TIDMNAIT
RNS Number : 7237O
North American Income Trust (The)
05 October 2023
Legal Entity Identifier (LEI): 5493007GCUW7G2BKY360
5 October 2023
THE NORTH AMERICAN INCOME TRUST PLC
HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS TO 31 JULY 2023
The investment objective of The North American Income Trust plc
is to provide investors with above average dividend income and long
term capital growth through active management of a portfolio
consisting predominantly of S&P 500 US equities.
Performance Highlights
Net asset value total return(A) Share price total return(A)
Six months ended 31 July 2023 Six months ended 31 July
2023
-3.2% -5.0%
Year ended 31 January 2023 +9.6% Year ended 31 January 2023 +12.4%
Russell 1000 Value Index (in sterling
terms) total return Earnings per Ordinary share (revenue)
Six months ended 31 July 2023 Six months ended 31 July
2023
-1.0% 6.10p
Six months ended 31 July
Year ended 31 January 2023 +8.5% 2022 6.10p
Dividends per Ordinary Share Dividend yield(A)
Six months ended 31 July 2023 As at 31 July 2023
5.20p 3.9%
Six months ended 31 July 2022 5.00p As at 31 January 2023 3.6%
(A) Considered to be an Alternative Performance Measure. Further details
can be found below.
Performance (Total return)
6 months 1 year ended 3 years ended 5 years ended
ended
31 July 2023 31 July 2023 31 July 2023 31 July 2023
% % % %
================================== ============ ============ ============= =============
Net asset value per Ordinary
share(A) -3.2 +1.5 +42.6 +29.7
================================== ============ ============ ============= =============
Share price per Ordinary share(A) -5.0 -1.7 +41.9 +25.5
================================== ============ ============ ============= =============
Russell 1000 Value Index (in
sterling terms) -1.0 +2.4 +51.7 +49.9
================================== ============ ============ ============= =============
S&P 500 Index (in sterling
terms) +8.6 +6.9 +50.0 +81.3
---------------------------------- ------------ ------------ ------------- -------------
(A) Total return represents capital return plus dividends reinvested.
Considered to be an Alternative Performance Measure. Further details
can be found below.
Source: abrdn, Morningstar & Lipper.
Financial Calendar, Dividends and Highlights
Payment dates of quarterly dividends August 2023
October 2023
January 2024
May 2024
===================================== ================
Financial year end 31 January 2024
===================================== ================
Expected announcement of results April 2024
for
year ended 31 January 2024
===================================== ================
Annual General Meeting (Edinburgh) June 2024
===================================== ================
Financial Highlights
As at As at Capital return
31 July 2023 31 January %
2023
===================================== ============ ============ ==============
Net asset value per Ordinary share 317.8p 337.2p -5.7
===================================== ============ ============ ==============
Share price per Ordinary share (mid) 282.0p 306.0p -7.8
===================================== ============ ============ ==============
Discount to net asset value(A) 11.3% 9.3%
===================================== ============ ============ ==============
Net gearing (A) 5.5% 2.9%
===================================== ============ ============ ==============
Ongoing charges ratio(A) 1.00% 0.93%
------------------------------------- ------------ ------------ --------------
(A) Considered to be an Alternative Performance Measure. Further details
can be found below.
Six months Six months Change
to to
31 July 2023 31 July 2022 %
===================================== ============ ============ ==============
Revenue return per Ordinary share 6.10p 6.10p -
===================================== ============ ============ ==============
Interim dividends 5.20p(A) 5.00p(B) +4.0
------------------------------------- ------------ ------------ --------------
(A) Includes a first interim dividend of 2.60p paid on 4 August 2023
and a second interim dividend of 2.60p payable on 27 October 2023.
(B) Includes a first interim dividend of 2.50p paid on 5 August 2022
and a second interim dividend of 2.50p paid on 28 October 2022.
Chair's Statement
Overview
In the six months ended 31 July 2023, The North American Income
Trust plc (the "Company") navigated high macroeconomic uncertainty
amid monetary tightening, banking sector issues and fears of a
looming recession. Against this backdrop, the Company's net asset
value ("NAV") total return per share declined 3.2% in sterling
terms compared with a 1.0% decline in the total return of its
reference index, the Russell 1000 Value Index. Meanwhile, the
Company's share price total return fell 7.8% in sterling terms over
the period, with the discount to NAV widening from 9.3% to 11.3%.
Despite this, I am pleased to note that the Company continues to
deliver a dividend yield that is almost double that of the
reference index and among the highest dividend yields within its
peer group. This highlights your Manager's focus on investing in
high quality companies with a strong dividend track record.
However, such a focus on income generation can sometimes be at the
expense of capital growth in the portfolio. While the Company's
revenue return per Ordinary share was unchanged at 6.10 pence over
the six months to 31 July 2023, this reflects the increase in US
dollar income being offset by 4.5% appreciation of sterling against
the US dollar during the period.
Inflation, and the efforts of the Federal Reserve (the "Fed") to
control it, was one of the key themes of the period. We have
witnessed ten consecutive rate hikes which led to the target range
of the Fed Funds rate reaching 5.25% -5.50% in July 2023. Despite
the Fed's somewhat hawkish stance, your Manager expects limited
further rate increases over the rest of the year. The other theme
that affected markets was the collapse of Silicon Valley Bank and a
small number of regional banks in March 2023, which acted as a
brake on market sentiment. While these events raised the risk of a
credit crunch and the possibility of a recession, investors were
reassured by the regulators' timely actions to stabilise the
financial sector.
During the period, the Company's equity portfolio generated
GBP8.8 million in revenue, down 3.8% from GBP9.1 million in the
same period in 2022. This decline was partly as a result of
sterling strengthening to the US dollar, from $1.23 to $1.28 during
the period, continuing a trend that began in October 2022. The
Company maintained a low exposure to corporate bonds, which
represented 2.2% of income in the period, slightly more than last
year. Total income was less than 1% lower than for the same period
last year. Meanwhile, the Company's revenue return per Ordinary
share was unchanged at 6.10 pence, with the lower interest and tax
charges offsetting most of the small decline in income.
Dividend
The Board is declaring a second quarterly dividend for the year
to 31 January 2024 of 2.6 pence per share (2023- 2.5 pence), taking
total dividends for the first half of the year to 5.2 pence per
share (2022 - 5.0 pence). The second quarterly dividend is payable
on 27 October 2023 to shareholders on the register on 13 October
2023. It is expected that the third interim dividend, which will be
paid in February 2024, will be 2.6 pence per share and the fourth
interim dividend will continue to act as a balancing figure once
the income for the full year has been determined.
Management of Premium and Discount
The Company's share price fell 7.8% to 298.0 pence and ended the
half year at an 11.3% discount to total NAV, compared with a 9.3%
discount at the financial year end, 31 January 2023. Over the
period, the Company's shares traded at discounts between around -8%
and -12%, on a cumulative income basis. 197,574 Ordinary shares
were bought back and cancelled at a weighted average price of 283.4
pence and a weighted average discount of 9.4%. The total cost was
GBP565,000. Since 31 July 2023, the Company has bought back a
further 659,338 Ordinary shares, at a weighted average discount of
11.8%.
Gearing
The Board believes that sensible use of gearing should enhance
returns to shareholders over the longer term. In December 2020, the
Company entered into a long-term financing agreement for US$50
million with MetLife for two loans of US$25 million with terms of
10 and 15 years. As a result, net gearing at 31 July 2023 stood at
5.5% (31 January 2023 - 2.9%).
