at 31 May
2023 2,500 428 1,553 29,581 14,930 38,528 - 87,520
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Total Company
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
As at 31 May
2022 8,288 - 622 59,169 36,179 52,251 3,162 159,671
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Increase in
share
capital in
issue,
net of share
issuance
expenses 150 2,345 - - - - - 2,495
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Share - - - - - - - -
conversion
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Cancellation
of
deferred
shares (2,691) - 2,691 - - - - -
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Shares
purchased
for treasury - - - - (1,827) - - (1,827)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Dividends paid - - - - - - (3,441) (3,441)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Return
attributable
to
shareholders - - - - - (14,576) 3,931 (10,645)
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Total Company
as at 31 May
2023 5,747 2,345 3,313 59,169 34,352 37,675 3,652 146,253
--------------- ---------- ---------- ------------ --------- ---------- ----------- ---------- ---------------
Statement of Changes in Equity
For the Year ended 31 May 2022
Capital 2022 2008 Total
Share Share redemption special special Capital Revenue shareholders'
capital premium reserve reserve reserve reserves reserve funds
Income shares GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
As at 31 May
2021 4,459 27,608 256 - 19,017 12,373 3,053 66,766
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Increase in
share
capital in
issue,
net of share
issuance
expenses 140 1,980 - - - - - 2,120
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Share
conversion (2) - - - (37) - - (39)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Cancellation
of deferred
shares (1) - 1 - - - - -
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Transfer of
net
income from
Growth
to Income
Portfolio - - - - - - 644 644
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Transfer of
capital
from Income
to
Growth
Portfolio - - - - - (644) - (644)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Share premium
cancellation - (29,588) - 29,588 - - - -
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Dividends paid - - - - - - (3,155) (3,155)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Return
attributable
to
shareholders - - - - - (3,620) 2,620 (1,000)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
As at 31 May
2022 4,596 - 257 29,588 18,980 8,109 3,162 64,692
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Growth shares
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
As at 31 May
2021 3,586 26,599 365 - 17,162 56,514 - 104,226
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Increase in
share
capital in
issue,
net of share
issuance
expenses 104 2,982 - - - - - 3,086
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Share
conversion 2 - - - 37 - - 39
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Transfer of
net
income from
Growth
to Income
Portfolio - - - - - - (644) (644)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Transfer of
capital
from Income
to
Growth
Portfolio - - - - - 644 - 644
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Share premium
cancellation - (29,581) - 29,581 - - - -
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Return
attributable
to
shareholders - - - - - (13,016) 644 (12,372)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
As at 31 May
2022 3,692 - 365 29,581 17,199 44,142 - 94,979
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Total Company
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
As at 31 May
2021 8,045 54,207 621 - 36,179 68,887 3,053 170,992
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Increase in
share
capital in
issue,
net of share
issuance
expenses 244 4,962 - - - - - 5,206
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Share - - - - - - - -
conversion
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Cancellation
of deferred
shares (1) - 1 - - - - -
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Share premium
cancellation - (59,169) - 59,169 - - - -
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Dividends paid - - - - - (3,155) (3,155)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Return
attributable
to
shareholders - - - - - (16,636) 3,264 (13,372)
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Total Company
as at 31 May
2022 8,288 - 622 59,169 36,179 52,251 3,162 159,671
--------------- ---------- ----------- ------------ --------- --------- ----------- ---------- ---------------
Principal Risks and Uncertainties
As an investment company, investing primarily in listed
securities, most of the Company's principal risks and uncertainties
that could threaten the achievement of its objective, strategy,
future performance, liquidity and solvency are market-related.
A summary of the Company's risk management and internal controls
arrangements is included within the Report of the Audit Committee
in the Annual Report and Financial Statements. 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. The Board also considers
emerging risks which might affect the Company and related updates
from the Manager on such risks are also considered. During the
year, emerging risks included the outlook for inflation, rising
interest rates and the war in Ukraine. Any emerging risks that are
identified and that are considered to be of significance are
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. While the effect of
the COVID-19 pandemic appears to have eased, increased market
volatility due to recent macroeconomic and geopolitical concerns
have been considered and are referred to below in Market Risk and
Investment Risk. The Audit Committee and the Board have also
regularly reviewed the effectiveness of the Company's risk
management and internal control systems for the period.
As was explained in the 31 May 2022 Annual Report and Financial
Statements, the Company's Manager, which was part of BMO GAM
(EMEA), was acquired by Ameriprise Financial and the integration of
its business with Columbia Threadneedle Investments is now well
advanced. The Board looks favourably upon this transaction and
there has been little change for the Company. Nevertheless, an
acquisition such as this may introduce some uncertainty until the
integration of systems is fully implemented. A critical milestone
is the move to a new order management system, Aladdin, which is
widely regarded as market leading. Therefore, the Board will
continue to monitor this risk closely.
