Annual Report • Jun 9, 2022
Annual Report
Open in ViewerOpens in native device viewer
Annual Report and Financial Statements 31 March 2022
| Overview | ||
|---|---|---|
| Company Overview | 1 | |
| Financial Highlights | 2 | |
| Summary of Performance | 3 | |
| Strategic Report | ||
| Chairman's Statement | 5 | |
| Purpose, Strategy and Business Model | 9 | |
| Key Performance Indicators | 11 | |
| Manager's Review | 12 | |
| Manager's Investment Philosophy and Process | 16 | |
| Classification of Investments | 18 | |
| Investment Portfolio | 19 | |
| Sustainability and ESG | 21 | |
| Promoting the Success of the Company | 25 | |
| Principal Risks and Uncertainties and Viability Statement | 27 | |
| Principal Policies | 30 | |
| Governance Report | ||
| Board of Directors | 32 | |
| Report of the Directors | 33 | |
| Corporate Governance Statement | 41 | |
| Report of the Nomination Committee | 44 | |
| Report of the Engagement and Remuneration Committee | 45 | |
| Report of the Audit Committee | 46 | |
| Directors' Remuneration Report | 50 | |
| Statement of Directors' Responsibilities | 53 |
| 54 |
|---|
| 63 |
| 67 |
| 83 |
| 84 |
| 88 |
| 89 |
| 90 |
| 91 |
| 93 |
| 95 |
| 97 |
| Financial Calendar | ||
|---|---|---|
| Annual General Meeting | 20 July 2022 | |
| First quarter's distribution paid | (XD Date 7 July 2022) | 5 August 2022 |
| Second quarter's distribution paid | (XD Date 6 October 2022) | 4 November 2022 |
| Announcement of Interim Results | December 2022 | |
| Third quarter's distribution paid | (XD Date 5 January 2023) | 3 February 2023 |
| Fourth quarter's distribution paid | (XD Date 6 April 2023) | 5 May 2023 |
| Announcement of Annual Results and Posting of Annual Report | May 2023 |
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser. If you have sold or otherwise transferred all your shares in BMO UK High Income Trust PLC please forward this document, together with the accompanying documents, immediately to the purchaser or transferee or to the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. If you have sold or otherwise transferred only part of your holding of shares, you should retain these documents.
BMO UK High Income Trust PLC (the 'Company') is an investment trust and its shares are listed on the premium segment of the Official List of the Financial Conduct Authority and traded on the London Stock Exchange.
The purpose of the Company is to be a cost effective investment vehicle for investors seeking income and capital returns from a portfolio invested predominantly in UK equities.
The investment objective of the Company is to provide an attractive return to shareholders each year in the form of dividends and/or capital repayments, together with prospects for capital growth.
In pursuit of its objective, the Company invests predominantly in UK equities and equity‑related securities of companies across the market capitalisation spectrum.
The Company has two classes of shares: Ordinary shares and B shares. The rights of each class are identical, save in respect of the right to participate in distributions of dividends and capital. The net asset value attributable to each class of shares is the same.
Only Ordinary shares are entitled to dividends paid by the Company. B shares, instead of receiving dividends, receive a capital repayment at the same time as, and in an amount equal to, each dividend paid on the Ordinary shares.
Shares may be held and traded within units, each unit comprises three Ordinary shares and one B share.
The Company is registered in Scotland with company registration number SC314671 Legal Entity Identifier: 213800B7D5D7RVZZPV45
This document 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 document. Nothing should be construed as a profit forecast.
(1) Yield and total return – See Alternative Performance Measures on pages 93 and 94.
(2) Benchmark – From launch on 1 March 2007, the Company's benchmark index was the FTSE All-Share Capped 5% Index. Following shareholder approval at the Company's AGM on 5 July 2018, the benchmark was changed to the FTSE All-Share Index.
Investors are reminded that the value of investments and any income from them may go down as well as up and they may not receive back the full amount invested. Tax benefits may vary as a result of statutory changes and their value will depend on individual circumstances.
| Total Return(1) | ||
|---|---|---|
| Year to 31 March 2022 |
Year to 31 March 2021 |
|
| Net asset value per Ordinary share, B share and unit(2) | +1.9% | +37.4% |
| Ordinary share price | +0.6% | +40.8% |
| B share price | +1.6% | +44.9% |
| Unit price | -2.6% | +40.6% |
| Benchmark(3) | +13.0% | +26.7% |
| Year to 31 March 2022 |
Year to 31 March 2021 |
% change | |
|---|---|---|---|
| Revenue and Distributions | |||
| Distributions per Ordinary share and B share | 5.45p | 5.30p | +2.8% |
| Distributions per unit | 21.80p | 21.20p | +2.8% |
| Yield(1) – Ordinary share | 6.3% | 5.8% | |
| Yield(1) – B share | 6.2% | 5.8% | |
| Revenue reserve – per Ordinary share(4) | 3.41p | 3.96p | -13.9% |
| 31 March 2022 |
31 March 2021 |
% change | |
|---|---|---|---|
| Capital | |||
| Net assets | £111.2m | £115.0m | -3.3% |
| Net asset value per Ordinary share and B share | 95.97p | 99.25p | -3.3% |
| Net asset value per unit | 383.88p | 397.00p | -3.3% |
| FTSE All-Share Index | 4,187.78 | 3,831.05 | +9.3% |
| Discount(1) | |||
| Ordinary shares | -9.3% | -7.8% | |
| B shares | -8.3% | -7.8% | |
| Units | -12.5% | -8.1% | |
| Gearing(1) | |||
| Gearing | 0.1% | 7.2% | |
| Ongoing Charges(1) | |||
| as percentage of average shareholders' funds | 0.98% | 1.04% |
(1) Total return, yield, discount, gearing and ongoing charges – see Alternative Performance Measures on pages 93 and 94.
(2) A unit consists of three Ordinary shares and one B share.
(3) Benchmark – see definition on page 2.
(4) Calculated after deducting the fourth interim dividend (which was paid after the year end) from the revenue reserve at 31 March.
Sources: BMO Global Asset Management ("BMO GAM") and Refinitiv Eikon.
Growth in payments to shareholders
Source: BMO GAM and Refinitiv Eikon
This Strategic Report, which includes pages 5 to 31 and incorporates the Chairman's Statement has been prepared in accordance with the Companies Act 2006.
"Ninth consecutive year of dividend/capital repayment increases and at 31 March 2022 the Ordinary shares and B shares had yields of 6.3% and 6.2% respectively"
J M Evans Chairman
In the year to 31 March 2022 your Company produced a Net Asset Value ('NAV') total return of +1.9%. This outcome was some way behind the +13.0% total return from the FTSE All-Share Index, the benchmark index.
For the Ordinary shares, the share price total return for the year was +0.6%, less than the NAV total return as the share price discount to NAV widened from 7.8% at the start of the year to 9.3% at the end. For the B shares, the equivalent return was +1.6% as the discount change was from 7.8% to 8.3%.
As shown in the chart below the underperformance occurred in the second half of the financial year – a period that saw strong performances from a number of large sectors in which your Company was either underweight or had no exposure to at all. Until then, performance was comparable to the benchmark index.
In particular, following the invasion of Ukraine by Russian forces in February 2022, the Oil & Gas and Mining sectors reacted very positively to rising Oil & Gas prices and a surge in other commodity prices. The investment portfolio has no exposure to the large integrated Oil companies and is underweight in the Mining sectors. This decision is entirely driven by the Fund Manager's view on quality, returns and sustainable competitive advantage which are not met by these sectors.
We are in a most uncertain period with elevated levels of geopolitical risk coinciding with high and rising levels of inflation across the G8 economies. The resurgence of inflation is being met by central banks raising short term interest rates and contemplating tightening their balance sheets. Both of these actions are designed to attempt to slow the surge in inflation but are being introduced at a time of significant uncertainty on a global basis.
Your Board has mentioned on a number of occasions that the structure of the investment portfolio, with approximately 35 holdings, is sufficiently differentiated from the benchmark that short term performance is unlikely to be in line with the index – on both a positive and negative basis. This has been demonstrated over the past two years with periods of significant out and under performance being produced.
The Fund Manager has more detailed comments on performance and portfolio construction in his report that follows on pages 12 to 15 and performance is a matter I will return to later in this Statement.
I am pleased to report that the revenue performance of your Company was robust in the year and following a sharp reduction in revenue in the year to 31 March 2021 there was a substantial recovery in the year to 31 March 2022. In fact the revenue earned increased in the year by 32% compared with 2021. It is fair to say that the scale of the recovery exceeded the best expectations held during the depths of lockdown in 2020.
Your Board was happy to use some of the revenue reserve to not only maintain but increase the dividend to Ordinary shareholders in the year to 31 March 2021 and has done so again in the year to 31 March 2022. Total distributions to shareholders increased by 2.8% to 5.45p per share compared to the prior year. In order to pay this total dividend, £464,000 was drawn from the revenue reserve compared with £1,512,000 in 2021. After payment of the fourth interim dividend on 6 May 2022, the revenue reserve is £2.9m, representing 3.41p per Ordinary share.
Your Company has now increased its distribution to shareholders in each financial year since 2014. The total dividend/capital repayment for the year to 31 March 2022 represented a yield of 6.3% and 6.2% based on the Ordinary share price and B share price, which were 87p and 88p respectively at 31 March 2022.
At the financial year end, the Company's Ordinary share price and B share price stood at a discount to net asset value of 9.3% and 8.3% respectively. The average discount level at which the Company's Ordinary shares and B shares traded relative to net asset value in the year was 6.9% and 5.2% respectively.
