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CQS NATURAL RES GROWTH & INCOME PLC
Quarterly Report • Mar 28, 2024
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Quarterly Report
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Half Year Report for the six months to 31 December 2023
Focused on the future, delivering value today
Our Objective
To provide shareholders with capital growth and income predominantly from a portfolio of mining and resource equities and of mining, resource and industrial fixed interest securities.
Why invest?
- Exposure to value focused, underresearched global resources equities, aided by the investment trust closed end structure
- Unconstrained flexibility to invest in energy, mining or related service industries
- After years of producer under-investment, supply is now constrained, potentially leading to higher prices and higher profits for natural resources companies
- Global growth and energy transition to drive long term demand
1485640078
• Fund dividends are supported by strong income dynamics of the sector
IFC Our Objective IFC Why invest?
Strategic Report
- 1 Key Metrics
- 2 Chair's Statement
- 4 Financial Highlights
- 5 Portfolio at a Glance
- 6 Investment Manager's Review
- 8 Investment Portfolio
- 11 Top Ten Largest Holdings
Financial Statements
- 15 Condensed Income Statement
- 16 Condensed Balance Sheet
- 17 Condensed Statement of Changes in Equity
- 18 Condensed Cash Flow Statement
- 19 Notes to the Condensed Financial Statements
- 23 Interim Management Report and Responsibility Statement
Job No: 51433 Proof Event: 3 Black Line Level: 0 Park Communications Ltd Alpine Way London E6 6LA Customer: CQS Project Title: Half-Yearly Report 2023 T: 0207 055 6500 F: 020 7055 6600
24 Corporate Information
Key Metrics
For the six months to 31 December 2023:
* Used by the Company as a comparator, not a benchmark.
** Based on an annualised dividend of 5.60 pence per share.
Chair's Statement
"Your Investment Manager took a more cautious approach over the past six months, positioning the portfolio to mitigate risks"
Helen Green
Your Board believes that the ongoing energy transition is an investment theme that will deliver rewards to investors over the long term.
Overview
Geopolitical events, inflation concerns, and a slow rebound in growth in China have defined the first half of our financial year. These macro headwinds have had a knock on effect on some but not all commodities in which the fund invests. As a result, your Investment Manager took a more cautious approach over the past six months, positioning the portfolio to mitigate risks.
Geopolitically, the period was dominated by the Israel / Hamas conflict and the ongoing war in Ukraine. While fears of a significant broadening of the conflict have, to date, proven unfounded, November saw the beginning of sustained attacks on shipping in the Red Sea. Perhaps surprisingly, these tensions have yet to have a material effect on the price of commodities.
Elsewhere, reflecting easing inflation and weak new housing and manufacturing activity in China which have acted as headwinds to many commodity markets, the portfolio has low levels of exposure to base metals. Precious metals, on the other hand, were supported by central bank buying, with gold hitting an all‑time high although this is yet to flow through to the valuations of the precious metal miners.
On a positive note, our exposure to uranium has delivered good results as the sector has continued to be supported by demand arising from moves to reduce emissions and extend reactor lives. Supply has been constrained as a result of sanctions against Russia and a lack of new developments and the Investment Manager believes that this allows the sector to offer some defensive characteristics.
Fuller details of how the Investment Manager has navigated these and other markets in which we invest are provided in the Investment Manager's Review beginning on page 6.
Performance and Discount
Despite the macro headwinds, the performance of the fund generated a total net asset return of 3.4%. The share price total return over the period was 0.7%. This difference reflects a widening of the discount over the period from 13.5% to 17.7%, in line with the widening of discounts seen across the investment trust sector in the second half of calendar 2023.
As stated in our most recent Annual Report, the Company now uses the MSCI World Metals and Mining Index (which produced a total return of 8.4% in sterling terms), and the MSCI World Energy Sector Index (which returned 6.8% in sterling terms) as performance comparators. This decision was taken as one of the component indices from our previous composite index (80 per cent of the EMIX Global Mining Index and 20 per cent of the Credit Suisse High Yield Index) was retired in July 2023 and no suitable replacement was available. The Board believes the comparison of our performance to the MSCI World Metals and Mining and the MSCI World Energy Sector indices is more accurate and sustainable.
During the six month period under review, the Company underperformed its MSCI comparators. In part, this was due to the Company's focus on small and mid-capitalisation companies, which the macro-economic environment did not favour during the period.
Over the longer term the Company's net asset value has increased by 144.0% in total return terms over the five years to 31 December 2023. In comparison, the MSCI World Energy Sector Index has risen by 65.2% and the MSCI World Metals and Mining Index has increased by 113.4% over the same period.
Dividends and Income
The Board considers that the dividend policy is very attractive to shareholders and provides an element of share price stability. The Company has continued to maintain its dividend and has paid two quarterly dividends of 1.26 pence each per share during the financial year to date.