Promotional Activity
The Board continues to update shareholders and promote the
Company through the Manager's marketing programme by means of
articles and videos from the fund manager, webinars, shareholder
meetings and an online presentation prior to the Annual General
Meeting ("AGM"). You can register for updates on the Company's
website northamericanincome.co.uk which has been updated and
refreshed over the last couple of months. The website is also the
best source for up-to-date information about the Company, including
monthly factsheets, interviews with the Manager and the latest NAV
and price of the Ordinary shares.
Environmental, Social and Governance
On the environmental, social and governance ("ESG") front, your
Manager continues to engage with companies in the portfolio based
on a range of criteria, including strong governance practices and
efficient resource management. The Investment Manager uses ESG
tools, with a particular focus on climate-related criteria, to
assess the carbon footprint of the portfolio. The Manager also
published the first Taskforce on Climate-related Financial
Disclosures ("TCFD") report on the Company's carbon footprint data,
which can be found at
invtrusts.co.uk/en-gb/prices-and-literature/company-literature .
This report is produced to support investors in appopriately
assessing and pricing a specific set of risks related to climate
change.
Board
The Board continues to review its succession planning. In March
2024, I will have served nine years as a Director of the Company
and, in accordance with the UK Corporate Governance Code, I intend
to retire from the Board at the conclusion of the AGM in June
2024.
As part of its succession planning, the Board has carefully
considered my successor and I am delighted to report that Charles
Park will be appointed as Chair with effect from the conclusion of
the 2024 AGM. Charlie joined the Board in June 2017. He has
extensive experience of investing in the US including through his
valued experience as a Director of the Company.
In May 2023, the Board visited your Manager in the US, an
excellent opportunity to meet the team face to face. The visit
allowed the Board to develop a deeper knowledge of the Manager's
investment process and culture, as well as broaden their
understanding on how specific market developments in the US are
impacting the companies in the portfolio. We also appreciated the
opportunity to spend some time meeting directly with management of
one of the companies and hearing from experts on the political and
economic backdrop.
Outlook
Macroeconomic uncertainty persists given elevated inflation,
tight monetary policies and geopolitical tensions. At the same
time, the US is starting the extended run-in to the next
presidential election in November 2024 and we are alert to the
prospects of vote-garnering announcements by prospective candidates
from both sides over the coming months.
While investor sentiment now favours an end to the Fed's
interest-rate hiking cycle, some further rate increases cannot be
ruled out due to still-high core inflation and the Fed's commitment
to achieving its 2% target. Meanwhile, inflation could increase
further due to the recent rise in oil prices. In addition to price
increases, more restrictive lending policies as a result of the
banking sector collapses in March and the restarting of student
loan repayments could hinder consumer spending. However, the US
economy has remained resilient during the review period, with a
notably strong labour market which is an improvement on forecasts
at the start of the year.
Against this backdrop, the Board believes a mild recession is
still likely to begin at some point by the end of the year or in
early 2024. Your Manager has positioned the Company's portfolio to
focus on high quality companies with good corporate governance,
strong balance sheets and a solid dividend growth history, with a
view to protecting the portfolio from the worst impacts of such an
economic backdrop. This strategy has enabled the Company to pay a
progressive annual dividend over the past eleven years. The Board
is convinced that a focus on quality and income generation is the
best approach to navigate uncertain times and weather a potential
recession.
Dame Susan Rice
Chair
4 October 2023
Investment Manager's Review
Market Overview
The Company's reference index, the Russell 1000 Value Index,
delivered a total return of -1.0% in sterling terms over the six
month period ended 31 July 2023. The strength of sterling in the
period more than offset the 3.5% local currency total return of the
index.
A combination of higher interest rates and inflation - due in
part to a robust employment market - led to continued volatility in
US share prices over the period. This is evidenced by the banking
sector turmoil in March 2023 when two regional banks, Silicon
Valley Bank and Signature Bank, both collapsed. There were several
reasons for the failures; however, a key determinant was higher
interest rates forcing both banks to lower the value of their
investment portfolios.
Faced with a US economy that has maintained positive momentum
despite a succession of rate rises since March last year, the
Federal Reserve (Fed) continued to tighten policy over the
remainder of 2022. This included four successive rate hikes of 75
basis points (bps) between June and November 2022. However, with
inflationary pressures moderating, the Fed then eased the pace of
rate increases from 50 bps in December 2022 to 25 bps from its
February 2023 meeting onwards. In fact, the Fed refrained from
tightening policy altogether at the June 2023 meeting; however, the
rise of 25 bps in July 2023 took the targeted Fed funds rate to
5.25-5.50%, its highest level since 2001.
US stock markets rose steadily during June and July 2023. This
was after investor sentiment was helped at the end of May 2023 by
the long-awaited news of an agreement over temporarily suspending
the US debt ceiling until January 2025, thereby reducing the risk
of a US debt default.
The communication services, information technology and
industrials sectors were the strongest performers within the
Russell 1000 Value Index, while the real estate, healthcare and
utilities sectors were the primary market laggards for the
period.
The technology sector performed strongly amid rising investor
demand for artificial intelligence ("AI")-related stocks and the
prospect of less monetary tightening in the future. The
communication services and industrial sectors were also leading
performers within the Russell 1000 Value Index. Conversely, the
real estate, healthcare, and utilities sectors were the primary
laggards for the period.
Revenue Account
The currency effect flows through the balance sheet and the
revenue account, muting the sterling value growth as compared to
the local currency performance.
This year the trend of year-on-year growth in dividend income
has checked slightly as investee companies have reacted to the
tightening fiscal environment. Dividend income in the first six
months of the year was GBP8.8m, or 3.8% lower than the GBP9.2m
earned in the six months to July 2022. The marginal reduction in
dividend income was offset by an increase in deposit interest as
cash is now generating a more meaningful return than has been the
case for many years. Option income was also down 5.6%. Dividend
income is still almost 15% higher than the pre-pandemic income in
July 2019 and our forecast for the second half of the financial
year is that income will be close to the level earned last
year.
Total costs for the period have increased by 5.8%, with a
reduction in the management fee, due to the decline in the
underlying asset values, being outweighed by a rise in
administrative expenses.
Investment Performance
The Company generated a NAV total return of -3.2% for the six
months ended 31 July 2023, underperforming the -1.0% total return
of the reference index, the Russell 1000 Value Index.
At a sector level, the main detractor from the Company's
performance was industrials due to stock selection and, to a lesser
extent, having an underweight exposure to the sector. The
second-largest detractor was stock selection in the materials
sector.
Looking at individual stock contributions, the largest
individual detractor was a lack of exposure to the social media and
technology conglomerate, Meta Platforms ("Meta") . Shares in the
Facebook owner surged as the company reported better-than-expected
earnings in the second quarter and issued optimistic guidance as
the company is investing heavily in AI, a move which has been well
received by investors. Non-dividend paying technology companies,
like Meta, do not fall into our stock selection criteria as they do
not return money to shareholders via dividend payments.
Looking at stocks held in the portfolio, agricultural sciences
company FMC Corporation underperformed, after the company reported
disappointing second quarter earnings and lowered its full-year
guidance, given lower-than-expected volumes due to inventory
destocking from
its customers.
Diversified healthcare provider CVS Health was another weak
performer as it faced a challenging macroeconomic environment and
above-trend claims from its Aetna insurance segment.
In terms of positive contributors, at a sector level, the
largest contributors to the Company's performance were energy and
information technology, both due to stock selection.
Semiconductor manufacturer Broadcom was among the top positive
contributors, performing strongly, alongside NVIDIA and other
companies with AI exposure, after reports indicated a significant
increase in demand for AI solutions. Broadcom subsequently reported
earnings that confirmed these improving demand trends.
Oilfield services provider Baker Hughes also fared well after it
was awarded a major subsea equipment contract off the Ivory Coast.
