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CQS New City HighYld (NCYF)

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Friday 20 March, 2020

CQS New City HighYld

Interim Report Announcement

RNS Number : 0607H
CQS New City High Yield Fund Ltd
20 March 2020
 

 

20 March 2020

 

FOR IMMEDIATE RELEASE

 

RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY BRANCH

 

INTERIM REPORT ANNOUNCEMENT

 

THE BOARD OF DIRECTORS OF CQS New city high yield fund limited ANNOUNCE THE interim REPORT and Unaudited condensed financial statements for the six months ended 31 December 2019

 

Statement from the Chair

 

Highlights*

 

· Net asset value total return of 4.62%.

· Ordinary share price total return of 3.18%.

· Dividend yield of 7.52 %, based on dividends at an annualised rate of 4.45 pence and a bid share price of 59.20 pence at 31 December 2019.

· Ordinary share price at a premium of 7.21% at 31 December 2019.

· £2.5m of equity raised during the six months to 31 December 2019.

 

Investment and Share Price Performance

The period in focus for this review continued to see political dramas culminating in a General Election in the UK in December. Despite this backdrop, the environment for investors was quite good. Responding to growth concerns, global monetary policy overall was loosened and price pressures remained low, supporting stock markets and fixed interest securities alike. Your Company is mainly invested in the high yield sector of the fixed income market and this environment was positive for such assets. Ian Francis, your investment manager, provides more detail in the Investment Manager's Review.

 

The six months ended 31 December 2019 have seen good performance for your Company with a net asset value total return of 4.62% and a share price total return for the same period of 3.18%. The calendar year 2019 proved rewarding with the net asset value and share price rising by 2.70% and 5.34% respectively.

 

The Company's shares have continued to trade at a premium to their net asset value and at 31 December 2019 this stood at 7.21% with an average premium over the six months to 31 December 2019 of 7.20%.

 

Earnings   and Dividends

The Company's revenue earnings per share were 2.24 pence for the six months ended 31 December 2019, 7.05% lower than the 2.41 pence earned in the same period last year and covering the dividends paid.

 

The Company declared two dividends of 1.0 pence in the period, the same as those declared in the same period last year. Dividend payments are at the core of your Company's policy and therefore a major focus for the Board. The yield is at a very attractive level and since its launch in 2007, dividends paid by the Company have increased every year. Looking ahead, it may be that this trend is not sustainable but as things stand, the Board expects this year's dividend will be at least the same as the total annualised rate of 4.45 pence that was declared last year.

 

Gearing
The Company has in place a £35m facility with Scotiabank at a current all-in rate of 1.88975%. The Board believes that the use of gearing at an appropriate level is a key benefit for the Company. As at 31 December 2019, £31m was drawn down from this facility and the Company had an effective gearing rate of 10.03%.

 

Share Issuance

Taking advantage of the premium rating that the market continues to attach to your Company's shares, £2.5m was raised from new and existing shareholders during the period, with 4.2m ordinary shares issued from the block listing facility. As at the date of this report, a further £3.2m has been raised since 31 December 2019. Gradual share issuance when suitable investment opportunities are available should benefit existing shareholders by lower ongoing charges and greater liquidity in the Company's shares, all other things being equal.

 

Administration Changes

As described in the Annual Report, BNP Paribas Securities Services S.C.A. Jersey Branch took over as the Company's new Company Secretary, Administrator, Depositary and Custodian during the period under review. The Board is pleased with how the new team is settling in and believe having everything under one roof will assist communication and operational efficiency.

 

Outlook

At the time of writing, the World Health Organisation has declared the Covid-19 virus a pandemic, many countries have imposed restrictions on the movement of people and global stock markets have fallen very significantly. Whatever the future holds in respect of the virus, there will undoubtedly be a material negative economic shock, particularly in certain sectors, but we cannot know just how severe or prolonged this will be.

 

The negative impact on global growth from the virus is likely to keep downward pressure on interest rates and we have seen rate cuts from several central banks including the Bank of England, as well as other measures from governments to mitigate the economic impact. Whilst this is welcome, high yielding fixed income securities have nevertheless been hit by the likelihood of credit impairment in a slower growth or even recessionary environment, depressing the Net Asset Value of the Company since the calendar year end. Furthermore, the impact of Covid-19 has caused a dislocation in underlying markets, liquidity has reduced and volatility is exceptionally high. This dismal combination has meant your Company's shares have slipped to a discount, something not seen for some years.

 

The Board is very focused on the situation and expects that after a difficult period, the virus will abate, allowing normal life to resume and financial markets to stabilise.

 

Caroline Hitch

Chair

 

20 March 2020

 

* A glossary of the terms used can be found below.