We continue to monitor the revenue position of the Company closely. Our income can be materially affected by shifts in portfolio holdings and by special dividends received. The revenue outlook remains healthy, supported by income from shipping and energy. However, at this stage of the year it is reasonable to say that a repeat of last year's supernormal payout is unlikely given a reduced level of special dividend receipts from energy investments in the year to date. Based on the current conditions and revenue forecasts, and subject to no unforeseen circumstances, the Board currently intends to follow the pattern
of previous years in paying three identical interim dividends, with the last dividend of the year being adjusted to reflect the full year revenue position of the Company. Should the portfolio benefit from any material one-off dividends from its holdings, the Board may consider an additional special dividend, separate from the more reliable continuing dividend stream offered by the Company.
Gearing
The rising uncertainty in the markets in which the Company invests has led the Investment Manager to reduce gearing slightly over the period from 8.9% at the start of the period to 7.1% as at 31 December 2023. Gearing continues to be provided by a £25 million revolving credit facility from Scotiabank which is due to mature in September 2024 and which the Company intends to renew. As at 31 December 2023, a total of £14 million had been drawn down from this facility. Further details will be provided in the Company's Annual Report for the year to 30 June 2024.
Outlook
The outlook is demanding, however, the more volatile conditions we are operating in do create investment opportunities for your Investment Manager. The flexible mandate which allows the Investment Management team to invest across a range of commodity sectors has proved very useful as the Company has avoided exposure to areas such as iron ore and copper which have come under pressure over the last year. Attractive areas for investment growth can be seen in the uranium sector in which we have increased our weighting. We have also kept our precious metals exposure as an effective hedge against market volatility.
The Board share the Investment Manager's views and expectations for the longer term: further details are set out within their Review on pages 6 and 7.
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Helen Green
Chair 27 March 2024
Financial Highlights
| Total Return | Six months ended 31 Dec 2023 |
Six months ended 31 Dec 2022 |
Year ended 30 June 2023 |
Five years ended 31 December 2023 |
|---|---|---|---|---|
| Net asset value | 3.4% | 17.2% | 3.5% | 144.0% |
| Ordinary share price | 0.7% | 13.9% | (2.0)% | 142.2% |
| MSCI World Energy Sector Index (sterling adjusted)* | 6.8% | 17.7% | 8.2% | 65.2% |
| MSCI World Metals and Mining Index (sterling adjusted)* | 8.4% | 18.9% | 14.0% | 113.4% |
| Capital Values | As at 31 December 2023 |
As at 30 June 2023 |
% change | |
|---|---|---|---|---|
| Net asset value per share | 204.33p | 204.16p | 0.1% | |
| Ordinary share price (mid market) | 168.25p | 169.50p | (0.7)% |
| Revenue and Dividends | Six months ended 31 Dec 2023 |
Six months ended 31 Dec 2022 |
|---|---|---|
| Earnings per ordinary share | 3.06p | 5.26p |
| Dividends per ordinary share | 2.52p | 2.52p |
| Dividend yield** | 3.3% | 2.8% |
| Discount (difference between share price and fully diluted net asset value) | 17.7% | 15.8% |
| Gearing | 7.1% | 8.2% |
| Ongoing charges (as a percentage of average shareholders' funds) | 1.8% | 1.6% |
| Highs and Lows during the six months ended 31 December 2023 | High | Low |
|---|---|---|
| Net asset value | 217.92p | 188.63p |
| Ordinary share price (mid market) | 187.00p | 164.50p |
| Discount | 19.3% | 9.9% |
| Dividend History | Rate per share | Ex-dividend date | Record date | Payment date |
|---|---|---|---|---|
| Second interim dividend 2024 | 1.26p | 25 January 2024 | 26 January 2024 | 23 February 2024 |
| First interim dividend 2024 | 1.26p | 26 October 2023 | 27 October 2023 | 27 November 2023 |
| Total | 2.52p | |||
| Special interim dividend 2023 | 3.00p 21 September 2023 22 September 2023 | 16 October 2023 | ||
| Fourth interim dividend 2023 | 1.82p | 27 July 2023 | 28 July 2023 | 31 August 2023 |
| Third interim dividend 2023 | 1.26p | 27 April 2023 | 28 April 2023 | 26 May 2023 |
| Second interim dividend 2023 | 1.26p | 26 January 2023 | 27 January 2023 | 28 February 2023 |
| First interim dividend 2023 | 1.26p | 27 October 2022 | 28 October 2022 | 25 November 2022 |
| Total | 8.60p |
* The EMIX Global Mining Index (sterling adjusted), which formed part of the Company's composite benchmark index in periods prior to 30 June 2023 ceased publication. From 1 July 2023, the Company has used the MSCI World Energy Sector Index (sterling adjusted) and MSCI World Metals and Mining Index (sterling adjusted) as performance comparator indices, not formal benchmarks.
Job No: 51433 Proof Event: 18 Black Line Level: 4 Park Communications Ltd Alpine Way London E6 6LA Customer: CQS Project Title: Annual Report 2023 T: 0207 055 6500 F: 020 7055 6600
** Based on an annualised dividend of 5.60 pence per share (31 December 2022: 5.60 pence per share).
Portfolio at a glance
0 5 10 15 20 25 30 35 Zinc Diversified Minerals Platinum Nickel Rare Earths Silver Palm Oil Lithium Base metals* Copper Coal Shipping Uranium Gold Oil & Gas 2022 % of total investments 2023 % of total investments * Comprises polymetallic investee companies.