The company will supply several technologies to Africa's first
net-zero emissions development project. You can read more about
Broadcom and Baker Hughes, and our rationale for holding them in
the portfolio, on pages 15 and 16 of the 2023 Half-Yearly
Report.
Real estate investment trust Omega Healthcare Investors reported
better-than-expected earnings thanks to higher occupancy rates at
its customer facilities, along with fewer staffing issues. At the
same time, the company's management continues to make progress on
restructuring certain customer contracts, a process which should
conclude over the coming quarters.
Portfolio Activity
Our investment process focuses on identifying and investing in
high quality, cash-generative businesses. Market volatility created
opportunities to add quality companies into the portfolio at
compelling prices.
During the six month period, we initiated positions in three new
companies.
Beverage firm Keurig Dr Pepper has products in both the cold
drinks segment (led by the flagship Dr Pepper brand) and the coffee
segment, following the merger with Keurig which is a leading brand
in the single-serve coffee segment. Historically, the cold drinks
business has grown in line with, or above, the market, benefiting
from the company's strength in non-cola flavours and its status as
a preferred distributor and acquiror of niche brands. The
single-serve coffee business has recently been under pressure due
to the impact of higher inflation but has excellent long-term
trends and pricing in both segments (especially coffee) has now
normalised, while demand strength and market share gains have
continued.
We also introduced Essential Utilities , a diversified utility
with two-thirds of its earnings from the water business and
one-third from the gas business. In the short run, the gas business
should grow faster given the infrastructure upgrades needed.
However, the water business should grow at a comparable pace over
the intermediate term due to several small acquisition
opportunities given that around 85% of the country is served by
small, privately run municipal operations. Furthermore,
environmental regulations continue to be more stringent and these
incremental costs - some of which can be quite sizeable - are a
common catalyst for acquisition opportunities.
Another new holding is energy infrastructure company Enbridge .
It is a premier midstream company that operates one of the most
advantaged oil pipeline networks in North America, a strong
collection of natural gas infrastructure and utility assets, and a
growing renewable energy platform. The company's diversified asset
portfolio generates predictable cash flows thanks to its regulated
and long-term contracts with customers. The strategy is to harvest
this substantial cash generation to complete Enbridge's large
backlog of low-risk projects. Over time, project completion should
drive earnings higher while also supporting the company's
shareholder-friendly distribution policy.
Meanwhile, we sold clothing company VF Corporation . Despite
having a portfolio of well-admired brands like Vans and The North
Face, the company has faced multiple setbacks due to its continued
poor execution. While many of these issues appear to be temporary,
with most of them stemming from the pandemic's effects on both
supply chains and demand, they have impacted VF Corporation's
balance sheet. Moreover, any improvement in operating performance
has likely been delayed while a new CEO attempts to reposition the
company at a time when consumer sentiment is already weak.
We also sold our position in energy infrastructure firm TC
Energy , using the proceeds to fund our investment in competitor
Enbridge. While both are still high quality energy infrastructure
companies, we believe the fundamental backdrop favours Enbridge. TC
Energy is in the process of completing several large projects that
will create longer-term growth opportunities. However, factors
primarily outside the company's control have created delays and put
upward pressure on costs, negatively affecting project-level
returns. Furthermore, because of these pressures, TC Energy has set
ambitious divestiture goals to fund these projects and now risks
balance sheet degradation if these sales are not completed at fair
prices in a reasonable time frame.
A list of investments in the portfolio can be found on pages 12
to 13 of the 2023 Half-Yearly Report.
Within the Company's corporate bond portfolio, we initiated
several positions over the review period to take advantage of more
attractive valuations. This was after these bonds' yields became
more attractive due to further monetary tightening as well as
worries about what an economic slowdown could mean for the
instruments' credit quality. In contrast, we exited some other
positions as the valuation of these bonds traded through what we
deemed to be their fair value. We continue to work closely with the
Manager's fixed income specialists to monitor credits and market
conditions.
Outlook
The US economy continues to surprise to the upside. After the
latest interest rate increase in July 2023, consensus is shaping up
that the Fed may be at the end of its interest-rate hiking cycle.
However, this view may be premature as core inflation data continue
to be slow to contract and the Fed has been clear that it is
committed to hitting its 2% target. Moreover, gasoline prices have
been rising recently, which will negatively affect future inflation
data. Up to now, the consumer has held up remarkedly well; however,
higher gasoline prices, tighter lending conditions post the averted
bank crisis and restarting student loan repayments are likely to
constrain spending. That being said, the abrdn 'house' view remains
that a mild recession is still likely. We now expect it to begin in
the first quarter of 2024 and we are not forecasting a recovery
until the tail end of the year.
Fran Radano
abrdn Inc.
4 October 2023
Other Matters
Principal Risks and Uncertainties
There are a number of risks that, if realised, could have a
material adverse effect on the Company and its financial condition,
performance and prospects. The Board has considered the principal
risks and uncertainties facing the Company together with a
description of the mitigating actions it has taken. They can be
summarised under the following headings:
- Market Risk
- Major Market Event or Geopolitical Risk
- Income and Dividend Risk
- Operational Risk
- Regulatory Risk
- Gearing Risk
- Discount Volatility
- Derivatives
- Potential Impact of ESG Investment Principles
Details of these risks are provided on pages 14 to 16 of the
Annual Report for the year ended 31 January 2023.
The Board monitors these principal risks closely and has a
process to identify and assess emerging risks such as climate
change and geopolitical developments.
The increasing political and economic uncertainty which could
affect markets, particularly in reaction to higher interest rates
and recent banking failures, received particular focus in the
reporting period.
The Board is also aware of the elevated threat posed by climate
change and continues to monitor, through the Investment Manager,
the potential risk that the companies in the portfolio may fail to
adapt to changes in policy and regulation.
In all other respects, the Company's principal risks and
uncertainties have not changed nor are they expected to change in
the second half of the financial year ending 31 January 2024.
Going Concern
In accordance with the Financial Reporting Council's Guidance on
Risk Management, Internal Control and Related Financial and
Business, the Directors have undertaken a rigorous review and
consider both that there are no material uncertainties and that the
adoption of the going concern basis of accounting is appropriate.
The Company's assets consist substantially of equity shares in
companies listed on recognised stock exchanges and, in most
circumstances, are realisable within a short timescale.
In December 2020, the Company entered into a long-term financing
agreement for US$50 million with MetLife, comprising two loans of
US$25 million with terms of 10 and 15 years.
The Directors have a reasonable expectation that the Company has
adequate financial resources to continue in operational existence
for the foreseeable future and the ability to meet all its
liabilities and ongoing expenses from its assets. Given that the
Company's portfolio comprises primarily "Level One" assets (listed
on a recognisable exchange and realisable within a short
timescale), and the Company's relatively low level of gearing, the
Directors believe that adopting a going concern basis of accounting
remains appropriate.
Accordingly, they continue to adopt the going concern basis in
preparing the financial statements.
Directors' Responsibility Statement
The Directors are responsible for preparing the Half-Yearly
Financial Report in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements has been prepared in
accordance with Financial Reporting Standard 104 (Interim Financial
Reporting);
- the Half-Yearly Board Report, comprising the Chair's
Statement, Other Matters and Portfolio Information, includes a fair
review of the information required by rule 4.2.7R of the Disclosure
Guidance and Transparency Rules (being an indication of important
events that have occurred during the first six months of the
financial year and their impact on the condensed set of Financial
Statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year);
and
- the financial statements include a fair review of the
information required by 4.2.8R of the Disclosure Guidance and
Transparency Rules (being related party transactions that have
taken place during the first six months of the financial year and
that have materially affected the financial position of the Company
during that period; and any changes in the related party
transactions described in the last Annual Report that could do
so).