 

Investment Manager's Review

 

The July to December period covered by this interim report was once again in the UK dominated by Brexit related news. Having despaired about anything getting done, a clear-cut UK General Election result in December 2019, followed by the UK's decision, ratified on 31 January 2020, to depart the European Union paved the way for the UK to formally leave the EU on 1 January 2021. The election also put to bed some of the bigger risks to the economy, as business and private individuals assess the reality of 5 years of Conservative rule with an overwhelming majority in Parliament. We have previously reported that Manufacturing, Construction, the Service Industry and Consumers desperately want some certainty to plan ahead and although there are ongoing risks with a potential no-deal trade agreement the mere fact the UK is leaving galvanises businesses and individuals to act.

 

European economic data was fairly pedestrian during the period with the traditional powerhouses of Europe continuing to experience problems with low growth, falling manufacturing orders and weak output numbers alongside political uncertainty. The EU is now struggling with a potential trade war with the US and having to deal with a politically stronger UK.

 

The United States continued to grow despite trade wars, in the shape of actual and implied tariffs against China, starting to have real effects on the US economy. The potential for slowing growth prompted the Federal Reserve to cut interest rates again in October and the US and China signed a phase 1 trade deal that took a lot of heat out of the issue.

 

Portfolio activity was fairly muted during the six months and where we saw companies in the portfolio repaying their debt earlier than expected we have been able to source good quality replacement investments. Good examples of this would be the Co-operative Bank where we bought the 9.5% 2029 and American Tanker where we bought the 9.5% 2022.

 

As always we continue to maintain a diversified portfolio across a range of sectors and have a good proportion of the portfolio in non-Sterling currencies. We also favour shorter duration bonds, that is bonds that will repay within a two to three year timetable as we try to hedge against possible interest rate rises.

 

Over the six months under review the Total Return for your Company in net asset value terms was 4.62% and the closing dividend yield on the share price was 7.52%.

 

Post the end of the period the coronavirus (COVID19) has become the major issue facing the world economy. Apart from the clinical aspects the effects on worldwide economic activity are far greater than the SARS outbreak in 2002/03.

 

Governments are attempting to minimise a potential global recession by injecting funds into economies and lowering interest rates. At the time of writing we are only part way through the epidemic and have a lot more to learn on how long it will last and what will be the final cost to the world economy. In the current markets, liquidity is poor and spreads are wider which is creating greater volatility, but our closed ended structure offers us some protection in times of market volatility.

 

Ian "Franco" Francis

New City Investment Managers

 

20 March 2020

 

Condensed Statement of Comprehensive Income

 

For the six months ended 31 December 2019 (Unaudited)




Notes

Revenue

Capital

Total



  £'000

  £'000

  £'000

Net capital gain/(loss)





Net gain on financial assets designated at fair value

8

-

1,420

1,420

Foreign exchange loss


-

(149)

(149)






Revenue





Income

3

10,936

-

10,936

Total income


10,936

1,271

12,207






Expenses





Investment management fee

4

(771)

(257)

(1,028)

Other expenses

5

(366)

(38)

(404)

Total expenses


(1,137)

(295)

(1,432)

Profit before finance costs and taxation


9,799

976

10,775






Finance costs





Interest receivable


10

-

10

Interest payable and similar charges

6

(210)

(70)

(280)

Profit before taxation


9,599

906

10,505






Irrecoverable withholding tax


(108)

-

(108)

Profit after taxation


9,491

906

10,397






Earnings per ordinary share (pence)

7

2.24

0.21

2.45






 

For the six months ended 31 December 2018 (Unaudited)




Notes

Revenue

Capital

Total



  £'000

  £'000

  £'000

Net capital loss





Net loss on financial assets designated at fair value

8

-

(15,251)

(15,251)

Foreign exchange loss


-

(114)

(114)






Revenue





Income

3

11,037

-

11,037

Total income


11,037

(15,365)

(4,328)






Expenses





Investment management fee

4

(748)

(250)

(998)

Other expenses

5

(333)

(29)

(362)

Total expenses


(1,081)

(279)

(1,360)

Profit/(loss) before finance costs and taxation


9,956

(15,644)

(5,688)






Finance costs





Interest receivable


5

-

5

Interest payable and similar charges

6

(178)

(59)

(237)

Profit/(loss) before taxation


9,783

(15,703)

(5,920)






Irrecoverable withholding tax


(38)

-

(38)

Profit/(loss) after taxation


9,745

(15,703)

(5,958)






Earnings per ordinary share (pence)

7

2.41

(3.88)

(1.47)






 

For the year ended 30 June 2019 (Audited)

 




Notes

Revenue

Capital

Total



  £'000

  £'000

  £'000

Net capital gain/(loss)





Net loss on financial assets designated at fair value

8

-

(10,195)

