TIDMTCT
RNS Number : 2488L
The Cayenne Trust Plc
24 April 2015
This announcement replaces announcement 1923L which was released
at 07.00am on 24 April 2015 but omitted two sector weightings in
paragraph 5 of the Investment Manager's Report.
THE CAYENNE TRUST PLC
Announcement of Results and availability of Report &
Accounts
for the year ended 31 January 2015
Strategic Objective
The Company aims to achieve consistent positive absolute returns
by investing principally in the securities of UK investment trusts
and other closed-ended funds.
Investment Policy
The Cayenne Trust plc is a UK investment trust listed on The
London Stock Exchange. Its investment policy is to invest
principally in the securities of UK investment trust companies and
other closed-end funds; and to seek to ensure preservation of
capital by use of derivative and similar instruments to the extent
permissible within the regulations governing investment trust
companies and the Listing Rules.
Principal Data
31 January 31 January %
2015 2014 change
Shareholders' funds (GBP'000) 54,823 50,604 8.3
Net asset value per Ordinary share per AIC
guidelines:
(CULS at par value) 164.40p 144.45p 13.8
Discount 6.3% 4.1%
Diluted 160.28p 144.13p 11.2
Discount 3.9% 3.9%
Basic net asset value per Ordinary share
(CULS at debt value ) 165.02p 145.43p 13.5
Discount 6.7% 4.8%
Diluted 160.77p 144.91p 10.9
Discount 4.2% 4.4%
Closing mid-market price per Ordinary share 154.00p 138.50p 11.2
Gearing(^) 124% 126%
Year to Year to
31 January 31 January %
2015 2014 change
Net revenue return after taxation (GBP'000) 690 432 59.7
Recommended dividends per Ordinary share 3.80p 1.20p 216.7
Dividend yield 2.5% 0.9%
Ongoing charges 1.5% 1.6%
Performance Fee high water mark* 171.22 163.07
Earnings per Ordinary share - basic 20.12p 16.73p
Revenue 2.00p 1.23p
Capital 18.12p 15.50p
Net asset value total return 12.1% 13.6%
Share price total return 12.1% 13.5%
FTSE All-Share Equity Investment Instruments
Index (total return)# 11.6% 10.0%
^ This reflects the amount of loans already arranged and in use
by the Company. This is the gearing figure calculated as published
by the Association of Investment Companies. It is calculated by
dividing total assets less current liabilities of GBP67.565m at 31
January 2015, (but not deducting the CULS at par value) by Ordinary
shareholders' funds of GBP54.617m at 31 January 2015.
*The performance fee gross high water mark for the year to 31
January 2016 is 169.35p
# Source: Bloomberg
CHAIRMAN'S STATEMENT
During the year under review the Company's Net Asset Value per
Share (NAV), calculated in accordance with AIC guidelines,
increased by 19.9p to 164.40p (13.8%) and a dividend of 1.20p was
paid on 20 June 2014. This equates to a total return for the period
of 12.1%. Over the same period the FTSE All-Share Equity Investment
Instruments Index (FTASEIII) appreciated by 11.6%.
On 18 February 2015 the Company announced that James Hart, who
together with Len Gayler has been responsible for the management of
your Company's portfolio, had given notice to leave the employment
of your investment manager. Independently of this, Mr Gayler had
previously indicated to the Board of the Company that he was not
prepared to commit to continued management of the Company's
portfolio much beyond 2016. The Board decided therefore, subject to
shareholder approval, to remove the requirement to put a
continuation vote to the Company's Annual General Meeting in 2016
and instead to put forward proposals for an orderly realisation of
the Company's assets.
The Board intends that your investment manager should continue
to manage the Company's portfolio, in line with the Strategic
Objective, up until August 2016 - the redemption date of the
Company's 3.25% Convertible Unsecured Loan Stock ('CULS'). It has
been agreed between the investment manager and the Board that with
effect from 31 January 2016, the management fee will reduce from 1%
to 0.75% of the Company's assets excluding the investment in the
Apollo Fund.
Following the February announcement, the Board and its advisors
have received a number of approaches from parties in connection
with the future of the Company. The Board is considering whether
any of these would be in shareholders' best interests and will
report on its findings in due course. Your Board expects that
shareholders who do not wish to receive cash for their shares on a
liquidation of the Company will be offered an alternative of
exchanging their shares in the Company for shares in another
investment trust.
In the meantime, your Company's portfolio remains focused on a
small number of sectors (private equity, healthcare, technologies)
which your investment manager believes offer the best prospects for
growth and investments which demonstrate an advantageous
reward/risk profile; namely convertible unsecured loan stocks and a
select number of specialist equity funds. This combination of
assets has served well over recent years and your investment
manager remains confident that this allocation, together with a
hedging strategy, is the appropriate blend of assets to meet the
Company's objective.
A marginal shift in allocation from low-yielding assets to those
offering higher yields has bolstered the Company's revenue account
while on-going share repurchases have enhanced the revenue per
share. In addition, the Company has a significant revenue reserve
which the Board believes should be distributed to shareholders
ahead of any liquidation. As a result, a dividend of 3.80p (2014:
1.2p) is being recommended by your Board and, if approved by
shareholders, will be paid on 21 August 2015.
The Company continues to operate a rigorous discount control
mechanism which ensures that the shares do not trade at a discount
to NAV greater than 5%. During the year under review the Company
repurchased and placed into Treasury 1,573,050 Ordinary shares and,
as a result, at the year-end there were 5,880,083 shares held in
Treasury. A further 2,065,000 Ordinary shares were repurchased and
placed in Treasury subsequent to the year-end and on 6 March your
Board decided to cancel 5,000,000 Ordinary shares held in Treasury.
This leaves 2,945,083 Ordinary shares held in Treasury at the date
of this report and, in the light of the announcement regarding the
future of the Company, the Board has resolved that none of these
shares will be reissued for cash at a discount to the prevailing
NAV. In addition to the share repurchases, GBP210,000 nominal of
CULS was bought back for an aggregate consideration of GBP222,600
and cancelled during the year. Subsequent to the year-end a further
GBP995,000 nominal of CULS has been bought back for an aggregate
consideration of GBP1,078,875 and cancelled to help manage the
Company's gearing.