The Half-Yearly Financial Report for the six months ended 31
July 2023 comprises the Half-Yearly Board Report, the Directors'
Responsibility Statement and a condensed set of Financial
Statements which has not been reviewed or audited by the Company's
auditor.
For and on behalf of the Board
of The North American Income Trust plc
Dame Susan Rice,
Chair
4 October 2023
Ten Largest Investments
As at 31 July 2023
Baker Hughes CVS Health
Baker Hughes Company provides CVS Health Corporation provides
oilfield products and services. health care and retail pharmacy
The Company engages in surface services. The Company offers
logging, drilling, pipeline prescription medications, beauty,
operations, petroleum engineering, personal care, cosmetics, and
and fertilizer solutions, as health care products as well
well as offers gas turbines, as pharmacy benefit management,
valves, actuators, pumps, flow disease management, and administrative
meters, generators, and motors. services.
Baker Hughes serves oil and
gas industries worldwide.
MetLife Gaming & Leisure Properties
MetLife, Inc. provides individual Gaming and Leisure Properties,
insurance, employee benefits, Inc. owns and leases casinos
and financial services with and other entertainment facilities.
operations throughout the United
States and the regions of Latin
America, Europe, and Asia Pacific.
Phillips 66 Medtronic
Phillips 66 is a downstream Medtronic plc develops therapeutic
energy company. The Company's and diagnostic medical products
operations include oil refining, for a wide range of conditions,
marketing, and transportation. diseases and disorders.
Bristol-Myers Squibb CMS Energy
Bristol-Myers Squibb Company CMS Energy Corporation is an
is a global biopharmaceutical energy company. The company,
company. The Company develops, through its subsidiaries, provides
licences, manufactures, markets, electricity and natural gas
and sells pharmaceutical and to its customers. CMS energy
nutritional products. also invests in and operates
non-utility power generation
plants in the United States
and abroad.
Merck & Co. L3 Harris Technologies
Merck & Co., Inc. is a global L3Harris Technologies, Inc.
health care company that delivers is an aerospace and defence
health solutions through its technology innovator. The Company
prescription medicines, vaccines, designs, develops, and manufactures
biological therapies, animal radio communications products
health, and consumer care products, and systems, including single
which it markets directly and channel ground and airborne
through its joint ventures. radio systems.
The Company has operations
in pharmaceutical, animal health,
and consumer care.
List of Investments
As at 31 July 2023
================================ ================================= ========= =========
Valuation Valuation
Company Industry classification GBP'000 %
================================ ================================= ========= =========
Baker Hughes Energy Equipment & Services 25,035 5.3
================================ ================================= ========= =========
CVS Health Health Care Providers & Services 20,898 4.5
================================ ================================= ========= =========
MetLife Insurance 19,576 4.2
================================ ================================= ========= =========
Gaming & Leisure Properties Specialised REITs 18,443 3.9
================================ ================================= ========= =========
Phillips 66 Oil, Gas & Consumable Fuels 17,340 3.7
================================ ================================= ========= =========
Medtronic Health Care Equipment & Supplies 17,052 3.6
================================ ================================= ========= =========
Bristol-Myers Squibb Pharmaceuticals 16,917 3.6
================================ ================================= ========= =========
CMS Energy Multi-Utilities 16,613 3.5
================================ ================================= ========= =========
Merck & Co. Pharmaceuticals 16,578 3.5
================================ ================================= ========= =========
L3 Harris Technologies Aerospace & Defence 16,200 3.4
-------------------------------- --------------------------------- --------- ---------
Ten largest investments 184,652 39.2
------------------------------------------------------------------- --------- ---------
Omega Healthcare Investors Health Care REITs 16,115 3.4
================================ ================================= ========= =========
Philip Morris Tobacco 15,501 3.3
================================ ================================= ========= =========
Comcast Media 15,126 3.2
================================ ================================= ========= =========
FMC Chemicals 14,958 3.2
================================ ================================= ========= =========
Restaurant Brands International Hotels, Restaurants & Leisure 14,876 3.2
================================ ================================= ========= =========
Cogent Communications Diversified Telecommunication 14,279 3.0
================================ ================================= ========= =========
Emerson Electric Electrical Equipment 14,199 3.0
================================ ================================= ========= =========
American International Insurance 14,055 3.0
================================ ================================= ========= =========
Semiconductors & Semiconductor
Analog Devices Equipment 13,957 3.0
================================ ================================= ========= =========
Citigroup Banks 12,965 2.8
-------------------------------- --------------------------------- --------- ---------
Twenty largest investments 330,683 70.3
------------------------------------------------------------------- --------- ---------
JPMorgan Chase & Co. Banks 12,277 2.6
================================ ================================= ========= =========
Cisco Systems Communications Equipment 12,134 2.6
================================ ================================= ========= =========
Air Products & Chemicals Chemicals 10,679 2.3
================================ ================================= ========= =========
PNC Financial Services Banks 10,639 2.3
================================ ================================= ========= =========
Enbridge Oil, Gas & Consumable Fuels 10,010 2.1
================================ ================================= ========= =========
CME Group Capital Markets 7,732 1.6
================================ ================================= ========= =========
Coca-Cola Beverages 7,220 1.5
================================ ================================= ========= =========
OneMain Consumer Finance 7,070 1.5
================================ ================================= ========= =========
Semiconductors & Semiconductor
Broadcom Equipment 6,984 1.5
================================ ================================= ========= =========
Royal Bank of Canada Banks 6,934 1.5
-------------------------------- --------------------------------- --------- ---------
Thirty largest investments 422,362 89.8
------------------------------------------------------------------- --------- ---------
CI Financial Capital Markets 6,893 1.5
================================ ================================= ========= =========
Keurig Dr Pepper Beverages 6,608 1.4
================================ ================================= ========= =========
Essential Utilities Water Utilities 6,574 1.4
================================ ================================= ========= =========
AbbVie Biotechnology 5,232 1.1
================================ ================================= ========= =========
Semiconductors & Semiconductor
Texas Instruments Equipment 4,896 1.0
================================ ================================= ========= =========
Home Depot Specialty Retail 4,670 1.0
================================ ================================= ========= =========
Mortgage Real Estate Investment
Hannon Armstrong Sustainable Trusts (REITS) 3,653 0.7
================================ ================================= ========= =========
CCO Holdings 7.375% 03/03/31 Media 1,391 0.3
================================ ================================= ========= =========
Venture Global 8.375% 01/06/31 Oil, Gas & Consumable Fuels 1,375 0.3
================================ ================================= ========= =========
CCO Holdings 4.75% 01/02/32 Media 1,347 0.3
-------------------------------- --------------------------------- --------- ---------
Forty largest investments 465,001 98.8
------------------------------------------------------------------- --------- ---------
Goodyear Tire & Rubber
5% 15/07/29 Consumer Durables 716 0.2
================================ ================================= ========= =========
NRG Energy 3.625% 15/02/31 Multi-Utilities 694 0.2
================================ ================================= ========= =========
Venture Global Calcasie
6.25% 15/01/30 Oil, Gas & Consumable Fuels 685 0.2
================================ ================================= ========= =========
NCL 5.875% 15/02/27 Consumer Discretionary 682 0.1
================================ ================================= ========= =========
Howmet Aerospace 3% 15/01/29 Aerospace & Defence 678 0.1
================================ ================================= ========= =========
Viatris 2.7% 22/06/30 Pharmaceuticals 671 0.1
================================ ================================= ========= =========
Graphic Packaging 3.75%
01/02/30 Packaging & Containers 663 0.1
================================ ================================= ========= =========
Venture Global Calcasie
3.875% 01/11/33 Oil, Gas & Consumable Fuels 657 0.1
================================ ================================= ========= =========
Arsenal AIC Parent 8% 01/10/30 Materials 30 0.1
-------------------------------- --------------------------------- --------- ---------
Total investments 470,477 100.0
------------------------------------------------------------------- --------- ---------
Geographical Analysis
As at 31 July 2023
=================== ====== ============== =====
Equity Fixed interest Total
Country % % %
=================== ====== ============== =====
Canada 8.3 - 8.3
=================== ====== ============== =====
USA 89.6 2.1 91.7
------------------- ------ -------------- -----
97.9 2.1 100.0
------------------- ------ -------------- -----
Investment Case Studies
Broadcom
Starting out as a sub-division of Hewlett-Packard in the 1960s,
Broadcom (formerly Avago Technologies) has grown into a leading
developer and supplier of semiconductor and software solutions. Its
broad product range covers the wireless, networking, server
storage, broadband and industrial markets.
