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North American IT (NAIT)

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Friday 18 September, 2020

North American IT

Half Yearly Results

RNS Number : 3507Z
North American Income Trust (The)
18 September 2020
 

Legal Entity Identifier (LEI): 5493007GCUW7G2BKY360

18 September 2020

 

 

THE NORTH AMERICAN INCOME TRUST PLC

 

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS TO 31 JULY 2020

 

 

The investment objective of The North American Income Trust plc is to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominantly of S&P 500 US equities.

 

 

INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT

 

Performance

The six month period to 31 July 2020 has been one of the most challenging periods in recent history with global news and stock markets being dominated by the development of the Covid-19 pandemic. Over this period, the Company's net asset value (NAV) per share declined by 11.7% on a total return basis in sterling terms. This marginally underperformed the -10.7% return in sterling terms from the Russell 1000 Value Index, the Company's reference index. The slight underperformance resulted mainly from stock selection in the materials, utilities and consumer staples sectors. Conversely, stock selection in consumer discretionary, industrials and information technology sectors benefitted the Company's performance. The longer-term performance of the Company has been relatively strong.  Over the five year period to 31 July 2020 , the Company's NAV total return was 64.6% compared to the 54.4% from the Russell 1000 Value Index in sterling terms. 

 

Dividend

The revenue return per Ordinary share rose by 27.0% from 5.35p to 6.80p. The Board has declared a second quarterly dividend of 1.8p per share, giving total dividends for the first half of the year to 31 January 2021 of 3.6p (2020 - 3.4p), a 5.9% increase. The second quarterly dividend is payable on 30 October 2020 to shareholders on the register on 2 October 2020.

 

Portfolio

At 31 July 2020, equities represented 97% of total assets.  Total revenue from these holdings was £8.3 million (2019 - £7.9m million). Most of the Company's equity holdings continued their established record of dividend growth. Over 19% of the holdings raised their dividends over the past six months, with a weighted average increase of 8.7%. The Company received premiums totalling £3.9 million (2019 - £1.9 million) in exchange for entering into stock option transactions. This option income, the generation of which remains consistent with the Manager's company-focused investment process, represented 31.6% of total income (2019 - 19.2%). The income from options premiums has benefited from the higher than usual market volatility in the spring. We do not expect that we will generate similar levels of option premium income in the second half of the year.   Interest income of £300,000 from bonds was broadly similar to last year. Dividends will remain the primary source of income available for distribution. Further details of the portfolio are shown below.

 

Market & Economic Review

Major North American equity indices saw mixed performances in sterling terms during the half year. Large-cap value stocks recorded negative returns, significantly lagging their growth counterparts, which posted notable gains in sterling terms. In February and March, investors' fears surrounding the impact of the worldwide spread of the Covid-19 pandemic on the global economy sent a shockwave through the US and global financial markets. US stocks rallied sharply over the next three months as investors gained more comfort in an improving macroeconomic backdrop, given monetary policy support from the Fed with large injections of liquidity as well as vast fiscal stimulus packages that provided a safety net for the unemployed and forgivable loans that allowed small businesses to survive payroll and rent obligations. However, the market fell towards the end of the reporting period amid growing concerns about spikes in Covid-19 cases.  The energy, financials and real estate sectors saw double-digit losses and this led the downturn in the Russell 1000 Value Index. In contrast, the materials, healthcare and consumer staples sectors produced positive returns and were the strongest performers within the index.

 

Regarding monetary policy, in response to the market carnage, the US Federal Reserve (Fed) reduced its benchmark interest rate by 1% to a range of 0.0% to 0.25%. In a statement issued following its meeting in late July, the Fed commented that the Covid-19 pandemic "poses considerable risks to the economic outlook over the medium term". As expected, the pandemic wreaked havoc on the economy in the first half of 2020. US GDP decreased at an annual rate of 5% in the first three months of the year, and then tumbled 32% in the second quarter - the largest decline since the US government began tracking the data on a quarterly basis in 1947. Interestingly, preliminary estimates of US GDP for Q3 have been upgraded and most recent publications are indicating quarter on quarter growth in the 25% to 30% range which would have been deemed highly unlikely just a few months ago.

 

Discount/ Premium

The Company's share price fell by 23.1% to 223.0p and ended the period at a 10.4% discount to the net asset value, compared with a small premium of 0.4% at the end of January 2020. The Board continues to work with the Manager in both promoting the Company's benefits to a wider audience and  providing liquidity to the market through the use of share buybacks when it is considered that it is in the interest of continuing shareholders to do so.  Since the end of July, 24,960 shares were bought back.