I am pleased to be able to report that the first year of
operation under the Alternative Investment Fund Manager's Directive
has not had any major impact on the Company's affairs. Although
there has been some costs involved in complying with the Directive
and associated reporting, because the Company took advantage of the
'light touch' regime, these have not been significant.
Finally, I should like to remind holders of CULS that, if they
exercise their conversion rights at the end of April or July 2015,
they will be entitled to the above dividend of 3.8p, payable in
August 2015, subject to shareholders approving the dividend at the
forthcoming Annual General Meeting.
Jonathan Agnew
Chairman
23 April 2015
INVESTMENT MANAGER'S REPORT
It was a volatile year for most major equity markets, caused by
a number of economic and geopolitical factors but with Central Bank
policy again dominating the investment horizon. Positive economic
developments in the USA and the UK were counteracted by a
lacklustre performance in Europe and China. Japan continues to
march to the beat of its own drum, while commodity dependent
nations were regarded most negatively. Divergent monetary policies
caused currency volatility, which played out throughout the period
and culminated in the Swiss National Bank's decision to allow the
CHF to float free of the Euro. The US Dollar was the biggest
beneficiary as the Federal Reserve ended QE, while the ECB and BOJ
became increasingly dovish. The oil price was at the forefront of
most minds throughout the second half of the year, while political
turmoil on Europe's Eastern border and the rise of 'Islamic State'
reminds us that political concerns are never far away.
The Investment Company sector enjoyed a vintage year, with
issuance (and net inflows) at near record levels. Performance, as
illustrated by the FTSE All Share Equity Investment Instruments
Index was good, with this measure appreciating by 11.6% versus a
gain of 6.7% for the FTSE All Share Index. Much of this
outperformance is attributable to the sector's overseas allocation
(particularly the USA and Asia) and the successful launch of many
alternative income products. Overall, the discount on which the
investment company sector trades narrowed to 2.7%. This continued
re-rating is largely due to the premium rating attached to these
alternative income products, as the rest of the sector actually
widened 100 basis points to 6.4%.
Looking at sub-sectors, the clear winners (in GBP Sterling
terms) were Healthcare, Technology, Real Estate and Private Equity.
Considering the global environment highlighted above, it is of no
great surprise that commodity funds and those with high exposure to
Eastern European were the losers. It was pleasing to see the
Company perform strongly in this environment, with many of these
top performing sectors well represented in its high conviction
portfolio.
The character of the Company's portfolio is largely similar to
the one described in last year's report and, given the content of
the Chairman's Statement it is pertinent that we emphasise its
quality and liquidity. A number of realisations were completed
during the year, including the sale of HgCapital Trust (to cap
exposure to LPEq), JPMorgan Global Convertible Income Fund (to fund
subscriptions into new CULS), British Empire Securities &
General Trust, Polar Capital Global Financials and Monks (to
eliminate exposure to strategies in which we have lost faith) Troy
Income & Growth Trust and Templeton Emerging Markets Investment
Trust, Genesis Emerging Markets Fund and Utilico Emerging Markets
(profit taking). We also switched our exposure in Electra Private
Equity from the ordinary shares into the CULS as Sherborne built an
equity stake, and this switch provides some downside protection
should the agitator have to throw in the towel.
The Company's portfolio remains highly focused on our favoured
sectors and is clearly demarcated into five distinct 'asset
classes' namely; Listed Private Equity (including Electra CULS)
(29%), Convertible Unsecured Loan Stocks (excluding Electra CULS)
(18%), Sector Specialists (19%), Specialist Equity (15%) and Real
Estate (11%).
As always, we comment on the major portfolio positions below.
With the exception of the Apollo Fund plc, we highlight the current
discount or premium and our estimate of the reasonable value (RV)
at which we would expect such funds to trade in normal market
conditions.
Apollo Fund plc
Exposure to Apollo Fund (also managed by Cayenne Asset
Management) accounted for 8.2% of the portfolio. The fund has a
long record of extracting value from deep value and illiquid
opportunities within the Investment Company sector, especially
those with higher risk or lower liquidity characteristics than the
investments in the Company's own portfolio. While there is of
course some overlap between the two portfolios, the majority of the
holdings are distinct. Holdings in Apollo include special
situations such as Marwyn Value and Renn Universal Growth (in
liquidation). It also owns Pantheon International Participations
Redeemable shares which, while significantly cheaper than the
Ordinary shares held by the Company, are far less liquid.
Listed Private Equity (27%)
The performance of the Company's LPEq positions was mixed with
Pantheon International Participations, NB Private Equity Partners
and Electra Private Equity 5% CULS 29/12/2017 producing creditable
returns, while F&C Private Equity and Graphite Enterprise Trust
were rather lacklustre. That said, all but Graphite produced a
total return to shareholders in excess of 10% so, yet again, the
Company's exposure met or exceeded the return provided by the FTSE
All Share Index. Whilst this is below the level we would normally
expect, it is satisfactory nonetheless. Discounts narrowed a little
over the period and we retain our view that, as the financial
crisis becomes a more distant memory, the rating of all our LPEq
holdings should improve further. Pricing for private equity deals
remains strong (though not yet worryingly so) and valuation
multiples are in line with the listed market. Meanwhile, anecdotal
evidence suggests that private equity backed businesses continue to
grow at a rate far in excess of their listed counterparts. All of
this lends weight to the private equity story and suggests that
realisations should continue at marked uplifts to valuation. Within
the funds, these realisations are continuing at a steady pace and
most funds are re-deploying capital into new opportunities at a
conservative pace to avoid a dearth of returns in future years.
