CT UK CAP AND INC INV TRUST PLC

Quarterly Report • Jun 1, 2023

National Storage Mechanism | Additional information

RNS Number : 2258B

CT UK Capital and Income Investment

01 June 2023

Date:                      1 June 2023

Contact:                 Julian Cane                                                                       

Columbia Threadneedle Investment Business Limited

020 7628 8000                                                               

LEI:                         21380052ETTRKV2A6Y19

CT UK Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2023

Highlights for the half-year ended 31 March 2023:

·    The dividend(1) for this half-year of 5.50p represents an increase of 3.8% in comparison to the six-months ended 31 March 2022 and provides Shareholders with an annual yield(2) of 4.1%.

·    The Company is recognised as a "Dividend Hero" by the Association of Investment Companies having increased its dividend every year since launch in 1992. 

·    Share price total return(3) was 8.1%. The share price ended the period at 296p.

·    The Company's Net Asset Value ("NAV") total return(3) was 12.4%, outperforming the FTSE All-Share Index (the "Benchmark") which returned 12.3% over the same period.

"The recovery of the Company's share price and net asset value per share, together with a further increase in the dividend, are indicative of the robustness of our investment strategy which continues to provide the opportunity to deliver attractive longer term investment returns to Shareholders."

Jonathan Cartwright

Chairman

SUMMARY OF RESULTS

	Half-year ended 31 March 2023	Half-year ended 31 March 2022
Share price total return(3)	+8.1%	+2.1%
Net Asset Value total return(3)	+12.4%	-1.3%
FTSE All-Share Index total return	+12.3%	+4.7%
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2023	(1) 2.75p	-
30 September 2022	-	2.65p
Second interim dividend in respect of year to 30 September 2023	(1) 2.75p	-
30 September 2022	-	2.65p
Total interim dividends relating to the period	5.50p	5.30p

(1)    The first interim dividend of 2.75 pence per share was paid on 31 March 2023 and the second interim dividend of 2.75 pence per share is payable on 30 June 2023 to Shareholders registered on 9 June 2023 with an ex-dividend date 8 June 2023.

(2)    Calculated as the total of the four most recent quarterly dividends declared divided by the period end share price.

(3)    Total Return - the return to Shareholders calculated on a per share basis by 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:

Dear Shareholder,

In this interim report for the first half year ended 31 March 2023, I am pleased to announce a recovery in your share price and Net Asset Value ("NAV") per share, as well as another increase in the dividend.

Total Return Performance:

Our current financial year started at close to the lowest point for the UK equity market since October 2020 following a period of unprecedented political turmoil, including the infamous September 2022 "Mini-budget" introduced by the short-lived Truss Administration. By contrast, the period since has been somewhat calmer politically and this has helped government bond yields to stabilise and equity markets to make some progress.

Your Company's NAV total return per share during the six months ended 31 March 2023 was 12.4%, outperforming the total return of the FTSE All-Share Index, our benchmark, of 12.3%.

Although the political situation in the UK may have stabilised with a new Prime Minister and Chancellor of the Exchequer, one of the key ongoing concerns has been the rate of inflation. There is more than a single factor causing the current inflationary surge, but to the extent that supply constraints previously caused by COVID-19 have eased and energy prices initially driven higher by Russia's war in Ukraine have decreased somewhat, many had hoped that the rate of inflation would have started to decrease decisively. However, in the UK at least, inflation has been more persistent than anticipated, with the Consumer Price Index in the year to March 2023 rising by 10.1%. In addition bond yields are still considerably above the levels that existed before the now infamous September 2022 'Mini-Budget'.

Nonetheless, this improvement in overall financial stability has provided a positive enough background for the UK equity market and our portfolio to record some useful gains. The strongest contribution to performance (a function of the size of the investment and the magnitude of its return) was from the bank and specialist mortgage lender OSB Group, with a total return of 22.8%. This though was far from the strongest percentage return over the period with total returns of 53.5% from Melrose, 44.2% from Burberry, 43.2% from CRH, 39.5% from Howden Joinery and 37.9% from Vistry. The amount of these companies' share price increases far exceeded any improvement in their underlying trading and was more a reflection of how severely their share prices had been depressed last September when fears for the UK economy were at their greatest.

Although the share prices of the companies mentioned above have recovered well, the same does not apply to all of the portfolio: the shares of property company LXi REIT, down 18.5% over the six-month period, struggled as the market became concerned that higher interest rates may have an impact on its property valuations. In addition, brick manufacturer Forterra shares were down 15.1% as housebuilders are expected to cut production, and hence demand for bricks, in response to uncertainties in the mortgage and housing markets. While understandable, these concerns are short-term in nature as LXi's assets and leases are of exceptional quality and Forterra has a very strong position in the brick market where there is considerable long-term demand due to the underlying shortage of housing in the UK.