 

Gearing

The Board believes that sensible use of financial gearing should enhance returns to our shareholders over the longer term. The total amount available under the Company's loan facility agreement with Scotiabank (Ireland) Designated Activity Company is $75 million, of which $25 million was drawn down at the Company's financial year end. During the period under review, a further $10 million of the loan facility was used, resulting in $35 million being drawn down at the period end. This modest increase in borrowing was used as opportunities began to arise during the market sell-off as well as having cash as collateral for selling put options. Net gearing at 31 July 2020 was 2.0% (31 January 2020: nil).

 

Outlook

As many countries, including the US, began their phased-in re-openings of their economies during the second quarter, the market has been more optimistic that the economy can eventually move past the impact of the initial lockdowns. With the reporting of some of the larger retail companies a few weeks ago, the US corporate earnings season has all but come to a close. Generally, financial performance throughout the earnings season fared better than the market had initially feared and was helped by the government's stimulus package, which benefitted consumer health and provided a lifeline to many businesses. 

 

Despite the recent performance, visibility regarding future earnings remain cloudy as a lack of systemic approach to containing the pandemic fuels concerns with regards to the likelihood of a second wave. In the US, unemployment benefits have begun to roll-off and an additional stimulus package is likely to be needed for many who have been unable to return to work. If future stimulus remains held up by political wrangling in Washington, there are greater concerns with regards to the health of the consumer in the near term, but we understand the incentive to continue some of these programs as we enter the November election season. Furthermore, while the overall goal is to build an all-weather portfolio, the election season has the potential to provide a wide range of outcomes and the Manager will look to shape the portfolio to help insulate it from these risks.

 

The wider-than-normal range of views in the market is producing opportunities for investment as the Manager continues to find opportunities to buy high quality, well-managed businesses at fair prices.

 

James Ferguson,

Chairman

17 September 2020

 

 

INTERIM BOARD REPORT - OTHER MATTERS

 

PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has considered the principal risks and uncertainties facing the Company together with a description of the mitigating actions it has taken.  They can be summarised under the following headings:

 

-  Market Risk

-  Pandemic or Systemic Shock

-  Income and Dividend Risk

-  Operational

-  Regulatory Risk

-  Gearing Risk

-  Discount Volatility

-  Derivatives

 

Details of these risks are provided in detail on pages 9 to 11 of the 2020 Annual Report. 

 

In addition to these risks, there are also a large number of international political and economic uncertainties which could have an impact on the performance of global markets.  The outbreak of the COVID-19 virus has resulted in business disruption and stockmarket volatility across the world.  The extent of the effect of the virus, including its long term impact, remains uncertain.  The Manager has undertaken a detailed review of the investee companies in the Company's portfolio to assess the impact of COVID-19 on their operations such as employee absence, reduced demand, reduced turnover and supply chain breakdowns and will review carefully the composition of the Company's portfolio and will be pro-active where necessary.  The Manager has implemented extensive business continuity procedures and contingency arrangements to ensure that they are able to continue to service their clients, including investment trusts. 

 

The outcome and potential impact of Brexit remains an economic risk for the Company.  As an investment trust with a North American mandate, the Company's portfolio is unlikely to be adversely impacted as a direct result of Brexit although some currency volatility could arise. The uncertainty surrounding Brexit could impact investor sentiment and could lead to increased or reduced demand for the Company's shares, which would be reflected in a narrowing or widening of the discount at which the Company's shares trade relative to their net asset value.  Aberdeen Standard Investments has a significant Brexit program in place aimed at ensuring that they can continue to satisfy their clients' investment needs post Brexit. 

 

The Board will continue to monitor developments as they occur.

 

In all other respects, the Company's principal risks and uncertainties have not changed nor are they expected to change in the second half of the financial year ending 31 January 2021.

 

Going Concern

In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business, the Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and, in most circumstances, are realisable within a short timescale. 

 

The Company has a bank credit facility in place which is available until December 2020.  Initial discussions with banks have commenced with a view to renewing the facility.

 

The Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and the ability to meet all its liabilities and ongoing expenses from its assets.  Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate.

 

Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

 

Directors' Responsibility Statement

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

 

-  the condensed set of Financial Statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting);

-  the Half-Yearly Board Report includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

-  the Half-Yearly Board Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

 

The Half-Yearly Financial Report for the six months ended 31 July 2020 comprises the Interim Board Report, the Directors' Responsibility Statement and the condensed set of Financial Statements.