The principal risks and uncertainties faced by the Company, and
the Board's mitigation approach, are described below.
Market risk
The Company's assets consist mainly of listed closed-end
investment companies and its principal risks are therefore
market-related and include market risk (comprising currency risk,
interest rate risk and other price risk), liquidity risk and credit
risk.
Climate change may also have an impact on investee companies in
the coming years.
Increased uncertainty in markets since the COVID-19 pandemic,
the war in Ukraine and macroeconomic and geopolitical concerns have
led to volatility in the Company's NAV.
Increase in overall risk during the year, given the war in
Ukraine and macroeconomic and geopolitical concerns
Mitigation
The Board regularly considers the composition and
diversification of the Income Portfolio and the Growth Portfolio
and considers individual stock performance together with purchases
and sales of investments. Investments and markets are discussed
with the Investment Manager on a regular basis.
Engagement on environmental, social and governance matters is
undertaken by the Manager.
The Board has, in particular, considered the impact of
heightened market volatility since the COVID-19 pandemic,
macroeconomic and geopolitical concerns and inflation and they are
discussed in the Chairman's Statement and Investment Manager's
Review. As a closed-end investment company, it is not constrained
by asset sales to meet redemptions so can remain invested through
volatile market conditions and is well suited to investors seeking
longer-term returns.
Investment 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.
Increase in overall risk during the year, given the war in
Ukraine and macroeconomic and geopolitical concerns
Mitigation
The investment strategy and performance against peers and the
benchmark are considered by the Board at each meeting and reviewed
with the Investment Manager. The Board is responsible for setting
the gearing range within which the Manager may operate and gearing
is discussed at every meeting and related covenant limits are
closely monitored. The Manager's Investment Risk team provide
oversight on investment risk management.
The Income Portfolio and Growth Portfolio are diversified and
comprise listed closed-end investment companies and their
compositions are reviewed regularly by the Board.
The Board regularly considers ongoing charges and a
discount/premium management policy has operated since the launch of
the Company. Underlying dividends from investee companies are also
closely monitored and the revenue reserve and the 2022 special
reserve attributable to the Income Portfolio can be drawn to
support the payment of dividends to Income shareholders.
If required, the Board can hold additional meetings at short
notice to discuss any significant matters.
Custody risk: Safe custody of the Company's assets may be
compromised through control failures by the Custodian.
No change in overall risk during the year.
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.
Operational risk: Failure of the Manager as the Company's main
service provider 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, leading to
a potential breach of the Company's investment mandate or loss of
shareholders' confidence.
The risk includes failure 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 during the year, but due to the
integration with Columbia Threadneedle Investments' systems this
risk remains heightened.
Mitigation:
The Board meets regularly with the management of the Manager and
its Operational Risk Management team to review internal control and
risk reports, which includes oversight of its own 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 the administrator of the Manager's
savings plans, has been maintained by the Manager. This includes
the review of IT security and heightened cyber threats.
Further to the acquisition of the Company's Manager by
Ameriprise, the Board continues to monitor the integration of its
business with Columbia Threadneedle Investments. Comfort is taken
from its long-term financial strength and resources and commitment
towards the Manager's investment trust business and savings
plans.
The Manager also closely monitors the performance of its
technology platform to ensure it is functioning within acceptable
service levels.
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
considered that a number of characteristics of the Company's
business model and strategy were relevant to this assessment:
-- The Company's investment objective and policy, which are
subject to regular Board monitoring, means that the Company is
invested principally in two diversified Portfolios of listed
closed-end investment companies and the level of borrowing is
restricted.
-- The Company's investments are principally in listed
securities which are traded in the UK on the London Stock
Exchange's Main Market or other regulated exchanges and which are
expected to be readily realisable.
-- The Company is a listed closed-end investment company whose
shares are not subject to redemptions by shareholders.
-- Subject to shareholder continuation votes, the next of which
will be at the forthcoming AGM on 28 September 2023 and five yearly
thereafter, the Company's business model and strategy is not
time-limited.
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 a formal agreement with the Custodian and
Depositary.
-- The borrowing facilities, which remain available until
February 2025, are subject to a formal agreement, 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.
-- The operational robustness of key service providers and the
effectiveness of alternative working arrangements.
-- Alternative service providers can 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 and solvency. This included the impact
of market volatility and a significant fall in equity markets on
the Company's investment Portfolios. These risks, their mitigations
and the processes for monitoring them are set out in Principal
Risks and Uncertainties and in the Report of the Audit Committee
and in the notes to the financial statements in the Annual Report
and Financial Statements.
The Directors also considered:
-- The level of ongoing charges incurred by the Company which
are modest and predictable and (at 31 May 2023), excluding the
ongoing charges of underlying funds, total 1.17% and 1.07% of
average net assets for the Income shares and Growth shares
respectively.
-- Future revenue and expenditure projections.