(10,195)

Foreign exchange gain


-

127

127






Revenue





Income

3

21,024

-

21,024

Total income


21,024

(10,068)

10,956






Expenses





Investment management fee

4

(1,490)

(496)

(1,986)

Other expenses

5

(716)

(99)

(815)

Total expenses


(2,206)

(595)

(2,801)

Profit/(loss) before finance costs and taxation


18,818

(10,663)

8,155






Finance costs





Interest receivable


11

-

11

Interest payable and similar charges

6

(390)

(131)

(521)

Profit/(loss) before taxation


18,439

(10,794)

7,645






Irrecoverable withholding tax


(76)

-

(76)

Profit/(loss) after taxation


18,363

(10,794)

7,569






Earnings per ordinary share (pence)

7

4.49

(2.64)

1.85






 

The total column of this statement represents the Company's Condensed Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

 

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

 

No operations were acquired or discontinued during the period.

 

There is no other comprehensive income as all income is recorded in the Condensed Statement of Comprehensive Income above.

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Condensed Statement of Financial Position

 

As at 31 December 2019

 



As at

As at

As at



31 December 2019

31 December 2018

30 June 2019


Notes

(Unaudited)

(Unaudited)

(Audited)



£'000

£'000

£'000

Non-current assets





Financial assets designated at fair value through profit or loss

8

255,451

237,179

253,034






Current assets





Debtors and other receivables1


4,250

4,475

6,150

Cash and cash equivalents


7,382

5,506

5,837



11,632

9,981

11,987

Total assets


267,083

247,160

265,021






Current liabilities





Bank loan

6

(31,000)

(28,000)

(28,000)

Creditors and other payables1


(495)

(618)

(3,894)

Total liabilities


(31,495)

(28,618)

(31,894)






Net asset value


235,588

218,542

233,127






Stated capital and reserves





Stated capital account

9

193,452

181,714

191,007

Special distributable reserve


50,385

50,385

50,385

Capital reserve


(24,653)

(30,468)

(25,559)

Revenue reserve


16,404

16,911

17,294






Equity shareholders' funds


235,588

218,542

233,127






Net asset value per ordinary share (pence)

10

55.22

53.77

55.19






 

1 Debtors and other receivables and creditors and other payables positions have been presented on a gross basis.

 

The condensed financial statements were approved by the Board of Directors and authorised for issue on 20 March 2020 and were signed on its behalf by:

 

Caroline Hitch

Chair

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Condensed Statement of Changes in Equity

 

For the six months ended 31 December 2019 (Unaudited)

 



Stated

Special






capital

distributable

Capital

Revenue




account

reserve

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

£'000








At 1 July 2019


191,007

50,385

(25,559)

17,294

233,127

Total comprehensive income for the period:







Profit for the period


-

-

906

9,491

10,397

Transactions with shareholders recognised directly in equity:







Dividends paid

11

-

-

-

(10,381)

(10,381)

Net proceeds from issuance of ordinary shares

9

2,445

-

-

-

2,445

At 31 December 2019


193,452

50,385

(24,653)

16,404

235,588

 

For the six months ended 31 December 2018 (Unaudited)

 



Stated

Special






capital

distributable

Capital

Revenue




account

reserve

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

£'000








At 1 July 2018


178,424

50,385

(14,765)

17,024

231,068

Total comprehensive income for the period:







(Loss)/profit for the period


-

-

(15,703)

9,745

(5,958)

Transactions with shareholders recognised directly in equity:







Dividends paid

11

-

-

-

(9,858)

(9,858)

Net proceeds from issuance of ordinary shares


3,290

-

-

-

3,290

At 31 December 2018


181,714

50,385

(30,468)

16,911

218,542

 

For the year ended 30 June 2019 (Audited)

 



Stated

Special






capital

distributable

Capital

Revenue




Account

reserve

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

£'000








At 1 July 2018


178,424

(14,765)

17,024

231,068

Total comprehensive income for the year:






(Loss)/profit for the year


-

(10,794)

18,363

7,569

Transactions with owners recognised directly in equity:






Dividends paid

11

-

-

(18,093)

(18,093)

Net proceeds from issuance of ordinary shares


12,583

-

-

-

12,583

At 30 June 2019


191,007

50,385

(25,559)

17,294

233,127

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Condensed Cash Flow Statement

 



Six months

Six months




ended

ended

Year ended



31 December 2019

(Unaudited)

31 December 2018

(Unaudited)

30 June 2019

(Audited)


Notes

£'000

£'000

£'000

Cash flow from operating activities





Profit/(loss) before finance costs and taxation


10,775

(5,688)

8,155






Adjustments to reconcile profit/(loss) before finance costs and taxation to net cash flows:





Realised loss on financial assets designated at fair value through profit or loss