Pantheon International Participations (PIN) www.pipplc.com
15% Discount RV: 10% Discount
PIN enjoyed another commendable year, with the NAV advancing 19%
and share price appreciating by 20%. US Dollar strength acted as a
tail wind for the fund and certainly boosted returns over the
period. PIN has been a hugely successful holding for the Company
since the initial investment in 2010 and we believe that it should
be seen as a core holding for any investor wanting a diversified
exposure to private equity. Despite the diversified nature of PIN's
portfolio, performance over the last five years has eclipsed
virtually all other LPEq funds. The team at Pantheon is well
resourced and is able to source primary, secondary and
co-investment opportunities at different points in the private
equity cycle. Historically, PIN has benefited from Pantheon's
recognised speciality in securing secondary deals. Over the period,
PIN renewed its (undrawn) multi-currency loan facility and this,
together with cash on the balance sheet, easily covers any likely
drawdowns. The fund continued its share repurchase activity over
the period and will continue to do so while it sees buybacks 'as an
attractive investment opportunity' relative to other potential new
investment commitments.
F&C Private Equity Trust (FPEO) www.fcpet.co.uk
19% Discount RV: 10% Discount
FPEO experienced another satisfactory period with a share price
total return of approximately 10%, despite the drag on performance
it suffered as the Euro weakened against Sterling. 2014 was an
important period for FPEO, as the expensive (8.75%) zero dividend
preference share liability was repaid and partially replaced with a
cheaper and more flexible multi-currency loan facility. The
commitment to pay out 4% of the NAV annually appears to be
attracting a new breed of buyer. The rating, however, appears to
have been adversely affected in the short-term by a placing of a
large block of shares at a discount to the market price. FPEO
employs a European focused fund-of-fund strategy, augmented by
co-investments which have aided performance over the long run. The
number of co-investments is to be increased over time and this
should help provide an additional fillip to performance in
future.
NB Private Equity Partners (NBPE)
www.nbprivateequitypartners.com
12% Discount RV: 10% Discount
NBPE is the Company's newest core LPEq investment and has
already produced an excellent return on capital since the position
was first established in 2013. Peter von Lehe and his team have a
distinct investment policy and have clearly articulated the
investment rationale. The hybrid portfolio that they are
constructing (part private equity co-investments and part corporate
private debt) exhibits the best reward/risk profile in the LPEq
sector. This portfolio re-shaping is an evolutionary process which
is well on the way to completion, as the old fund of funds
portfolio is sold down. The dividend (equating to a yield of 4%) is
already fully covered and could grow as the process reaches its
conclusion. The only reason we don't attribute a better 'reasonable
value' to this position is due to its disadvantageous listing
characteristics, which make it less attractive to UK private
individuals. The fund has expressed its intention to address this
issue when it is appropriate to do so.
Graphite Enterprise Trust (GPE) www.graphite-enterprise.com
16% Discount RV: 10% Discount
This appears to have been a poor year for GPE, though we still
await confirmation of its full year results. Whatever the outcome,
2014 was certainly not a vintage year and not the kind of
performance we have come to expect from this well respected group.
We will be looking for some clear narrative from the managers to
explain what has held them back (clearly Euro weakness was an
impediment) and what they see as being the key drivers of returns
going forward. Over the longer term, GPE is a highly successful
hybrid LPEq fund with a very strong balance sheet, which invests
directly (25%) and through specialist funds (75%). Investee
companies tend to be mature and profitable businesses based in the
UK or continental Europe.
Electra Private Equity Convertible Unsecured Loan Stock (ELTC)
www.electraequity.com
The Company owned Electra ordinary shares prior to the
accumulation of a large position by Sherborne Investors. The
discount to NAV narrowed dramatically on the news of their purchase
and the subsequent coverage has kept this fund firmly in the
spotlight. This position was sold in tranches as the discount to
NAV disappeared over the period and it was considered that the
risks were weighted on the downside should this buying interest
subside. We were also concerned that any negotiations may be
protracted and even reach an impasse. As time progressed, the
discount widened again and, rather than re-entering the ordinary
share position, it was more prudent to gain exposure via the CULS,
which offered some downside protection should investor sentiment
turn negative or Sherborne be forced to place their stake at a
discount to the market.
Convertible Unsecured Loan Stocks (CULS) (21%)
In addition to the Electra Private Equity CULS position above,
the Company has enjoyed great success over the last few years
investing in a portfolio of investment company CULS, which offer
advantageous reward/risk characteristics. An allocation to this
asset class is a natural use of the Company's gearing which is
provided by its own CULS in issue. The Company's largest positions
(excluding ELTC highlighted above) are Edinburgh Dragon Trust
(EFMC), Aberdeen Asian Smaller Companies (AASC), Standard Life UK
Smaller Companies (SLSC) and F&C Global Smaller Companies
(FCSC). Obviously, Asian equities and smaller companies can provide
investors with exceptional returns but we would be uncomfortable
allocating such a significant proportion of the Company's portfolio
to these areas, without the downside protection provided by the
CULS.
Sector Specialists (19%)
The Company continues to focus a large proportion of its
portfolio on various themes and in sectors which we see as being
beneficiaries of long-term demographic changes, new technologies or
structural change.
Healthcare (10%)
HBM Healthcare Investments (HBMN) www.hbmhealthcare.com
29% Discount RV: 15% Discount
While this Swiss listed fund is the most esoteric of the
Company's four healthcare positions, at CHF1bn, it is certainly no
minnow. HBMN invests in public and private companies in the human
medicine, biotechnology, medical technology and diagnostic sectors.
This exposure is split 59% public companies, 13% private companies,
13% private equity funds, 5% other assets and 10% in cash. Dr
Andreas Wicki is an enthusiastic and knowledgeable investor who
avoids the herd and finds some real gems within his investment
universe. As such, this fund is unsuitable for an investor seeking
exposure to the biotech giants but is an ideal conduit for those
wanting exposure to some successful smaller businesses. The fund
enjoyed a fruitful 2014, with positive news flow on the pipeline
front, a number of IPOs and some M&A from within the portfolio,
which all contributed to a total return (in GBP Sterling) of
approximately 50%. A discount to NAV of 30% is a major additional
attraction although it is difficult to see this being eliminated in
the near-term. The discount does at least provide some downside
protection should the biotech sector experience a fall from grace.