As reported in our Interim Report, on 8 November 2021, Columbia Threadneedle Investments, part of Ameriprise Financial acquired BMO's EMEA asset management business. This included your Company's Manager, BMO Investment Business Limited. As part of the acquisition agreement, permission was granted to use the BMO prefix for an interim period. The Manager is now bringing its business under the Columbia Threadneedle brand and will remove the BMO name in July. Consequently, a change of name for your Company is necessary and the Board has agreed that the simplest and clearest change for shareholders is to CT UK High Income Trust PLC. CT is the mnemonic of Columbia Threadneedle. A number of other Investment trusts previously branded BMO and also funds managed by and branded as Columbia Threadneedle will also be adopting the CT prefix. The CT brand will receive considerable marketing support from the Manager and the Savings plans will also change name from BMO to CT. Consequently, it would appear that the proposed change of name is logical and sensible. It is planned that these changes (which will include the renaming of the Company's website and the ticker codes for its shares on the London Stock Exchange) will take effect towards the start of July and a further communication to shareholders will be made in due course. There is however no change to the personnel running the activities of your Company in terms of both fund management and administration.
As set out in the Report of the Directors, the Engagement and Remuneration Committee regularly reviews the Manager's appointment and the terms of its contract. The investment management fee for your Company has been 0.65% per annum of its net asset value since 1 April 2018. The Investment Trust industry has seen consistent reductions in fee levels for some time and your Board and Manager are committed to ensuring that the fee basis for your Company is fair and competitive. Reflecting this, it has been agreed that with effect from 1 April 2022 the investment management fee for the Company will be reduced to 0.6% per annum of the net asset value.
Environmental, Social and Governance ('ESG') engagement is an activity in which your Manager has a long and respected record of achievement and these considerations lie at the core of your Manager's investment process. Our approach to Responsible Investment is set out on pages 21 to 24 and illustrates the engagement the Manager has had with investments within our portfolio.
There are a number of matters that are relevant to discuss concerning the AGM which it is to be held at 12 noon on 20 July 2022 at Exchange House, Primrose Street, London EC2A 2NY.
First, it is the current intention to hold a "traditional" meeting to which all shareholders are invited and are most welcome to attend in person. After two years of COVID related restrictions your Board is delighted to be able to return to normal and looks forward to meeting shareholders in person on 20 July 2022.
Second, two of the resolutions being put to the AGM in particular, deserve further comment.
The Articles of Association of your Company require that a continuation vote be held should the net asset value total return of the Ordinary shares be less than that of the total return of the FTSE All-Share Index over a stipulated five-year period.
The most recent five-year period ended on 31 March 2022 and the relevant returns were +11.2% for the NAV total return and +25.8% for the FTSE All-Share Index as illustrated graphically on page 7. Consequently, Resolution 12 in the Notice of AGM is an ordinary resolution for shareholders to approve that the Company continues in existence.
Your Board closely reviews performance over a number of periods, including that for the last five years and to monitor the requirement for a Continuation Vote ('CV'). The performance deficit for the current period is substantial and in order to recommend voting in favour of the resolution the Board has to be confident that an improvement in relative performance is both likely and probable.
In reaching its decision to recommend continuation, the Board considered the following factors.
The five-year performance period since 31 March 2017 included a period in which substantial changes were made to the investment portfolio. Shareholders will recall that the remainder of the Corporate Bond portfolio was sold and there was significant change made to the structure of the equity portfolio. Consequently the "new" structure has not been running for the full five-year period.
Performance has not been consistently below the benchmark for the period and as mentioned earlier there have been periods of significant outperformance, most notably in the 2021 financial year. As illustrated above, with only seven months until the end of the performance period remaining, the aggregate returns were comparable to the benchmark for the relevant timeframe. Unfortunately, relative performance in the later part of the financial year to 31 March 2022 has proved to be very disappointing for your Company.
The Board is supportive of the Investment Manager and its ability to successfully deliver the investment strategy for Shareholders in the future. The Board believes that the recent acquisition of the Investment Manager by Columbia Threadneedle Investments will also further broaden the resources available to the Fund Manager particularly in terms of research and corporate access.
As from 1 April 2022, a new and reduced fee rate for your Company has been introduced and the Board is pleased to note the Manager's commitment to ensuring the Company remains competitive in terms of fees and total expense ratios.
Finally, the Board is much encouraged by the revenue performance of the Company. In particular, the underweight/nil positions in Banks and Integrated Oils (which recently has harmed relative capital returns) meant that the Company had no exposure to sectors of the Index that either substantially reduced or passed their dividends altogether in 2020/21. The buoyancy in the revenue account that has allowed the Board to continue to increase distributions to Shareholders against such a difficult background is down to the Manager's portfolio positioning.
Despite the above, in reaching its decision to recommend continuation of the Company and having engaged with Shareholders, the Board did consider that it would be appropriate to make some changes to the Company's structure. Resolution 13 (which is a special resolution) proposes that new Articles of Association be approved and adopted in order that the performance measurement period for the Company be changed from five years to three years. If approved this will mean that the current performance period that commenced on 1 April 2022 will end on 31 March 2025. A CV will be required to be held at the 2025 AGM if the net asset value total return for the Company for the threeyear period is below that of the FTSE All-Share Index. The Board does not expect any change to the fund management process to be made despite the shorter performance period.
Your Board has taken independent advice on the Continuation Vote and proposed changes and would encourage Shareholders to vote in favour of Resolution 12, that the Company continues in existence and Resolution 13, that new Articles of Association be approved and adopted, as the Directors intend to do with their shareholdings.
In line with the long-term succession planning for your Board and also to maintain the highest standards of corporate governance, I shall be retiring from the Board at the conclusion of the AGM on 20 July 2022. I was appointed to the Board in May 2013 and have completed nine years of service. I am delighted that Andrew Watkins, who has been a Director of your Company since 2017 will be taking over the Chair. Andrew is an experienced Chairman and has a deep knowledge of Investment Trusts and is well qualified to Chair the Company.
Stephen Mitchell, a Director since 2020 will assume the role of Senior Independent Director. A recruitment process has commenced to add an additional non-executive Director to the Board and subject to shareholders voting that the Company should continue in existence.
Financial markets are facing the most difficult combination of circumstances since the Global Financial crisis in 2008. The Russian invasion of Ukraine and attached rhetoric has raised geopolitical risk to levels not seen since the 1960's. Inflation likewise is at recent high levels as the supply shortages and bottlenecks caused by recovery from COVID related lockdowns has been further fuelled by sharp rises in commodity prices and the potential for shortages in certain key commodities.
Some comfort can be taken from the robust income performance that the investment portfolio is showing. Many of the companies in the investment portfolio are producing a strong profits performance as the businesses are managed to best advantage in the face of rising costs. Companies with good balance sheets and strong cash flows will be best placed to deal with rising costs and interest rates. The investment portfolio is well exposed to such investments and consequently your Board considers the Company to be relatively well placed in an uncertain world.
John M Evans Chairman 30 May 2022
The purpose of the Company is be a cost effective investment vehicle for investors seeking income and capital returns from a portfolio invested predominately in UK equities.
The investment objective is to provide an attractive return to shareholders each year in the form of dividends and/or capital repayments, together with prospects for capital growth. We do this by investing predominantly in UK equities and equity related securities of companies across the market capitalisation spectrum. Our wider strategy is to promote the Company as a compelling investment choice through all available channels.
BMO UK High Income Trust PLC is a closed-end listed investment company and carries on business as an investment trust. As such, and as it has no employees, the Directors believe that the optimum basis for meeting their duty to promote the success of the Company and achieving its investment objective in the best interests of shareholders is to work closely with its appointed investment manager. The Board has contractually delegated the management of the investment portfolio, and other services, to BMO Investment Business Limited (the 'Manager') a wholly owned subsidiary of BMO Global Asset Management (Europe) Limited. Both entities (together 'BMO GAM'), are in turn now wholly owned by Columbia Threadneedle Investments and ultimately by Ameriprise Financial, Inc. ('Ameriprise'). Within policies set and overseen by the Directors, the Manager has been given overall responsibility for the management of the Company's assets, gearing, stock selection and risk management. Engagement on environmental, social and governance ('ESG') matters is undertaken by BMO GAM.
As a listed closed-end investment company the Company is not constrained by asset sales to meet redemptions and is well suited to investors seeking longer term returns. Its share capital structure provides the flexibility to take a long-term view and to remain invested while taking advantage of illiquidity throughout normal and volatile market conditions. Having the ability to borrow to invest is a significant advantage over a number of other investment fund structures.
The Company's Board of non‑executive Directors is responsible for the overall stewardship and governance of the Company and how it promotes the success of the Company is set out on pages 25 and 26. The Board currently consists of three male and one female Directors and their biographical details can be found on page 32. The Company has no executive Directors or employees.
The Board remains responsible for decisions over corporate strategy; corporate governance; risk and control assessment; setting policies as detailed on pages 30 and 31, setting limits on gearing and asset allocation and monitoring investment performance.
In addition to strong investment performance from our Manager, we expect it to adhere to the very highest standards of Responsible Investment and that its values, culture, expectations and aspirations align with our own. As an original signatory to the United Nations Principles for Responsible Investment ('UNPRI'), BMO GAM has achieved the maximum rating of A+ for key areas of its Responsible Investment approach and active ownership in listed equities. A key aspect of the change in ownership of BMO GAM is therefore the cultural fit with Columbia Threadneedle Investments.
The Board considers the Manager's culture and values as part of the annual assessment of its performance and in determining whether its reappointment is in the interests of shareholders. With Columbia Threadneedle Investments, and as part of Ameriprise, the Manager can be expected to continue its long-established culture of diversity, collaboration and inclusion, all of which are anchored by shared values and industry-leading employee engagement in keeping with the Board's own expectations and beliefs. The Board will continue to monitor these attributes and achievements within the combined organisations, recognising their importance and contribution towards the wider aspirations of establishing a more sustainable financial system. In alignment with this culture and our shared values, we aim to pursue our strategy and objective through the consistent application of the very highest standards of transparency, corporate governance and business ethics.
The Company's environmental, social and governance principles, as set out on pages 21 to 24, are aligned towards the delivery of sustainable investment performance over the longer term.