With CEO and president Hock Tan guiding a strong management
team, the firm has built its reputation as a global technology
powerhouse through an aggressive, yet smart, merger and acquisition
strategy. The anticipated acquisition of cloud computing business
VMware is evidence of this strategy at work. The deal has already
been approved by the European Commission and provisionally approved
by the UK's Competitions and Markets Authority, so now only needs
clearance from the US Federal Trade Commission.
The explosion in AI is boosting the company's performance.
Exposure to AI comes through custom silicon chips (believed to be
used by Google in its Tensor Processing Unit AI accelerators), and
AI ethernet switches. AI is expected to make up more than 20% of
semiconductor sales in fiscal year 2024 (up from 10% in fiscal year
2022), worth around $6-8 billion.
The holding is maintained by the Investment Manager because
Broadcom is an excellent allocator of capital and has the ability
to compound earnings per share over the long-term. The company's
management is committed to returning around 50% of free cash flow
to shareholders, with an attractive dividend yield. Meanwhile, its
valuation appears reasonable compared with its peer group.
Broadcom has made great strides in terms of ESG performance in
recent years (evidenced by its 'A' rating from MSCI). Its products
often focus on minimising power consumption compared with rivals.
The company has also committed to the ethical sourcing of raw
materials (as semiconductor manufacturing can involve the use of
conflict minerals, which are linked to human rights abuses). More
than 90% of its suppliers comply with the stringent Responsible
Minerals Initiative standards. Given Broadcom's role as an industry
consolidator, the Investment Manager has also engaged with the
management team on human capital development. This has evidenced a
more positive impression of Broadcom's ability to integrate people
into the company when it makes acquisitions.
Baker Hughes
Baker Hughes is a unique oilfield services company with a
diverse portfolio that includes traditional energy products,
liquified natural gas ("LNG") equipment and 'new energy'
solutions.
The mix of traditional oilfield services, LNG technology and new
energy solutions, including carbon capture, utilisation and storage
and hydrogen, presents an intriguing combination of near, medium,
and long-term opportunities from an investment perspective. The
company could benefit from greater spending by upstream customers,
multiple years of strong demand for LNG technologies and secular
tailwinds for energy solutions tied in with a greener, more
sustainable future.
In the Investment Manager's opinion, investors do not fully
appreciate the value of Baker Hughes' strong position within LNG
equipment and new energy technologies. From an income perspective,
the company's strong balance sheet and shareholder returns strategy
allow it to maintain dividend payments to shareholders through
economic cycles. Holding Baker Hughes gives the Company exposure to
relatively more attractive parts of the energy value chain and that
longer-term opportunity.
From an ESG point of view, Baker Hughes is highly rated (with an
'AA' score from MSCI). Despite its exposure to traditional oil and
gas, the company is closely linked with the energy transition. It
was one of the first energy companies to establish a net zero
emission target for 2050, supported by interim targets. The
Investment Manager views Baker Hughes' performance and disclosures
in this area to be ahead of its peers.
Despite the company's above-average exposure to climate change
risk, the Investment Manager is confident in its ability to
mitigate these concerns following our engagement on the issue. For
example, Baker Hughes uses robust internal models to run various
scenarios and to better plan, or avoid, physical asset risk.
Condensed Statement of Comprehensive Income (unaudited)
Six months ended Six months ended
31 July 2023 31 July 2022
================================== ===== =========================== =========================
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================== ===== ======= ======== ======== ======= ======= =======
Net (losses)/gains on investments - (28,238) (28,238) - 14,435 14,435
================================== ===== ======= ======== ======== ======= ======= =======
Net currency gains/(losses) - 1,573 1,573 - (1,337) (1,337)
================================== ===== ======= ======== ======== ======= ======= =======
Income 2 11,135 429 11,564 11,219 324 11,543
================================== ===== ======= ======== ======== ======= ======= =======
Investment management fee (451) (1,052) (1,503) (464) (1,082) (1,546)
================================== ===== ======= ======== ======== ======= ======= =======
Administrative expenses 3 (464) - (464) (401) - (401)
---------------------------------- ----- ------- -------- -------- ------- ------- -------
Net return before finance
costs and taxation 10,220 (27,288) (17,068) 10,354 12,340 22,694
================================== ===== ======= ======== ======== ======= ======= =======
Finance costs (165) (385) (550) (176) (411) (587)
---------------------------------- ----- ------- -------- -------- ------- ------- -------
Return before taxation 10,055 (27,673) (17,618) 10,178 11,929 22,107
================================== ===== ======= ======== ======== ======= ======= =======
Taxation 4 (1,513) 281 (1,232) (1,610) 235 (1,375)
---------------------------------- ----- ------- -------- -------- ------- ------- -------
Return after taxation 8,542 (27,392) (18,850) 8,568 12,164 20,732
---------------------------------- ----- ------- -------- -------- ------- ------- -------
Return per share (pence) 6 6.10 (19.55) (13.45) 6.10 8.67 14.77
---------------------------------- ----- ------- -------- -------- ------- ------- -------
The total column of the Condensed Statement of Comprehensive Income
is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Financial Position (unaudited)
As at As at
31 July 2023 31 January
2023
Notes GBP'000 GBP'000
=========================================== ====== ============= ===========
Non-current assets
=========================================== ====== ============= ===========
Investments at fair value through
profit or loss 11 470,477 486,940
=========================================== ====== ============= ===========
Current assets
=========================================== ====== ============= ===========
Debtors and prepayments 7,538 2,675
=========================================== ====== ============= ===========
Cash and short-term deposits 19,363 26,699
------------------------------------------- ------ ------------- -----------
26,901 29,374
------------------------------------------- ------ ------------- -----------
Creditors: amounts falling due within
one year
=========================================== ====== ============= ===========
Traded options 11 (291) (264)
=========================================== ====== ============= ===========
Other creditors (13,227) (2,616)
------------------------------------------- ------ ------------- -----------
(13,518) (2,880)
------------------------------------------- ------ ------------- -----------
Net current assets 13,383 26,494
------------------------------------------- ------ ------------- -----------
Total assets less current liabilities 483,860 513,434
=========================================== ====== ============= ===========
Creditors: amounts falling due after
more than one year
=========================================== ====== ============= ===========
Senior Loan Notes (38,792) (40,543)
------------------------------------------- ------ ------------- -----------
Net assets 445,068 472,891
------------------------------------------- ------ ------------- -----------
Capital and reserves
=========================================== ====== ============= ===========
Called-up share capital 7,002 7,012
=========================================== ====== ============= ===========
Share premium account 51,806 51,806
=========================================== ====== ============= ===========
Capital redemption reserve 15,614 15,604
=========================================== ====== ============= ===========
Capital reserve 8 345,871 373,828
=========================================== ====== ============= ===========
Revenue reserve 24,775 24,641
------------------------------------------- ------ ------------- -----------
Total shareholders' funds 445,068 472,891
------------------------------------------- ------ ------------- -----------
Net asset value per share (pence) 9 317.82 337.21
------------------------------------------- ------ ------------- -----------
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Changes in Equity (unaudited)
Six months ended 31 July 2023
============================================================================================
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ==== ======= ======= ========== ======== ======= ========
Balance at 31 January
2023 7,012 51,806 15,604 373,828 24,641 472,891
=========================== ==== ======= ======= ========== ======== ======= ========
Buyback of Ordinary shares (10) - 10 (565) - (565)
=========================== ==== ======= ======= ========== ======== ======= ========
Return after taxation - - - (27,392) 8,542 (18,850)
=========================== ==== ======= ======= ========== ======== ======= ========
Dividends paid 5 - - - - (8,408) (8,408)
--------------------------- ---- ------- ------- ---------- -------- ------- --------
Balance at 31 July 2023 7,002 51,806 15,614 345,871 24,775 445,068
--------------------------- ---- ------- ------- ---------- -------- ------- --------
Six months ended 31 July 2022
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ==== ======= ======= ========== ======== ======= ========
Balance at 31 January
2022 7,034 51,806 15,582 350,388 23,653 448,463