Meanwhile the management have committed to a 3% cash distribution
and a 3% share repurchase annually.
BB Biotech (BION) www.bbbiotech.ch
18% Discount RV: 10% Discount
This Biotech behemoth, with a market cap of CHF3bn, enjoyed a
staggeringly good year, with a share price total return (in GBP
Sterling) of 72%. The NAV performance was also highly commendable
and outstripped its benchmark, and all other competitors, by a wide
margin. BION has a clear and focused investment strategy which
leads to a portfolio of approximately 30 holdings (including five
to eight large core positions accounting for two-thirds of the
portfolio). The investment focus is on 'fast-growing biotech
companies which develop and market innovative drugs which address
areas of significant unmet medical needs and that are generating
above-average sales and profit growth'. The remainder of the
portfolio allows exposure to companies which may be less profitable
but have promising R&D pipelines. BION reports that 'virtually
every holding in the portfolio is expected to report important
clinical data or receive regulatory approvals or both' in 2015. The
managers highlight that an increasing number of companies are
achieving critical mass, bringing forth large numbers of approved
products, which has led to profitability and reinvestment into
pipeline expansion. These new-era biotechnology companies (which
focus on innovative rather than incremental developments) can
therefore dictate prices and generate profits which allow them to
either stand alone or else be acquired, as big-pharma or other
biotech firms look to consolidate operations. Although the discount
has narrowed somewhat, we see BION as an extremely attractive
healthcare investment.
Polar Capital Global Healthcare Trust (PCGH)
www.polarcapitalhealthcaretrust.com
7% Discount RV: 2% Discount
If HBMN, BION and, to a certain extent, WWH are the drivers of
our healthcare portfolio's performance, then PCGH is the
stabilising influence in times of uncertainty. A total return for
the year of 22% is certainly more than acceptable result from this
low risk fund. In the general enthusiasm surrounding the
biotechnology story, many investors have forgotten (or are
ignoring) the benefits of the traditional pharmaceutical sector.
PCGH's income bias leads it to have a very high weighting in
relatively defensive large-cap pharmaceutical stocks. Whilst 'big
pharma' stocks are not as alluring as their more nubile biotech
cousins, they display many attractive qualities in their own right.
The fear over patent cliffs has subsided and pharma consolidation
has led to economies of scale, real innovation and strengthened
franchises, while 12 month forward p/e ratios in the mid-teens are
far from onerous. During the period, the defensive nature of this
position twice showed its relative worth as the biotechnology
sector sold off on valuation fears.
Worldwide Healthcare Trust (WWH) www.worldwidewh.com
0% Discount RV: 2% Discount
WWH is a long held position for the Company, which has delivered
strong performance and continues to be the bellwether healthcare
fund within the investment company sector. As such, WWH benefits
from elevated levels of trading liquidity versus its rivals and,
when in demand, can trade at NAV or a small premium, before new
stock is issued. Whilst WWH remains a meaningful position, we took
the opportunity to reduce exposure as the discount to NAV narrowed,
as we currently favour the more focused funds highlighted
above.
Technology (7%)
Polar Capital Technology Trust (PCT)
www.polarcapitaltechnologytrust.co.uk
0% Discount RV: 0% Discount
PCT has been a core holding for the Company since 2008 and has
delivered exceptional returns over that period. The rational for
maintaining a high weighting in technology stocks remains intact as
the prospects for innovative companies and new disruptive
technologies are undiminished. Valuations across the broad spectrum
of sector constituents remain undemanding. PCT's ebullient manager,
Ben Rogoff, continues to focus on technologies which, until
recently were seen as 'next generation', but are already pervading
our everyday lives; the cloud, broadband applications, mobile data
and big data. In addition, Ben is interested in how technology's
reach is extending into other industries, such as advertising,
commerce, payments, travel and entertainment. This is all rather
different from the late nineties, when every other company sought
to rebrand by adding the suffix .com to their name. These new
leaders are highly profitable, innovative and disruptive technology
businesses, which are challenging (and taking business from)
traditional incumbents in all forms of commerce.
Herald Investment Trust (HRI) www.heralduk.com
17% Discount RV: 10% Discount
One of two technology funds owned by the Company, HRI focuses on
smaller companies within the technology sector which tend to be
domiciled in the UK. HRI's long-term track record took a bit of a
beating this year as its small-cap bias weighed on performance. The
initial sell-off in the spring was followed by further weakness in
October as the NAV struggled to make headway and the discount
widened. Despite this lacklustre period, we continue to see merit
in this fund, which provides investors with a unique offering in a
sector which is becoming increasingly dominated by US titans such
as Apple, Microsoft and Google.
Blackrock World Mining Trust (BRWM) www.blackrock.co.uk/brwm
9% Discount RV: 5% Discount
Just four years ago it appeared that many commodity stocks were
priced as if China was to consume every ounce of metal and every
barrel of oil the world could produce. The situation now feels very
different and, to the contrarian, it appears that markets have
over-reacted to the current economic uncertainty. BRWM had a
shocking year which caused it to be the Company's worst investment
since the financial crisis. Unfortunately, half the money lost in
2014 is unlikely to be recouped, as BRWM's ill-conceived foray into
mining royalties cost shareholders a 10% write-down on their
investment. However, despite entering into this position at levels
significantly above the current price (and notwithstanding the blow
to Blackrock's reputation due to the London Mining fiasco) we
remain confident that sector is due for a recovery and that BRWM is
the best way to gain exposure to this.