The direct impact of the Company's activities is minimal as it has no employees, premises, physical assets or operations, either as a producer or a provider of goods and services, and it does not have customers in the traditional sense. Consequently, it does not directly generate any greenhouse gas or other emissions or pollution. The Company's indirect impact occurs through the businesses in which it invests and the Board seeks to positively influence this through the adoption of the Manager's Responsible Investment approach.
A summary of the terms of the management agreement is contained in note 4 to the financial statements. The Manager also acts as the Alternative Investment Fund Manager ('AIFM') under the Alternative Investment Fund Managers Directive ('AIFMD') and provides ancillary functions such as administration, accounting and company secretarial services to the Company.
Philip Webster is the Fund Manager appointed by BMO GAM and is a senior member of the BMO GAM investment team with over 15 years' experience in managing investment companies. He is supported in carrying out research and in the selection of stocks by a team of investment professionals. Details of the Manager's investment philosophy and process are set out on pages 16 to 17.
Investment performance and responsible ownership are fundamental to delivering the investment objective for shareholders and therefore an important responsibility of the independent non-executive Board of Directors is the robust annual evaluation of the Manager. This evaluation is an essential element of strong governance and mitigation of risk. The process for the evaluation of our Manager for the period under review, which was conducted by the Engagement and Remuneration Committee, and the basis on which the reappointment decision was made, is set out on page 45.
The Company's investment policy is set out on page 30 and an analysis of the investment portfolio is contained on pages 18 to 20.
Any material change to the investment policy of the Company will only be made with shareholder approval.
We seek to make effective use of our corporate structure and the investment opportunities that lead to long-term growth in capital and income for our shareholders. These opportunities do not come without risks and so the performance of our Manager is monitored at each Board meeting on a number of levels. In addition to managing the investments, ancillary functions such as administration, accounting, company secretarial and marketing are also carried out by the Manager. At each Board meeting it reports on the Company's investment portfolio, performance and recent portfolio activity, market outlook, revenue and expense forecasts, internal control procedures, any errors, marketing, shareholder and other stakeholder issues including the prices of the Company's shares relative to NAV, together with accounting and regulatory updates. The Board also considers compliance with the investment policy, investment restrictions and compliance with borrowing covenants.
Shareholders can assess our financial performance from the Key Performance Indicators ('KPIs') that are set out on page 11. The Company's principal risks and uncertainties that could threaten its objective, strategy and performance, and how the Board manages such risks, are set out in detail on pages 27 to 28. The risk of not achieving the Company's objective, or of consistently underperforming its benchmark or competitors, may arise from any or all of inappropriate investment strategy, poor market conditions, the use of gearing, insufficient monitoring of costs and service provider issues.
In addition to monitoring our Manager's performance, commitment, available resources and its systems and controls, the Directors also review the services provided by other principal suppliers. These include JPMorgan Chase Bank, the custodian and JPMorgan Europe Limited, the depositary in their duties towards the safeguarding of the Company's assets.
The principal policies that support our investment and business strategy are set out on pages 30 and 31. The Chairman's Statement on pages 5 to 8 and the Manager's Review on pages 12 to 15, both of which form part of this Strategic Report, provide a review of the Company's returns and market conditions during the financial year, the position of the Company at the year end, and the outlook for the coming year.
In light of the Company's strategy, investment processes and control environment (relating to both the oversight of its service providers and the effectiveness of the risk mitigation activities), the Board has set out its viability statement on page 29 and its reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.
The Company fosters good working relationships with its key stakeholders; such as the Manager, shareholders and other key service providers. The Board works closely with the Manager to ensure optimal delivery of the Company's investment proposition through all available channels and together we remain focused on promoting the success of the Company. The Manager offers a range of savings plans for retail investors which are a convenient and flexible way to invest in the Company, details of which can be found in the 'How to Invest' section of this report on page 90.
The Company welcomes the views of all shareholders and places great importance on communication with them. In addition to the annual and interim reports that are available for shareholders, monthly fact sheets and additional information is included on the Company's website at www.bmoukhighincome.com.
The Manager holds meetings with the Company's larger shareholders and reports back to the Board on these meetings. The Chairman and other Directors are available to meet shareholders if required. In addition, meetings are held regularly with current and prospective shareholders and analysts covering the investment trust sector.
Under normal circumstances the Annual General Meeting of the Company provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Manager of the Company. Through the Manager, we also make sure the savings plan investors are encouraged to vote at the AGM in addition to those who hold their shares on the main shareholder register. Details of the proxy voting results on each resolution are published on the Company's website.
The Board recognises that it is the distribution level of the Ordinary shares and B shares together with the longer term share price performance that is most important to the Company's investors. Share price performance is largely driven by the performance of the net asset value.
The Board assesses its performance in meeting the Company's objective against the key performance indicators ('KPIs') (also referred to as Alternative Performance Measures) set out below. Commentary is provided in the Chairman's Statement and the Manager's Review with respect to the performance of the Company during the current year.
| Total return(1) performance to 31 March 2022 | ||||||
|---|---|---|---|---|---|---|
| 1 Year % | 3 Years % | 5 Years % | 10 Years % | |||
| Net asset value per Ordinary share, B share and per unit | 1.9% | 10.2% | 11.2% | 80.3% | This measures the Company's share/unit | |
| Ordinary share price | 0.6% | 9.3% | 11.5% | 80.6% | price and NAV total return, relative to the benchmark. |
|
| B share price | 1.6% | 10.4% | 10.9% | 70.0% | ||
| Unit price | -2.6% | 7.5% | 8.1% | 75.8% | ||
| Benchmark(2) | 13.0% | 16.8% | 24.9% | 100.1% |
Source: BMO GAM and Refinitiv Eikon.
| Distribution Yield(1) % | ||||
|---|---|---|---|---|
| 2022 | 2021 | 2020 | ||
| Fincancial year to 31 March | % | % | % | |
| Ordinary shares | 6.3 | 5.8 | 7.5 | This shows the Company's distribution yield at the |
| B shares | 6.2 | 5.8 | 7.7 | year-end relative to the benchmark. |
| Yield-FTSE All-Share Index | 3.1 | 2.9 | 5.5 |
Source: BMO GAM and Refinitiv Eikon.
| Average discount(1) to NAV | ||||
|---|---|---|---|---|
| During the finanial year to 31 March | Ordinary shares % |
B shares % |
Units % |
|
| 2022 | -6.9 | -5.2 | -7.4 | This is the average difference between the share/unit |
| 2021 | -9.7 | -9.2 | -10.2 | price and the NAV per share/unit during the financial |
| 2020 | -8.5 | -8.7 | -9.7 | year. |
Source: BMO GAM
| Ongoing charges ratio(1) | ||||||
|---|---|---|---|---|---|---|
| As at 31 March | % | |||||
| 2022 | 0.98 | This data shows whether the Company is being run efficiently. It measures the running costs | ||||
| 2021 | 1.04 | as a percentage of average net assets. | ||||
| 2020 | 0.96 |
Source: BMO GAM
(1) See Alternative Performance Measures on pages 93 and 94 for explanation.
(2) Benchmark – see definition on page 2. (For the purposes of the continuation vote, the Company's performance was measured against the total return of 25.8% from the FTSE All-Share Index over the five years to 31 March 2022. Until 5 July 2018 the Company's benchmark was the FTSE All-Share Capped 5% Index, when it changed to the FTSE All-Share Index. Therefore the benchmark figures shown above represent a blended rate).
In the Annual Report last year, I wrote that it was one of the toughest years in my near two decades in the industry. 2022 didn't have nearly the same level of volatility, and with COVID headwinds abating, I was optimistic about the year ahead. While I am still optimistic given valuations and the quality of the investment portfolio, we face a new set of challenges with the war in Ukraine, the rising cost of living and a slowdown in growth.
For the financial year to 31 March 2022, the net asset value ('NAV') total return of the Company's shares was 1.9% as compared to the 13.0% total return from the benchmark. As explained in the Chairman's Statement, the year to 31 March 2022 was also the last year of five, over which the Company's NAV total return is measured against the total return of the FTSE All-Share index. This is illustrated below, and that over the 5-year period, the NAV total return was 11.2% as compared to the total return of the FTSE All-Share Index of 25.8%.
As the Fund Manager of the Company for the last five years, and as we approach a continuation vote, it is timely to reflect on the discrete years, and changes that the Company has been through. While performance is the ultimate measurement of success or failure, it should be evaluated over an appropriate time horizon. For a highincome strategy, such as this, where the payment of an attractive distribution is an integral part of the investment objective, then relative performance alone does not tell the full story. The changes we have made to the investment portfolio over the last five years have put the Company in a much stronger position to weather these events and pay a dividend. These changes helped to mitigate the worst of the fall in dividends experienced in the financial year to 31 March 2021 and have strengthened the resilience of the Company's revenue, enabling the Board to continue to increase the dividend to shareholders over the last five years and indeed, the last nine years.
| Discrete Performance | |||||||
|---|---|---|---|---|---|---|---|
| Year to 31 March | 2018 | 2019 | 2020 | 2021 | 2022 | Full 5 years |
|
| NAV total return | -2.5% | 3.5% | -21.4% | 37.4% | 1.9% | 11.2% | |
| FTSE All-Share Index TR | 1.2% | 6.4% | -18.5% | 26.7% | 13.0% | 25.8% | |
| – Deficit/Surplus | -3.7% | -2.9% | -2.9% | 10.7% | -11.1% | -14.6% | |
| Distribution per share | 4.88p | 5.04p | 5.21p | 5.30p | 5.45p |
While the investment portfolio has evolved, there have been some structural changes that have also taken place. For those of you that have been invested for the full five years, you will perhaps remember the hybrid vehicle of predominately equities, with a fixed income component.
We exited the remainder of the fixed income portfolio at the start of 2018, focusing the mandate on a pure equity strategy; with the main changes taking place within the equity portfolio. When I assumed management of the investment portfolio it had 53 holdings and followed what is typically called a traditional UK equity income style strategy – i.e. value orientated and comprised most of the top 20 market constituents.