Taking a longer, three-year view, the recent rebound in our NAV is positive, but not quite sufficient to outweigh the impact on our performance relative to the FTSE All-Share Index that occurred in the first calendar quarter of 2022, around the time of Russia's invasion of Ukraine, and the economic events of August / September 2022 referred to above.

The strength in operating performance of many of our investments and the undemanding valuations appear to be at odds with each other, but we have confidence that, over the longer term, focusing on fundamental factors such as earnings and dividends drives positive results for investors. We are aware that in an actively managed fund there are inevitably periods when share price performance can diverge from targets at a time when fundamental factors are over ridden by macro-market effects that impact valuations.

Share Price Premium / Discount:

During the six months under review, the share price traded relative to NAV at an average discount of 2.8% and within a range of a premium of 0.03% to a discount of 5.05%.

The widening of the discount over the period meant the share price total return of 8.1% was rather less than that of the NAV.

Share Issuance and Buy-backs:

As has been consistently stated over many years, we believe the share price should not vary significantly from the underlying NAV in normal market conditions and we are willing and able to buy or sell the Company's own shares to assist in that approach. In the first six months of this financial year, we bought 600,000 shares and sold 75,000. In line with our previous commitments, the shares were bought at a discount to their concurrent NAV and were sold at a premium. These purchases and sales help to add liquidity to the market, and add very marginally to NAV per share - to the benefit of ongoing Shareholders.

Revenue, Earnings and Dividends:

Our income, which comprises the dividends we receive from our investments, has continued to grow at a healthy rate, increasing by 11.6% compared to the first six months of the previous financial year. This increase reflects a number of factors when compared with the comparative period - which itself continued to suffer from the effects of the COVID-19 pandemic. Since then, many of our investee businesses have reported improved trading and, in addition, the Company received a special dividend from OSB Group which alone added £0.5 million to our income for the period.

The Company paid a dividend per share of 2.75 pence in respect of the first quarter of the financial year and I am pleased to say we will pay a further 2.75 pence in respect of the second quarter. This gives a total for the half year of 5.50 pence per share, an increase of 3.8% compared to the rate for the same period last year.

Dividend Cover and Revenue Reserve:

The dividends for the first half year are more than covered by earnings of 5.96 pence per share, allowing us to add to the Revenue Reserve which proved so important in enabling us to maintain and grow the dividend to our Shareholders through the period of interruption in business and social activities caused by COVID-19.

We remain proud of our record of dividend growth, having increased the dividend every year since launch in 1992, and that we are recognised as a "Dividend Hero" by the Association of Investment Companies. We aim to extend our dividend record yet further.

Balance Sheet and Gearing:

In March 2023 we renewed our loan facility with The Bank of Nova Scotia, London Branch. We started the financial year having borrowed £24 million and this was increased to £29 million during the six months, giving gearing as at 31 March 2023 of 8.7%.

Directorate Change:

As announced in our most recent Annual Report and Accounts, I shall be retiring from the Board on 1 July 2023. Upon my retirement Jane Lewis, who joined the Board in April 2015 will be appointed Chair. Jane holds a number of investment trust directorships, and I am delighted that the Company and Shareholders will benefit from her extensive experience, knowledge and leadership.

It is announced that as part of the Board's succession planning, and following a thorough selection process, Dunke Afe has been appointed as a Director of the Company with effect from 1 June 2023. Dunke is an accomplished global marketing executive with extensive experience in raising brand and product awareness. She is employed by leading prestige beauty company Estee Lauder where she is Executive Director, Global Marketing and Regions - Jo Malone London.

As a further part of the Board's succession planning, it is anticipated that Tim Scholefield, the Company's Senior Independent Director, will retire from the Board at the conclusion of the 2024 Annual General Meeting.  A new Director will be appointed to the Board in advance of this retirement.

Outlook:

It might be tempting to think that the opportunities for UK equities are lacklustre as the stock market has already shown some signs of recovery since the start of the financial year, yet the economy is apparently struggling to produce any meaningful growth. Furthermore, inflation is proving more persistent than expected and interest rates are probably staying at higher levels for longer, which would normally be considered a headwind for businesses and share prices. We are also very aware of the emerging risk of instability in the US financial sector but, as yet there appears very limited read across to the UK.

All these points of caution, however, ignore the actual experience of many of the companies in our portfolio where sales, profits, earnings and dividends are increasing and where valuations appear undemanding. As has already been stated, share prices can be impacted by macro-economic events but, across a longer-term timeframe, fundamental value should be reflected in improving individual share prices as companies deliver superior performance.

Your Board believes that the Company's investment strategy is sound, and it is supported and executed by an exceptionally experienced investment manager. Shareholders' overwhelming support in the continuation vote taken at the Company's AGM in March of this year was very encouraging and we are determined to continue a track record beneficial to Shareholders.

