Half-year Report

RNS Number : 0471A

BMO Capital & Income Inv Tst PLC

24 May 2019

 

Date:               24 May 2019

Contact:         Julian Cane                                                   

                        BMO Investment Business Limited                 

                        020 7628 8000                                               

LEI:                  21380052ETTRKV2A6Y19

BMO Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2019

Highlights

Share price total returns relative to the benchmark FTSE All-Share Index have held up well showing 47.8% over five years compared to the benchmark's 34.5%.

Over six months to 31 March 2019:

·      Share price total return* was -1.0% with the price ending the period at 317.0p

·      Net Asset Value per share total return* was -0.8%, outperforming the -1.8% return from the benchmark FTSE All-Share Index

·      Interim dividends increased by 4.1% to 5.1 pence ₍₁₎

"Our revenue reserve is well in excess of a full year's dividend payments and, together with the robust growth we see, gives the Board confidence that the Company can extend its record of 25 consecutive years of dividend growth"

Steven Bates

Chairman

SUMMARY OF RESULTS

	Half-year ended 31 March 2019	Half-year ended 31 March 2018
Share price total return*	-1.0%	-0.1%
Net Asset Value per share total return*	-0.8%	-0.5%
FTSE All-Share Index total return	-1.8%	-2.3%
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2019	(1) 2.55p	-
30 September 2018	-	2.45p
Second interim dividend in respect of year to 30 September 2019	(1) 2.55p	-
30 September 2018	-	2.45p
Total interim dividends relating to the period	5.10p	4.90p

₍₁₎  The first interim dividend of 2.55 pence per share was paid on 29 March 2019 and the second interim dividend of 2.55 pence per share is payable on 28 June 2019 to Shareholders registered on 07 June 2019.

* Total Return - the return to Shareholders calculated on a per share basis adding dividends paid in the period to the increase or decrease in the Share Price or Net Asset Value in the period. The dividends are assumed to have been re-invested in the form of shares or net assets, respectively, on the date on which the shares were quoted ex-dividend.

The Chairman, commenting on the results, said:

While it is often said that a game has two halves, in the case of the first half of our fiscal year, it was a half of two halves. From the end of September to the end of 2018, our Net Asset Value (NAV) per share fell from 324.1 pence to 282.7 pence, a decline of 12.8%, before bouncing to end the March quarter at 314.7 pence, a jump of 11.3% from the low, but still slightly down on the period overall.

As an investor, you would have avoided a lot of angst if you had simply not looked at markets or listened to the economic prognosticators in the period. While there was a decline, it was nothing out of the normal experience of investing in equity markets. In between times, if you had been following the news, you would have thought the financial world was coming to an end, only to discover eventually that its death had been somewhat exaggerated.

The reason for this frenetic grinding through the gears in both directions was the expectation that the era of easy money (known in the jargon as quantitative easing) was finishing. Interest rates in most countries were expected to rise, there was trade tension between the US and China and growth was disappointing. This was a perfect storm, and investors ran for cover. At the beginning of the New Year, the Federal Reserve in the US changed tack, alarmed by the market reaction, and responding to soggy economic data from the US. While things may not be completely rosy, they are reasonably benign with little prospect of rate rises and a nascent recovery in China which is the most important stimulus of global growth.

It is important to remember in these unusual times that economies are cyclical animals, and downturns are a natural corollary of economic activity. A downturn will come, but for now the can has been firmly kicked down the road.

The UK market has had its own specific BREXIT flavour to add to this global recipe, and that has only served to confuse the picture even further. Over the six-month review period, the NAV per share on a total return basis dropped by 0.8%, compared with a decline of 1.8% in the FTSE All-Share Index, our benchmark. While it is always disappointing to have to report a decline in absolute terms, the returns relative to the benchmark have held up well and show over five years a return of 47.8% compared to 34.5% for the index. I don't doubt that the consistency of performance benefits from the long tenure and level-headed approach of Julian Cane, your portfolio manager.