With the support of the Board and the provision that the dividend payment to Shareholders could not be reduced I undertook a repositioning of the investment portfolio, taking over two years to execute. This wasn't an easy undertaking against the backdrop of Brexit, and with the UK and value very out of favour. I was reticent to rotate too heavily toward growth given the valuation gap, and unwillingness to buy at the top of the cycle. The quantum of this undertaking shouldn't be underestimated. Of the 53 holdings I inherited in 2017, only 13 remain. This level of change for the investment portfolio was always going to take time to bed in properly. This is not an excuse for the five-year performance, but I believe that our concentrated (35 names), differentiated strategy will come to the fore over the longer term. Given the time it took to implement these changes I feel a longer period of performance is however needed to fully assess the strategy.
As illustrated in the preceding table, the early years of my tenure were challenging. The Company gave up 3-4% of performance against the benchmark each year. 2021 was the first year when we saw our style bear fruit, and proof of how differentiated a strategy this has become. The Chairman alluded to this in his report – we have built a portfolio that will not behave like the index, or my peers who are in the main, value investors.
Other Information Strategic Report Overview Financial Report
As most of you are aware, we have been transitioning away from the low-growth mega-cap sectors. The breakdown of the portfolio is more balanced today with the FTSE 100 accounting for 44% of investments and the FTSE 250, 32%. These mid-cap 250 names are better quality, have a sustainable competitive advantage and offer superior growth over the medium term. A further 11% of investments are non-index/ AIM and around 13% is now in European names. Europe further diversifies and differentiates the portfolio and taps into my skill set as a pan-European investor. The strategy with the European holdings is to own business models that provide a unique, or where I see, a quality or valuation opportunity. The current holdings include ASML, Richemont and Scout24. These are all high-quality growth assets that I have initiated at attractive valuations.
The performance in the financial year to 31 March 2021 was very broad-based with technology, or online plays particular beneficiaries of the pandemic lockdown. We also benefitted from significant declines from some of the UK's largest sectors as dividends were cut or suspended. In the case of Shell, the dividend was reduced for the first time since WWII. We had continued to hold onto this performance until around the summer of 2021 when the rotation towards value commenced, coupled with a recovery in some sectors which had been hardest hit by the pandemic.
The war in Ukraine has been another headwind to our performance given our zero weighting to the oil and gas sector. I had felt that the near 100% recovery we had seen in oil & gas, or the very strong rise in mining, was already priced in. This, however, was not the case, with oil spiking to new highs, inflation grabbing hold, and with a sell‑off in pandemic winning technology companies, we have been hit by a near perfect short-term storm.
Having felt we were emerging from the bleak COVID lockdowns, despite the new and contagious Omicron variant, we now face a new set of challenges. Markets were rocked by the tragic and unjustified invasion of Ukraine, inflation has spiked to a multi-decade high and central banks are reacting by raising interest rates. The question we are all trying to answer is how will the rising cost of living impact the consumer and in turn global growth?
While we face many challenges, the backdrop isn't all negative. Employment levels and activity indicators, for now, remain robust. We are seeing low single-digit wage inflation and consumers have built up significant savings during the pandemic. Demand also seems to be holding firm, and consumers are also looking forward to their first restriction-free summer for a few years, which may buoy travel and leisure sectors.
Turning to markets, the FTSE All-Share reacted negatively to the start of the Ukraine war. Having bottomed in early March, we have seen it recover all the losses, trading back at pre-invasion levels. While this may seem anomalous, this is more to do with the composition of the index, and the mega-cap FTSE 100 sectors. Most of the large sectors have been beneficiaries; oil & gas/mining have been supported by strong commodity prices, pharmaceuticals and tobacco by improving earnings trajectories and the defensive nature of their earnings. Banks are the one sector the portfolio doesn't own that has been weak, although the largest index constituent, HSBC, has been particularly strong, rising over 100% from the pandemic lows. This has masked some of the weaker parts of the market. The FTSE 250, which has a more domestic earnings bias, is down approximately 10% since the onset of the war and to give you an idea of the disparity at a stock specific level, in the first five months of 2022, British American Tobacco is up 32% and Delivery Hero down 63%.
The table below illustrates the relative return of the top 20 constituents of the FTSE All-Share Index by weight, and why whenever possible, I choose not to hold the traditional income mega-caps. These behemoths often lack the qualities I seek in my investments, struggle to deliver growth in earnings or dividends, and in a number of cases are at the mercy of underlying commodity prices. I also wanted to outline how extreme the year-to-date had been, the first time in a decade that they have outperformed by double-digits. This has been driven in the main by rising commodity prices and the fallout from the war in Ukraine. While I have no insight into where the oil price will settle, the share price growth we have seen from the commodity sector is not sustainable over the medium-term.
| Calendar Year | FTSE All-Share Index Total Return % |
Top 20 – Weighted Average Relative Return |
|---|---|---|
| 2022 (to 29 April) | 0.95 | 13.12 |
| 2021 | 18.30 | 3.46 |
| 2020 | -9.67 | -1.92 |
| 2019 | 19.25 | -3.93 |
| 2018 | -9.41 | 3.41 |
| 2017 | 13.15 | 1.31 |
| 2016 | 16.85 | 5.61 |
| 2015 | 0.97 | 0.33 |
| 2014 | 1.29 | -1.16 |
| 2013 | 20.88 | -1.71 |
| 2012 | 12.35 | -5.05 |
Source: BMO GAM
This polarisation makes the headline index irrelevant for the Company, this is all about stock picking. For a Manager this should be the perfect environment to set your portfolio up as fear dominates the backdrop. Against this backdrop I have taken the opportunity to initiate quality growth positions at valuations I haven't seen since I took over the investment management for the Company. This is the market I have been waiting for when my style is out of favour even if we are facing some shorter-term headwinds.
This is also a time where you can be contrarian. Several of the Company's technology holdings are offering what I believe is a once in a decade opportunity to buy quality assets at heavily discounted valuations. Many of you will have heard me say this before but in the space of a few months these businesses have gone from being loved to hated.
Asos is one such name. Investors are reticent to own this given the consumer backdrop, but this is a business that is quite focussed on the 20-something consumer who they believe don't face the same inflationary pressures as the rest of the market due to rising interest rates and energy bills. Asos have also had supply-chain issues and shortages of the right inventory, in particular dresses, which they have rectified for summer. While I can't tell you how long this will take to sort, I feel many of the headwinds are transitory in nature and despite this backdrop they still believe they can grow the revenue 10-15% in 2022. For a market-leading business with very strong positions in the UK and Europe and a US business with potential, you are paying 14/11x P/E for 2023/24 expected earnings. This is not an isolated example, there are several in the technology sector. It's not a very comfortable place to sit at the moment as there are pressures on earnings but for the patient investor this is exactly the decision you should be taking given the attractive valuations on offer.
We have been opportunistic on the recent deployment of capital given the uncertainty caused by the war in Ukraine. We have conducted calls with all our holdings that had exposure to either Ukraine or Russia. The exposure has been minimal, less than 2% of sales and less of profits in most cases.
In the majority of cases, they have ceased or are in the process of selling operations in the region. We had announcements from Imperial Tobacco, Asos, Compass Group and Wizz Air. Wizz Air have diverted a fleet of five aircraft to other bases across the network where they see higher levels of demand. Wizz Air has been one of the harder hit names due to the conflict, indirectly through a rising oil price. We cut our holding on the first day of trading post the invasion. We have no insight into where the oil price will end up, but the risks are for a higher-than-normal level until we find a more balanced solution to our energy needs, most of which will mean a lower dependence on Russian oil.
I have been adding to some of the global names in the investment portfolio, where earnings are more diversified. This helps to mitigate the earnings risk from an escalation of the crisis in Ukraine and the direct impact a higher energy price will have across Europe. The US is much more insulated, given the consumer focus of the growth, oil independence and \$3 trillion of excess lockdown savings. I added to Diageo, Compass and Kerry Group, all of which provide this exposure.
I also initiated a position in Experian post a period of weakness. I have wanted to own this for some time and felt this was a great opportunity to own a quality asset at an attractive valuation. Experian is the world's leading provider of information and credit bureau services. The group uses customer data and technology to help businesses manage credit risk, originate new customers, collect bills and prevent fraud. With information on 1.3bn consumers and 166m businesses, they are well positioned to continue to grow in most environments. They have a strong balance sheet and generate a lot of cash flow, which should support investment and higher cash returns in the future.
In February I also initiated a position in ASML, a new European holding. ASML is the world market-leader in the manufacturing of lithography machines. Their lithography technology is fundamental to mass production of semiconductor chips. Their technology allows the world's top chipmakers to create microchips that are more powerful, faster and more energy efficient. The chances are whatever device, PC, tablet or phone you are reading this on will have a chip that is manufactured with ASML's machines. They have a monopoly position in leading-edge technology, an orderbook that spans over a year, and are ramping up production to meet the very high demand for these critical components.
Towards the Company's year end, Brewin Dolphin received a bid approach from Royal Bank of Canada (RBC). The £1.6bn, £5.15 per share bid was at a 62% premium to the previous day's share price. Brewin was a top 10 position in the portfolio at 4.6% of NAV, reflecting the qualities of the business model and the value we saw in the asset. The acquisition price valued Brewin at 2.8% of its £55bn of AUM, which we saw as a full and fair price.
This is a reminder of how cheap UK assets are, especially if an acquirer thinks they can make a return after paying such a substantial premium. Given how cash rich private equity is, I wouldn't be surprised to see more M&A activity. Scout24, the German Rightmove, has been the subject of speculation of a bid although no tangible offer has yet been made and I would expect M&A to be a bigger focus over the coming 12-18 months.
We have gone from a position of being nearly fully geared with £13m invested in December 2021, to being in a neutral position. As we exited lockdowns and with a lot of value on offer, this stance made a lot of sense but with a change in policy from central banks around the interest rate cycle, and more recently the war in Ukraine, we no longer felt this as a sensible stance.