May I take this opportunity to thank all Shareholders for their support for the Company. I look forward to seeing you at future general meetings.

On behalf of the Board

Jonathan Cartwright

31 May 2023

Forward -looking statements

This half-year 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 2022.

The principal risks identified in the Annual Report were:

·      Macroeconomic and geopolitical risk including the possibility of a prolonged recession in the United Kingdom and the impact of the war in Ukraine.

·      Unfavourable markets or asset allocation, sector and stock selection and use of gearing and derivatives are inappropriate giving rise to investment underperformance as well as impacting capacity to pay dividends;

·      Errors, fraud or control failures at service providers, or loss of data through increasing cyber-threats or business continuity failure could damage reputation or investors interests or result in losses; and

·      Inappropriate business or marketing strategy particularly in relation to investor needs or sentiment giving rise to a share price discount to NAV per share.

At present the global economy continues to suffer considerable disruption due to inflationary pressures, the war in Ukraine and the after-effects of the COVID-19 pandemic. The Directors continue to review the key risk register for the Company which identifies the risks that the Company is exposed to, including those that are considered to be emerging, the controls in place and the actions being taken to mitigate them.

The Board considers that the principal risks have not changed materially since 30 November 2022, the date of the Company's Annual Report. The Board has also considered these principal risks in relation to going concern.

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

We confirm that to the best of their knowledge:

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

·      the Chairman's Statement and the Directors' Statement of Principal Risks and Uncertainties (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure Guidance and Transparency Rule ('DTR') 4.2.7R, being an indication of 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 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 information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

Jonathan Cartwright

Chairman

31 May 2023

Condensed Income Statement

Half-year ended 31 March 2023  (Unaudited)	Half-year ended 31 March 2022 (Unaudited)

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Gains/(losses) on investments	-	30,778	30,778	-	(10,402)	(10,402)
	Foreign exchange gains/(losses)	1	(59)	(58)	(2)	(59)	(61)
	Income	7,317	-	7,317	6,536	-	6,536
	Management fee	(347)	(347)	(694)	(377)	(377)	(754)
	Other expenses	(321)	-	(321)	(356)	-	(356)
	Net return before finance costs and Taxation	6,650	30,372	37,022	5,801	(10,838)	(5,037)
	Finance costs	(259)	(259)	(518)	(72)	(72)	(144)
	Net return before taxation	6,391	30,113	36,504	5,729	(10,910)	(5,181)
	Taxation	-	-	-	-	-	-
	Net return attributable to Shareholders	6,391	30,113	36,504	5,729	(10,910)	(5,181)
2	Return per share - basic and diluted (pence)	5.96	28.08	34.04	5.34	(10.17)	(4.83)

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 2023 (Unaudited)	Capital	account	reserve	Reserve	Reserves	reserve	Funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2022	26,822	141,380	4,146	2,642	110,200	11,093	296,283
Movements during the half-year ended 31 March 2023
Dividends paid	-	-	-	-	-	(7,036)	(7,036)
Ordinary shares issued from treasury	-	(17)	-	240	-	-	223
Ordinary shares bought back and held in treasury	-	-	-	(1,804)	-	-	(1,804)
Costs relating to broker	-	(8)	-	-	-	-	(8)
Net return attributable to Shareholders	-	-	-	-	30,113	6,391	36,504
Balance at 31 March 2023	26,822	141,355	4,146	1,078	140,313	10,448	324,162
Half-year ended 31 March 2022 (Unaudited)
Balance at 30 September 2021	26,822	141,374	4,146	4,432	168,366	10,735	355,875
Movements during the half-year ended 31 March 2022
Dividends paid	-	-	-	-	-	(6,860)	(6,860)
Ordinary shares issued from treasury	-	21	-	567	-	-	588
Ordinary shares bought back and held in treasury Costs relating to broker	- -	- (8)	- -	(1,036) -	- -	- -	(1,036) (8)
Net return attributable to Shareholders	-	-	-	-	(10,910)	5,729	(5,181)
Balance at 31 March 2022	26,822	141,387	4,146	3,963	157,456	9,604	343,378
Year ended 30 September 2022 (Audited)
Balance at 30 September 2021	26,822	141,374	4,146	4,432	168,366	10,735	355,875
Movements during the year ended 30 September 2022
Dividends paid	-	-	-	-	-	(12,532)	(12,532)
Ordinary shares issued from treasury	-	21	-	568	-	-	589
Ordinary shares bought back and held in treasury	-	-	-	(2,358)	-	-	(2,358)
Costs relating to broker	-	(15)	-	-	-	-	(15)
Net return attributable to Shareholders	-	-	-	-	(58,166)	12,890	(45,276)
Balance at 30 September 2022	26,822	141,380	4,146	2,642	110,200	11,093	296,283