Earnings and Dividends

Dividends announced during the first six months of the financial year amounted to 5.1 pence per share an increase of 4.1% from the 4.9 pence paid in the same period last year. Revenue return per share increased sharply year on year +16.1%. This partly reflects the fact that the previous year's figure was depressed due to the timing and incidence of special dividends in particular and also a reorientation of the portfolio away from the high yielding but static dividends of some of the largest companies towards opportunities with greater prospects for dividend growth. Looking at the change over two years, revenue return per share has increased from 5.13p to 5.56p - an increase of 8.4%. This is more reflective of the underlying rate of dividend growth provided by the holdings in the portfolio. Our revenue reserve is well in excess of a full year's dividend payments and, together with the robust growth we see, gives the board confidence that the Company can extend its record of 25 consecutive years of dividend growth.

Portfolio

As ever, the contribution of individual holdings to overall returns is something of a curate's egg. On the positive side of the equation, the strongest contribution was from Dunelm, the home furnishing retailer, with a total return of +67% on better trading and a change in management. Ironically, but as an example of the value of research and not throwing in the towel, in last year's interim report Dunelm was the second largest detractor. Two property companies, Secure Income REIT and LondonMetric Property were the two next strongest contributors - posting gains of +6.2% and +14.7% respectively in a down market.

On the negative front, DS Smith, the diversified packaging business, was the largest detractor (-28.3%) reflecting concerns about cyclicality and a stretched balance sheet after a series of acquisitions. Burford Capital, a company which provides finance for litigation, was the next largest detractor (-13.1%) following very strong prior performance. There was no deterioration in the fundamentals of the business, with earnings reported recently growing by 24% and accompanying a 14% increase in the dividend. It is holdings like these which underpin the acceleration in revenue growth experienced by the Company.

Operational Matters

The shares traded at a premium to NAV for most of the six-month period, in a range of -2.0% to +5.5%. On average, the premium was 1.0%, which allowed us to issue a total of 1.4 million new shares, taking outstanding shares to over

102 million. For some, the issue of shares on a non pre-emptive basis is controversial, but your Board thinks that the advantages of gradual issuance of stock into clear demand is a cheap and effective way of increasing the size of the Company. There is no dilution to existing Shareholders, it improves liquidity and allows the fixed costs of the Company to be spread over a larger base.

As you may recall, the Company has a loan facility, which was partially drawn down during the period resulting in gearing of 2.3% at the period end.

Outlook

The UK stock market is quite an outward looking beast, as much affected by the volatility in the global economy as it is by the vicissitudes of our home-grown variety. Having said that, the UK market is also a source of value at present, with many international investors staying away until the uncertainty of BREXIT is resolved. This has led to attractive valuations in an environment where monetary conditions are likely to remain supportive. Concerns about the global economy have also dissipated in recent weeks and the backdrop is broadly positive. Of course, the political uncertainty in Westminster can and will lead to bouts of nerves, but your portfolio is well positioned in areas which are not especially sensitive to shenanigans of the sort we have seen all too often.

Steven Bates

24 May 2019

Forward -looking statements

This interim report may contain forward-looking statements with respect to the financial condition, results of operations and business of the Company. Such statements involve risk and uncertainty because they relate to future events and circumstances that could cause actual results to differ materially from those expressed or implied by forward-looking statements. The forward-looking statements are based on the Directors' current view and on information known to them at the date of this report. Nothing should be construed as a profit forecast.

 

Directors' Statement of Principal Risks and Uncertainties

Most of the Company's principal risks and uncertainties are market related and no different from those of other investment trusts investing primarily in listed equities. They are described in more detail under the heading "Principal risks and future prospects" within the strategic report in the Company's annual report for the year ended 30 September 2018. The risks have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company's financial year.

The risks include: having an inappropriate strategy in relation to investor needs; unfavourable markets or inappropriate asset allocation, sector and stock selection, currency exposure and use of gearing and derivatives leading to investment underperformance. Also included are risks in relation to errors, fraud or control failures at service providers, or loss of data through cyber-threats or business continuity failure.