By commodity
Job No: 51433 Proof Event: 18 Black Line Level: 4 Park Communications Ltd Alpine Way London E6 6LA Customer: CQS Project Title: Annual Report 2023 T: 0207 055 6500 F: 020 7055 6600
50387101
Investment Manager's Review
Ian (Franco) Francis Keith Watson Robert Crayfourd
"Over the medium term, valuations appear attractive as supply remains constrained."
Economic and Market Summary
Inflation pressures notably eased during the period under review, supporting a market consensus for a broader soft landing in the global economy. We have taken a more cautious tone as we see a number of potential risks that are increasingly difficult to ignore. The year-on-year comparisons on inflation are flattered by the peak inflation numbers in late 2022, which, whilst easing, means that prices are still substantially above where they were, even if the rate of growth has slowed. This has led to higher wage demands from a tight workforce adding some permanence to inflation.
The reopening of China's economy has stalled over the past six months as the ongoing property crisis continues to dampen sentiment and confidence, thus weighing on the demand for commodities. The Chinese stock markets remain weak, indicative of broader concerns, whilst the Chinese central bank is easing monetary conditions to add support.
The ongoing Russian / Ukrainian war has had remarkably little impact on commodities, as Russian commodities have circumvented restrictions and sanctions. Russian oil has consistently traded above the \$60 per barrel price cap.
The Israel / Hamas conflict has also seen little direct impact on commodities. Iran remains involved in most Middle East regional incidents and continues to enrich uranium to weapons grade, suggesting an increasing probability of escalation or at a minimum a stricter enforcement of sanctions, which would be supportive for oil prices.
Positioning
Commodities continue to offer good protection against inflation risk, but with a worsening outlook for China we continued to focus the portfolio on commodities that are less tied to Chinese economic growth. This has led to a zero weighting in iron ore and a low weighting in base metals, that are intrinsically tied to Chinese property and white goods. The pace of the energy transition theme has also softened, and the valuations are generally quite stretched. Over the medium term, valuations appear attractive as supply remains constrained. We will be looking to add back to the sector on any material pull backs.
We increased the weighting in the precious metal miners, however, sentiment towards this sub sector remained poor, with discounted valuations despite the gold price making a new all time high at the end of 2023. Gold has held above \$2,000 per oz. despite weak financial market demand from exchange-traded funds ("ETFs") and soft retail demand. The primary driver has been strong Central Bank demand, which we expect to continue over the coming years. There are many reasons we believe steady ETFs selling of physical gold may shift to buying in 2024, which may be the catalyst to more convincingly break the all-time highs that are currently creating significant resistance.
The portfolio continues to be overweight in energy, noting energy demand is fairly insensitive to slowdowns as people still drive to work, heat homes, require goods to be delivered to supermarkets etc. Supply growth is also constrained, but after OPEC cuts of 3 million barrels of oil per day, there is still spare production capacity that can fill projected global demand growth for 2024.
Job No: 51433 Proof Event: 18 Black Line Level: 4 Park Communications Ltd Alpine Way London E6 6LA Customer: CQS Project Title: Annual Report 2023 T: 0207 055 6500 F: 020 7055 6600
Although discord in OPEC is flagging, the Saudis are less willing to bear further cuts for the group, which lessens one supportive mechanism. However, other than this spare capacity, it is not clear where any meaningful sources of supply will come from. The US shale sector is now maturing. There have been a number of large-scale mergers, discipline has increased, rig counts have dropped and US shale growth looks close to plateauing, despite headlines flagging record US shale production. We will see increasingly less flexibility in the system through 2024, leaving the market vulnerable to any supply shocks.
Investment Manager's Review continued
2023 was marked by very few energy supply disruptions, as Russian supply managed to circumvent sanctions and the price cap via the shadow fleet of older crude ships they acquired, but the lack of oil field services will begin to weigh on domestic production. The US also eased sanctions on Iranian oil exports, leading to an increase in supply, despite Iran appearing to have a hand in multiple points of tension in the Middle East. Going in to 2024, at the time of writing, Trump is leading in the polls. He would be likely to take a much tougher stance on Iran, whilst even under Biden, application of sanctions would probably toughen which could add to a tightening of spare capacity in the global oil market.
The portfolio's shipping weighting remains at 9%, dominated by holdings in crude shipper, Frontline, and propane shipper, BW LPG. The order books for shipping in general are at record lows, as a lack of clarity on future propulsion regulation has made financing new vessels difficult. This has pushed up the values of the existing fleets and is leading to strong day rates as shipping fleet utilisation levels increase. This has led to strong earnings for the sector.
The Company's weighting in uranium miners increased to 10.4%, in part due to strong performance from the likes of NexGen but also through some additions. The market dynamics for uranium look increasingly positive as a structural tightly supplied market is being met by an increase in demand. This is driven by an extension of reactor lives in the West following global climate commitments to reduce emissions. China continues to build 8-10 reactors a year and is pushing both spot uranium prices and contract prices significantly higher.
Outlook
The outlook for commodities looks more varied than we have seen in prior stages of the cycle in our view. Energy and precious metals offer an attractive risk reward on a top-down and bottomup view, hence the large positioning. Commodities should prove more defensive in a slowing economic backdrop, whilst the bottom-up valuations lead to strong returns for the underlying companies held.