 

 

 

For and on behalf of the Board of The North American Income Trust plc

 

James Ferguson,

Chairman

17 September 2020

 

 

FINANCIAL HIGHLIGHTS

 

Net asset value total return{A}

 

Russell 1000 Value Index

 

Share price total return{A}

Six months ended 31 July 2020:

 

Six months ended 31 July 2020:

 

Six months ended 31 July 2020:

-11.7%

 

-10.7%

 

-21.1%

Year ended 31 January 2020: +6.2%

 

Year ended 31 January 2020: +14.6%

 

Year ended 31 January 2020: +11.5%

 

 

 

 

 

Earnings per Ordinary share (revenue)

 

(Discount)/premium to net asset value{A}

 

Net gearing /(cash){A}

Six months ended 31 July 2020:

 

As at 31 July 2020:

 

As at 31 July 2020:

6.80p

 

 

-10.4%

 

2.0%

Six months ended 31 July 2020:

5.35p

 

As at 31 January 2020:

0.4%

 

As at 31 January 2020:

(0.9%)

 

{A}   Considered to be an Alternative Performance Measure. Further details can be found below.

 

 

 

As at

As at

 

 

31 July 2020

31 January 2020

% Capital return

Net asset value per Ordinary share

249.0p

288.9p

-13.8

Share price per Ordinary share (mid)

223.0p

290.0p

-23.1

(Discount)/premium to net asset value{A}

-10.4%

0.4%

 

Net gearing/(cash){A}

2.0%

(0.9%)

 

Ongoing charges ratio{A}

0.94%

0.91%

 

 

{A}   Considered to be an Alternative Performance Measure. Further details can be found below.

 

 

 

 

 

Six months to

Six months to

 

 

31 July 2020

31 July 2019

% change

Revenue return per Ordinary share

6.80p

5.35p

+27.0

Interim dividends

3.60p{A}

3.40p{B}

+6.0

 

{A}   Includes a first interim dividend of 1.80p paid on 7 August 2020 and a second interim dividend of 1.80p payable on 30 October 2020.

{B}   Includes a first interim dividend of 1.70p paid on 2 August 2019 and a second interim dividend of 1.70p paid on 25 October 2019.

 

 

PERFORMANCE (TOTAL RETURN) {A}

 

 

6 months ended

Year ended

3 Years ended

5 years ended

 

31 July 2020

31 July 2020

31 July 2020

31 July 2020

 

%

%

%

%

Net asset value per Ordinary share{A}

-11.7

-16.9

4.6

64.6

Share price per Ordinary share{A}

-21.1

-25.9

4.3

64.3

Russell 1000 Value Index

-10.7

-12.3

8.8

54.4

S&P 500 Index (in sterling terms)

2.9

4.5

41.2

104.8

 

{A}   Total return represents capital return plus dividends reinvested. Considered to be an Alternative Performance Measure. Further details can be found below.

 

 

INVESTMENT PORTFOLIO

 

TEN LARGEST INVESTMENTS

As at 31 July 2020

 

Abbvie

 

Verizon Communications

AbbVie Inc. researches and develops pharmaceutical products. The Company produces pharmaceutical drugs for specialty therapeutic areas such as immunology, chronic kidney disease, hepatitis C, women's health, oncology, and neuroscience.

 

Verizon Communications Inc., through its subsidiaries, provides communications information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide.

 

 

 

Philip Morris

 

Bristol-Myers Squib

Philip Morris International Inc., through its subsidiaries, manufactures and sells cigarettes and other tobacco products.

 

Bristol-Myers Squibb Company is a global biopharmaceutical company. The Company develops, licenses, manufactures, markets, and sells pharmaceutical and nutritional products.

 

 

 

Citigroup

 

Lockheed Martin

Citigroup Inc. is a diversified financial services holding company that provides a broad range of financial services to consumer and corporate customers.

 

Lockheed Martin Corp. is a global security company that primarily researches, designs, manufactures and integrates advanced technology and defense products and services.

 

 

 

TC Energy

 

Gilead Sciences

TC Energy Corp is the parent company of TransCanada PipeLines Limited. The Company is focused on natural gas transmission and power services.

 

Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops, and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases.

 

 

 

Restaurant Brands International

 

Cisco Systems

Restaurant Brands International Inc. operates fast food restaurants. The Company offers owns and manages quick service restaurants. Restaurant Brands International serves customers worldwide.

 

Cisco Systems Inc. designs, manufactures, and sells Internet Protocol (IP)- based networking and other products related to the communications and information technology industry and provides services associated with these products and their use.