Directors' Statement of Responsibilities in Respect of the Half-Yearly Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, that to the best of their knowledge:

·            the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards on a going concern basis and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;

·            the half-yearly report includes a fair review of the development and performance of the Company and important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·            the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

·             the half-yearly report includes a fair review of the related party transactions that have taken place in the first six months of the financial year.

On behalf of the Board

Steven Bates

Chairman

24 May 2019

 

Condensed Income Statement

Half-year ended 31 March 2019  (Unaudited)

Half-year ended 31 March 2018 (Unaudited)

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Losses on investments	-	(8,678)	(8,678)	-	(5,889)	(5,889)
	Foreign exchange gains / (losses)	-	8	8	1	(6)	(5)
	Income	6,376	459	6,835	5,493	-	5,493
	Management fee	(313)	(313)	(626)	(336)	(336)	(672)
	Other expenses	(278)	(1)	(279)	(260)	(10)	(270)
	Net return before finance costs and taxation	5,785	(8,525)	(2,740)	4,898	(6,241)	(1,343)
	Finance costs	(94)	(94)	(188)	(136)	(136)	(272)
	Net return on ordinary activities before taxation	5,691	(8,619)	(2,928)	4,762	(6,377)	(1,615)
	Taxation on ordinary activities	(4)	-	(4)	-	-	-
	Net return attributable to Shareholders	5,687	(8,619)	(2,932)	4,762	(6,377)	(1,615)
2	Net return per share - pence	5.56	(8.43)	(2.87)	4.79	(6.42)	(1.63)

The total column of this statement is the profit and loss account of the Company.  The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 

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

            A statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

 

Condensed Statement of Changes in Equity

		Share	Capital				Total
	Share	premium	redemption	Special	Capital	Revenue	shareholders'
Half-year ended 31 March 2019 (Unaudited)	capital	account	reserve	reserve	reserves	reserve	Funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2018	25,265	125,380	4,146	4,434	155,053	13,194	327,472
Movements during the half-year ended 31 March 2019
Dividends paid	-	-	-	-	-	(6,272)	(6,272)
Ordinary shares issued	350	3,820	-	-	-	-	4170
Net return attributable to Shareholders	-	-	-	-	(8,619)	5,687	(2,932)
Balance at 31 March 2019	25,615	129,200	4,146	4,434	146,434	12,609	322,438
Half-year ended 31 March 2018 (Unaudited)
Balance at 30 September 2017	24,634	117,822	4,146	4,434	149,140	12,287	312,463
Movements during the half-year ended 31 March 2018
Dividends paid	-	-	-	-	-	(5,859)	(5,859)
Ordinary shares issued	368	4,426	-	-	-	-	4,794
Net return attributable to Shareholders	-	-	-	-	(6,377)	4,762	(1,615)
Balance at 31 March 2018	25,002	122,248	4,146	4,434	142,763	11,190	309,783
Year ended 30 September 2018 (Audited)
Balance at 30 September 2017	24,634	117,822	4,146	4,434	149,140	12,287	312,463
Movements during the year ended 30 September 2018
Dividends paid	-	-	-	-	-	(10,803)	(10,803)
Ordinary shares issued	631	7,558	-	-	-	-	8,189
Net return attributable to Shareholders	-	-	-	-	5,913	11,710	17,623
Balance at 30 September 2018	25,265	125,380	4,146	4,434	155,053	13,194	327,472

 

Condensed Balance Sheet

	31 March 2019	31 March 2018	30 September 2018
	(Unaudited)	(Unaudited)	(Audited)
	£'000s	£'000s	£'000s
Fixed assets
Investments	329,917	328,221	341,034
Current assets
Debtors	4,360	2,330	1,582
Cash and cash equivalents	9,790	-	5,280
Total current assets	14,150	2,330	6,862
Current liabilities
Creditors: amounts falling within one year	(1,530)	(390)	(390)
Bank Overdraft	(99)	(378)	(34)
Loan	(20,000)	(20,000)	(20,000)
Total current liabilities	(21,629)	(20,768)	(20,424)
Net current liabilities	(7,479)	(18,438)	(13,562)
Net assets	322,438	309,783	327,472
Capital and reserves
Share capital	25,615	25,002	25,265
Share premium account	129,200	122,248	125,380
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserves	146,434	142,763	155,053
Revenue reserve	12,609	11,190	13,194
Total shareholders' funds	322,438	309,783	327,472
Net Asset Value per ordinary share - pence	314.70	309.75	324.04