 

8

2,719

5,777

7,001

Unrealised (gain)/loss on financial assets designated at fair value through profit or loss

 

8

(4,139)

9,474

3,194

Effective interest adjustment

8

(72)

(440)

(464)

Foreign exchange loss/(gain)


149

114

(127)






Purchase of financial assets designated at fair value through profit or loss1

 

8

(63,259)

(16,230)

(49,071)

Proceeds from sale of financial assets designated at fair value through profit or loss2

 

8

60,667

15,419

39,151






Changes in working capital





(Increase)/decrease in other receivables


(64)

(176)

112

Increase in other payables


227

358

5

Irrecoverable withholding tax paid


(108)

(38)

(76)

Net cash inflow from operating activities


6,895

8,570

7,880






Financing activities





Dividends paid

11

(10,381)

(9,858)

(18,093)

Drawdown of bank loan

6

3,000

-

-

Finance costs


(265)

(232)

(510)

Net proceeds from issuance of ordinary shares

9

2,445

3,290

12,583

Net cash outflow from financing activities


(5,201)

(6,800)

(6,020)






Increase in cash and cash equivalents


1,694

1,770

1,860

Cash and cash equivalents at the start of the period/year


5,837

3,850

3,850

Foreign exchange (loss)/gain


(149)

(114)

127

Cash and cash equivalents and the end of the period/year


7,382

5,506

5,837






1 - Amounts due to brokers as at 31 December 2019 relating to purchases of financial assets designated at fair value through profit amounted to £nil (31 December 2018: £nil; 30 June 2019: £3,631,000).

2 - Amounts due from brokers as at 31 December 2019 relating to sales of financial assets designated at fair value through profit amounted to £nil (31 December 2018: £nil; 30 June 2019: £1,964,000).

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Notes to the Accounts

 

1.  General Information

The Company was incorporated as a closed-end investment company with limited liability in Jersey under the Companies (Jersey) Law 1991 on 17 January 2007, with registered number 95691. The Company's ordinary shares were admitted to the Official List as maintained by the Financial Conduct Authority and admitted to trading on the Main Market of the London Stock Exchange on 7 March 2007.

 

The Company's registered address is IFC1, The Esplanade, St Helier, Jersey, JE1 4BP.

 

2.  Accounting policies

 

2.1  Basis of Preparation

The Annual Report and Financial Statements is prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Financial Reporting Standards ("IFRS") as adopted by the European Union which comprise standards and interpretations approved by the International Accounting Standards Board, and interpretations issued by the International Financial Reporting Standards and Standing Interpretations Committee as approved by the International Accounting Standards Committee which remain in effect. The Annual Report and Financial Statements are also prepared in accordance with the guidance set out in the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (the "AIC SORP") in November 2014 and updated in January 2017 and March 2018 with consequential amendments where this does not conflict with IFRS. The Interim Report has been prepared in accordance with International Accounting Standards (IAS) 34 - Interim Financial Reporting ("IAS 34") as adopted by the European Union. They have also been prepared using the same accounting policies applied for the year ended 30 June 2019 Annual Report and Financial Statements, which was prepared in accordance with IFRS, except for new standards and interpretations adopted by the Company as set out below. The Company has also prepared the condensed interim financial statements in line with the AIC SORP as updated in October 2019 where this does not conflict with IFRS. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

Standards and amendments to existing standards effective from 1 January 2019

The Company applies for the first time IFRS 16 - Leases and IFRIC 23 - Uncertainty over Income Tax Treatments, which became effective on 1 January 2019. The Company does not participate in leasing arrangements and the Directors have determined that, as at 31 December 2019, the Company has no uncertain tax positions that would be disclosed under IFRIC 23 - Uncertainty over Income Tax Treatments. Accordingly, the application of IFRS 16 - Leases and IFRIC 23 - Uncertainty over Income Tax Treatments, respectively, do not have an impact on the Company's financial statements.

 

Several other amendments and interpretations apply for the first time in 2019, but these do not have an impact on the condensed financial statements.

 

2.2  Going Concern

The condensed financial statements have been prepared on the going concern basis. In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

2.3   Segmental reporting

No segmented reporting is provided as the Board, as the Chief Operator Decision Maker (with advice from the Investment Manager), are of the opinion that the Company is engaged in a single segment of business of investing in debt and, to a significantly lesser extent, equity securities.

 

2.4  Seasonality

The Company's business is not subject to seasonal fluctuations.