-- The Company's ability to meet liquidity requirements given
its investment Portfolios consist principally of listed investment
companies which can be realised if required.
-- The ability to undertake share buy-backs if required.
-- Whether the Company's investment objective and policy continue to be relevant to investors.
-- Directors are non-executive and the Company has no employees
and consequently the Company does not have redundancy or other
employment-related liabilities or responsibilities.
-- The uncertainty in markets due to the war in Ukraine and
macroeconomic and geopolitical concerns and the prospects for the
Company's investment Portfolios.
-- That there will be a resolution to continue the Company at
the forthcoming AGM on 28 September 2023. The Board fully supports
the continuation of the Company and, with the support of
shareholders, the expectation is for the resolution to be
passed.
As the Company is subject to shareholder continuation votes in
five yearly intervals, these matters were assessed over a five year
period to July 2028, 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 sustained
high levels of inflation and substantial falls in investment values
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
and adhere to its financial covenants.
A rolling five year period represents the horizon over which the
Directors believe they can form a reasonable expectation of the
Company's prospects, although they do have due regard to viability
over the longer term.
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 July 2028.
Responsibility Statement of the Directors in Respect of the
Annual Report and Financial Statements
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
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 the Company faces; and
-- we consider the Annual Report and Financial Statements, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
On behalf of the Board
David Warnock
Chairman
31 July 2023
Notes
1. The financial statements of the Company, which are the
responsibility of, and were approved by, the Board on 31 July 2023,
have been prepared on a going concern basis in accordance with the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority, Financial Reporting Standards (FRS 102) and the
Statement of Recommended Practice (SORP) "Financial Statements of
Investment Trust Companies and Venture Capital Trusts" issued by
The Association of Investment Companies (AIC). The audited
financial statements for the Company comprise the Income Statement
and the total columns of the Balance Sheet, the Cash Flow Statement
and the Statement of Changes in Equity and the Company totals shown
in the notes to the financial statements. The analysis showing the
two separate Portfolios of assets attributable to the Income shares
and Growth shares is disclosed to assist shareholders'
understanding, but is additional to that required.
There have been no significant changes to the Company's
accounting policies during the year ended 31 May 2023.
The preparation of the Company's financial statements on
occasion requires management to make judgements, estimates and
assumptions that affect the reported amounts in the primary
financial statements and accompanying disclosures. These
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities
affected in the current or future periods, depending on the
circumstance. Management do not believe that any significant
accounting judgements or estimates have been applied to this set of
financial statements that have a significant risk of causing a
material adjustment to the carrying amount of assets and
liabilities within the next financial year.
The Company's assets consist mainly of equity shares in
closed-end investment companies which are traded in the UK or
another Regulated Stock Exchange and in most circumstances,
including in the current market environment, are expected to be
readily realisable.
The Board has considered the Company's principal risks and
uncertainties and other matters, and has considered a number of
stress tests and scenarios which considered the impact of severe
stock market volatility on shareholders' funds and demonstrated
that if required the Company had the ability to raise sufficient
funds so as to remain within its debt covenants and meet its
liabilities. The Directors also have a reasonable expectation that,
at the forthcoming AGM, the Company's shareholders will support the
resolution, that the continuation of the Company be approved.
As such, and in light of the controls and review processes in
place and the operational robustness of key service providers, and
bearing in mind the nature of the Company's business and assets and
revenue and expenditure projections, the Directors believe 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, the Board continues to
adopt the going concern basis in preparing the financial
statements.
2. Segmental Analysis
The Company carries on business as an investment trust and
manages two separate Portfolios of assets: the Income Portfolio and
the Growth Portfolio. The Company's Income Statement can be
analysed as follows. This has been disclosed to assist
shareholders' understanding, but this analysis is additional to
that required:
Year ended 31 May 2023
Income Portfolio Growth Portfolio Total
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on
investments - (7,363) (7,363) - (6,335) (6,335) - (13,698) (13,698)
Foreign
exchange
losses - (5) (5) - - - - (5) (5)
Income 3,307 - 3,307 1,712 - 1,712 5,019 - 5,019
Investment
management
fee (176) (264) (440) (117) (466) (583) (293) (730) (1,023)
Other
expenses (281) - (281) (408) - (408) (689) - (689)
------------------- --------------------- --------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ----------------------
Return on
ordinary