 

Condensed Statement of Cash Flows

	Half-year ended	Half-year ended
	31 March 2019	31 March 2018
	£'000s (Unaudited)	£'000s (Unaudited)
Cash flows from operating activities before dividends received and interest paid	(472)	(914)
Dividends received	5,222	4,321
Interest paid	(189)	(276)
Cash flows from operating activities	4,561	3,131
Investing activities
Purchase of investments	(22,502)	(26,055)
Sale of investments	24,481	18,664
Other capital charges	(1)	(10)
Cash flows from investing activities	1,978	(7,401)
Cash flows before financing activities	6,539	(4,270)
Financing activities
Dividends paid	(6,272)	(5,859)
Net proceeds from issuance of new shares	4,170	4,794
Drawdown of loan	-	20,000
Repayment of loan	-	(20,000)
Cash flows from financing activities	(2,102)	(1,065)
Net movement in cash and cash equivalents	4,437	(5,335)
Cash and cash equivalents at the beginning of the period	5,246	4,962
Effect of movement in foreign exchange	8	(5)
Cash and cash equivalents at the end of the period	9,691	(378)
Represented by:
Short term deposits Bank overdraft	9,790 (99)	- (378)
	9,691	(378)

 

Notes

1    Significant accounting policies

These condensed financial statements, which are unaudited, have been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, FRS 102, Interim Financial Reporting (FRS 104) issued by the FRC in March 2016 and the revised Statement of Recommended Practice ("SORP") "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the AIC in November 2014 and updated in February 2018.

The accounting policies applied in the condensed set of financial statements are set out in the Company's annual report for the year ended 30 September 2018.

2    Net return per ordinary share

Return per ordinary share attributable to Shareholders reflects the overall performance of the Company in the period.  Net revenue recognised in the first six months is not necessarily indicative of the total likely to be received in the full accounting year.

	Half-year ended 31 March 2019 £'000s	Half-year ended 31 March 2018 £'000s
Revenue return	5,687	4,762
Capital return	(8,619)	(6,377)
Total return	(2,932)	(1,615)
	Number	Number
Weighted average ordinary shares in issue	102,220,021	99,367,098
Total return per share - pence	(2.87)	(1.63)

3    Dividend

The second interim dividend of 2.55p per share in respect of the year ending 30 September 2019 will be paid on 28 June 2019 to Shareholders on the register on 7 June 2019. The total cost of this dividend, based on 102,459,268 shares in issue, and entitled to the dividend on 23 May 2018 is £2,613,000.

4    Going concern

The Company's investment objective, strategy and policy are subject to a process of regular Board monitoring and are designed to ensure that the Company is invested mainly in readily realisable, listed securities and that the level of borrowings is restricted. The Company retains title to all assets held by the Custodian and an agreement covers its borrowing facility. Cash is held with banks approved and regularly reviewed by the Manager and the Board.

The Directors believe that: The Company's objective and policy continue to be relevant to investors; the Company operates within a robust regulatory environment; and the Company has sufficient resources and arrangements to continue operating within its stated policy for the 12 month period commencing from the date of this report. Accordingly, the financial statements have been drawn up on the basis that the Company is a going concern.

5    Results

The results for the half-year ended 31 March 2019 and 31 March 2018, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 September 2018; the report of the independent auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 September 2018 are an extract from those accounts.

6    Half-yearly report and accounts

The Company's report and accounts are available on the internet at www.bmocapitalandincome.com.

Printed copies may be obtained from the Company's Registered Office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

BMO Investment Business Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

24 May 2019

 

END

 

 

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