 

3.  Income


Six months ended

31 December 2019

(Unaudited)

Six months ended

31 December 2018

(Unaudited)

  Year ended

  30 June 2019

Audited




£'000


£'000


£'000

Dividend income


1,842


873


1,604

Interest on fixed interest securities


9,094


10,164


19,420

Total income


10,936


11,037


21,024

 

4.  Investment Management Fee

Previously under the terms of an investment advisory agreement dated 22 July 2014 and a novation agreement dated 1 October 2015, the Company has appointed CQS Cayman Limited Partnership as its Investment Manager and CQS Cayman Limited Partnership has, with the agreement of the Board, delegated that function to CQS (UK) LLP.

 

The Company has with effect from 18 September 2019 entered into a new Investment Management Agreement to appoint CQS (UK) LLP as its Investment Manager and the previous investment advisory agreement with CQS Cayman Limited partnership has been terminated.

 

The management fee has previously been charged at a rate of 0.80% per annum on the Company's total assets (less current liabilities other than bank borrowings), paid monthly in arrears, up to £200 million and 0.70% per annum thereafter.

 

With effect from 18 September 2019 the management fee will be charged at a rate of 0.80% per annum on the Company's Funds Under Management (being total assets less current liabilities (other than bank borrowings and ignoring any taxation which is or may be payable by the Company)), paid up to £200 million, 0.70% per annum on Funds Under Management in excess of £200 million, and up to and including £300 million, and 0.60% per annum thereafter. The payment of the management fee monthly in arrears remains unchanged.

 

The contract between the Company and CQS (UK) LLP may be terminated by either party giving not less than 12 months notice of termination.

 

During the six months period ended 31 December 2019, investment management fees of £1,028,000 were incurred (six months ended 31 December 2018: £998,000; year ended 30 June 2019: £1,986,000), of which £344,000 was payable at the period end (six months ended 31 December 2018: £495,000; year ended 30 June 2019: £165,000). Investment management fees have been allocated 75% to revenue and 25% to capital.

 

5.  Other expenses

During the six months ended 31 December 2019 the Company's other expenses were £404,000 (six months ended 31 December 2018: £362,000; year ended 30 June 2019: £815,000).

 

Secretarial and administration fees

Until the 27 November 2019, R&H Fund Services (Jersey) Limited provided company secretarial and administration services to the Company with certain elements of the Company's administration being delegated by R&H Fund Services (Jersey) Limited to Maitland Administration Services (Scotland) Limited.

 

With effect from 28 November 2019, BNP Paribas Securities Services S.C.A., Jersey Branch ("BNPP") were appointed as the Company Secretary and Administrator in place of R&H Fund Services (Jersey) Limited and Maitland Administration Services (Scotland) Limited; and appointed as the Company's custodian, bankers and depositary in place of HSBC Bank PLC.

 

Secretarial and administration fees incurred during the six months ended 31 December 2019 were £106,000 (six months ended 31 December 2018: £84,000; year ended 30 June 2019: £168,000). During the six months ended 31 December 2019, a one-off setup fee of £20,000 was incurred.

 

Directors' fees

On 22 May 2019, the Board approved an increased level of remuneration for the Directors with effect from 1 July 2019 with an annual effect of £157,000 as follows:

Chair   £40,000

Audit Chair   £34,000

Other   £27,500

 

Directors fees for the six months ended 31 December 2019 were £78,000 (six months ended 31 December 2018: £85,000; year ended 30 June 2019: £158,000).

 

Audit fees and non-audit fees paid to the auditor

Audit fees for the six months ended 31 December 2019 were £19,000 (six months ended 31 December 2018: £18,000; year ended 30 June 2019: £36,000).

 

There were no non-audit fees paid to the auditor during the six month period ended 31 December 2019 (six months ended 31 December 2018: £nil; year ended 30 June 2019: £nil).

 

6.  Bank Loan and finance costs


Six months ended

Six months ended

Year ended


31 December 2019

31 December 2018

30 June 2019


(Unaudited)

(Unaudited)

(Audited)


£'000

£'000

£'000

Bank loan

31,000

28,000

28,000

 

The Company has a short term unsecured loan facility with Scotiabank Europe Plc ("Scotiabank"). The facility is due to expire on 18 December 2020 after which it is anticipated the Company will take out a new facility on comparable terms.

 

On 18 December 2019, the Company drew down a further £3,000,000. As at 31 December 2019, the unsecured loan facility had a limit of £35,000,000 of which £31,000,000 was drawn down at an interest rate of 1.88975%, which is made up of LIBOR plus a margin rate.

 

The current loan facility was renewed on 18 December 2018 on the same terms as applied to the previous facility that expired on the 18 December 2018. During the six months ended 31 December 2019 the covenants of the loan facility have been meet. The following are the covenants for the facility held as at 31 December 2019:

 

• the borrower shall not permit the adjusted asset coverage to be less than 4 to 1

• the borrower shall not permit the net asset value to be less than £95,000,000 at any time

• the borrower shall maintain an additional adjusted asset coverage of at least 1.5 to 1 at all times

 

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

 

During the six months ended 31 December 2019, the Company incurred interest expense of £280,000 (six months ended 31 December 2018; £237,000; year ended 30 June 2019: £521,000) and received interest of £10,000 (six months ended 31 December 2018: £5,000; 30 June 2019: £11,000).