 

 

INVESTMENT PORTFOLIO - FIXED INTEREST

As at 31 July 2020

 

 

 

Valuation

Valuation

Company

Industry classification

£'000

%

Abbvie

Biotechnology

21,694

5.9

Verizon Communications

Diversified Telecommunication Services

19,707

5.4

Philip Morris

Tobacco

17,557

4.8

Bristol-Myers Squib

Pharmaceuticals

16,983

4.7

Citigroup

Banks

15,241

4.2

Lockheed Martin

Aerospace & Defense

14,437

4.0

TC Energy

Oil, Gas & Consumable Fuels

13,890

3.8

Gilead Sciences

Biotechnology

13,244

3.6

Restaurant Brands International

Hotels, Restaurants & Leisure

10,766

3.0

Cisco Systems

Communications Equipment

10,766

3.0

Ten largest investments

 

154,285

42.4

CME Group

Capital Markets

10,762

3.0

UnitedHealth

Health Care Providers & Services

10,381

2.9

PNC Financial Services

Banks

10,159

2.8

Chevron

Oil, Gas & Consumable Fuels

9,593

2.6

Regions Financial

Banks

8,274

2.3

Home Depot

Specialty Retail

8,091

2.2

Medtronic

Health Care Equipment & Supplies

8,086

2.2

Hanesbrands

Textiles, Apparel & Luxury Goods

8,074

2.2

Omega Healthcare Investors

Equity Real Estate Investment Trusts (REITs)

8,018

2.2

FirstEnergy

Electric Utilities

7,734

2.1

Twenty largest investments

 

243,457

66.9

Nutrien

Chemicals

7,449

2.0

Royal Bank of Canada

Banks

7,358

2.0

American International

Insurance

7,346

2.0

Coca-Cola

Beverages

7,199

2.0

Phillips 66

Oil, Gas & Consumable Fuels

7,088

1.9

Gaming & Leisure Properties

Equity Real Estate Investment Trusts (REITs)

6,982

1.9

Digital Realty

Equity Real Estate Investment Trusts (REITs)

6,116

1.7

Union Pacific

Road and Rail

5,943

1.6

Nucor

Metals and Mining

5,753

1.6

Honeywell

Industrial Conglomerates

5,690

1.6

Thirty largest investments

 

310,381

85.2

Huntington Bancshares

Banks

5,650

1.6

Dow

Chemicals

5,631

1.6

Blackstone

Capital Markets

5,074

1.4

Procter & Gamble

Household Products

4,995

1.4

Texas Instruments

Semiconductors & Semiconductor Equipment

4,859

1.3

Tiffany & Co

Speciality Retail

4,776

1.3

Genuine Parts

Distributors

4,465

1.2

United Parcel Service

Air Freight & Logistics

3,807

1.1

Maxim Integrated Products

Semiconductors & Semiconductor Equipment

3,372

0.9

HCA 5.875% 15/02/26

Healthcare Services

1,638

0.4

Forty largest investments

 

354,648

97.4

CCO Holdings Capital 5.5% 01/05/26

Media

1,606

0.4

Cheniere Corpus Christi 5.875%  31/03/25

Oil, Gas & Consumable Fuels

1,291

0.4

CSC Holdings 10.875% 15/10/25

Media

1,243

0.4

Parsley Energy Finance 5.375% 15/01/25

Exploration & Production

1,180

0.3

Lennar 4.5% 30/04/24

Construction

1,075

0.3

Valeant Pharmaceutic 8.5% 31/01/27

Biotechnology

1,031

0.3

Qwest Cap Funding 7.75% 15/02/31

Telecommunications

877

0.2

Diamond 1 Fin Diamond 2 6.02% 15/06/26

Technology

684

0.2

NRG Energy 5.25% 15/06/29

Electric

396

0.1

Six Flags Theme Park 7% 01/07/25

Recreation Facilities and Services

54

-

Total investments

 

364,085

100.0

 

 

GEOGRAPHICAL ANALYSIS

 

Equity

Fixed interest

Total

Country

%

%

%

Canada

10.8

-

10.8

USA

86.2

3.0

89.2

 

______

______

______

 

97.0

3.0

100.0

 

______

______

______

 

 

ALTERNATIVE PERFORMANCE MEASURES

Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.

Total return. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.

The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 31 July 2020 and the year ended 31 July 2020 and total return for the periods.