Real Estate (11.0%)
TR Property Investment Trust (TRY) www.trproperty.com
0% Discount RV: 0% Discount
The Company has enjoyed a fruitful allocation to the UK and
European commercial real-estate market via TRY since purchase in
2013. This year was particularly successful with the share price
(and NAV) appreciating approximately by 35%, as listed property
shares continue to outperform physical real-estate indices. TRY's
portfolio of European property companies gives us exposure to some
of the best elements of the property market in a diversified
manner, which would be unachievable via physical property. The
manager, Marcus Phare-Mudge, is an eloquent and charismatic
advocate of both the wider universe and this conduit for exposure.
We concur with his thesis and maintain a significant allocation to
the fund despite the elevated rating at which it trades.
Schroder Real Estate Investment Trust (SREI) www.srei.co.uk
8% Premium RV: 5% Premium
The ownership of a real asset, rather than of a revenue stream,
is one of the real-estate sector's key advantages over other income
producing funds, such as PPP-style infrastructure investments. SREI
focuses on the office, retail and industrial sectors with an
historic (and ongoing) overweight allocation to the office and
industrial market. Over time, SREI has eliminated exposure to the
prime central London office market and currently favours London
'sub-markets' and cities outside London with a 'knowledge-based'
economy. Properties which offer multiple alternative uses are
favoured. Industrial assets include e-tailing warehouses and London
sites which offer potential for a long-term change of use. The
portfolio yields in excess of 6% which means that the 4% net yield
is fully covered even with a 10% void rate.
Ediston Property REIT (EPIC) www.ediston.com
6% Premium RV: 5% Premium
EPIC is a new real-estate fund managed by a small team of
experienced property industry professionals. The lead manager,
Danny O'Neill, founded the entrepreneurial style business to
exploit mispriced situations in this inefficient market. Danny is
well connected and utilises his local knowledge and extensive
network to source well-located properties which are often in need
of revitalising. We subscribed for this fund as part of the IPO in
October and proceeds were used to purchase an existing property
portfolio. Since launch, the fund's share price has appreciated by
nearly 7%, while the NAV is already ahead of the issue level.
Specialist Equity (15%)
The Company has a small portfolio of other investments which are
loosely described as 'specialist equity' funds but may also include
holdings in other asset classes. These holdings include the
industry heavy weights; RIT Capital (RCP) and Caledonia Investments
(CLDN); Micro Cap specialists Diverse Income Trust (DIVI) and River
& Mercantile UK Micro Cap (RMMC) and the disappointing, yet
deeply discounted, New Star Investment Trust (NSI). RCP and CLDN
were two of the best performers in the Global sector last year and
we continue to rate both funds very highly. DIVI experienced a
rather lacklustre year, with a negligible appreciation in the NAV.
The share price rating also slipped to a small discount having
traded at a 3% premium this time last year. The final position in
this portfolio is JP Morgan Overseas Trust Subscription Shares
(formerly known as warrants) which, while only valued at
GBP330,000, give the Company an economic interest in the equivalent
of GBP4m of blue chip global equity shares, with just the smaller
amount of money at risk.
We hope this commentary provides some useful insight into the
vast majority of the Company's portfolio of just 28 positions
(excluding Apollo Fund and hedges). We continue to focus on our
very best ideas while we are also acutely aware of the Company's
limited life. We remain committed to making good returns for
Ordinary share and CULS holders up until the final days of our
mandate (and until the maturity of the Company's own CULS in
issue). We are also cognisant of the need to hold positions which
are readily realisable and shareholders should therefore expect the
portfolio to retain its high quality and highly liquid
characteristics.
Cayenne Asset Management Limited
Investment Manager
23 April 2015
INCOME STATEMENT
for the year ended 31 January
2015 2014
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments held
at fair value - 7,995 7,995 - 7,491 7,491
Current assets held at
fair value:
Losses on futures contracts - -- -- - (53) (53)
Losses on listed put options - (1,047) (1,047) - (1,372) (1,372)
Gains on forward currency
contracts - 295 295 - 406 406
Losses on cancellation
of 3.25% Convertible Unsecured
Loan Stock 2016 -- (14) (14) -- (13) (13)
Exchange gains/(losses)
on currency balances - 11 11 - (20) (20)
Investment and other income 1,295 - 1,295 1,053 - 1,053
Investment management fee (121) (485) (606) (117) (468) (585)
Investment performance
fee -- (13) (13) -- -- --
Other expenses (364) (10) (374) (377) (24) (401)
-------- -------- -------- -------- -------- --------
Net return before finance
costs and taxation 810 6,732 7,542 559 5,947 6,506
Interest payable and similar
charges (120) (481) (601) (127) (506) (633)
-------- -------- -------- -------- -------- --------
Profit for the year before
taxation 690 6,251 6,941 432 5,441 5,873
Tax on ordinary activities - - - - - -
Transfer to reserves 690 6,251 6,941 432 5,441 5,873
-------- -------- -------- -------- -------- --------
Return per Ordinary share:
Basic 2.00p 18.12p 20.12p 1.23p 15.50p 16.73p
Diluted 1.86p 15.49p 17.35p 1.23p 13.43p 14.66p
The total column of this statement is the income statement of
the Company. The supplementary revenue and capital columns are both
prepared under guidance published by the Association of Investment
Companies. All revenue and capital items in the above statement
derive from continuing operations. No operations were acquired or
discontinued in the year. A statement of Total Recognised Gains and