activities
before
finance
costs and
tax 2,850 (7,632) (4,782) 1,187 (6,801) (5,614) 4,037 (14,433) (10,396)
Finance
costs (95) (143) (238) - - - (95) (143) (238)
------------------- --------------------- --------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ----------------------
Return on
ordinary
activities
before tax 2,755 (7,775) (5,020) 1,187 (6,801) (5,614) 3,942 (14,576) (10,634)
Tax on
ordinary
activities (11) - (11) - - - (11) - (11)
------------------- --------------------- --------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ----------------------
Return # 2,744 (7,775) (5,031) 1,187 (6,801) (5,614) 3,931 (14,576) (10,645)
------------------- --------------------- --------------------- ------------------- --------------------- --------------------- ------------------- ---------------------- ----------------------
Year ended 31 May 2022
Income Portfolio Growth Portfolio Total
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on
investments - (3,245) (3,245) - (12,479) (12,479) - (15,724) (15,724)
Foreign
exchange
losses - (2) (2) - - - - (2) (2)
Income 3,176 - 3,176 1,208 - 1,208 4,384 - 4,384
Investment
management
fee (188) (281) (469) (134) (537) (671) (322) (818) (1,140)
Other
expenses (293) - (293) (430) - (430) (723) - (723)
------------------- --------------------- ------------------- ------------------- ---------------------- ---------------------- ------------------- ---------------------- ----------------------
Return on
ordinary
activities
before
finance
costs and
tax 2,695 (3,528) (833) 644 (13,016) (12,372) 3,339 (16,544) (13,205)
Finance
costs (61) (92) (153) - - - (61) (92) (153)
------------------- --------------------- ------------------- ------------------- ---------------------- ---------------------- ------------------- ---------------------- ----------------------
Return on
ordinary
activities
before tax 2,634 (3,620) (986) 644 (13,016) (12,372) 3,278 (16,636) (13,358)
Tax on
ordinary
activities (14) - (14) - - - (14) - (14)
------------------- --------------------- ------------------- ------------------- ---------------------- ---------------------- ------------------- ---------------------- ----------------------
Return # 2,620 (3,620) (1,000) 644 (13,016) (12,372) 3,264 (16,636) (13,372)
------------------- --------------------- ------------------- ------------------- ---------------------- ---------------------- ------------------- ---------------------- ----------------------
# Any net revenue return attributable to the Growth Portfolio is
transferred to the Income Portfolio and a corresponding transfer of
an identical amount of capital is made from the Income Portfolio to
the Growth Portfolio and accordingly the whole return in the Growth
Portfolio is capital. Refer to the Statement of Changes in
Equity.
3. Return per share
The return per share for the year ended 31 May 2023 is as
follows:
Income shares Growth shares
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------------- ------------------- ----------------- ------------------- ------------------- -----------------
Return
attributable
to
Portfolios 2,744 (7,775) (5,031) 1,187 (6,801) (5,614)
Transfer of
net
income from
Growth
to Income
Portfolio 1,187 - 1,187 (1,187) - (1,187)
Transfer of
capital
from Income
to
Growth
Portfolio - (1,187) (1,187) - 1,187 1,187
-------------- ------------------- ------------------- ----------------- ------------------- ------------------- -----------------
Return
attributable
to
shareholders 3,931 (8,962) (5,031) - (5,614) (5,614)
Return per
share 7.96p (18.16p) (10.20p) - (14.51p) (14.51p)
Weighted
average
number of
shares
in issue
during
the period 49,363,770 38,696,431
-------------- ----------------------------------------------------------- -----------------------------------------------------------
The return per share for the year ended 31 May 2022 is as
follows:
Income shares Growth shares
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------------- ------------------- ----------------- ------------------- ------------------- -----------------
Return
attributable
to
Portfolios 2,620 (3,620) (1,000) 644 (13,016) (12,372)
Transfer of
net
income from
Growth
to Income
Portfolio 644 - 644 (644) - (644)
Transfer of
capital
from Income
to
Growth
Portfolio - (644) (644) - 644 644
-------------- ------------------- ------------------- ----------------- ------------------- ------------------- -----------------
Return
attributable
to
shareholders 3,264 (4,264) (1,000) - (12,372) (12,372)
Return per
share 6.85p (8.95p) (2.10p) - (32.28p) (32.28p)
Weighted
average
number of
shares
in issue
during
the period 47,655,020 38,325,735
-------------- ----------------------------------------------------------- -----------------------------------------------------------
4. Dividends
2023
Income
shares
Total
Dividends on Income shares Register date Payment GBP'000
date
------------------------------------- --------------- ------------- --------
Amounts recognised as distributions
to shareholders during the year:
For the year ended 31 May 2022
- fourth interim dividend of 2.0p
per Income share 17 June 2022 8 July 2022 968
For the year ended 31 May 2023
- first interim dividend of 1.67p 16 September 7 October
per Income share 2022 2022 811
- second interim dividend of 1.67p 16 December 6 January
per Income share 2022 2023 829
- third interim dividend of 1.67p 11 April
per Income share 17 March 2023 2023 833
------------------------------------- --------------- ------------- --------
3,441
Amounts relating to the year but
not paid at the year end:
- fourth interim dividend of 2.19p
per Income share* 16 June 2023 7 July 2023 1,105
------------------------------------- --------------- ------------- --------
* Based on 50,455,503 Income shares in issue at the record date
of 16 June 2023.