=========================== ==== ======= ======= ========== ======== ======= ========
Buyback of Ordinary shares (22) - 22 (1,252) - (1,252)
=========================== ==== ======= ======= ========== ======== ======= ========
Return after taxation - - - 12,164 8,568 20,732
=========================== ==== ======= ======= ========== ======== ======= ========
Dividends paid 5 - - - - (9,126) (9,126)
--------------------------- ---- ------- ------- ---------- -------- ------- --------
Balance at 31 July 2022 7,012 51,806 15,604 361,300 23,095 458,817
--------------------------- ---- ------- ------- ---------- -------- ------- --------
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Cash Flows (unaudited)
Six months Six months
ended ended
31 July 2023 31 July 2022
GBP'000 GBP'000
==================================================== ============ ============
Operating activities
==================================================== ============ ============
Net return before taxation (17,618) 22,107
==================================================== ============ ============
Adjustments for:
==================================================== ============ ============
Net losses/(gains) on investments 28,075 (14,667)
==================================================== ============ ============
Net (gains)/losses on foreign exchange transactions (1,573) 1,337
==================================================== ============ ============
Increase in dividend income receivable (248) (681)
==================================================== ============ ============
Increase in fixed interest income receivable (64) (23)
==================================================== ============ ============
Increase in derivatives 27 343
==================================================== ============ ============
Decrease/(increase) in other debtors 16 (24)
==================================================== ============ ============
Increase in other creditors 687 849
==================================================== ============ ============
Tax on overseas income (1,053) (1,357)
==================================================== ============ ============
Amortisation of fixed income book cost (45) (4)
---------------------------------------------------- ------------ ------------
Net cash flow from operating activities 8,204 7,880
==================================================== ============ ============
Investing activities
==================================================== ============ ============
Purchases of investments (72,882) (106,369)
==================================================== ============ ============
Sales of investments 66,493 107,830
---------------------------------------------------- ------------ ------------
Net cash flow from investing activities (6,389) 1,461
==================================================== ============ ============
Financing activities
==================================================== ============ ============
Equity dividends paid (8,408) (9,126)
==================================================== ============ ============
Buyback of Ordinary shares (565) (1,252)
---------------------------------------------------- ------------ ------------
Net cash used in financing activities (8,973) (10,378)
---------------------------------------------------- ------------ ------------
Decrease in cash (7,158) (1,037)
---------------------------------------------------- ------------ ------------
Analysis of changes in cash during the period
==================================================== ============ ============
Opening balance 26,699 13,875
==================================================== ============ ============
Effect of exchange rate fluctuations on cash
held (178) 2,486
==================================================== ============ ============
Decrease in cash as above (7,158) (1,037)
---------------------------------------------------- ------------ ------------
Closing balance 19,363 15,324
---------------------------------------------------- ------------ ------------
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements (unaudited)
For the year ended 31 July 2023
1. Accounting policies
Basis of preparation. The condensed financial statements have been
prepared in accordance with Financial Reporting Standard 104 (Interim
Financial Reporting) and with the Statement of Recommended Practice
for 'Financial Statements of Investment Trust Companies and Venture
Capital Trusts'. They have also been prepared on a going concern
basis and on the assumption that approval as an investment trust
will continue to be granted. Annual financial statements are prepared
under Financial Reporting Standard 102.
The condensed interim financial statements have been prepared using
the same accounting policies as the preceding annual financial
statements.
2. Income
======================================== ============ ============
Six months Six months
ended ended
31 July 2023 31 July 2022
GBP'000 GBP'000
======================================== ============ ============
Income from overseas listed investments
======================================== ============ ============
Dividend income 7,658 8,169
============================================ ============ ============
REIT income 1,134 972
============================================ ============ ============
Interest income from investments 248 76
-------------------------------------------- ------------ ------------
9,040 9,217
-------------------------------------------- ------------ ------------
Other income from investment activity
======================================== ============ ============
Traded option premiums 1,846 1,955
============================================ ============ ============
Deposit interest 249 47
============================================ ============ ============
2,095 2,002
-------------------------------------------- ------------ ------------
Total income 11,135 11,219
-------------------------------------------- ------------ ------------
3. Administrative expenses
======================================== ============ ============
Six months Six months
ended ended
31 July 2023 31 July 2022
GBP'000 GBP'000
======================================== ============ ============
Directors' fees 78 60
============================================ ============ ============
Secretarial fees 73 65
============================================ ============ ============
Promotional activities 107 107
============================================ ============ ============
Auditor's remuneration:
======================================== ============ ============
- fees payable to the Company's auditor
for the audit of the annual report 26 18
============================================ ============ ============
Custody and bank charges 12 14
============================================ ============ ============
Registrar's fees 14 16
============================================ ============ ============
Professional fees 21 17
============================================ ============ ============
Depositary charges 22 23
============================================ ============ ============
Other expenses 111 81
-------------------------------------------- ------------ ------------
464 401
-------------------------------------------- ------------ ------------
4. Taxation
The taxation expense reflected in the Condensed Statement of Comprehensive
Income is based on the estimated annual tax rate expected for the
full financial year. The estimated annual corporation tax rate
used for the year to 31 January 2024 is 24% (2023 - 19%).
Detailed below is an analysis of the tax charge for each period.
Six months ended Six months ended
31 July 2023 31 July 2022
========================= =========================
Revenue Capital Total Revenue Capital Total
Taxation GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================= ======= ======= ======= ======= ======= =======
UK corporation tax 231 - 231 98 - 98
===================================== ======= ======= ======= ======= ======= =======
Double tax relief (170) - (170) (98) - (98)
===================================== ======= ======= ======= ======= ======= =======
Overseas tax suffered 1,107 64 1,171 1,308 49 1,357
===================================== ======= ======= ======= ======= ======= =======
Tax relief to capital 345 (345) - 284 (284) -
===================================== ======= ======= ======= ======= ======= =======
Deferred tax - - - 84 - 84
===================================== ======= ======= ======= ======= ======= =======
Double tax relief on deferred
tax items - - - (66) - (66)
------------------------------------- ------- ------- ------- ------- ------- -------
Total tax charge for the period 1,513 (281) 1,232 1,610 (235) 1,375
------------------------------------- ------- ------- ------- ------- ------- -------
5. Dividends
============================================ ============== =============
Six months Six months
ended ended
31 July 2023 31 July 2022
GBP'000 GBP'000
============================================ ============== =============
Third interim dividend for 2023 - 2.5p
(2022 - 2.5p) 3,506 3,517
================================================ ============== =============
Final dividend for 2023 - 3.5p (2022 -
4.0p) 4,902 5,609
------------------------------------------------ -------------- -------------
8,408 9,126
------------------------------------------------ -------------- -------------
The Company pays four dividends per year. The first interim dividend
of 2.60p (2023 - 2.50p) for the year ending 31 January 2024 was
paid on 4 August 2023 to shareholders on the register at 21 July
2023, with an ex-dividend date of 20 July 2023. A second interim
dividend of 2.60p (2023 - 2.50p) for the year ending 31 January
2024, will be paid on 27 October 2023 to shareholders on the register
at 13 October 2023, with an ex-dividend date of 12 October 2023.