 

 

 

 

 

Dividend

 

Share

Six months ended 31 July 2020

rate

NAV

price

31 January 2020

N/A

288.91p

290.00p

7 May 2020

4.30p

246.89p

233.00p

16 July 2020

1.80p

259.66p

224.50p

31 July 2020

N/A

248.99p

223.00p

 

 

______

______

Total return

 

-11.7%

-21.1%

 

 

______

______

 

 

 

 

 

Dividend

 

Share

Year ended 31 July 2020

rate

NAV

price

31 July 2019

N/A

310.44p

312.50p

3 October 2019

1.70p

292.11p

294.50p

24 January 2020

1.80p

294.08p

290.00p

7 May 2020

4.30p

246.89p

233.00p

16 July 2020

1.80p

259.66p

224.50p

31 July 2020

N/A

248.99p

223.00p

 

 

______

______

Total return

 

-16.9%

-25.9%

 

 

______

______

 

 

 

 

Net gearing/cash. Net gearing/(cash) measures cash and cash equivalents of £19,473,000 (31 January 2020 - £22,724,000) less total borrowings of £26,667,000 (31 January 2020 - £18,965,000) divided by shareholders' funds of £356,752,000 (31 January 2020 - £413,948,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due from brokers at the year end of £262,000 (31 January 2020 - due from brokers of £826,000) as well as cash and short term deposits of £19,735,000 (31 January 2020 - £21,898,000).

(Discount)/premium. The difference between the share price of 223.00p (31 January 2020 - 290.00p) and the net asset value per Ordinary share of 248.99p (31 January 2020 - 288.91p) expressed as a percentage of the net asset value per Ordinary share.

Ongoing charges ratio. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC which is defined as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. The ratio for 31 July 2020 is based on forecast ongoing charges for the year ending 31 January 2021.

 

 

 

 

31 July

31 January

 

2020

2020

Investment management fees (£'000)

2,670

3,060

Administrative expenses (£'000)

732

757

 

______

______

Ongoing charges (£'000)

3,402

3,817

 

______

______

Average net assets{A} (£'000)

361,817

420,761

 

______

______

Ongoing charges ratio

0.94%

0.91%

 

______

______

 

 

 

{A}   During both years net asset values with debt at fair value equated to net asset value with debt at amortised cost due to the short-term nature of the bank loans.

The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which includes finance costs and transaction charges.

 

 

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

Six months ended

 

 

31 July 2020

 

 

Revenue

Capital

Total

 

Notes

£'000

£'000

£'000

(Losses)/gains on investments

 

-

(57,265)

(57,265)

Exchange losses

 

-

(250)

(250)

Income

2

12,245

223

12,468

Investment management fee

 

(399)

(931)

(1,330)

Administrative expenses

3

(379)

-

(379)

 

 

______

______

______

Net return before finance costs and taxation

 

11,467

(58,223)

(46,756)

 

 

 

 

 

Finance costs

 

(65)

(152)

(217)

 

 

______

______

______

Return before taxation

 

11,402

(58,375)

(46,973)

 

 

 

 

 

Taxation

4

(1,663)

180

(1,483)

 

 

______

______

______

Return after taxation

 

9,739

(58,195)

(48,456)

 

 

______

______

______

 

 

 

 

 

Return per share (pence)

6

6.80

(40.62)

(33.82)

 

 

______

______

______

 

 

 

 

 

The total column of the Condensed Statement of Comprehensive Income is the profit and loss account of the Company.

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

The accompanying notes are an integral part of the financial statements.

 

 

 

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(Cont'd)

 

 

 

Six months ended

 

 

31 July 2019

 

 

Revenue

Capital

Total

 

Notes

£'000

£'000

£'000

(Losses)/gains on investments

 

-

44,847

44,847

Exchange losses

 

-

(1,101)

(1,101)

Income

2

9,923

-

9,923

Investment management fee

 

(463)

(1,081)

(1,544)

Administrative expenses

3

(374)

-

(374)

 

 

______

______

______

Net return before finance costs and taxation

 

9,086

42,665

51,751

 

 

 

 

 

Finance costs

 

(181)

(421)

(602)

 

 

______

______

______

Return before taxation

 

8,905

42,244

51,149

 

 

 

 

 

Taxation

4

(1,297)

325

(972)

 

 

______

______

______

Return after taxation

 

7,608

42,569

50,177

 

 

______

______

______

 

 

 

 

 

Return per share (pence)

6

5.35

29.95

35.30

 

 

______

______

______

 

 

 

CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

 

 

 

As at

As at

 

 

31 July
2020

31 January 2020

 

Notes

£'000

£'000

Non-current assets

 

 

 

Investments at fair value through profit or loss

 

364,085

410,800

 

 

______

______

Current assets

 

 

 

Debtors and prepayments

 

2,363

1,804

Cash and short-term deposits

 

19,735

21,898

 

 

______

______

 

 

22,098

23,702

 

 

______

______

Creditors: amounts falling due within one year

 

 

 

Traded options

 

(127)

(668)

Other creditors

 

(2,637)

(921)

Bank loan

 

(26,667)

(18,965)

 

 

______

______

 

 

(29,431)

(20,554)

 

 

______

______

Net current (liabilities)/assets

 

(7,333)

3,148

 

 

______

______

Net assets

 

356,752

413,948

 

 

______

______

Capital and reserves

 

 

 

Called-up share capital

 

7,164

7,164

Share premium account

 

51,806

51,806

Capital redemption reserve

 

15,452

15,452

Capital reserve

8

260,728

318,923

Revenue reserve

 

21,602

20,603

 

 

______

______

Equity shareholders' funds

 

356,752

413,948

 

 

______

______

 

 

 

 

Net asset value per share (pence)

9

248.99

288.91

 

 

______

______

 

 

 

 

The accompanying notes are an integral part of the financial statements.