 

7.  Earnings per ordinary share


Revenue

Capital

Total

Earnings per ordinary share

(pence)

(pence)

(pence)

for the six months ended 31 December 2019

2.24

0.21

2.45

for the six months ended 31 December 2018

2.41

(3.88)

(1.47)

for the year ended 30 June 2019

4.49

(2.64)

1.85

 

The revenue earnings per ordinary share for the six months ended 31 December 2019, is based on the net profit after taxation of £9,491,000 (six months ended 31 December 2018: £9,745,000; year ended 30 June 2019: £18,363,000) and on a weighted average of 424,861,641 (six months ended 31 December 2018: 404,361,694; year ended 30 June 2019: 408,895,008) ordinary shares in issue throughout the period.

 

The capital return per ordinary share for the six months ended 31 December 2019, is based on a net capital gain of £906,000 (six months ended 31 December 2018: a net capital loss of £15,703,000; year ended 30 June 2019: a net capital loss of £10,794,000) and on a weighted average of 424,861,641 (six months ended 31 December 2018: 404,361,694; year ended 30 June 2019: 408,895,008) ordinary shares in issue throughout the period.

 

Refer to note 13 for details of ordinary shares issued subsequent to the end of the reporting period. These shares were issued at a premium to the 31 December 2019 NAV per ordinary share.

 

8.  Financial assets designated at fair value through profit or loss

 


As at 31 December 2019


As at 31 December 2018


As at 30 June 2019


(Unaudited)


(Unaudited)


(Audited)


£'000


£'000


£'000

Opening valuation

253,034


253,081


253,081

Purchases during the period/year

59,628


14,443


50,799

Sales - proceeds during the period/year

(58,703)


(15,419)


(41,115)

Realised loss on financial assets designated at fair value through profit or loss1

(2,719)


(5,777)


(7,001)

Effective interest adjustment

72


440


464

Unrealised gain/(loss) on financial assets designated at fair value through profit or loss

4,139


(9,589)


(3,194)

Closing valuation

255,451


237,179


253,034













Total net gain/(loss) on financial assets designated at fair value through profit or loss for the period/year

1,420


(15,251)


(10,195)







 

1 Realised losses on financial assets designated at fair value through profit or loss is made up of gains of £2,989,000 (for the six months ended 31 December 2018: gains of £1,196,000; for the year ended 30 June 2019: gains of £3,954,000) and losses of £5,708,000 (for the six months ended 31 December 2018: losses of £6,973,000; for the year ended 30 June 2019: losses of £10,955,000).

 

Fair value hierarchy

IFRS 13 'Fair Value Measurement' requires an analysis of investments valued at fair value based on the reliability and significance of information used to measure their fair value. The level is determined by the lowest (that is the least reliable or independently observable) level of input that is significant to the fair value measurement for the individual investments in its entirety as follows:

 

Level 1 - investments quoted in an active market.

Level 2 - investments whose fair value is based directly on observable current market prices or indirectly being derived from market prices.

Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or based on observable market data.

 

Investments valued using stock market active prices are disclosed as Level 1 and this is the case for the quoted equity investments that the Company holds. Securities in Level 2 are priced using evaluated prices from a third party vendor, together with a price comparison made to evaluated secondary and tertiary third party sources, including broker quotes and benchmarks. As a result, these investments are disclosed as Level 2 - recognising that the fair values of these investments are not as visible as quoted investments and their higher inherent pricing risk.

 

Investments included as Level 3 are priced using a valuation technique reviewed by the Board taking into account, where appropriate, latest dealing prices, broker statements, valuation information and other relevant factors.

 

Transfers in and out of levels have been deemed to have occurred at the end of the reporting period.

 


Level 1


Level 2


Level 3


Total


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Financial assets

£'000


£'000


£'000


£'000

Fixed income securities

-


185,163


11,131


196,294

Equity shares1

49,155


3,062


421


52,638

Convertible bonds

-


6,519


-


6,519

As at 31 December 2019

49,155


194,744


11,552


255,451

 


Level 1


Level 2


Level 3


Total


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Financial assets

£'000


£'000


£'000


£'000

Fixed income securities

-


188,976


5,313


194,289

Equity shares1

38,502


-


507


39,009

Convertible bonds

-


3,881


-


3,881

As at 31 December 2018

38,502


192,857


5,820


237,179

 


Level 1


Level 2


Level 3


Total


(Audited)


(Audited)


(Audited)


(Audited)

Financial assets

£'000


£'000


£'000


£'000

Fixed income securities

-


193,043


9,856


202,899

Equity shares1

40,991


459


534


41,984

Convertible bonds

-


8,151


-


8,151

As at 30 June 2019

40,991


201,653


10,390


253,034

 

1 Equity shares include preference shares with a fixed term which have a conversion option

 

During the period ended 31 December 2019 there were no transfers between level 1 and level 2.