The fourth interim dividend of 2.19p per Income share was paid
on 7 July 2023 to shareholders on the register on 16 June 2023,
with an ex-dividend date of 15 June 2023.
The Growth shares do not carry an entitlement to receive
dividends.
5. (a) Tax on ordinary activities
Year ended 31 May 2023
Income Portfolio Growth Portfolio Total
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Current tax
charge
for the year
(all
irrecoverable
overseas
tax) being
taxation
on ordinary
activities 11 - 11 - - - 11 - 11
--------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- -----------------
(b) Reconciliation of tax charge
2023
Income Growth
shares shares Total
GBP'000 GBP'000 GBP'000
------------------------------------------ -------- -------- ---------
Loss on ordinary activities before
tax: (5,020) (5,614) (10,634)
------------------------------------------- -------- -------- ---------
Corporation tax at standard rate
of 19 per cent (954) (1,067) (2,021)
Effects of:
Losses on investments not taxable 1,400 1,204 2,604
Overseas tax suffered 11 - 11
Non-taxable UK dividend income (285) (257) (542)
Non-taxable overseas dividend income (219) (19) (238)
Expenses not utilised 58 139 197
Current year tax charge (note 5 (a)) 11 - 11
------------------------------------------- -------- -------- ---------
6. The net asset value per Income share is calculated on net
assets of GBP58,733,000 (2022: GBP64,692,000), divided by
50,455,503 (2022: 48,397,165) Income shares, being the number of
Income shares in issue at the year-end (excluding any shares held
in treasury).
The net asset value per Growth share is calculated on net assets
of GBP87,520,000 (2022: GBP94,979,000), divided by 38,032,949
(2022: 38,860,148) Growth shares, being the number of Growth shares
in issue at the year-end (excluding any shares held in
treasury).
7. During the year, the Company issued 1,665,000 (2022:
1,480,000) Income shares from the block listing facility for net
proceeds of GBP2,049,000 (2022: GBP2,120,000).
During the year, valid conversion notices were received to
convert 131,631 Income shares (which represented a value of
GBP155,000). These were converted into 67,665 Growth shares in
accordance with the Company's Articles and by reference to the
ratio of the relative underlying net asset values of the Growth
shares and Income shares on the conversion date.
The Company's Articles allow for Deferred shares to be allotted
as part of the share conversion to ensure that the conversion does
not result in a reduction of the aggregate par value of the
Company's issued share capital. The Deferred shares were
subsequently repurchased by the Company for nil consideration (as
they have no economic value) and as authorised by shareholders at
the September 2022 AGM.
Since the year end, the Company has not issued any further
Income shares from the block listing facility.
8. During the year, the Company issued 190,000 (2022: 1,085,000)
Growth shares from the block listing facility for net proceeds of
GBP446,000 (2022: GBP3,086,000). During the year, the Company
bought back 815,000 (2022: nil) Growth shares for treasury at a
cost of GBP1,827,000 (2022: nil).
During the year, valid conversion notices were received to
convert 269,864 Growth shares (which represented a value of
GBP619,000). These were converted into 524,969 Income shares in
accordance with the Company's Articles and by reference to the
ratio of the relative underlying net asset values of the Growth
shares and Income shares on the conversion date.
The Company's Articles allow for Deferred shares to be allotted
as part of the share conversion to ensure that the conversion does
not result in a reduction of the aggregate par value of the
Company's issued share capital. The Deferred shares were
subsequently repurchased by the Company for nil consideration (as
they have no economic value) and as authorised by shareholders at
the September 2022 AGM.
Since the year end, the Company has bought back a further
445,000 Growth share for treasury at a cost of GBP1,008,000.
9. Financial Instruments
The Company's financial instruments comprise its investment
Portfolios, cash balances, bank borrowings and debtors and
creditors that arise directly from its operations. The Company,
which is an investment trust, holds two Portfolios of financial
assets in pursuit of its investment objective.
Listed and quoted fixed asset investments held are valued at
fair value.
The fair value of the financial assets and liabilities of the
Company at 31 May 2023 and 31 May 2022 is not materially different
from their carrying value in the financial statements.
The main risks that the Company faces arising from its financial
instruments are:
(i) market price risk, being the risk that the value of
investment holdings will fluctuate as a result of changes in market
prices caused by factors other than interest rate or currency rate
movements;
(ii) interest rate risk, being the risk that the future cash
flows of a financial instrument will fluctuate because of changes
in market interest rates;
(iii) foreign currency risk, being the risk that the value of
investment holdings, investment purchases, investment sales and
income will fluctuate because of movements in currency rates;
(iv) credit risk, being the risk that a counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company; and
(v) liquidity risk, being the risk that the Company may not be
able to liquidate its investments quickly or otherwise raise funds
to meet financial commitments.
Market Price Risk
The management of market price risk is part of the fund
management process and is typical of equity and debt investment.
The Portfolios are 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.