Uranium miners are seeing an exciting fundamental backdrop as a tightening supply demand balance is seeing stronger pricing. Unlike other commodities, higher prices have little impact on demand for Uranium as it is such a small proportion of the overall cost of power production. The political support for this zerocarbon form of baseload power will lead to a further build out of the global reactor fleet, supporting demand and thus prices received by the miners. This demand will remain regardless of the global economy so also offers defensive characteristics.
We see demand risks in base metals in the near term primarily driven by a Chinese slow down hence the zero weight in iron ore and reduced weight in base metals, but we like the long-term structural deficits some years out, especially in copper. Valuation remains hugely important in our allocation, which for now leaves copper miners looking relatively expensive. We will add back to these names on weakness or where we see outlying value opportunities.
Ian Francis, Keith Watson, Rob Crayfourd
New City Investment Managers 27 March 2024
Investment Portfolio
As at 31 December 2023
| Company | Sector | Valuation £'000 |
Total Investments % |
|---|---|---|---|
| NexGen Energy | Uranium | 10,848 | 7.4 |
| BW LPG | Shipping | 7,530 | 5.1 |
| Emerald Resources | Gold | 7,371 | 5.0 |
| Transocean | Oil & Gas | 6,451 | 4.4 |
| Frontline1 | Oil & Gas | 5,024 | 3.4 |
| Diamondback Energy | Oil & Gas | 4,708 | 3.2 |
| Precision Drilling | Oil & Gas | 4,379 | 3.0 |
| Vermilion Energy | Oil & Gas | 4,370 | 3.0 |
| REA Holdings2 | Palm Oil | 4,236 | 2.9 |
| EOG Resources | Oil & Gas | 4,041 | 2.8 |
| Top ten investments | 58,958 | 40.2 | |
| Karora Resources | Base metals | 3,875 | 2.6 |
| Diversified Gas & Oil | Oil & Gas | 3,654 | 2.5 |
| West African Resources | Gold | 3,555 | 2.4 |
| Tamboran Resources | Oil & Gas | 3,497 | 2.4 |
| Leo Lithium | Lithium | 3,340 | 2.3 |
| Foran Mining | Copper | 3,315 | 2.3 |
| Lynas Corporation | Rare Earth | 2,872 | 2.0 |
| Thungela Resources | Coal | 2,578 | 1.8 |
| Calidus | Gold | 2,571 | 1.8 |
| Sigma Lithium Resources | Lithium | 2,548 | 1.7 |
| Top twenty investments | 90,763 | 61.9 | |
| Peabody Energy | Coal | 2,479 | 1.7 |
| Ora Banda Mining | Gold | 2,448 | 1.7 |
| Calibre Mining | Gold | 2,065 | 1.4 |
| Coronado Global Resources | Coal | 2,027 | 1.4 |
| Ur-Energy | Uranium | 2,023 | 1.4 |
| Wheaton Precious Metals | Gold | 1,935 | 1.3 |
| Talon Metals | Nickel | 1,819 | 1.2 |
| Osisko | Gold | 1,776 | 1.2 |
| Pioneer Natural Resources | Oil & Gas | 1,765 | 1.2 |
| 2020 Bulkers | Shipping | 1,760 | 1.2 |
| Top thirty investments | 110,860 | 75.6 |
| Company | Sector | Valuation £'000 |
Total Investments % |
|---|---|---|---|
| Galena Mining | Base metals | 1,749 | 1.2 |
| Peyto Exploration & Development | Oil & Gas | 1,716 | 1.2 |
| Shelf Drilling | Oil & Gas | 1,539 | 1.0 |
| Adventus Mining Corporation | Copper | 1,525 | 1.0 |
| New Hope | Coal | 1,432 | 1.0 |
| Fission Uranium | Uranium | 1,428 | 1.0 |
| Ero Copper | Copper | 1,305 | 0.9 |
| NorAm Drilling | Oil & Gas | 1,244 | 0.8 |
| Tamboran Resources | Oil & Gas | 1,097 | 0.7 |
| Fortuna Silver Mines | Silver | 1,078 | 0.7 |
| Top forty investments | 124,973 | 85.2 | |
| Ascendant Resources 3 | Base metals | 1,061 | 0.7 |
| Metals X | Base metals | 940 | 0.6 |
| Westgold Resources | Gold | 929 | 0.6 |
| TDG Gold | Gold | 845 | 0.6 |
| Central Asia Metals | Copper | 775 | 0.5 |
| MAG Silver | Silver | 758 | 0.5 |
| Richmond Vanadium | Diversified Minerals | 749 | 0.5 |
| Mawson Gold | Gold | 738 | 0.5 |
| Rex Minerals | Gold | 731 | 0.5 |
| Rupert Resources | Gold | 690 | 0.5 |
| Top fifty investments | 133,189 | 90.9 | |
| B2Gold Corp | Gold | 678 | 0.5 |
| Reunion Gold | Gold | 602 | 0.4 |
| Afentra | Oil & Gas | 592 | 0.4 |
| Patriot Battery Metals | Lithium | 589 | 0.4 |
| Integra Resources | Gold | 586 | 0.4 |
| Vizsla Silver | Silver | 557 | 0.4 |
| PetroTal Corp | Oil & Gas | 552 | 0.4 |
| Collective Mining | Copper | 494 | 0.3 |
| Trident Royalties | Zinc | 479 | 0.3 |
| Firefinch | Lithium | 475 | 0.3 |
| Top sixty investments | 138,793 | 94.7 |
Investment Portfolio continued
| Company | Sector | Valuation £'000 |
Total Investments % |
|---|---|---|---|
| Palladium One Mining | Platinum | 467 | 0.3 |
| Euronav | Shipping | 451 | 0.3 |
| Cosa Resources | Copper | 451 | 0.3 |
| First Quantum Minerals | Copper | 450 | 0.3 |
| Silver Mountain Resources | Silver | 445 | 0.3 |