 

Financial assets designated at fair value through profit or loss reconciliation - Level 3

IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen in reference to the specific underlying circumstances and position of the investee company. On that basis, the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly.

 

The following table shows a reconciliation of all movements in the fair value of financial assets categorised as level 3 between the beginning and the end of the reporting period.

 


six months ended 31 December 2019


(Unaudited)


£'000

Opening valuation

10,390

Purchases during the period

2,492

Sales - proceeds during the period

(1,418)

Realised loss on financial assets designated at fair value through profit or loss

(1,632)

Unrealised gain on financial assets designated at fair value through profit or loss

1,720

Closing valuation

11,552



There were no transfers in and out of Level 3 during the period.

 

If the market value of the Level 3 investments fell by 5%, the impact on the profit or loss and the net asset value would have been a reduction to profit of £578,000. If the value of the Level 3 investments rose by the same amount, the effect would have been equal and opposite.

 

Level 3 financial assets are as follows:






As at 31 December 2019






(Unaudited)






£'000

Aggre Micro 8% 17/10/2036





7,263

OakNorth Bank FRN 01/06/2028





2,020

JPI Media Group Senior Notes (Facility B)





1,120

Oro SG PTE Ltd 12% 08/07/2020





404

Telford Offshore 12% 12/02/2024





324

Fara Holdco Limited NPV





223

JPI Media Group Equity





198






11,552

 

All level 3 financial assets above have been valued using a single broker quote to determine their fair value. The Company also holds a number of other level 3 assets with a value of £nil.

 

9.  Stated Capital

 

Authorised

The authorised share capital of the Company is represented by an unlimited number of ordinary shares of no par value.

 

Allotted, called up and fully-paid

Number of Ordinary shares

Proceeds from

issuance of ordinary shares

Share issue

costs

Stated

Capital



£'000

£'000

£'000

Total issued share capital at 1 July 2019

422,401,858



191,007

1,500,000 ordinary shares of no par value issued on 2 August 2019 at 58.40p

 

1,500,000

 

876

 

(7)

 

869

700,000 ordinary shares of no par value issued on 16 August 2019 at 58.40p

700,000

 

409

 

(3)

406

1,000,000 ordinary shares of no par value issued on 10 September 2019 at 59.00p

1,000,000

 

590

 

(4)

586

1,000,000 ordinary shares of no par value issued on 17 December 2019 at 59.00p

1,000,000

 

590

 

(6)

584

Total issued share capital at 31 December 2019

426,601,858

 

2,465

 

(20)

193,452

 

The balance of shares held in treasury by the Company at 31 December 2019 was nil (31 December 2018: nil; 30 June 2019: nil).

 

On 15 May 2018, a block listing facility for 40,000,000 new shares was approved by the UK Listing Authority. This facility is used for the purposes of satisfying market demand.

 

Refer to note 13 for further information subsequent to the reporting period.

 

10.  Net Asset Value per Ordinary share


31 December 2019

31 December 2018

30 June 2019


(Unaudited)

(Unaudited)

(Audited)

Net Asset Value (£'000)

235,588

218,542

233,127

Net Asset Value per share (pence)

55.22

53.77

55.19

 

The NAV per share is the value of all Company's total assets, less total liabilities, divided by the total number of ordinary shares at each period end. As at 31 December 2019 426,601,858 ordinary shares were held (31 December 2018: 406,451,858; 30 June 2019: 422,401,858).

 

11.  Dividends

Amounts recognised as distributions to equity holders in the period:

 


Six months ended

Six months ended

Year ended


31 December 2019

31 December 2018

30 June 2019


(Unaudited)

(Unaudited)

(Audited)


£'000

£'000

£'000

In respect of the previous period:




Fourth interim dividend

6,125

5,814

5,814





In respect of the period under review:




First interim dividend

4,256

4,044

4,044

Second interim dividend

-

-

4,065

Third interim dividend

-

-

4,170


10,381

9,858

18,093

 

Refer to note 13 for further information subsequent to the reporting period.