Interest Rate Risk
Floating Rate
When the Company retains cash balances the majority of the cash
is held in variable rate bank accounts yielding rates of interest
linked to the UK base rate which was 4.5% at 31 May 2023 (2022:
1.0%). There are no other assets which are directly exposed to
floating interest rate risk.
When the Company draws down amounts under its new revolving
credit facility, interest is payable based on SONIA (which can vary
on a daily basis) plus a margin. Initially, in the prior year,
interest was based on LIBOR and was fixed at the time of
drawdown.
Fixed Rate
Movements in market interest rates will affect the market value
of fixed interest investments. Neither the Income Portfolio nor the
Growth Portfolio holds any fixed interest investments.
The Company has a GBP5 million fixed rate term loan with an
interest rate of 2.78% per annum.
Foreign Currency Risk
The Company may invest in overseas securities which give rise to
currency risks. At 31 May 2023, the Income Portfolio had Swiss
Franc denominated investments valued at GBP2,891,000 (2022:
GBP3,673,000), and a US Dollar denominated investment valued at
GBP1,327,000 (2022: GBP1,229,000). At 31 May 2023, the Growth
Portfolio had a US Dollar denominated investment valued at
GBP542,000 (2022: GBP1,028,000).
As the remainder of the Company's investments and all other
assets and liabilities are denominated in sterling there is no
other direct foreign currency risk. However, although the Company's
performance is measured in sterling and the Company's investments
(other than the above) are denominated in sterling, a proportion of
their underlying assets are quoted in currencies other than
sterling. Therefore movements in the rates of exchange between
sterling and other currencies may affect the market price of the
Company's investments and therefore the market price risk includes
an element of currency exposure.
Credit Risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Manager has in place a
monitoring procedure in respect of counterparty risk which is
reviewed on an ongoing basis. The carrying amounts of financial
assets best represents the maximum credit risk exposure at the
Balance Sheet date.
Credit risk arising on transactions with brokers relates to
transactions awaiting settlement. Risk relating to unsettled
transactions is considered to be small due to the short settlement
period involved and the acceptable credit quality of the brokers
used. The Manager monitors the quality of service provided by the
brokers used to further mitigate this risk.
All the assets of the Company which are traded on a recognised
exchange 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 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 is controlled because the
counterparties are banks with acceptable 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.
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 that the Company's listed and quoted
securities are considered to be readily realisable.
The Company's liquidity risk is managed on an ongoing basis by
the Manager in accordance with policies and procedures in place.
The Company's overall liquidity risks are monitored on a quarterly
basis by the Board.
The Company maintains sufficient investments in cash and readily
realisable securities to pay accounts payable and accrued expenses
which are settled in accordance with suppliers stated terms. The
Company has a GBP5 million fixed rate term loan and a GBP5 million
unsecured revolving credit facility which are both available until
10 February 2025 with The Royal Bank of Scotland International
Limited. As at 31 May 2023, GBP5 million of the fixed rate term
loan was drawn down (2022: GBP5 million) and GBP2 million of the
unsecured revolving credit facility was drawn down (2022: GBP2
million). The interest rate on the fixed rate term loan, which is
fully drawn, is 2.78% per annum. The interest rate on the unsecured
revolving credit facility is variable, and a non-utilisation fee is
payable on undrawn amounts.
10. Subject to certain minimum and maximum thresholds which may
be set at the discretion of the Board of CT Global Managed
Portfolio Trust PLC, shareholders have the right to convert their
Income shares into Growth shares and/or their Growth shares into
Income shares upon certain dates, the next of which will be on 26
October 2023 and then annually or close to annually thereafter.
Under current law, such conversions will not be treated as
disposals for UK capital gains tax purposes. The Conversion notice
period commences on 7 August 2023 and full details will be provided
on the Company's website and in the Company's Annual Report and
Financial Statements.
11. The Board of Directors (the "Board") is 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 Annual Report and
Financial Statements. The beneficial interests of the Directors in
the Income shares and Growth shares of the Company are disclosed in
the Annual Report and Financial Statements. There are no
outstanding balances with the Board at the year-end. David Warnock
is a non-executive director of ICG Enterprise Trust plc. The Growth
Portfolio has a holding of 190,000 shares in this company valued at
GBP2,185,000 at 31 May 2023. Following the year-end, Simon
Longfellow was appointed as a non-executive director of Invesco
Perpetual UK Smaller Companies Investment Trust plc. The Income
Portfolio has a holding of 450,000 shares in this company valued at
GBP1,917,000 at 31 May 2023.
Transactions between the Company and the Manager are detailed in
the notes to the financial statements in the Annual Report and
Financial Statements. The existence of an independent Board of
Directors demonstrates that the Company is free to pursue its own
financial and operating policies and therefore, under the AIC SORP,
the Manager is not considered to be a related party.