| New World Resources | Gold | 445 | 0.3 |
| Odyssey Gold | Gold | 433 | 0.3 |
| Denison Mines | Uranium | 429 | 0.3 |
| Newcore Gold | Gold | 422 | 0.3 |
| Platinum Group Metals | Platinum | 381 | 0.3 |
| Top seventy investments | 143,167 | 97.7 | |
| Other investments | 3,432 | 2.3 | |
| Total | 146,599 | 100.0 |
1 Includes Frontline USD valued at £3,883,000 and Frontline NOK valued at £1,141,000.
2 Includes REA Holdings 9% preference shares valued at £3,670,000, REA Finance 8.75% 31/08/25 valued at £425,000, REA Holdings valued at £138,000 and REA Holdings
warrants valued at £3,000. 3 Includes Ascendant Resources valued at £911,000 and Ascendant Resources warrants valued at £150,000.
Top ten largest holdings
NexGen Energy
A tier 1 uranium development asset in the established Athabasca Basin uranium mining district in Saskatchewan, Canada has the potential to be the lowest cost uranium mine globally. As a zero-carbon source of energy, civil nuclear power generation and hence uranium, may gain further traction in global energy mix.
BW LPG
The world's largest independent LPG shipper, predominantly sending propane from the US and Middle East to Asia. Propane is a by-product of shale production, so benefits from increased activity in the US. Naphtha switching at refiners and displacing wood for propane as fuel in the likes of India are major drivers of demand growth. The company has a strong capital returns policy, primarily through dividends.
Emerald Resources
An Australian listed gold producer, with a producing mine in Cambodia and development asset in Australia. The company has successfully commissioned its low cost Okvau gold mine in Cambodia on time and budget. This strong management team has a long history of delivering mines on time and budget and are self-funded for the future growth profile.
Top ten largest holdings continued
Transocean
A leading international provider of offshore contract drilling services for oil and gas wells. The group is well placed to benefit from an improvement in offshore rig day rates. The offshore rig market looks attractive as spending from global oil and gas increases, whilst the availability of rigs remains constrained given the large capital requirement and long lead times for new builds.
Frontline
A leading listed seaborne transporter of crude oil and refined products. The company owns and operates one of the largest and most modern fleets in the industry, consisting of VLCCs, Suezmax tankers and LR2 / Aframax tankers. Due to Frontline's brand, financial flexibility, and significant scale, it holds a unique position among its peers.
Diamondback Energy
A large US oil shale producer, in the Permian basin, in Texas. They have high quality acreage and management, so are well placed to benefit from current stronger energy pricing. The implied oil price of \$60/bbl. is materially below current spot markets. Sales
Precision Drilling
Precision Drilling owns a fleet of land rigs for oil and gas shale, in the US, Canada and Middle East. They are well placed to benefit from tightening fundamentals in the rig market, as producer activity picks up due to stronger energy pricing. Despite a cautious stance from oil and gas re adding production in North America, the rig market is already tight, seeing strong day rates for Precision.
Vermilion Energy
A Canadian listed European and Canadian oil and gas producer. Two-thirds of their production is North American, but also with sizeable European gas exposure at a higher margin, the company is well placed to benefit from current tight gas market in Europe due to the loss of Russian gas, as windfall taxes have discouraged new investment into supply. With strong free cash flow and significant scope for growth, the company has focused on share buybacks so far and will increase this as they reduce debt levels further.
REA Holdings
A leading contributor to responsible palm oil production globally. REA has a commitment to produce sustainably and has also received RSPO certification. Following substantial cost cutting measures the group is well placed to benefit from the recent recovery in the crude palm oil price.
Top ten largest holdings continued
| Valuation 30 June 2023 £'000 |
Purchases £'000 |
Sales £'000 |
Appreciation/ (depreciation) £'000 |
Total £'000 |
|
|---|---|---|---|---|---|
| Top ten investments | 52,037 | 4,426 | (8,635) | 11,130 | 58,958 |
At 31 December 2023, these investments totalled £58,958,000 or 40.2% of the investment portfolio.