Losses is not required as all gains and losses of the Company have
been reflected in the above statement.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDER'S FUNDS
For the year Ordinary Capital Equity
ended Share Share Special Redemption Component Capital Revenue
31 January 2015 Capital Premium Reserve Reserve CULS 2016 Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 January
2014 9,775 15,601 10,089 2,592 1,473 9,887 1,187 50,604
3.25% Convertible
Unsecured Loan
Stock 2016 bought
back & cancelled - - - - (24) - 24 -
Ordinary shares
bought back
and held in
treasury - - (2,306) - - - - (2,306)
Profit for the
year - - - - - 6,251 690 6,941
Final dividend
paid year ended
31 January 2014 - - - - - - (416) (416)
At 31 January
2015 9,775 15,601 7,783 2,592 1,449 16,138 1,485 54,823
--------- --------- --------- ------------ ----------- --------- --------- --------
For the year Ordinary Capital Equity
ended Share Share Special Redemption Component Capital Revenue
31 January 2014 Capital Premium Reserve Reserve CULS 2016 Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 January
2013 10,900 15,556 13,552 1,467 1,653 4,446 1,069 48,643
Issue of new
Ordinary shares
from conversion
of CULS 2016 - -- -- - (180) - 180 --
Ordinary shares
bought back
and held in
treasury - - (3,890) - - - - (3,890)
Ordinary shares
cancelled out
of treasury (1,125) -- -- 1,125 -- -- -- --
Ordinary shares
re-issued out
of treasury -- 45 427 -- -- -- -- 472
Profit for the
year - - - - - 5,441 432 5,873
Final dividend
paid year ended
31 January 2013 - - - - - - (494) (494)
At 31 January
2014 9,775 15,601 10,089 2,592 1,473 9,887 1,187 50,604
--------- --------- --------- ------------ ----------- --------- --------- --------
BALANCE SHEET
as at 31 January
2015 2014
GBP'000 GBP'000
(Restated)
Fixed Assets
Investments held at fair value through
profit or loss 61,955 55,875
--------- -----------
Current Assets
Listed put options held at fair value
through profit or loss 297 557
Forward currency contracts held at fair
value through profit or loss 206 201*
Debtors 151 989
Cash at bank 5,273 6,165
--------- -----------
5,927 7,912
--------- -----------
Creditors: amounts falling due within one
year
Forward currency contracts held at fair
value through profit or loss (74) --*
Other creditors (242) (402)
(316) (402)
--------- -----------
Net current assets 5,611 7,510
--------- -----------
Total assets less current liabilities 67,566 63,385
Creditors: amounts falling due after more
than one year
3.25% Convertible Unsecured Loan Stock
2016 (12,743) (12,781)
Net assets 54,823 50,604
--------- -----------
Capital and reserves
Ordinary share capital 9,775 9,775
Share premium account 15,601 15,601
Other reserves:
Special reserve 7,783 10,089
Capital redemption reserve 2,592 2,592
Equity component 3.25% Convertible Unsecured
Loan Stock 2016 1,449 1,473
Capital reserve 16,138 9,887
Revenue Reserve 1,485 1,187
--------- -----------
Equity Shareholders' Funds (note 4) 54,823 50,604
--------- -----------
Net asset value per ordinary share
Basic 165.02p 145.43p
Diluted 160.77p 144.91p
*The Board has re-evaluated the terms and conditions of the
foreign exchange contracts and considers that the net basis of
accounting better reflects the nature of the contracts and exposure
of the Trust. Consequently, to ensure consistency and
comparability, the comparative amounts on the balance sheet have
been re-presented. In revising this presentation, there has been no
change to the Trust's net current assets and net asset value.
CASH FLOW STATEMENT
for the year ended 31 January
2015 2014
GBP'000 GBP'000
Net cash inflow/(outflow) from operating activities 22 (2,167)
Servicing of finance (430) (442)
Financial investment 2,450 12,020
Equity dividends paid (416) (494)
Net cash inflow before financing 1,626 8,917
Financing
Ordinary shares bought back and held in treasury (2,306) (3,890)
Re-issue of Ordinary shares from treasury -- 472
Cancellation of 3.25% Convertible Unsecured
Loan Stock 2016 (223) (1,548)
(Decrease)/increase in cash during the year (903) 3,951
-------- ---------
Reconciliation of net cash flow to movement
in net debt
(Decrease)/increase in cash during the year (903) 3,951
Exchange movements 11 (20)
Cancellation of 3.25% Convertible Unsecured
Loan Stock 2016: cancellation of debt element 209 1,535
Non-cash flow movements:
Notional interest charge on 3.25% Convertible
Unsecured Loan Stock 2016
- income (27) (26)
Notional interest charge on 3.25% Convertible
Unsecured Loan Stock 2016
- capital (107) (102)
Amortised expenses for 3.25% Convertible Unsecured
Loan Stock 2016 (37) (63)
-------- ---------
Change in net debt (854) (5,275)
Opening net debt (6,616) (11,891)
-------- ---------
Closing net debt (7,470) (6,616)
-------- ---------
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 January 2015
1. Accounting policies
The accounting policies used for the preparation of these
financial statements are consistent with the policies set out in
the annual report for the year ended 31 January 2014.
The financial statements have been prepared under the historical
cost convention under the Companies Act 2006 except that certain
assets and liabilities, as described below, are stated at their
fair value as allowed under the fair value accounting rules of
Accounting Standards and with the Statement of Recommended Practice
("SORP") "Financial Statements of Investment Trust Companies",
issued by the Association of Investment Companies in January
2009.
2. Investment and other income
2015 2014
GBP'000 GBP'000
Income from investments
UK dividends 742 666
Unfranked investment income 342 266
UK fixed interest 208 121
Bank interest 3 --
-------- --------
Total income 1,295 1,053
-------- --------
Total income comprises:
Dividends 1,084 932
Interest 211 121
-------- --------
1,295 1,053
-------- --------
There were no special dividends treated as capital received
during the year (2014: nil).