12. This statement was approved by the Board on 31 July 2023. It
is not the Company's full statutory accounts in terms of Section
434 of the Companies Act 2006. The statutory Annual Report and
Financial Statements for the year ended 31 May 2023 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 during August 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 Company's website
ctglobalmanagedportfolio.co.uk
The Annual General Meeting of CT Global Managed Portfolio Trust
PLC will be held at 11.30am on 28 September 2023 at Exchange House,
Primrose Street, London EC2A 2NY.
The audited financial statements for the year to 31 May 2023
will be lodged with the Registrar of Companies following the Annual
General Meeting.
Alternative Performance Measures ("APMs")
The Company uses the following "APMs". These are not statutory
accounting measures and are not intended as a substitute for
statutory measures.
Discount/premium - the share price of an investment company is
derived from buyers and sellers trading their shares on the
stockmarket. 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, usually
indicating there are more buyers of shares than sellers.
31 May 2023 31 May 2022
---------------- ----------------
Income Growth Income Growth
--------------------------------
shares shares shares shares
-------------------------- ---- ------- ------- ------- -------
Net asset value per share (a) 116.41p 230.12p 133.67p 244.41p
Share price (b) 121.00p 225.00p 131.00p 244.00p
-------------------------- ---- ------- ------- ------- -------
+Premium/ -discount (c
= (b-a)/(a)) (c) +3.9% -2.2% -2.0% -0.2%
-------------------------- ---- ------- ------- ------- -------
Ongoing charges - all operating costs (attributable to the
relevant share class of the Company), incurred and expected to be
incurred in the foreseeable future, whether charged to capital or
revenue in the Company's Income Statement, expressed as a
proportion of the average daily net assets (of the relevant share
class of the Company) over the reporting year. In accordance with
the AIC methodology, the costs of buying and selling investments
are excluded in calculating ongoing charges, as are any performance
fee, the cost of the Company's borrowings, taxation, non-recurring
costs and the costs of buying back or issuing shares. The Company's
ongoing charges calculated in accordance with this methodology are
shown in column A in the following tables.
The AIC recommends that investment companies also disclose
ongoing charges including any performance fee. Effective 29
September 2022, the performance fee which was payable annually to
the Manager, if certain conditions were met, ceased. The last
performance fee generated and payable to the Manager was in the
year to 31 May 2021.
The AIC recommends that investment companies with a substantial
proportion of their portfolio invested in other funds and where the
relevant information is readily available should consider
incorporating a relevant proportion of ongoing charges of the
underlying funds into its own ongoing charges figure. These
calculations are shown in column B in the following tables.
The Key Information Document ('KID') on the Company's website
contains a measure of costs calculated in accordance with the UK
version of the EU PRIIPs regulation as it forms part of UK law
following Brexit. In addition to the costs included within the
Company's ongoing charges figure in column A in the following
tables, the KID methodology for calculating costs (attributable to
the relevant share class of the Company) includes the costs of
buying and selling investments, the cost of the Company's
borrowings, any performance fee and a relevant proportion of the
ongoing costs of the underlying funds. These underlying costs cover
operational costs, performance fees and borrowing costs. The
aggregate KID costs are expressed as a proportion of the average
daily net assets (of the relevant share class of the Company) over
the period. For completeness the Company has included a
reconciliation in the following tables, between the
methodologies.
Ongoing charges calculations - Income Portfolio
31 May 2023 31 May 2022
Column A Column B Column A Column
(1) (2) (1) B (2)
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------------------- ------------------ ------------------
Investment management
fee 440 440 469 469
Other expenses 281 281 293 293
Less non-recurring
costs (11) (11) (68) (68)
Ongoing charges
of
underlying funds - 595 - 683
----------------------- --------------------- ------------------ ------------------
Total (a) 710 1,305 694 1,377
Average daily net
assets (b) 60,679 60,679 66,622 66,622
Ongoing charges
(c=a/b) (c) 1.17% 2.15% 1.04% 2.07%
----------------------- --------------------- ------------------ ------------------
Ongoing charges
above 1.17%
Non-recurring costs
above 0.02%
Borrowing costs
(Company
level) 0.39%
Costs of underlying
funds (including
borrowing costs) 1.24%
Performance fees
(five year Company
average & underlying
funds) 0.30%
Portfolio transaction
costs 0.39%
-----------------------
Costs per KID methodology 3.51%
-----------------------
(1) Excluding ongoing charges of underlying funds
(2) AIC methodology including ongoing charges of underlying
funds
Ongoing charges calculations - Growth Portfolio
31 May 2023 31 May 2022
Column A Column B Column A Column
(1) (2) (1) B (2)
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- --------
Investment management
fee 583 583 671 671
Other expenses 408 408 430 430
Less non-recurring
costs (20) (20) (84) (84)
Ongoing charges
of underlying funds - 792 - 792
--------- --------- --------- --------
Total (a) 971 1,763 1,017 1,809
Average daily net
assets (b) 90,576 90,576 105,577 105,577
Ongoing charges
(c=a/b) (c) 1.07% 1.95% 0.96% 1.71%
--------- --------- --------- --------
Ongoing charges
above 1.07%
Non-recurring costs
above 0.02%
Borrowing costs n/a
(Company level)
Costs of underlying
funds (including
borrowing costs) 0.98%
Performance fees
(five year Company
average & underlying
funds) 0.59%
Portfolio transaction
costs 0.22%
---------
Costs per KID methodology 2.88%
---------
(1) Excluding ongoing charges of underlying funds
(2) AIC methodology including ongoing charges of underlying
funds
Total return - the return to shareholders calculated on a per
share basis taking into account both any dividends paid in the
period and the increase or decrease in the share price or NAV in
the period. The dividends are assumed to have been re-invested in
the form of shares or net assets, respectively, on the date on
which the shares were quoted ex-dividend.