6. Return per Ordinary share
=========================================== ============ ============
Six months Six months
ended ended
31 July 2023 31 July 2022
GBP'000 GBP'000
=========================================== ============ ============
Based on the following figures:
=========================================== ============ ============
Revenue return 8,542 8,568
=============================================== ============ ============
Capital return (27,392) 12,164
----------------------------------------------- ------------ ------------
Total return (18,850) 20,732
----------------------------------------------- ------------ ------------
Weighted average number of shares in issue 140,135,287 140,335,159
----------------------------------------------- ------------ ------------
p p
=========================================== ============ ============
Revenue return per Ordinary share 6.10 6.10
=============================================== ============ ============
Capital return per Ordinary share (19.55) 8.67
----------------------------------------------- ------------ ------------
Total return per Ordinary share (13.45) 14.77
----------------------------------------------- ------------ ------------
7. Transaction costs
During the six months ended 31 July 2023 expenses were incurred
in acquiring or disposing of investments classified as fair value
through profit or loss. These have been expensed through capital
and are included within net (losses)/gains on investments in the
Condensed Statement of Comprehensive Income. The total costs were
as follows:
Six months Six months
ended ended
31 July 2023 31 July 2022
GBP'000 GBP'000
============================= =================== ===================
Purchases 39 30
================================= =================== ===================
Sales 59 66
--------------------------------- ------------------- -------------------
98 96
--------------------------------- ------------------- -------------------
8. Capital reserve
The capital reserve reflected in the Condensed Statement of Financial
Position at 31 July 2023 includes gains of GBP21,137,000 (31 January
2023 - gains GBP48,049,000) which relate to the revaluation of
investments held at the reporting date.
9. Net asset value per Ordinary share
======================================= ============ ===========
As at As at
31 July 2023 31 January
2023
======================================= ============ ===========
Net assets attributable (GBP'000) 445,068 472,891
=========================================== ============ ===========
Number of Ordinary shares in issue 140,037,175 140,234,749
=========================================== ============ ===========
Net asset value per Ordinary share (p) 317.82 337.21
------------------------------------------- ------------ -----------
10. Analysis of changes in net debt
===================================================================================
At At
31 January Currency Cash Non-cash 31 July
2023 differences flows movement 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= ========== =========== ======= ======== ========
Cash and short-term deposits 26,699 (178) (7,158) - 19,363
=================================== ========== =========== ======= ======== ========
Debt due after more than one
year (40,543) 1,751 - - (38,792)
----------------------------------- ---------- ----------- ------- -------- --------
(13,844) 1,573 (7,158) - (19,429)
----------------------------------- ---------- ----------- ------- -------- --------
At At
31 January Currency Cash Non-cash 31 July
2022 differences flows movement 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= ========== =========== ======= ======== ========
Cash and short-term deposits 13,875 2,486 (1,037) - 15,324
=================================== ========== =========== ======= ======== ========
Debt due after more than one
year (37,191) (3,823) - - (41,014)
----------------------------------- ---------- ----------- ------- -------- --------
(23,316) (1,337) (1,037) - (25,690)
----------------------------------- ---------- ----------- ------- -------- --------
A statement reconciling the movement in net debt to the net cash
flow has not been presented as there are no differences from the
above analysis.
11. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements
using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy
shall have the following classifications:
Level 1: unadjusted quoted prices in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2: inputs other than quoted prices included within Level
1 that are observable (ie developed using market data) for the
asset or liability, either directly or indirectly.
Level 3: inputs are unobservable (ie for which market data is unavailable)
for the asset or liability.
The financial assets and liabilities measured at fair value in
the Condensed Statement of Financial Position are grouped into
the fair value hierarchy at the reporting date as follows:
Level Level Level Total
1 2 3
As at 31 July 2023 Note GBP'000 GBP'000 GBP'000 GBP'000
====================================== ===== ====== ======= ======= ======= ==========
Financial assets at fair value
through profit or loss
====================================== ===== ====== ======= ======= ======= ==========
Quoted equities a) 460,888 - - 460,888
====================================== ================= ======= ======= ======= ==========
Quoted bonds b) - 9,589 - 9,589
-------------------------------------- ----------------- ------- ------- ------- ----------
Total 460,888 9,589 - 470,477
-------------------------------------- ----------------- ------- ------- ------- ----------
Financial liabilities at fair
value through profit or loss
====================================== ===== ====== ======= ======= ======= ==========
Derivatives c) - (291) - (291)
-------------------------------------- ----------------- ------- ------- ------- ----------
Net fair value 460,888 9,298 - 470,186
-------------------------------------- ----------------- ------- ------- ------- ----------
Level Level Level Total
1 2 3
As at 31 January 2023 Note GBP'000 GBP'000 GBP'000 GBP'000
====================================== ===== ====== ======= ======= ======= ==========
Financial assets at fair value
through profit or loss
====================================== ===== ====== ======= ======= ======= ==========
Quoted equities a) 479,799 - - 479,799
====================================== ================= ======= ======= ======= ==========
Quoted bonds b) - 7,141 - 7,141
-------------------------------------- ----------------- ------- ------- ------- ----------
Total 479,799 7,141 - 486,940
-------------------------------------- ----------------- ------- ------- ------- ----------
Financial liabilities at fair
value through profit or loss
====================================== ===== ====== ======= ======= ======= ==========
Derivatives c) - (264) - (264)
-------------------------------------- ----------------- ------- ------- ------- ----------
Net fair value 479,799 6,877 - 486,676
-------------------------------------- ----------------- ------- ------- ------- ----------
a) Quoted equities. The fair value of the Company's investments
in quoted equities has been determined by reference to their
quoted prices at the reporting date. Quoted equities included
in Fair Value Level 1 are actively traded on recognised stock
exchanges.
b) Quoted bonds. The fair value of the Company's investments in
quoted bonds has been determined by reference to their quoted
bid prices at the reporting date. Investments categorised as
Level 2 are not considered to trade in active markets.
c) Derivatives. The Company's investment in exchange traded options
have been fair valued using quoted prices and have been classified
as Level 2 as they are not considered to trade in active markets.
12. Transactions with the Manager
The Company has an agreement with abrdn Fund Managers Limited ("aFML"
or the "Manager") for the provision of investment management, secretarial,
accounting and administration and promotional activity services.
The annual management fee is charged on gross assets after deducting
current liabilities and borrowings and excluding commonly managed
funds (net assets), on a tiered basis at 0.75% of net assets up
to GBP250 million, 0.6% between GBP250 million and GBP500 million,
and 0.5% over GBP500 million, payable quarterly. The fee is allocated
30% to revenue and 70% to capital. During the period GBP1,503,000
(31 July 2022 - GBP1,546,000) of investment management fees were
payable to the Manager, with a balance of GBP1,503,000 (31 July
2022 - GBP1,546,000) being due to aFML at the period end.