3. Return per Ordinary share
(a) Basic earnings
Total earnings per Ordinary share 2015 2014
Total earnings GBP6,941,000 GBP5,873,000
Weighted average number of Ordinary shares
in issue during the year 34,499,645 35,095,029
------------- -------------
Total earnings per Ordinary share 20.12p 16.73p
------------- -------------
The total earnings per Ordinary share above can be further
analysed between revenue and capital, as follows:
Revenue earnings per Ordinary share
Revenue earnings GBP690,000 GBP432,000
Weighted average number of Ordinary shares
in issue during the year 34,499,645 35,095,029
----------- ----------
Revenue earnings per Ordinary share 2.00p 1.23p
----------- ----------
Capital earnings per Ordinary share
Capital earnings GBP6,251,000 GBP5,441,000
Weighted average number of Ordinary shares
in issue during the year 34,499,645 35,095,029
------------- ------------
Capital earnings per Ordinary share 18.12p 15.50p
------------- ------------
(b) Diluted earnings
Year ended 31 January 2015
The revenue, capital and total earnings for the period ended 31
January 2015 are diluted. The diluted revenue, capital and total
earnings per Ordinary share have been calculated on the assumption
that the 3.25% Convertible Unsecured Loan Stock 2016 was fully
converted on the first day of the financial period, giving a
weighted average of 43,441,981 Ordinary shares in issue, revenue
earnings on ordinary activities after taxation of GBP810,000,
capital earnings on ordinary activities after taxation of
GBP6,731,000 and total earnings on ordinary activities after
taxation of GBP7,541,000, after adding back finance costs of
GBP120,000, GBP480,00 and GBP600,000 respectively. The diluted
revenue earnings per Ordinary share of 1.86p, capital earnings per
Ordinary share of 15.49p and the diluted total earnings per
Ordinary share of 17.35p reflect the savings in finance costs of
the loan stock.
Year ended 31 January 2014
The capital and total earnings (but not the revenue earnings)
for the year ended 31 January 2014 are diluted. The diluted capital
and total earnings per Ordinary share have been calculated on the
assumption that the 3.25% Convertible Unsecured Loan Stock 2016 was
fully converted on the first day of the financial period, giving a
weighted average of 44,229,810 Ordinary shares in issue, capital
earnings on ordinary activities after taxation of GBP5,942,000 and
total earnings on ordinary activities after taxation of
GBP6,499,000 after adding back finance costs of GBP501,000 and
GBP626,000 respectively. The diluted capital earnings per Ordinary
share of 13.43p and the diluted total earnings per ordinary share
of 14.66p reflect the savings in finance costs of the loan stock.
The diluted revenue earnings per Ordinary share are equal to the
basic returns per Ordinary share.
4. Net asset value per Ordinary share
2015 2014
Net asset values attributable GBP54,823,000 GBP50,604,000
Ordinary shares in issue at the year end 33,222,827 34,795,877
-------------- --------------
Basic net asset value per Ordinary share 165.02p 145.43p
-------------- --------------
Under The Association of Investment Companies (AIC) guidelines,
the basic net asset value per Ordinary share and diluted net asset
value per Ordinary share are calculated as follows:
2015 2014
Total assets less current liabilities
(per the balance sheet) GBP67,566,000 GBP63,385,000
Redemption value of 3.25% Convertible Unsecured
Loan Stock 2016 GBP(12,947,000) GBP(13,121,000)
Net assets GBP54,619,000 GBP50,264,000
Ordinary shares in issue at the year end 33,222,827 34,795,877
---------------- ----------------
Basic net asset value per Ordinary share 164.40p 144.45p
---------------- ----------------
Year ended 31 January 2015
The diluted net asset value per Ordinary share is based on the
assumption that the 3.25% Convertible Unsecured Loan Stock 2016 of
GBP12,996,146 nominal was fully converted on a 67.74:100 basis into
8,803,589 Ordinary shares resulting in net assets of GBP67,360,000
and on 42,026,416 Ordinary shares in issue at the year end.
Year ended 31 January 2014
The diluted net asset value per Ordinary share is based on the
assumption that the 3.25% Convertible Unsecured Loan Stock 2016 of
GBP13,206,146 nominal was fully converted on a 67.74:100 basis into
8,945,843 Ordinary shares resulting in net assets of GBP63,044,000
and on 43,741,720 Ordinary shares in issue at the year end.
5. Share Capital
2015 2014
GBP'000 GBP'000
Called-up and fully paid:
39,102,910 Ordinary shares of 25p each (2014:
39,102,910) 9,775 9,775
------------------------------------------------ ----------- ---------------
Number of Ordinary
Ordinary share capital
shares GBP'000
Balance at beginning of year 39,102,910 9,775
Cancellation of shares in treasury - -
Balance at end of year 39,102,910 9,775
During the year 1,573,050 (2014: 3,106,678) Ordinary shares were
bought back and placed in treasury for an aggregate consideration
of GBP2,306,254 (2014: GBP3,890,041). No Ordinary shares held in
treasury were re-issued into the market (2014: 350,000 for
aggregate proceeds of GBP427,000)) and no Ordinary shares were
cancelled from treasury (2014: 4,500,000).
The Ordinary shares in issue at the year end includes 5,880,083
Ordinary shares held in treasury (2014: 4,307,033).
6. Investment Objective & Policy
The Cayenne Trust plc is a UK investment trust listed on The
London Stock Exchange. Its investment objective is to achieve
consistent positive absolute returns, and its Investment Policy is
as follows:
The Company invests principally in the securities of UK
investment trust companies and other closed-end funds. It also has
the flexibility to invest in listed or unlisted open-ended funds
and may invest in any security issued by any exchange traded fund,
investment fund, investment company, holding company or similar
collective investment scheme. In order to seek to achieve
consistent positive absolute returns, the Company may occasionally
hold positions in other equities, bonds or money-market
instruments.
Up to 15% of the Company's assets, at the time of investment,
may be invested in Apollo Fund plc. Apollo is an open-ended
offshore fund, managed by Cayenne Asset Management Ltd, with an
investment objective of achieving higher rates of return than can
generally be achieved by traditional long term stock market
investment by maintaining investments which are thought to be
significantly undervalued and are likely to have limited
liquidity.
The Company will seek to ensure preservation of capital by use
of derivative and similar instruments to the extent permissible
within the regulations governing investment trust companies and the
Listing Rules.
In selecting investments, the Manager is not constrained by any
limits on geographical or sectoral distribution of investments by
the funds in which the Company invests. As a fund of funds the
portfolio is diversified through investment in a wide range of
asset classes, geographical regions and currencies.
The Company may invest up to 100% of its assets in equities
which are not investment entities, bonds or money market
instruments.