Condensed Balance Sheet

	31 March 2023	31 March 2022	30 September 2022
	(Unaudited)	(Unaudited)	(Audited)
	£'000s	£'000s	£'000s
Fixed assets
Investments	349,391	366,869	318,796
Current assets
Debtors	3,923	3,308	5,106
Cash and cash equivalents	647	643	906
Total current assets	4,570	3,951	6,012
Current liabilities
Creditors: amounts falling within one year	(799)	(442)	(4,525)
Loan	(29,000)	(27,000)	(24,000)
Total current liabilities	(29,799)	(27,442)	(28,525)
Net current liabilities	(25,229)	(23,491)	(22,513)
Net assets	324,162	343,378	296,283
Capital and reserves
Share capital	26,822	26,822	26,822
Share premium account	141,355	141,387	141,380
Capital redemption reserve	4,146	4,146	4,146
Special reserve	1,078	3,963	2,642
Capital reserves	140,313	157,456	110,200
Revenue reserve	10,448	9,604	11,093
Total Shareholders' funds	324,162	343,378	296,283
Net Asset Value per ordinary share - pence	305.29	320.49	277.66

Condensed Statement of Cash Flows

	Half-year ended	Half-year ended
	31 March 2023 (Unaudited)	31 March 2022 (Unaudited)
	£'000s	£'000s
Cash flows from operating activities before interest and dividends received and interest paid	(796)	(1,128)
Dividends received	4,852	4,318
Interest received Interest paid	27 (503)	1 (139)
Cash flows from operating activities	3,580	3,052
Investing activities
Purchase of investments	(15,864)	(1,892)
Sale of investments	15,708	3,047
Cash flows from investing activities	(156)	1,155
Cash flows before financing activities	3,424	4,207
Financing activities
Equity dividends paid	(7,036)	(6,860)
Net proceeds from issuance of shares held in treasury	223	588
Costs associated with share issues	(8)	(8)
Costs of shares bought back and held in treasury	(1,804)	(1,036)
Drawdown of bank loan	5,000	2,000
Cash flows from financing activities	(3,625)	(5,316)
Net movement in cash and cash equivalents	(201)	(1,109)
Cash and cash equivalents at the beginning of the period	906	1,813
Effect of movement in foreign exchange	(58)	(61)
Cash and cash equivalents at the end of the period	647	643
Represented by:
Cash at bank	87	13
Short term deposits	560	630
	647	643

Notes

1      Basis of preparation

These condensed financial statements, which are unaudited, have been prepared on a going concern basis in accordance with the Companies Act 2006, FRS 102, Interim Financial Reporting (FRS104) and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by the AIC.

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 2022.

2      Earnings per ordinary share

Earnings 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 2023 £'000s	Half-year ended 31 March 2022 £'000s
Revenue return	6,391	5,729
Capital return	30,113	(10,910)
Total return	36,504	(5,181)
	Number	Number
Weighted average ordinary shares in issue	107,233,665	107,210,621
Total return per share - pence	34.04	(4.83)

3      Dividend

The second interim dividend of 2.75 pence per share in respect of the year ending 30 September 2023 will be paid on 30 June 2023 to all Shareholders on the register at close of business on 9 June 2023, with an ex-dividend date of 8 June 2023. The total cost of this dividend, based on 105,835,845 shares in issue, and entitled to the dividend on 30 May 2023, being the last practicable date before publication, is £2,910,000.

4      Going concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have also considered the Company's objective, strategy and policy, the current cash position of the Company, the availability of the loan facility and compliance with its covenants and the operational resilience of the Company and its service providers.

The global economy continues to suffer disruption due to the effects of inflation, the war in Ukraine and the after-effects of the COVID-19 pandemic and the Directors have given careful consideration to the consequences for this Company. The Company has a number of banking covenants and at present the Company's financial position does not suggest that any of these are close to being breached.

The primary risk is that there is a very substantial decrease in the Net Asset Value of the Company in the short to medium term. The Directors have considered the remedial measures that are open to the Company if such a covenant breach appears possible. As at 30 May 2023, the last practicable date before publication of this report, borrowings amounted to £29 million. This is in comparison to a Net Asset Value of £328.4 million. In accordance with its investment policy the Company is mainly invested in readily realisable, FTSE All-Share listed securities. These can be realised, if necessary, to repay the loan facility and fund the cash requirements for future dividend payments.

The Company operates within a robust regulatory environment. The Company retains title to all assets held by the Custodian. Cash is held with banks approved and regularly reviewed by the Manager and the Board.

Based on this information the Directors believe that the Company has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, these financial statements have been prepared on a going concern basis.

5      Results

The results for the half-year ended 31 March 2023 and 31 March 2022, 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 2022; 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 2022 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.ctcapitalandincome.co.uk.

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

By order of the Board

Columbia Threadneedle Investment Business Limited, Secretary

31 May 2023

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