 

 

 

 

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

Six months ended 31 July 2020

 

 

 

 

 

 

 

 

Share

Capital

 

 

 

 

Share

premium

redemption

Capital

Revenue

 

 

capital

account

reserve

reserve

reserve

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 January 2020

7,164

51,806

15,452

318,923

20,603

413,948

Return after taxation

-

-

-

(58,195)

9,739

(48,456)

Dividends paid (note 5)

-

-

-

-

(8,740)

(8,740)

 

______

______

______

______

______

______

Balance at 31 July 2020

7,164

51,806

15,452

260,728

21,602

356,752

 

______

______

______

______

______

______

 

 

 

 

 

 

 

Six months ended 31 July 2019

 

 

 

 

 

 

 

 

Share

Capital

 

 

 

 

Share

premium

redemption

Capital

Revenue

 

 

capital

account

reserve

reserve

reserve

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 January 2019

7,108

48,467

15,452

310,920

16,710

398,657

Return after taxation

-

-

-

42,569

7,608

50,177

Dividends paid (note 5)

-

-

-

-

(7,534)

(7,534)

 

______

______

______

______

______

______

Balance at 31 July 2019

7,108

48,467

15,452

353,489

16,784

441,300

 

______

______

______

______

______

______

 

 

 

 

 

 

 

The accompanying notes are an integral part of the financial statements.

 

 

 

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

 

 

Six months ended

Six months ended

 

31 July 2020

31 July 2019

 

£'000

£'000

Operating activities

 

 

Net return before taxation

(46,973)

51,149

Adjustments for:

 

 

Net losses/(gains) on investments

57,667

(44,847)

Realised losses on foreign exchange transactions

250

1,101

(Increase)/decrease in dividend income receivable

(326)

156

(Increase)/decrease in fixed interest income receivable

(7)

20

Increase in derivatives

(542)

(136)

(Increase)/decrease in other debtors

(19)

18

(Decrease)/increase in other creditors

(11)

378

Tax on overseas income

(1,048)

(875)

Amortisation of fixed income book cost

4

8

Stock dividends included in investment income

(95)

-

 

______

______

Net cash flow from operating activities

8,900

6,972

 

 

 

Investing activities

 

 

Purchases of investments

(107,744)

(79,212)

Sales of investments

97,969

99,636

 

______

______

Net cash flow from investing activities

(9,775)

20,424

 

 

 

Financing activities

 

 

Equity dividends paid

(8,740)

(7,534)

Drawdown/(repayment) of loans

8,030

(7,729)

 

______

______

Net cash used in financing activities

(710)

(15,263)

 

______

______

(Decrease)/increase in cash

(1,585)

12,133

 

______

______

Analysis of changes in cash during the period

 

 

Opening balance

21,898

18,593

Effect of exchange rate fluctuations on cash held

(578)

1,286

(Decrease)/increase in cash as above

(1,585)

12,133

 

______

______

Closing balance

19,735

32,012

 

______

______

 

 

 

The accompanying notes are an integral part of the financial statements.

 

 

 

 

NOTES:

 

1.

Accounting policies

 

Basis of preparation. The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. Annual financial statements are prepared under Financial Reporting Standard 102.

 

The condensed interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements.

 

2.

Income

 

 

 

 

Six months ended

Six months ended

 

 

31 July 2020

31 July 2019

 

 

£'000

£'000

 

Income from overseas listed investments

 

 

 

Dividend income

7,454

7,136

 

REIT income

494

411

 

Interest income from investments

306

322

 

Stock dividends

95

-

 

 

______

______

 

 

8,349

7,869

 

 

______

______

 

Other income from investment activity

 

 

 

Traded option premiums

3,871

1,903

 

Deposit interest

25

151

 

 

______

______

 

 

3,896

2,054

 

 

______

______

 

Total income

12,245

9,923

 

 

______

______

 

3.