The Company intends to conduct its affairs so that it satisfies
the conditions for approval from HM Revenue & Customs as an
investment trust as set out in sections 1158/1159 of the
Corporation Tax Act 2010.
Borrowings are restricted to twice the aggregate of the paid up
nominal capital plus the capital and revenue reserves. The absolute
limit on borrowings is more fully described in the Articles.
No more than 10% in aggregate of the value of the Company's
assets will be invested in other closed ended listed investment
funds, save that this restriction does not apply to the extent that
such companies themselves have stated investment policies to invest
no more than 15% of their total assets in other closed ended listed
investment companies or investment trusts.
7. Principal Risks
There can be no guarantee that any appreciation in the value of
the Company's investments will occur or that the investment
objective of the Company will be achieved. The Company's investment
policy is to use derivatives and similar instruments to hedge
against volatility in the NAV per share. Investors should be aware
that the NAV per Ordinary share is unlikely in rising equity
markets to be as high as would be the case if market risk was not
hedged but, conversely, the NAV per Ordinary share in falling
equity markets is likely to be higher than would be the case if
market risk was not hedged.
The price of the Ordinary shares will be determined by the
interaction of supply and demand in the market as well as the NAV
per Ordinary share. Irrespective of hedging, the market price of
the shares is likely to fluctuate and may represent either a
discount or premium to the NAV per Ordinary share.
The market value of the 3.25% Convertible Unsecured Loan Stock
2016 (CULS) is determined by a number of factors, including supply
and demand for the CULS, the price, NAV and dividend yield of the
Ordinary shares into which the CULS are convertible, prevailing
interest rates, market conditions and general investor sentiment.
There can be no guarantee that the market value of the CULS will
fully reflect any value inherent in its convertibility into
shares.
Investors should be aware that, whilst the use of borrowings
(whether through the GBP5m short-term facility, through the CULS,
or both) should enhance the NAV per share where the value of the
Company's underlying assets is rising at a rate greater than the
interest rate on the borrowings, it will have the opposite effect
where the underlying asset value is falling or is rising at a rate
lower than the interest rate on the borrowings. This may increase
the volatility of the NAV per share.
Forward currency contracts may from time to time be used to
hedge against foreign exchange exposure.
The Company is an investment trust. Investment trusts aim to
generate returns for shareholders by investing in other companies.
As an investment trust may invest in a range of different companies
and sectors, it may represent a method for investors to gain a
diversified investment exposure. However, investors should be aware
of certain factors which apply to the Company:
-- The investment approach utilised by the Company seeks to
generate returns by investing in securities which Cayenne Asset
Management believes to be undervalued. There can be no guarantee
that the perceived value in the Company's portfolio will, however,
be released in any expected timeframe or at all.
-- The Company's portfolio is constructed without reference to
any stock market index. It is therefore likely that there will be
periods when its performance will be quite unlike that of any index
and there can be no assurance that such divergence will be wholly
or even primarily to the Company's advantage.
-- Market liquidity in the shares of investment trusts is
frequently inferior to the market liquidity of shares issued by
larger companies traded on the London Stock Exchange. The Ordinary
shares and CULS are traded on the London Stock Exchange's Main
Market, but it is possible that there may not be a liquid market in
them and investors may have difficulty selling such securities. The
Company invests in other investment trusts which may suffer from
similar liquidity issues at times of volatility and the NAV of the
Company may be adversely affected.
-- In respect of trades in derivative and similar instruments,
the Company will be exposed to credit risk on the counterparties
with which it trades. The Company will seek to transact only with
major established counterparties. The Company will also bear the
risk of settlement default by clearing houses and exchanges. Any
default by a counterparty or on settlement could have a material
adverse effect on the Company.
The Company manages non-financial risk by requiring its
nominated service providers to report, at least annually, on their
activities for the Company and any feedback they might have
received. In the event of any breach of regulation the Board would
be provided with a detailed report of the circumstances, and an
explanation of all remedial action taken.
8. Annual General Meeting
The Annual General Meeting of the Company will be held at the
RAC Club, 89 Pall Mall, London SW1Y 5HS on 9 June 2015 at 3.00pm.
The Directors are proposing a final dividend of 3.8p (2014: 1.2p)
per Ordinary share for the year which, if approved by shareholders
at the Annual General Meeting, will be payable on 21 August 2015 to
holders on the register at the close of business on 7 August 2015
(ex-dividend 6 August 2015).
9. Availability of Report and Comparative Information
The financial information contained in this announcement does
not constitute statutory accounts for the years ended 31 January
2015 or 31 January 2014, as defined in the Companies Act 2006, but
is derived from those accounts.
The statutory accounts for the year ended 31 January 2014 have
been delivered to the Registrar of Companies. The Independent
Auditor's report on those accounts was unqualified and did not
contain any statements under section 498 (2) or (3) of the
Companies Act 2006.
Printed copies of the Report & Accounts for the year ended
31 January 2015 will be posted to Shareholders shortly. Additional
copies may be obtained from the Corporate Secretary: Phoenix
Administration Services Limited, Springfield Lodge, Colchester
Road, Chelmsford, Essex CM2 5PW.
A soft copy of the Report & Accounts will shortly be
available to view and download from the Company's website at
www.thecayennetrust.com and via the National Storage Mechanism
(www.morningstar.co.uk/uk/NSM) in early course.
NB - neither the contents of the Company's website nor the
contents of any website accessible from hyperlinks on the Company's
website (or any other website) are incorporated into or form part
of this announcement.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors of the Company (Jonathan Agnew (Chairman), Richard
Atkinson, Sir Laurence Magnus) confirm to the best of their
knowledge:
a) that the financial statements have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law)
and give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
b) the Annual Report and Management Report (which comprises the
Chairman's Statement and Investment Manager's Report), includes a
fair review of the development and performance of the business and
the position of the Company, together with the principal risks and
uncertainties that the Company faces.
By order of the Board
Phoenix Administration Services Limited - Corporate
Secretary
23 April 2015
This information is provided by RNS
The company news service from the London Stock Exchange
END
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