The secretarial fee of GBP147,000 per annum is chargeable 100%
to revenue and is payable monthly in arrears. During the period
GBP73,000 (31 July 2022 - GBP65,000) of secretarial fees were payable
to the Manager, with a balance of GBP24,000 (31 July 2022 - GBP22,000)
being due to aFML at the period end.
The promotional activities fee is based on a current annual amount
of GBP215,000, payable quarterly in arrears. During the period
GBP107,000 (31 July 2022 - GBP107,000) of fees were payable, with
a balance of GBP72,000 (31 July 2022 - GBP72,000) being due to
aFML at the period end.
13. Segmental information
The Company is engaged in a single segment of business, which is
to invest in equity securities and debt instruments. All of the
Company's activities are interrelated, and each activity is dependent
on the others. Accordingly, all significant operating decisions
are based on the Company as one segment.
14. Subsequent events
Subsequent to the period end, the Company has bought back a further
659,338 Ordinary shares for cancellation at a cost of GBP1,851,000.
15. Half-Yearly Financial Report
The financial information in this Report does not comprise statutory
accounts within the meaning of Section 434 - 436 of the Companies
Act 2006. The financial information for the year ended 31 January
2023 has been extracted from published accounts that have been
delivered to the Registrar of Companies and on which the report
of the Company's auditor was unqualified and contained no statement
under Section 498 (2), (3) or (4) of the Companies Act 2006. The
condensed interim financial statements have been prepared using
the same accounting policies as contained within the preceding
annual financial statements.
The financial information for the six months ended 31 July 2023
and 31 July 2022 have not been audited or reviewed by the Company's
auditor.
16. This Half-Yearly Financial Report was approved by the Board on 4
October 2023.
17. The Half-Yearly Financial Report is available on the
Company's website, northamericanincome.co.uk. The Half-Yearly
Report will be posted to shareholders in October 2023 and copies
will be available from the Company Secretary.
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise and may be affected by exchange rate
movements. Investors may not get back the amount they originally
invested.
For The North American Income Trust plc
abrdn Holdings Limited, Company Secretary
For further information, please contact:-
Company Secretary, abrdn
Tel: 0131 372 2200
Alternative Performance Measures ("APMs")
Alternative performance measures are numerical measures of the Company's
current, historical or future performance, financial position or cash
flows, other than financial measures defined or specified in the applicable
financial framework. The Company's applicable financial framework includes
FRS 102 and the AIC SORP. The Directors assess the Company's performance
against a range of criteria which are viewed as particularly relevant
for closed-end investment companies.
Discount to net asset value
The discount is the amount by which the share price is lower than the
net asset value per share with debt at fair value, expressed as a percentage
of the net asset value with debt at fair value.
31 July 2023 31 January
2023
============================================== ============ ============ ==========
NAV per Ordinary share (p) a 317.82p 337.21p
============================================== ============ ============ ==========
Share price (p) b 282.00p 306.00p
============================================== ============ ============ ==========
Discount (a-b)/a 11.3% 9.3%
---------------------------------------------- ------------ ------------ ----------
Dividend yield
Dividend yield is calculated using the Company's historic annual dividend
per Ordinary share divided by the share price, expressed as a percentage.
31 July 2023 31 January
2023
============================================== ============ ============ ==========
Annual dividend per Ordinary share
(p) a 11.00p 11.00p
============================================== ============ ============ ==========
Share price (p) b 282.00p 306.00p
============================================== ============ ============ ==========
Dividend yield a/b 3.9% 3.6%
---------------------------------------------- ------------ ------------ ----------
Net gearing
Net gearing measures total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC
reporting guidance cash and cash equivalents includes net amounts due
to and from brokers at the period end as well as cash and short term
deposits.
31 July 2023 31 January
2023
============================================== ============ ============ ==========
Borrowings (GBP'000) a 38,792 40,543
============================================== ============ ============ ==========
Cash (GBP'000) b 19,363 26,699
============================================== ============ ============ ==========
Amounts due to brokers (GBP'000) c 11,308 1,444
============================================== ============ ============ ==========
Amounts due from brokers (GBP'000) d 6,346 1,660
============================================== ============ ============ ==========
Shareholders' funds (GBP'000) e 445,068 472,891
---------------------------------------------- ------------ ------------ ----------
Net gearing (a-b+c-d)/e 5.5% 2.9%
---------------------------------------------- ------------ ------------ ----------
Ongoing charges ratio
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC which is defined as the total of investment management
fees and administrative expenses and expressed as a percentage of the
average published daily net asset values with debt at fair value throughout
the year. The ratio for 31 July 2023 is based on forecast ongoing charges
for the year ending 31 January 2024.
31 July 2023 31 January
2023
============================================== ============ ============ ==========
Investment management fees (GBP'000) 3,038 3,156
============================================================ ============ ==========
Administrative expenses (GBP'000) 893 854
============================================================ ============ ==========
Less: non-recurring expenses(A) (GBP'000) - (8)
------------------------------------------------------------ ------------ ----------
Ongoing charges (GBP'000) 3,931 4,002
------------------------------------------------------------ ------------ ----------
Average net assets(GBP'000) 443,416 458,929
------------------------------------------------------------ ------------ ----------
Ongoing charges ratio (excluding look-through
costs) 0.89% 0.87%
------------------------------------------------------------ ------------ ----------
Look-through costs(B) 0.11% 0.06%
------------------------------------------------------------ ------------ ----------
Ongoing charges ratio (including look-through
costs) 1.00% 0.93%
------------------------------------------------------------ ------------ ----------
(A) Professional services considered unlikely to recur.
(B) Calculated in accordance with AIC guidance issued in October 2020
to include the Company's share of costs of holdings in investment companies
on a look-through basis.
The ongoing charges ratio provided in the Company's Key Information
Document is calculated in line with the PRIIPs regulations which includes
finance costs and transaction charges.
Total return
NAV and share price total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking into
account both capital returns and dividends paid to shareholders. Share
price and NAV total returns are monitored against open-ended and closed-ended
competitors, and the Reference Index, respectively.
Share
Six months ended 31 July 2023 NAV Price
============================================== ============ ============ ==========
Opening at 1 February 2023 a 337.2p 306.0p
============================================== ============ ============ ==========
Closing at 31 July 2023 b 317.8p 282.0p
============================================== ============ ============ ==========
Price movements c=(b/a)-1 -5.7% -7.8%
============================================== ============ ============ ==========
Dividend reinvestment(A) d 2.5% 2.8%
---------------------------------------------- ------------ ------------ ----------
Total return c+d -3.2% -5.0%
---------------------------------------------- ------------ ------------ ----------
Share
Year ended 31 January 2023 NAV Price
============================================== ============ ============ ==========
Opening at 1 February 2022 a 318.8p 283.0p
============================================== ============ ============ ==========
Closing at 31 January 2023 b 337.2p 306.0p
============================================== ============ ============ ==========
Price movements c=(b/a)-1 5.8% 8.1%
============================================== ============ ============ ==========
Dividend reinvestment(A) d 3.8% 4.3%
---------------------------------------------- ------------ ------------ ----------
Total return c+d +9.6% +12.4%
---------------------------------------------- ------------ ------------ ----------
(A) NAV total return involves investing the net dividend in the NAV
of the Company with debt at fair value on the date on which that dividend
goes ex-dividend. Share price total return involves reinvesting the
net dividend in the share price of the Company on the date on which
that dividend goes ex-dividend.
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END
IR FSAFILEDSELS
(END) Dow Jones Newswires
October 05, 2023 02:00 ET (06:00 GMT)
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