Should we get more clarity on these issues, I can opportunistically deploy this capital again, raising some of the positions that have dipped below my minimum 2% threshold. This would also help to add to our dividend income further, but for now we feel downside protection is the sensible course of action.
As stated at the outset of this report, capital performance is only part of the story. The work we have done to reposition the portfolio protected us from the worst of the dividend decline during the pandemic.
The UK market saw a very strong dividend recovery from the pandemic lows. Headline dividends rose 46.1% year-on-year to £94.1bn, although this was boosted by £16.9bn of special dividends, three times the normal level. If we strip out these special payments, the underlying growth was a more modest 21.9% year-on-year. Looking ahead, Link Asset Monitor are forecasting underlying dividend growth – excluding special dividends – of 5% for calendar 2022.
While the Company benefitted from special dividends from Rio Tinto and Berkeley Group in 2021, I'm encouraged by our initial conservative forecasts for the year ahead. There are several dividends that have not fully recovered from pre-pandemic levels, and several of the investment portfolio's larger names that have already announced significantly higher returns for 2022. I do have to caveat this statement given the backdrop of Ukraine, and the fact that special dividends are unlikely to be of the same level as in the previous year.
Given the backdrop and volatility, quality business models with rock solid balance sheets and high levels of dividend cover will protect you if we do see a slowdown, or a recession.
At this point in the year, and with a lot of uncertainty ahead, we are seeing a very cautious outlook from management teams. There are still supply chain constraints coupled with pent-up demand, but the rising cost of living will weigh on the consumer.
Pricing is the topic of discussion and who has managed to pass through inflation to mitigate the margin pressure. In the main, the businesses that have a brand, IP or a sustainable competitive advantage have a much stronger position and have to date managed this exceptionally well. The focus has also shifted to high recurring revenue stream business models, where the decision is nondiscretionary, for example software or healthcare where you have no choice.
That said, I did talk about Asos, and I do feel that the valuations on some of the consumer names are pricing a lot of distress. This comes back to simple 'fear and greed', when all are fearful that may well be your opportunity, especially for the patient investor. This contrarian stance in quality businesses will I believe be the right strategy to adopt which is why I am opportunistically adding to these names on weakness.
The investment portfolio has therefore faced a perfect storm of events which I do not believe will recur in the coming years. I'm not saying this is an easy path to walk in the short-term, but quality business models, at current attractive valuations, will emerge in a stronger competitive position.
Philip Webster Fund Manager BMO Investment Business Limited 30 May 2022
We believe investment markets can be inefficient and that share prices may not fully reflect the future prospects and returns of companies. We believe it is possible to identify significant deviations between market prices and a conservative assessment of the intrinsic value of a business.
By investing in such companies at attractive prices, superior investment performance can be generated. In particular, we believe those companies that can compound returns at sustainably high rates over many years tend to be undervalued by the market. The valuations of companies can also become attractive because of adverse market reaction to short-term difficulties or simply because a sector has
become unfashionable. If companies are able to generate attractive returns over long periods, there is evidence that the market eventually rewards this success with higher valuations.
This philosophy leads naturally to long-term investment thinking and the generation and preservation of value over the longer term. We are not looking to trade shares, nor are we making short-term bets on market movements, but instead are looking to the longer term. Over time, we expect the high returns generated by our holdings to be reflected in share prices, which will in turn benefit further from valuation increases as the market recognises the level and sustainability of those returns. As shareholders, we are part-owners of businesses, and take our responsibilities seriously, engaging with the company's management and non-executives if necessary, and voting on all resolutions at company meetings.
Other Information Strategic Report Overview Financial Report
Risk is often seen as the flipside of return. The standard economic and business academic approach to risk measures it in terms of volatility. Sharp upward moves in share prices are seen as just as "risky" as an equivalent downward move. This is not really a measure that most practical investors would find useful or familiar. We prefer an approach which focuses on companies with attractive returns and relatively little debt where we expect to be able to reduce the risk of a permanent loss of capital.
We carry out detailed analysis of all the companies in which we invest, looking in particular at three aspects: the Quality of the company; its Management; and the Valuation of the shares. Amongst the most important issues examined is a thorough assessment of the sustainability of the company's competitive position and returns it can generate, and the ability of the management team and its alignment with shareholders. Integral to our assessment of these factors is an analysis of the Environmental, Social and Governance ('ESG') issues that face the company and its responses to them which is fully integrated into our process and valuation analysis. More detail is given on pages 21 to 24. Our valuation approach focuses on discounted cash flows, but is pragmatic enough to realise this does not work for all companies in all sectors so other valuation methods are also used.
Before investing, we ascertain that the share price stands at a reasonable discount to an assessment of the intrinsic value of the business, giving us a margin of safety on the investment.
Our research is conducted in-house, which is peer reviewed by the wider investment team prior to any purchase decision. This ensures the benefit of shared knowledge and experience is brought to bear on each investment. The progress of the company and its share price will then be continually monitored with in-depth reviews and retesting of the original investment thesis particularly if the company or its share price don't perform as initially expected.
Like all investors, we are having to make assessments about the future and take decisions in the face of uncertainty. There is a real possibility of being wrong. We believe that we can mitigate this risk by following this long-term philosophy, emphasising a number of factors: thorough analysis; peer review; the need for a margin of safety on purchase; continual monitoring; and diversification of the investment portfolio.
Reasons to sell can be driven by positive or negative factors – positive, if the value of the company has risen to our assessment of its value, or negative, if the assessment of the company's long-term value deteriorates significantly. An investment may also be sold if, for example, a similar, but cheaper alternative can be found or if the size of the investment position has become larger than is preferred for risk purposes.
Philip Webster Fund Manager 30 May 2022
Annual Report and Financial Statements 31 March 2022 | 17
The following table and chart shows, at 31 March 2022, the percentage weightings by sector of the investment portfolio in comparison to the FTSE All-Share Index.
| Investment Portfolio by Sector | ||
|---|---|---|
| Sector | % Total investments | % FTSE All-Share Index |
| Financials | 29.7 | 22.6 |
| Consumer Discretionary | 27.7 | 10.8 |
| Consumer Staples | 16.2 | 14.6 |
| Health Care | 6.3 | 10.9 |
| Real Estate | 6.1 | 3.3 |
| Basic Materials | 5.8 | 8.8 |
| Technology | 4.5 | 1.4 |
| Industrials | 3.7 | 12.0 |
| Utilities | – | 3.6 |
| Energy | – | 9.9 |
| Telecommunications | – | 2.1 |
| Total | 100.0 | 100.0 |
| At 31 March 2022 | |||||
|---|---|---|---|---|---|
| Company | Market Value 31 March 2022 £'000 |
% of Total Investments |
|||
| British American Tobacco (Consumer Staples – Tobacco) | |||||
| British American Tobacco is involved in the manufacture, marketing and selling of cigarettes and other | |||||
| tobacco products. It is also at the forefront of developing alternatives to traditional tobacco products. | 8,284 | 7.4 | |||
| GlaxoSmithKline (Health Care – Pharmaceuticals & Biotechnology) | |||||
| GlaxoSmithKline is a global manufacturer and marketer of pharmaceutical products. | 6,953 | 6.2 | |||
| Compass Group (Consumer Discretionary – Consumer Services) | |||||
| Compass Group is a multinational contract foodservice company. | 6,645 | 6.0 | |||
| Rio Tinto (Basic Materials – Industrial Metals And Mining) | |||||
| Rio Tinto is a diversified international mining company. | 6,427 | 5.8 | |||
| RELX (Consumer Discretionary – Media) | |||||
| RELX is a multinational information and analytics company. | 5,898 | 5.3 | |||
| Brewin Dolphin (Financials – Investment Banking & Brokerage Services) | |||||
| Brewin Dolphin is a British investment management and financial planning company. | 5,852 | 5.3 | |||
| Beazley (Financials – Non Life Insurance) | |||||
| Beazley is a specialist insurer. | 4,851 | 4.4 | |||
| Cairn Homes (Consumer Discretionary – Household Goods & Home Construction) | |||||
| Cairn Homes is an Irish house-builder and developer. | 4,825 | 4.3 | |||
| Compagnie Financière Richemont (Consumer Discretionary – Personal Goods) | |||||
| Compagnie Financière Richmont is a luxury goods group. | 3,851 | 3.5 | |||
| Londonmetric Property (Real Estate – Real Estate Investment Trusts) | |||||
| Londonmetric Property is a real estate investment trust. | 3,723 | 3.3 | |||
| Ten largest investments | 57,309 | 51.5 |
| Market Value | % of | ||
|---|---|---|---|
| Company | Sector – Sub Sector | 31 March 2022 £'000 |
Total Investments |
| Diageo | Consumer Staples – Beverages | 3,719 | 3.3 |
| Kerry Group | Consumer Staples – Food Producers | 3,668 | 3.3 |
| Close Brothers Group | Financials – Banks | 3,517 | 3.2 |
| Intermediate Capital Group | Financials – Investment Banking & Brokerage Services | 3,463 | 3.1 |
| Berkeley Group | Consumer Discretionary – Household Goods & Home Construction |
3,428 | 3.1 |
| Phoenix Group Holdings | Financials – Life Insurance | 3,147 | 2.8 |
| Deutsche Boerse | Financials – Investment Banking & Brokerage Services | 3,070 | 2.8 |
| Neinor Homes | Real Estate – Real Estate Investment And Services | 3,067 | 2.7 |
| Vistry Group | Consumer Discretionary – Household Goods & | ||
| Home Construction | 3,025 | 2.7 | |
| Burford Capital | Financials – Finance And Credit Services | 2,528 | 2.3 |
| Twenty largest investments | 89,941 | 80.8 | |
| ASML Holding | Technology – Technology Hardware & Equipment | 2,406 | 2.2 |
| Imperial Brands | Consumer Staples – Tobacco | 2,367 | 2.2 |
| Jupiter Fund Management | Financials – Investment Banking & Brokerage Services | 2,292 | 2.1 |
| Legal & General Group | Financials – Life Insurance | 2,158 | 1.9 |
| Prudential | Financials – Life Insurance | 2,116 | 1.9 |
| Melrose Industries | Industrials – General Industrials | 2,021 | 1.8 |
| Experian | Industrials – Industrial Support Services | 1,588 | 1.4 |
| Scout24 | Technology – Software And Computer Services | 1,327 | 1.2 |
| Just Eat Takeaway.com | Technology – Software And Computer Services | 1,268 | 1.1 |
| ASOS | Consumer Discretionary – Retailers | 1,124 | 1.0 |
| Thirty largest investments | 108,608 | 97.6 | |
| Delivery Hero | Consumer Discretionary – Consumer Services | 1,095 | 1.0 |
| Wizz Air Holdings | Consumer Discretionary – Travel & Leisure | 915 | 0.8 |
| THG PLC | Consumer Staples – Personal Care, Drug And Grocery Stores | 494 | 0.4 |
| Investors Securities Company Limited | N/A (subsidiary undertaking) | 250 | 0.2 |
| Total investments | 111,362 | 100.0 |
As stewards of more than £110 million of net assets, we support positive change and the Company benefits from the Manager's leadership in this field.