Condensed Income Statement
| Six months ended 31 December 2023 (unaudited) |
Six months ended 31 December 2022 (unaudited) |
||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Gains on investments held at fair value through profit or loss | 2 | – | 2,567 | 2,567 | – | 20,502 | 20,502 |
| Exchange gains | – | 226 | 226 | – | 16 | 16 | |
| Income | 3 | 3,078 | 341 | 3,419 | 4,428 | – | 4,428 |
| Investment management fee | (209) | (628) | (837) | (230) | (691) | (921) | |
| Other expenses | (523) | (2) | (525) | (356) | – | (356) | |
| Net return before finance costs and taxation | 2,346 | 2,504 | 4,850 | 3,842 | 19,827 | 23,669 | |
| Interest payable and similar charges | (126) | (367) | (493) | (78) | (233) | (311) | |
| Net return before taxation | 2,220 | 2,137 | 4,357 | 3,764 | 19,594 | 23,358 | |
| Taxation | (174) | - | (174) | (247) | – | (247) | |
| Net return after tax for the period | 2,046 | 2,137 | 4,183 | 3,517 | 19,594 | 23,111 | |
| Basic and diluted return per share | 3.06p | 3.19p | 6.25p | 5.26p | 29.29p | 34.55p |
The 'Total' column of this statement represents the Company's profit and loss account, prepared in accordance with UK GAAP.
All revenue and capital items in this statement derive from continuing operations.
There is no other comprehensive income, and therefore the net return after tax for the period is also the total comprehensive income.
The accompanying notes are an integral part of the financial statements.
Condensed Balance Sheet
| Notes | As at 31 December 2023 (unaudited) £'000 |
As at 30 June 2023 (audited) £'000 |
|---|---|---|
| Fixed assets | ||
| Investments at fair value through profit or loss | 146,599 | 149,465 |
| Current assets | ||
| Debtors | 374 | 257 |
| Cash at bank | 4,234 | 3,857 |
| 4,608 | 4,114 | |
| Creditors: amounts falling due within one year | ||
| Other payables | (531) | (1,019) |
| Loan: amount falling due within one year 8 |
(14,000) | (16,000) |
| (14,531) | (17,019) | |
| Net current liabilities | (9,923) | (12,905) |
| Net assets | 136,676 | 136,560 |
| Capital and reserves | ||
| Called-up share capital | 16,722 | 16,722 |
| Special distributable reserve | 28,309 | 28,571 |
| Share premium | 4,851 | 4,851 |
| Capital reserve | 85,591 | 83,454 |
| Revenue reserve | 1,203 | 2,962 |
| Equity shareholders' funds 7 |
136,676 | 136,560 |
| 7 Net asset value per share |
204.33p | 204.16p |
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Changes in Equity
| Share Capital £'000 |
Share premium account £'000 |
Special distributable reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|
| For the six months ended 31 December 2023 (unaudited) |
||||||
| Balance at 30 June 2023 | 16,722 | 4,851 | 28,571 | 83,454 | 2,962 | 136,560 |
| Return after tax for the period | – | – | – | 2,137 | 2,046 | 4,183 |
| Dividends paid | – | – | (262) | – | (3,805) | (4,067) |
| Balance at 31 December 2023 | 16,722 | 4,851 | 28,309 | 85,591 | 1,203 | 136,676 |
| For the six months ended 31 December 2022 (unaudited) |
||||||
| Balance at 30 June 2022 | 16,722 | 4,851 | 28,571 | 84,928 | – | 135,072 |
| Return after tax for the period | – | – | – | 19,594 | 3,517 | 23,111 |
| Dividends paid | – | – | – | – | (2,060) | (2,060) |
| Balance at 31 December 2022 | 16,722 | 4,851 | 28,571 | 104,522 | 1,457 | 156,123 |
The special distributable reserve and the revenue reserve represent the amount of the Company's reserves distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.
Condensed Cash Flow Statement
| Six months ended 31 December 2023 (unaudited) £'000 |
Six months ended 31 December 2022 (unaudited) £'000 |
|
|---|---|---|
| Operating activities | ||
| Investment income received | 2,767 | 3,302 |
| Deposit interest received | 46 | 33 |
| Investment management fees paid | (702) | (896) |
| Other payments | (562) | (345) |
| Net cash inflow from operating activities | 1,549 | 2,094 |
| Investing activities | ||
| Purchases of investments | (10,569) | (40,090) |
| Disposals of investments | 15,724 | 40,934 |
| Net cash inflow from investing activities | 5,155 | 844 |
| Financing activities | ||
| Dividends paid | (4,067) | (2,060) |
| Loan repayment | (2,000) | (3,000) |
| Loan interest paid | (486) | (302) |
| Net cash outflow from financing activities | (6,553) | (5,362) |
| Increase/(decrease) in net cash | 151 | (2,424) |
| Exchange movements | 226 | 16 |
| Opening net cash at 1 July | 3,857 | 6,111 |
| Closing net cash at 31 December | 4,234 | 3,703 |
The accompanying notes are an integral part of the financial statements.
Notes to the Condensed Financial Statements
for the Half Year ended 31 December 2023
1 Accounting Policies – Basis of Preparation
The condensed interim 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.
The condensed interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements, which were prepared under Financial Reporting Standard 102.
2 Gains on Investments
Included within gains on investments for the period ended 31 December 2023 are realised £1,993,000 (31 December 2022: £13,610,000) and unrealised gains of £574,000 (31 December 2022: £6,892,000).