 

12.  Related Parties

 

The Board

During the six months ended 31 December 2019, there were no transactions with the Board other than directors' fees as disclosed in note 5. There were no changes to the shares held by the Directors during the period and therefore, as at 31 December 2019, the Directors each beneficially held the following shares in the Company:

 

Caroline Hitch:   130,000 ordinary shares

Wendy Dorman:   112,000 ordinary shares

Duncan A H Baxter:   109,412 ordinary shares

Ian Cadby:   25,000 ordinary shares

John E Newlands:   10,000 ordinary shares

 

Investment Manager

During the period, there were no transactions with the Investment Manager other than investment manager fees. Refer to note 4 for further information.

 

All transactions with related parties are carried out on an arm's length basis.

 

13.  Subsequent Events

The Board has evaluated subsequent events for the Company through to 20 March 2020, the date the condensed financial statements were approved, and has concluded that the material events listed below do not require adjustment of the condensed financial statements.

 

Share Issues

On 14 January 2020, the Company issued 1,000,000 ordinary shares at a price of 60.0p per share.

On 29 January 2020, the Company issued 1,000,000 ordinary shares at a price of 59.1p per share.

On 06 February 2020, the Company issued 1,000,000 ordinary shares at a price of 58.7p per share.

On 13 February 2020, the Company issued 1,500,000 ordinary shares at a price of 59.0p per share.

On 19 February 2020, the Company issued 1,000,000 ordinary shares at a price of 59.3p per share.

 

Dividend

On 15 January 2020, the Company announced its second interim dividend of 1.00 pence per share, payable on 28 February 2020 to shareholders on the register on 24 January 2020, having an ex-dividend date of 23 January 2020.

 

Directors' Statement of Principal Risks and Uncertainties

 

When considering the total return of the Company, the Directors take account of the risk which has been taken in order to achieve that return. The Directors have carried out a robust assessment of the principal risks and mitigating factors facing the Company including those which would threaten its business model, future performance, solvency or liquidity. The following risk factors have been identified and are listed below:

 

• Market risk

• Financial risk

• Earnings and dividend risk

• Operational risk

• Gearing risk

• Key-person dependency

• Regulatory risk

• Political risk

 

Information on these risks and how they are managed is given in the Annual Report and Financial Statements for the year ended 30 June 2019. In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the current financial year as they were in the six months under review.

 

The Company may be exposed to certain risks that are not disclosed within the Annual Report and Financial Statements.

 

The Company is not necessarily free from any such risks.

 

Directors' Responsibility Statement in Respect of the Interim Report

 

We confirm that to the best of our knowledge:

 

• the unaudited condensed financial statements within the Interim Report have been prepared in accordance with IAS 34 - Interim Financial Reporting, as adopted by the European Union ("EU") and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as at 31 December 2019, as required by the Financial Conduct Authority's ("FCA") Disclosure Guidance and Transparency Rule ("DTR") 4.2.4R.

 

• the Statement from the Chair, Investment Manager's Review and the condensed financial statements include a fair review of the information required by the Disclosure Guidance and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months ended 31 December 2019 and their impact on the unaudited condensed financial statements;

 

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

 

• the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place during the six months ended 31 December 2019 and that have materially affected the financial position or performance of the Company during that period.

 

Signed on behalf of the Board

 

Caroline Hitch

Chair

 

20 March 2020

 

Glossary of Terms and Definitions

 

Discount/Premium

The amount by which the market price per share of an investment company is lower or higher than the net asset value per share. The discount or premium is expressed as a percentage of the net asset value per share.



Dividend Yield

The annual dividend expressed as a percentage of the share price.



Gearing

The level of borrowing that the Company has undertaken. Represented by total assets (being total assets less current liabilities (excluding borrowings)) less all cash, expressed as a percentage of shareholders' funds minus 100.



Net Asset Value or NAV

The value of total assets less total liabilities. Liabilities for this purpose included current and long-term liabilities. To calculate the net asset value per ordinary share, the net asset value divided by the number of shares in issue produces the net asset value per share.



Total Return

The return to shareholders calculated on a per share basis by adding dividends paid and declared in the period to the increase or decrease in the share price (bid) or net asset value. The dividends are assumed to have been reinvested in the form of ordinary shares or net assets.



FRN

Floating Rate Note.

 

ENQUIRIES

 

For the Investment Manager

New City Investment Managers

0207 201 6900

[email protected]

 

For the Company Secretary and Administrator

BNP Paribas Securities Services S.C.A. Jersey Branch

jersey.bp2s.n[email protected]

 

A copy of the Company's Interim Report will be available shortly from the Company Secretary, (BNP Paribas Securities Services S.C.A., Jersey Branch, IFC 1, The Esplanade, St Helier, Jersey, JE1 4BP), or will be circulated on the Company's website (https://ncim.co.uk/cqs-new-city-high-yield-fund-ltd).

 

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) is incorporated into, or forms part of, this announcement.

 

CQS New City High Yield Fund Limited is regulated by the Jersey Financial Services Commission.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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