Environmental, Social and Governance ('ESG') issues are the three central factors in measuring sustainability and can present both opportunities and threats to the long-term investment performance the Company aims to deliver to shareholders. The Board is therefore committed to taking a responsible approach to ESG matters, for which there are two strands. Firstly there are the Company's own responsibilities on matters such as governance and secondly, the impact it has through the investments that are made on its behalf by its Manager.
The Company's compliance with the UK Code of Corporate Governance and the AIC Code of Corporate Governance is detailed in the Corporate Governance Statement on pages 41 to 43. In addition, the Principal Policies statement on pages 30 and 31 includes the Company's policies towards board diversity and tenure, integrity and business ethics and prevention of the facilitation of tax evasion.
The Board recognises that the most material way in which the Company can have an impact is through responsible ownership of its investments. The Manager engages actively with the management of investee companies to encourage that high standards of ESG practice are adopted. The Manager has long been at the forefront of the investment industry in its consideration of these issues and has one of the longest established and largest teams focused solely on ESG.
Engaging actively with companies on significant ESG matters, to reduce risk, improve performance, encourage best practice and underpin long-term investor value forms a fundamental part of the Manager's approach towards responsible investment. Engagement in the first instance rather than simply divesting or excluding investment opportunities is also part of this approach.
The Manager's Corporate Governance Guidelines set out its expectations of the management of investee companies in terms of good corporate governance. This includes the affirmation of responsibility for reviewing internal business ethics policies and ensuring that there is an effective mechanism for the internal reporting of wrongdoing, whether within the investee company itself, or
involving other parties, such as suppliers, customers, contractors or business partners.
The Manager is also a signatory to the United Nations Principles for Responsible Investment ('UNPRI') under which signatories contribute to the development of a more sustainable global financial system. As a signatory the Manager aims to incorporate ESG factors into its investment processes.
The Manager's Responsible Investment team works closely with the Fund Manager to ensure that those performing the work on individual investment opportunities for the Company are well informed in what to look for in relation to the ESG aspects of their analysis. Specialism within the Responsible Investment team allows the fund managers to talk to those who understand the key ESG issues relating to a particular sector. Where possible, internal research is cross-referenced against external sources, for example MSCI ESG research. The Responsible Investment team once again over the last year hosted many internal seminars and workshops for the investment teams, covering new developments across a wide range of topics to ensure that the fund managers were aware of the key issues. The investment process was further developed in the last year, to incorporate the assessment of sustainability issues, while scores for the E, S and G performance elements of potential investments are taken into account in the derivation of the fair value of existing and potential new holdings for the Company. ESG analysis is therefore a key part of our quality scoring of companies and overall risk assessment. In relation to sustainability, the fund management team will note if individual investments are aligned explicitly with any of the UN Sustainable Development Goals. Details of these goals can be found at www.un.org/sustainabledevelopment/sustainable-development-goals/
The Fund Manager and Responsible Investment team's research work is used to: initiate discussions with companies; clarify the Fund Manager's understanding of the issues involved; create a dialogue; and encourage higher standards where appropriate. In this, the Manager may occasionally join with other major investors in order to be a yet more powerful force to drive change.
Cairn Homes is Ireland's premier housebuilder and over the last 5 years has been on a journey of delivery and change. Their approach to housebuilding is considered and responsible: building high-quality energy efficient housing, creating communities; and striving to improve the built environment. They have signed up to the BITC low carbon pledge and are committing to setting science-based targets on scope 3 emissions based on lifecycle assessment.
They have already embarked on several of these targets through light gauge steel, forest stewardship council (FSC) certified timber from
responsibly managed sources. Offsite construction is also being used which can be produced faster while using less water and waste. They also have a soil management strategy to reduce and reuse onsite material which has saved 140k kg of CO2 through lower journeys and better use of the natural infrastructure.
There is plenty more that can be done to improve the sustainability of the home we buy and through its lifetime.
During the year ended 31 March 2022, the Responsible Investment team engaged 53 times with management in the Company's investment portfolio, across 6 countries. The most common topics for discussion were corporate governance and labour standards. Analysis of this engagement follows.
Source: BMO Investment Business Limited
| Engagement examples in the reporting period | |
|---|---|
| Kerry Group (Food Producer) | 2021 was a year during which the company underwent significant change. We believe that the strategic shift towards the taste and nutrition space is an encouraging step and welcomed the divestment of some of its food business. Our constructive engagement continued in several areas, including climate change and environmental impact. While the company has set science-based targets, we set out our expectations for identification and management of climate-related physical risks. The year saw the company achieving several milestones, including improvements in waste management and packaging, where 92% of waste volumes were diverted from landfill, and the commitment to make all plastic packaging reusable, recyclable, or compostable by 2025. We encouraged the assessment of biodiversity impacts and dependencies along the value chain and related engagement with suppliers. We also engaged the company on executive compensation, urging restraint and that pay outcomes fully reflect stakeholders' experience of the Covid-19 pandemic. |
| RELX (Media) | We met the company to share our concerns relating to the time commitments of the chair of the Audit Committee who also serves as the CFO of a larger US company. We were advised that the company had conducted an independent board evaluation, whereby the performance of the Director and the Audit Committee was viewed as strong. We also noted that this Director is the only financial expert on the Board in a non-executive role. The company appreciated our concerns and has noted that additional financial expertise will be an important criterion during the next board refreshment process. We will continue to review progress in this area. |
As noted previously, the Manager's Corporate Governance Guidelines set out expectations of the boards of investee companies in terms of good corporate governance. The Board expects to be informed by the Manager of any sensitive voting issues involving the Company's investments. In the absence of explicit instructions from the Board, the Manager is empowered to exercise discretion in the use of the Company's voting rights and reports to the Board on its voting record. The Manager will vote on all investee company resolutions.
The Manager is a signatory of the UK Stewardship Code. Its statement of compliance can be found on the Manager's website at bmogam.com.
We expect the Company's shares to be voted on all holdings where possible. During the financial year, the Manager voted at 37 meetings of investee companies held by the Company. The Manager did not support management's recommendations on at least one resolution at approximately 30% of all meetings. With respect to all items voted, the Manager supported over 95.6% of all management resolutions. One of the most contentious voting issues remained remuneration. Either by voting against or abstaining, the Manager did not support 37% of all management resolutions relating to pay, often due to either poor disclosure or a misalignment of pay with longterm performance.
Of all the ESG issues the Manager considers, climate change is one of the most important both in terms of the scale of potential impact and in how widespread this impact could be across sectors and regions. The Company expects the Manager to incorporate considerations around climate change risks and opportunities in its investment processes.
As an investment trust company, the Company is not required to report against the recommendations of the Task Force on Climaterelated Financial Disclosures unlike other premium listed "trading" companies. However, below, the Company is disclosing the carbon footprint of its investments. This measures the amount of greenhouse gas emissions produced by each investee company, per US\$1m of
revenue they generate. This is then aggregated for the Company as a whole, using the portfolio weights of the companies, and compared with the benchmark.
The carbon footprint is a measure of the carbon intensity of the companies the Company invests in. Whilst it does not provide a full picture of climate risks – since it does not, for instance, capture the innovation that companies may be undertaking to find solutions – it is a valuable starting point both for analysis and for shareholder dialogue. The chart highlights that the Company's portfolio of investments is significantly less carbon intensive than its benchmark.
Last year, the ongoing Covid-19 pandemic and extreme weather events reinforced the importance of creating a more resilient future. Climate change, biodiversity loss and human rights are all issues that require urgent action and it is these areas that engagement focused on in 2021. It is these areas that will continue to be of focus in 2022.
Climate related engagement activity focuses on the phase-out of unabated coal generation by 2030 for developed markets, and 2050 for developing markets, both of which are essential to achieve the Paris Agreement goals. The Manager will hold companies to account on net zero pledges, engaging with all portfolio companies, to ensure the thorough implementation of net zero strategies.
Effective supply chain management practices are essential to ensuring the protection of human rights and in 2022 the Manager will engage with corporates on implementing due diligence across supply chains, as part of efforts to protect human rights, and enhance business continuity and general supply chain management practices.
Furthermore, with an over-reliance on social audit firms to assess supplier compliance, the Manager's Responsible Investment team will focus on ensuring audit quality, and for companies in apparel, retail and service sectors, on appropriately fulfilling their human rights and labour standards obligations.
Under section 172 of the Companies Act 2006, the Directors have a duty to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so, have regard (amongst other matters) to:
As explained on page 9, the Company is an externally managed investment company and has no employees or premises.