3 Income
The breakdown of income for the six months to 31 December 2023 and 31 December 2022 is as follows:
| Six months ended 31 December 2023 (unaudited) £'000 |
Six months ended 31 December 2022 (unaudited) £'000 |
|
|---|---|---|
| Income from investments: | ||
| UK dividend income | 39 | 66 |
| Preference share dividend income | – | 714 |
| Overseas dividend income | 2,890 | 3,469 |
| Overseas fixed interest | 103 | 126 |
| 3,032 | 4,375 | |
| Other income | ||
| Deposit interest | 46 | 53 |
| Total income | 3,078 | 4,428 |
Notes to the Condensed Financial Statements continued
for the Half Year ended 31 December 2023
4 Return per Share
Return per 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.
| Six months ended |
Six months ended |
|
|---|---|---|
| 31 December 2023 |
31 December 2022 |
|
| (unaudited) | (unaudited) | |
| £'000 | £'000 | |
| Revenue return | 2,046 | 3,517 |
| Capital return | 2,137 | 19,594 |
| Total return | 4,183 | 23,111 |
| Six months ended 31 December 2023 (unaudited) £'000 |
Six months ended 31 December 2022 (unaudited) £'000 |
|
|---|---|---|
| Revenue return per share | 3.06 | 5.26 |
| Capital return per share | 3.19 | 29.29 |
| Total return per share | 6.25 | 34.55 |
The weighted average number of shares in issue during the six months ended 31 December 2023 was 66,888,509 (Six months ended 31 December 2022: 66,888,509).
There are no dilutive instruments issued by the Company.
5 Dividends
During the six months to 31 December 2023, the Company paid a fourth interim dividend of 1.82 pence per share and a special interim dividend of 3.00 pence per share in relation to the financial year ended 30 June 2023, and a first interim dividend of 1.26 pence per share in relation to the six months ended 31 December 2023.
A second interim dividend 2024 of 1.26 pence per share was declared after 31 December 2023 and paid on 23 February 2024. This was not recognised in the Condensed Income Statement in this Half-Yearly Report.
6 Share Capital
At 31 December 2023 there were 66,888,509 ordinary shares in issue (30 June 2023: 66,888,509).
During the six months ended 31 December 2023 the Company did not issue or repurchase for cancellation any ordinary shares (Six months ended 31 December 2022: none).
7 Net Asset Value per Share
| As at 31 December 2023 (unaudited) |
As at 31 December 2022 (unaudited) |
|
|---|---|---|
| Net asset value per share | 204.33p | 204.16p |
| Net assets | £136.7m | £136.6m |
| Ordinary shares of 25p each in issue | 66,888,509 | 66,888,509 |
There are no dilutive instruments issued by the Company.
8 Bank Loan Facility
| As at | As at | |
|---|---|---|
| 31 December | 31 December | |
| 2023 | 2022 | |
| (unaudited) | (unaudited) | |
| £'000 | £'000 | |
| Amount drawn from the bank loan facility | 14,000 | 16,000 |
The Company has an unsecured loan facility with Scotiabank Europe Plc ("Scotiabank"). The facility expired on 17 September 2023 and has been renewed for a further year expiring on 15 September 2024.
As at 31 December 2023, the unsecured loan facility had a limit of £25 million, of which £14 million was drawn down at an estimated interest rate of 6.2855%.
During the period the covenants of the loan facility have been met. The following are the covenants for the facility:
- l the borrower shall not permit the adjusted asset coverage to be less than 3.5 to 1; and
- l the borrower shall not permit the net asset value to be less than £45,000,000.
The loan facility is rolled over every three months and can be cancelled at any time.
9 Going Concern
After making enquiries and having considered the Company's investment objective, nature of the investment portfolio, bank facility and expenditure projections, the Directors consider that the Company has adequate resources to continue in operation for the foreseeable future. For this reason, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing this report.
10 Comparative Information
The condensed financial statements contained in this Half-Yearly Report do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the six months to 31 December 2023 and 31 December 2022 has not been audited or reviewed by the Company's external auditor.
The information for the year ended 30 June 2023 has been extracted from the latest published audited financial statements. Those statutory financial statements have been filed with the Registrar of Companies and included the report of the auditor, which was unqualified and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.
Job No: 51433 Proof Event: 18 Black Line Level: 4 Park Communications Ltd Alpine Way London E6 6LA Customer: CQS Project Title: Half-Yearly Report 2023 T: 0207 055 6500 F: 020 7055 6600
Earnings for the first six months should not be taken as a guide to the results for the full year.
Notes to the Condensed Financial Statements continued
for the Half Year ended 31 December 2023
11 Related Parties
The following are considered related parties: the Board of Directors ("the Board") and CQS (UK) LLP ("the Investment Manager"). On 15 November 2023, the Company was advised that CQS (UK) LLP was being acquired by Manulife Investment Management, a leading international financial services group. The transaction is expected to close in Spring 2024.
All transactions with related parties are carried out on an arm's length basis.
There are no other transactions with the Board other than aggregated remuneration and reimbursement of expenses for services as Directors. The balance due to Directors for fees at the period end was £17,000.