Administrative expenses

 

 

 

 

 Six months ended

 Six months ended

 

 

 31 July 2020

 31 July 2019

 

 

£'000

£'000

 

Directors' fees

62

62

 

Secretarial and administration fees

59

58

 

Promotional activities

108

104

 

Auditor's remuneration:

 

 

 

Fees payable to the Company's auditor for the audit of the annual accounts

15

9

 

Custodian charges

8

10

 

Registrar's fees

18

34

 

Professional fees

24

17

 

Depositary charges

23

26

 

Other

62

54

 

 

______

______

 

 

379

374

 

 

______

______

 

4.

Taxation. The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on the estimated annual tax rate expected for the full financial year. The estimated annual corporation tax rate used for the year to 31 January 2021 is 19% (2020 - 19%).

 

Detailed below is an analysis of the tax charge for each period.

 

 

 

 

Six months ended 31 July 2020

Six months ended 31 July 2019

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

Taxation

£'000

£'000

£'000

£'000

£'000

£'000

 

UK corporation tax

670

(205)

465

325

(325)

-

 

Double tax relief

(33)

-

(33)

-

-

-

 

Overseas tax suffered

1,023

25

1,048

972

-

972

 

Deferred tax

5

-

5

-

-

-

 

Double tax relief on deferred tax items

(2)

-

(2)

-

-

-

 

 

_____

_____

_____

_____

_____

_____

 

Total tax charge for the period

1,663

(180)

1,483

1,297

(325)

972

 

 

_____

_____

_____

_____

_____

_____

 

5.

Dividends

 

 

 

 

Six months ended

Six months ended

 

 

31 July 2020

31 July 2019

 

 

£'000

£'000

 

3rd interim dividend for 2020 - 1.8p (2019 - 1.7p)

2,579

2,417

 

Final dividend for 2020 - 4.3p (2019 - 3.6p)

6,161

5,117

 

 

______

______

 

 

8,740

7,534

 

 

______

______

 

 

 

 

 

The Company pays four dividends per year. The first interim dividend of 1.80p (2020 - 1.70p) for the year ending 31 January 2021 was paid on 7 August 2020 to shareholders on the register at 17 July 2020, with an ex-dividend date of 16 July 2020. A second interim dividend of 1.80p (2020 - 1.70p) for the year ending 31 January 2021, will be paid on 30 October 2020 to shareholders on the register at 2 October 2020. The ex-dividend date is 1 October 2020.

 

6.

Return per Ordinary share

 

 

 

 

Six months ended

Six months ended

 

 

31 July 2020

31 July 2019

 

 

£'000

£'000

 

Based on the following figures:

 

 

 

Revenue return

9,739

7,608

 

Capital return

(58,195)

42,569

 

 

______

______

 

Total return

(48,456)

50,177

 

 

______

______

 

Weighted average number of shares in issue

143,277,520

142,152,520

 

 

__________

__________

 

 

p

p

 

Revenue return per Ordinary share

6.80

5.35

 

Capital return per Ordinary share

(40.62)

29.95

 

 

______

______

 

Total return per Ordinary share

(33.82)

30.30

 

 

______

______

 

7.

Transaction costs. During the six months ended 31 July 2020 expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within (losses)/gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:

 

 

 

 

 

 

Six months ended

Six months ended

 

 

31 July 2020

31 July 2019

 

 

£'000

£'000

 

Purchases

45

31

 

Sales

117

73

 

 

______

______

 

 

162

104

 

 

______

______

 

8.

Capital reserve. The capital reserve reflected in the Condensed Statement of Financial Position at 31 July 2020 includes losses of £29,000 (31 January 2020 - gains £21,899,000) which relate to the revaluation of investments held at the reporting date.

 

9.

Net asset value per Ordinary share

 

 

 

 

As at

As at

 

 

31 July 2020

31 January 2020

 

Net assets attributable (£'000)

356,752

413,948

 

Number of Ordinary shares in issue

143,277,520

143,277,520

 

Net asset value per Ordinary share (p)

248.99

288.91

 

10.

Analysis of changes in net debt

 

 

 

 

 

 

At

 

 

At

 

 

31 January

Currency

Cash

31 July

 

 

2020

differences

flows

2020

 

 

£'000

£'000

£'000

£'000

 

Cash and short term deposits

21,898

(578)

(1,585)

19,735

 

Debt due within one year

(18,965)

328

(8,030)

(26,667)

 

 

______

______

______

______

 

 

2,933

(250)

(9,615)

(6,932)

 

 

______

______

______

______

 

 

 

 

 

 

 

 

At

 

 

At

 

 

31 January

Currency

Cash

31 July

 

 

2019

differences

flows

2019

 

 

£'000

£'000

£'000

£'000

 

Cash and short term deposits

18,593

1,286

12,133

32,012

 

Debt due within one year

(38,010)

(2,387)

7,729

(32,668)

 

 

______

______

______

______

 

 

(19,417)

(1,101)

19,862

(656)

 

 

______

______

______

______

 

 

 

A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis.