The Board believes that the optimum basis for meeting its duty to promote the success of the Company is by appointing and managing third parties with the requisite performance records, resources, infrastructure, experience and control environments to deliver the services required to achieve the investment objective and successfully operate the Company. By developing strong and constructive working relationships with these parties, the Board seeks to ensure high standards of business conduct are adhered to at all times and service levels are enhanced whenever possible. This combined with the careful management of costs is for the benefit of all shareholders who are also key stakeholders.
As set out on page 9, the Board's principal working relationship is with the Manager which is responsible for the management of the Company's assets in line with the investment objective and policy set by the Board. The Manager also provides administrative functions to the Company and acts as the AIFM.
The Board works closely with the Manager and oversees the various matters which have been delegated to it, and to ensure the Company's daily operations run smoothly for the benefit of all shareholders. The portfolio activities undertaken by our Manager are set out in the Manager's Review on pages 12 to 15.
While the Company's direct impact on the community and environment is limited, its indirect ESG impact occurs through the businesses in which it invests. The Board gives effect to this through the Manager's Responsible Investment approach which is set out on pages 21 to 24. The Board is very supportive of the Manager's approach, which focuses on engagement with the investee companies on ESG issues and how these link with the United Nations Sustainable Development Goals ('SDGs'). Further information on the annual evaluation of the Manager, to ensure its continued appointment remains in the best interests of shareholders, is set out on page 45.
In addition to the Company's shareholders, Manager and bankers, other key stakeholders include its service providers such as the custodian and depositary, broker and registrar. The Board receives regular reports from the Company's key service providers on an ongoing basis and evaluates them to ensure expectations on service delivery are met.
The Board places great importance on communication with shareholders and further information is set out on page 10.
The Company's stakeholders are always considered when the Board makes decisions and examples include:
The Board recognises that the distribution levels on the Company's shares are important to shareholders. As a consequence of the COVID-19 pandemic, there was a significant reduction in the level of dividends being paid by UK companies which has in turn impacted the Company's revenue earnings. However, prudent stewardship in prior years combined with careful stock selection had allowed the Company to build up a revenue reserve. This can be used, as and when required, to supplement revenue earnings to pay dividends in years when there is a shortfall in revenue income. This was again the case in the current year, and to assist the Board's decision making process, the Manager provided the Board with estimates of dividend income for the years to 31 March 2022 and 2023 and the estimated impact upon the revenue reserve, some of which was utilised. Following the payment of the fourth interim dividend and capital repayment with respect to the financial year to 31 March 2022, total dividends/capital repayments will total 5.45p per share. This represents an increase of 2.8% compared to the prior year and at 31 March 2022 represented a yield of 6.3% and 6.2% on the Ordinary shares and B shares respectively, as compared to the yield on the FTSE All-Share Index of 3.1% at that time.
One of the Company's KPIs is cost efficiency and the Board monitors costs closely and strives to keep these as competitive as possible for the benefit of our shareholders. As set out in the Chairman's Statement, it has been agreed that with effect from 1 April 2022 the investment management fee will be reduced from 0.65% to 0.60% per annum of the net asset value which will help our ongoing charges.
The Board is committed to ensuring that its composition is compliant with best corporate governance practice under the UK Code of Corporate Governance, including guidance on tenure. The Board has continued to progress its succession plan and following recruitment during 2020, Julia Le Blan retired following the AGM on 27 July 2021, having served on the Board for 10 years.
John Evans will retire following the conclusion of the forthcoming AGM on 20 July 2022, and subject to shareholders voting to continue the Company, a recruitment process will be completed to appoint a new non-executive Director.
Following the changes made to the investment policy in July 2017 the Manager has continued to focus on the delivery of these changes which the Board believes will provide an attractive, relevant and ultimately differentiated income strategy for our shareholders over the longer term. This has included the repositioning of the investment portfolio to provide a better balance between capital and dividends and reducing exposure to the mega-cap companies. This should enhance the investment portfolio's longer term potential and the Board believes that this will help the Board and Manager seek to deliver for shareholders during these current uncertain times.
As explained in the Chairman's Statement, the Board is proposing to reduce the period stipulated in the Company's Articles of Association over which the Company's performance against the FTSE All-Share Index is measured. It is proposed to reduce the current five year performance period to three years and therefore should the net asset value total return of the Ordinary shares not be equal to or greater than the total return performance of the FTSE All-Share Index for the three years to 31 March 2025, a continuation vote would be held at the 2025 Annual General Meeting. The Board does not expect any change to the fund
management process despite the shorter performance period but should the performance hurdle not be met this change would allow shareholders an opportunity to consider the life of the Company sooner than otherwise would have been the case.
In July 2021, the Company held an online event at which the Fund Manager gave a presentation to shareholders and savings plan investors who were then invited to participate by asking questions to the Board and Fund Manager. This took place three weeks before the Annual General Meeting which, with the possibility of restrictions given COVID-19, was restricted to the formal business of the meeting. This then allowed sufficient time for shareholders and savings plan investors to submit their votes on the resolutions proposed for the AGM, after engagement with the Board at the online event. Voting at the AGM was taken on a poll and the results on each resolution, which were all strongly in favour, were published on the Company's website.
The Manager has a team dedicated to fostering good relations with institutional shareholders, wealth managers and independent financial advisers and keeping investors regularly informed, with the aim of promoting the Company's investment proposition and improving the rating of the Company's share prices. This team organises meetings with these parties as well as preparing webinars, interviews and videos which are shared through various media channels. The team gathers feedback and answers any queries in relation to the Company and its investment strategy. Feedback from these activities is reported regularly to the Board.
Most of the Company's principal risks and uncertainties that could threaten its objective, strategy, future performance, liquidity and solvency are market related and comparable to those of other investment companies investing primarily in listed securities.
A summary of the Company's risk management and internal controls arrangements is included within the Report of the Audit Committee on pages 46 to 49. By means of the procedures set out in that summary, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. Any emerging risks that are identified and that are considered to be of significance would be included on the Company's risk register with any mitigations. These significant risks, emerging risks and other risks are regularly reviewed by the Audit Committee and the Board. Consideration has been given to the impact from Coronavirus (COVID-19) and is referred to in Financial Risk. They have also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period.
As explained in the Chairman's Statement on page 6, BMO GAM (EMEA) has been acquired by Ameriprise and its business is to be merged with Columbia Threadneedle Investments. The Board looks favourably upon this transaction and expects there to be little change for your Company. Nevertheless, an acquisition such as this may introduce some uncertainty, until the integration of systems is fully implemented. Therefore the Board is treating this aspect as an emerging risk that it will monitor closely.
The principal risks and uncertainties faced by the Company, and the Board's mitigation approach, are described below.
Note 21 to the financial statements provides detailed explanations of the risks associated with the Company's financial instruments and their management.
| Principal Risks and Uncertainties | Mitigation |
|---|---|
| Financial Risk The Company's assets consist mainly of listed equity securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. Since early 2020 there has been increased uncertainty in markets due to the effect of COVID-19 and more recently the war in Ukraine, which has led to volatility in the Company's NAV. Climate change is likely to have an impact on some of our investee companies in the coming years potentially affecting their operating models for example, supply chains and energy costs. Increase in overall risk given the war in Ukraine and continuing economic and market uncertainty |
The Board regularly considers the composition and diversification of the Investment Portfolio and considers individual stock performance together with purchases and sales of investments. Investments and markets are discussed in detail at each meeting with the Manager. Engagement on environmental, social and governance matters is undertaken by the Manager. The Board has, in particular, considered the impact of market volatility during the COVID-19 pandemic and the war in Ukraine and is discussed in the Chairman's Statement and Manager's Review. As a closed-end investment trust, the Company is not constrained by asset sales to meet redemptions and is well suited to investors seeking longer term returns and to remain invested through volatile market conditions. An explanation of these risks and the way in which they are managed are contained in note 21 to the financial statements. |
| Investment and strategic risk Incorrect strategy, asset allocation, stock selection, inappropriate capital structure, insufficient monitoring of costs, failure to maintain an appropriate level of discount/ premium and the use of gearing could all lead to poor returns for shareholders including impacting the capacity to pay dividends. No change in overall risk |
The Company's objective and investment policy and performance against peers and the benchmark are considered by the Board at each meeting and strategic issues are considered regularly. The Investment Portfolio is diversified and comprises listed securities and its composition is reviewed regularly with the Board. BMO GAM's Investment Risk team provides oversight on investment risk management. Market intelligence is maintained via the Company's broker and the effectiveness of the marketing strategy together with the level of discount to NAV at which the Company's shares trade are also reviewed at each meeting. The Manager also meets with major shareholders. The Board regularly considers ongoing charges combined with underlying dividend income from portfolio companies and the consequent dividend paying capacity of the Company. |
| Principal Risks and Uncertainties | Mitigation |
|---|---|
| Regulatory Breach of regulatory rules could lead to the suspension of the Company's stock exchange listing, financial penalties, or a qualified audit report. Breach of section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains. Changes to tax regulations could alter the market competitiveness of the Company's B shares. No change in overall risk |
The Board liaises with advisors to ensure compliance with laws or regulations. The Manager and its Business Risk department provide regular reports to the Board and Audit Committee on their monitoring and oversight of such rules and are reviewed by the Board. This includes the conditions to maintain investment trust status including the income distribution requirement. The Board has access to the Manager's Head of Business Risk and requires any significant issues directly relevant to the Company to be reported immediately. |
| Operational Failure of the Manager's systems or disruption to its business, or that of an outsourced or third party service provider, could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets leading to a potential breach of the Company's investment mandate or loss of shareholders' confidence. This risk includes failures or disruption as a consequence of external events such as the COVID-19 pandemic. External cyber attacks could cause such failure or could lead to the loss or sabotage of data. No change in overall risk but due to the impact of COVID-19 on working practices and the eventual integration with Columbia Threadneedle's systems this risk remains heightened |
The Board has considered the acquisition of BMO GAM (EMEA) by Columbia Threadneedle Investments during the year and has met with senior management to discuss this. Comfort was taken from its long-term financial strength and resources and commitment towards BMO GAM's investment trust business. The Board meets regularly with the management of the Manager and its Business Risk team to review internal control and risk reports which includes oversight of its own third party service providers. The Manager's appointment is reviewed annually and the contract can be terminated with six months' notice. The Manager has a business continuity plan in place to ensure that it is able to respond quickly and effectively to an unplanned event that could affect the continuity of its business. The Manager has outsourced trade processing, valuation and middle office tasks and systems to State Street Bank and Trust Company ('State Street') and supervision of such third party service providers, including SS&C who administer the BMO savings plans, has been maintained by the Manager. This includes the review of IT security and heightened cyber threats. Following the easing of government COVID-19 related restrictions, the Manager has moved from a remote 'working from home' arrangement to a hybrid model with staff also returning to work in office locations. Throughout the pandemic the Manager has continued to serve clients and keep operations running effectively and in compliance with its regulatory obligations. These arrangements have and continue to operate without incident or interruption. The Manager also closely monitors the performance of its technology platform to ensure it is functioning within acceptable service levels. The Company's other third party service providers have also implemented similar arrangements to ensure no disruption to their service. Having considered these arrangements and reviewed the service levels over the last year, the Board is confident that the Company continues to operate as normal and expected service levels will be maintained. |
| Custody risk Safe custody of the Company's assets may be compromised through control failures by the custodian. No change in overall risk but due to the impact of COVID-19 on working practices this risk remains heightened |
The Board receives quarterly reports from the Depositary confirming safe custody of the Company's assets and cash and holdings are reconciled to the Custodian's records. The Custodian's internal controls reports are also reviewed by the Manager and key points reported to the Audit Committee. The Board also receives periodic updates from the custodian on its own cyber-security controls. The Depositary is specifically liable for loss of any of the Company's assets that constitute financial instruments under the AIFMD. |
In accordance with the UK Corporate Governance Code, the Board is required to assess the future prospects for the Company, and has considered that a number of characteristics of its business model and strategy were relevant to this assessment:
Also relevant were a number of aspects of the Company's operational arrangements:
In considering the viability of the Company, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's objective and strategy, future performance, liquidity and solvency. This included the impact of COVID-19 and the war in Ukraine and the impact of a significant fall in equity markets on the Company's investment portfolio. These risks, their mitigations and the processes for monitoring them are set out on pages 27 and 28 on Principal Risks and Uncertainties, on pages 46 to 49 in
the Report of the Audit Committee and in Note 21 of the financial statements.