The Investment Manager's management fee is 1.2 per cent on net assets up to £150m; 1.1 per cent on net assets above £150m and up to £200m; 1.0 per cent on net assets above £200m and up to £250m; and 0.9 per cent on net assets above £250m.
The amount incurred in respective of investment management fees during the period was £837,000 (2022: £921,000), of which £273,000 (2022: £320,000) was outstanding as at 31 December 2023.
Interim Management Report and Responsibility Statement
The Chair's Statement beginning on page 2 and the Investment Manager's Review beginning on page 6 give details of the important events which have occurred during the period and their impact on the financial statements.
Principal Risks and Uncertainties
The Company's assets consist principally of listed equities and fixed interest securities and its principal risks are therefore market related.
The Company is also exposed to currency risk in respect of the markets in which it invests. Other key risks faced by the Company relate to investment and strategy, market, sector, financial, earnings and dividend, gearing, operational and key person, regulatory, cyber and political. These risks, and the way in which they are managed, are described in more detail under the heading 'Principal Risks, Uncertainties and Mitigation' within the Strategic Review contained within the Company's Annual Report for the year ended 30 June 2023. The Company's principal risks and uncertainties have not changed materially since the date of the report and are not expected to change materially for the rest of the Company's financial year.
Related Parties Transactions
During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.
Going Concern
The Directors, having considered the Company's investment objective, the nature and liquidity of the portfolio and the income and expenditure projections, consider that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and is financially sound. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.
Statement of Directors' Responsibilities in respect of the Interim Report
The Board of Directors confirms that, to the best of its knowledge:
- l the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
- l the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules ("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;
- l the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and
- l the interim management statement and 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 in the first six months of the 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
Helen Green
Chair 27 March 2024
Corporate Information
Registered Number 02978531 Registered in England & Wales
Registered Office 25 Southampton Buildings London WC2A 1AL
Directors
Helen Green (Chair) Carole Cable Paul Cahill Christopher Casey (Chair, Audit Committee) Alun Evans
AIFM and Investment Manager
CQS (UK) LLP 4th Floor One Strand London WC2N 5HR Telephone: + 44 (0)207 201 6900 Email: [email protected]
Company Secretary and Administrator
Frostrow Capital LLP 25 Southampton Buildings London WC2A 1AL Telephone: +44 (0)203 008 4910 Email: [email protected]
Financial Adviser and Corporate Broker
Cavendish Capital Markets 1 Bartholomew Close London EC1A 7BL
Bankers
BNP Paribas S.A. 10 Harewood Avenue London NW1 6AA
Scotiabank Europe Plc 201 Bishopsgate London EC2M 3NS
Custodian and Depositary
BNP Paribas S.A. 10 Harewood Avenue London NW1 6AA
Auditor BDO LLP 55 Baker Street London W1U 7EU
Tax Advisor KPMG LLP 20 Castle Street Edinburgh EH1 2EG
Registrars
Equiniti Limited Aspect House Spencer Road, Lancing West Sussex BN99 6DA
Shareholder helpline: +44 (0)371 384 2410
Please use the country code when calling from outside the UK. Calls from outside the UK will be charged at international rates. Other telephone provider costs may vary. Lines are open 8.30am to 5.30pm, Monday to Friday (excluding public holidays in England and Wales).
For deaf and speech impaired customers, calls are welcomed via Relay UK. Please see www.relayuk.bt.com for more information.
Notifications of changes of address and enquiries regarding share certificates or dividend cheques should be made in writing to the Registrars quoting your shareholder reference number. Registered shareholders can obtain further details of their holdings on the internet by visiting www.shareview.co.uk
Solicitors
Dentons UK and Middle East LLP One Fleet Place London EC4M 7WS
Shareholder Information
Net Asset Value/Share Price
The net asset value of the Company's ordinary shares may be obtained by contacting CQS on 0207 201 6900, by email at [email protected] or alternatively by visiting the Company's website at www.ncim.co.uk/cqs-natural-resourcesgrowth-and-income-plc/.
Website
General Information about the Company, monthly factsheets and data, reports and details of general meetings can be found at www.ncim.co.uk/cqs-natural-resources-growth-and-income-plc/.
Unsolicited approaches for shares:
Many companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based 'brokers' who target UK shareholders offering to sell them what often turn out to be worthless or high-risk shares in US or UK investments. They can be very persistent and extremely persuasive. Shareholders are therefore advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports.
Please note that it is very unlikely that either the Company or the Company's Registrar, Equiniti Limited, would make unsolicited telephone calls to shareholders and that any such calls would relate only to official documentation already circulated to shareholders and never in respect of investment 'advice'.
Shareholders who suspect they may have been approached by fraudsters should advise the Financial Conduct Authority ("FCA") using the share fraud report form at www.fca.org.uk/scams or call the FCA Customer Helpline on 0800 111 6768. You may also wish to call either the Company Secretary or the Registrar whose contact details can be found on page 24.
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Job No: 51433 Proof Event:
Customer: CQS Project Title: Half-Yearly Report 2023
3 Black Line Level: 0 Park Communications Ltd Alpine Way London E6 6LA
T: 0207 055 6500
F: 020 7055 6600