 

11.

Fair value hierarchy. FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications:

 

Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.

 

Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

 

Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

 

The financial assets and liabilities measured at fair value in the Condensed Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:

 

 

 

 

 

Level 1

Level 2

Level 3

Total

 

As at 31 July 2020

Note

£'000

£'000

£'000

£'000

 

Financial assets at fair value through profit or loss

 

 

 

 

 

 

Quoted equities

a)

353,010

-

-

353,010

 

Quoted bonds

b)

-

11,075

-

11,075

 

 

 

______

______

______

______

 

Total

 

353,010

11,075

-

364,085

 

 

 

______

______

______

______

 

Financial liabilities at fair value through profit or loss

 

 

 

 

 

 

Derivatives

c)

-

(127)

-

(127)

 

 

 

______

______

______

______

 

Net fair value

 

353,010

10,948

-

363,958

 

 

 

______

______

______

______

 

 

 

 

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

 

As at 31 January 2020

Note

£'000

£'000

£'000

£'000

 

Financial assets at fair value through profit or loss

 

 

 

 

 

 

Quoted equities

a)

402,149

-

-

402,149

 

Quoted bonds

b)

-

8,651

-

8,651

 

 

 

______

______

______

______

 

Total

 

402,149

8,651

-

410,800

 

 

 

______

______

______

______

 

Financial liabilities at fair value through profit or loss

 

 

 

 

 

 

Derivatives

c)

-

(668)

-

(668)

 

 

 

______

______

______

______

 

Net fair value

 

402,149

7,983

-

410,132

 

 

 

______

______

______

______

 

 

 

 

 

 

 

 

a)

Quoted equities. The fair value of the Company's investments in quoted equities has been determined by reference to their quoted prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

 

b)

Quoted bonds. The fair value of the Company's investments in quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets

 

c)

Derivatives. The Company's investment in exchange traded options have been fair valued using quoted prices and have been classified as Level 2 as they are not considered to trade in active markets.

        

 

12.

Transactions with the Manager. The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML" or the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional activity services.

 

The annual management fee is charged on gross assets after deducting current liabilities and borrowings and excluding commonly managed funds (Net Assets), on a tiered basis. The annual management fee is charged at 0.75% of Net Assets up to £350 million, 0.6% of Net Assets between £350 million and £500 million, and 0.5% of Net Assets above £500 million. The management fee is chargeable 30% to revenue and 70% to capital. During the period £1,330,000 (31 July 2019 - £1,544,000) of investment management fees were payable to the Manager, with a balance of £670,000 (31 July 2019 - £800,000) being due to ASFML at the period end.

 

The secretarial fee of £118,000 per annum is chargeable 100% to revenue and is payable monthly in arrears. During the period £59,000 (31 July 2019 - £58,000) of secretarial fees were payable to the Manager, with a balance of £20,000 (31 July 2019 - £19,000) being due to ASFML at the period end.

 

The promotional activities fee is based on a current annual amount of £216,000, payable quarterly in arrears. During the period £108,000 (31 July 2019 - £104,000) of fees were payable, with a balance of £126,000 (31 July 2019 - £70,000) being due to ASFML at the period end.

 

13.

Segmental information. The Company is engaged in a single segment of business, which is to invest in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.

 

14.

Subsequent events. Subsequent to the period end, the Company purchased 24,960 of its own Ordinary shares for cancellation at a cost of £57,000 leaving 143,252,560 Ordinary shares in issue.

 

15.

Half-Yearly Financial Report. The financial information in this Report does not comprise statutory accounts within the meaning of Section 434 - 436 of the Companies Act 2006. The financial information for the year ended 31 January 2020 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the Company's auditor was unqualified and contained no statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The condensed interim financial statements have been prepared using the same accounting policies as contained within the preceding annual financial statements.

 

The financial information for the six months ended 31 July 2020 and 31 July 2019 have not been audited or reviewed by the Company's auditor.

 

16.

This Half-Yearly Financial Report was approved by the Board on 17 September 2020.

 

17.   The Half-Yearly Financial Report is available on the Company's website, www.northamericanincome.co.uk.  The Half-Yearly Report will be posted to shareholders in October 2020 and copies will be available from the Company Secretary.

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

 

 

For The North American Income Trust plc

Aberdeen Asset Management PLC, Secretary

 

 

For further information, please contact:-

 

Company Secretary

Aberdeen Standard Investments

Tel: 0131 372 2200

 

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