The effect of reinvesting these dividends on the respective
ex-dividend dates and the share price total returns and NAV total
returns are shown below.
31 May 2023 31 May 2022
------------------------------------ ---------------------- ----------------
Income shares Growth Income Growth
shares Shares Shares
------------------------------------ ------------- ------- ------- -------
NAV per share at start of financial
year 133.67p 244.41p 142.22p 276.01p
NAV per share at end of financial
year 116.41p 230.12p 133.67p 244.41p
Change in the year -12.9% -5.8% -6.0% -11.4%
Impact of dividend reinvestments 5.5% n/a 4.5% n/a
------------------------------------ ------------- ------- ------- -------
NAV total return for the year -7.4% -5.8% -1.5% -11.4%
------------------------------------ ------------- ------- ------- -------
During the y ear to 31 M ay 2023 dividends to talling 7.01p went
ex-dividend with respect to the Income shares. During the y ear to
31 M ay 2022 the equivalent figure was 6.65 p.
31 May 2023 31 May 2022
-------------------------------------------- ---------------- ----------------
Income Growth Income Growth
shares shares Shares Shares
-------------------------------------------- ------- ------- ------- -------
Share price per share at start of financial
year 131.0p 244.0p 143.5p 277.0p
Share price per share at end of financial
year 121.0p 225.0p 131.0p 244.0p
Change in the year -7.6% -7.8% -8.7% -11.9%
Impact of dividend reinvestment 5.5% n/a 4.3% n/a
-------------------------------------------- ------- ------- ------- -------
Share price total return for the year -2.1% -7.8% -4.4% -11.9%
-------------------------------------------- ------- ------- ------- -------
During the year to 31 May 2023 dividends totalling 7.01p went
ex-dividend with respect to the Income shares. During the year to
31 May 2022 the equivalent figure was 6.65p.
Compound Annual Growth Rate - converts the total return over a
period of more than one year to a constant annual rate of return
applied to the compounded value at the start of each year.
31 May 2023 31 May 2022
----------------------------------- ---------------- ----------------
Income Growth Income Growth
shares shares Shares Shares
----------------------------------- ------- ------- ------- -------
Indexed NAV total return at launch 100.0 100.0 100.0 100.0
Indexed NAV total return at end of
financial year 243.3 234.8 262.9 249.4
Period (years) 15.125 15.125 14.125 14.125
Compound annual growth rate 6.1% 5.8% 7.1% 6.7%
----------------------------------- ------- ------- ------- -------
Yield - the total annual dividend expressed as a per cen tage of
the year -end share pric e.
31 May 2023 31 May 2022
------------------- ---- ----------- --------------------
Annual dividend (a) 7.20p 6.65p
Income share price (b) 121.00p 131.0p
------------------- ---- ----------- --------------------
Yield (c = a/b) (c) 6.0% 5.1%
------------------- ---- ----------- --------------------
Net gearing/net cash - this is calculated by expressing the
Company's borrowings less cash and cash equivalents as a percentage
of shareholders' funds. If the amount calculated is positive, this
is described as net gearing. If the amount calculated is negative,
this is described as net cash.
31 May 2023 31 May 2022
-------------------- --------------------
Income Growth Income Growth
Shares Shares Shares Shares
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- --------- --------- ---------
Borrowings 7,000 - 7,000 -
Less cash and cash equivalents (3,002) (5,610) (1,549) (5,929)
-------------------------------- --------- --------- --------- ---------
3,998 (5,610) 5,451 (5,929)
Shareholders' funds 58,733 87,520 64,692 94,979
-------------------------------- --------- --------- --------- ---------
Net gearing/-net cash 6.8% -6.4% 8.4% -6.2%
-------------------------------- --------- --------- --------- ---------
For further information, please contact:
Peter Hewitt, Columbia Threadneedle Investment Business Limited 0131 573 8360
Ian Ridge, Columbia Threadneedle Investment Business Limited 0131 573 8316
Sarah Gibbons-Cook, Quill PR 07702 412680
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