The Directors have also considered:
These matters were assessed over a five year period to May 2027, and the Board will continue to assess viability over five year rolling periods. As part of this assessment the Board considered a number of stress tests and scenarios which considered the impact of severe stock market volatility on shareholders' funds over a five year period. The results demonstrated the impact on the Company's net assets and its expenses and its ability to meet its liabilities over that period. A rolling five year period represents the horizon over which the Directors believe they can form a reasonable expectation of the Company's prospects, balancing the Company's financial flexibility and scope with the current outlook for longer-term economic conditions affecting the Company and its shareholders.
Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period to May 2027.
In pursuit of its objective, the Company invests predominantly in UK equities and equity‑related securities of companies across the market capitalisation spectrum.
The objective will be to achieve a total return in excess of that of the FTSE All‑Share Index. The Manager will approach investment portfolio construction with the aim of maintaining a diversified portfolio with approximately 40 holdings at any given time. No single investment in the portfolio may exceed 10 per cent of the Company's gross assets at the time of purchase. In addition, the Manager expects few individual holdings to exceed five per cent of the Company's gross assets at the time of purchase. There are no maximum levels set for exposures to sectors.
Income may be enhanced from the investment portfolio by writing call options, but only where the portfolio has an existing holding and the holding is greater than the amount of stock subject to the call option. The percentage of the portfolio that may be used to generate call premium is limited to 5 per cent by value at any one time. The Company may use derivatives for efficient portfolio management from time to time.
The Company has the power under its Articles of Association to borrow an amount up to 100 per cent of the Company's Adjusted Capital and Reserves. The Directors currently intend that the aggregate borrowings of the Company will be limited to approximately 20 per cent of the Company's gross assets immediately following drawdown of any new borrowings. The Directors will however retain flexibility to increase or decrease the level of gearing to take account of changing market circumstances and in pursuit of the Company's investment objectives.
As required by the Listing Rules, the Company has a policy to invest no more than 15 per cent of gross assets in other listed investment companies.
The Company's benchmark is the FTSE All-Share Index. From launch on 1 March 2007, the Company's benchmark was the FTSE All-Share Capped 5% Index but in order to simplify the measurement of the Company's performance, at the Company's Annual General Meeting on 5 July 2018 shareholders approved the proposal to change the Company's benchmark to the FTSE All‑Share Index. The FTSE All‑Share Capped 5% Index was the index referred to in the Company's Articles of Association (the "Articles") as the index against which the Company's performance was measured over the relevant five year
period. Accordingly the FTSE All-Share Index is also now referenced in the Investment Policy set out above.
As explained in the Investment Policy, the Company has the flexibility to borrow and the Board has set a gearing limit. The Board receives recommendations on gearing levels from the Manager and it is responsible for setting the gearing range within which the Manager may operate.
The Company's borrowing facilities are described in more detail in the notes to the financial statements and at 31 March 2022 borrowings totalling £7.5 million had been drawn down.
Within the Company's investment objective is the aim to provide an attractive return to shareholders in the form of dividends and/or capital repayments.
In determining dividend payments, the Board takes account of income forecasts, brought forward revenue reserves, prevailing inflation rates, the Company's dividend payment record and the Corporation Tax rules governing investment trust status. Dividends can also be paid from capital reserves where the balance on this reserve is positive. At the same time as dividend payments are made to Ordinary shareholders, capital repayments of the same amount are made to B Shareholders from the special capital reserve. Risks to the dividend policy have been considered as part of the Principal Risks and Uncertainties and Viability statement on pages 27 to 29 and include financial risks leading to a deterioration in the level of income received by the Company or a significant change to the Company's regulatory environment.
Dividends/capital repayments are currently paid quarterly in August, November, February and May.
In the financial year to 31 March 2023 the Board is strongly minded to try and maintain the annual level of dividend/capital repayment.
Share buy‑backs help reduce the volatility of the discount and enhance the net asset value per share for continuing shareholders.
While the Directors will at all times retain discretion over whether or not to repurchase shares, it will be the Company's policy, in the absence of unforeseen or extreme circumstances and subject to the aim of maintaining the Ordinary share: B share ratio within the range (72.5% : 27.5% and 77.5% : 22.5%), to repurchase shares of either class when there are net sellers and the market price stands at a discount to net asset value of 5 per cent or more. The Board may, if it considers it to be in the best interests of the Company, amend this ratio from time to time. However, the Board will always be mindful of any impact on the level of revenue available for the Ordinary shares. Shares will not be bought back at a premium to net asset value. Shares which are bought back by the Company may be cancelled or may be held in treasury. There is no limit on the amount of shares the Company can hold in treasury. Shares held in treasury may be resold at a price not less than the net asset value per Share.
The Board is fully committed to complying with the UK's Criminal Finances Act 2017, designed to prevent tax evasion and the facilitation of tax evasion in the jurisdictions in which the Company operates. The policy is based upon a risk assessment undertaken by the Board and professional advice is sought as and when deemed necessary.
The policy towards taxation is one of full commitment to complying with applicable legislation and statutory guidelines.
The Company has received approval from HMRC as an investment trust under Section 1158 of the Corporation Tax Act 2010 ("Section 1158") and has since continued to comply with the eligibility conditions such that it does not suffer UK Corporation Tax on capital gains. The Manager ensures that the Company submits correct taxation returns annually to HMRC; settles promptly any taxation due; and claims back, where possible, taxes suffered in excess of taxation treaty rates on non-UK divided receipts.
The Board is composed solely of non‑executive Directors and its approach to the appointment of non‑executive Directors is based on its belief in the benefits of having a diverse range of experience, skills, length of service and backgrounds, including gender. The Board is conscious of the diversity targets set out in the FCA Listing Rules and the Board complies with the UK Corporate Governance Code and AIC Code in appointing appropriately diverse, independent non‑executive Directors who set the operational and moral standards of the Company. The Board will always appoint the best person for the job and will not discriminate on the grounds of gender, race, ethnicity, socio-economic background, religion, sexual orientation, age or physical ability.
The Board is committed to maintaining the highest levels of corporate governance in terms of independence and once the Board's succession plan is complete would normally expect the Directors to serve for a nine-year term, however this may be adjusted for reasons of flexibility and continuity.
The Board applies a strict anti-bribery and anti-corruption policy insofar as it applies to any directors or employee of the Manager or any other organisation with which the Company conducts business. The Board also ensures that adequate procedures are in place and followed in respect of third-party appointments, acceptance of gifts, hospitality and similar matters.
The Strategic Report, contained on pages 5 to 31, has been approved by the Board of Directors.
By order of the Board For BMO Investment Business Limited Company Secretary 6th Floor Quartermile 4 7a Nightingale Way Edinburgh EH3 9EG 30 May 2022
Appointed on 8 May 2013 and as Chairman on 9 July 2019.
Experience and contribution: He has worked in the investment management industry for over 40 years. He retired from Aberforth Partners, a specialist investment management firm, in 2011 having been one of its founding partners in 1990.
Other appointments: John is a non-executive director and Chairman of Securities Trust of Scotland plc and JPMorgan Mid Cap Investment Trust plc.
Appointed on 6 May 2020 and as Chairman of the Audit Committee on 27 July 2021.
Experience and contribution: Helen has over 20 years' experience in the Insurance and Asset Management industry as Head of Investor Relations at Aviva plc, Head of Global Equities at Aviva Investors and managing UK equities as Investment Director at Standard Life Investments. Helen is the founder of Moneyready, an online financial education platform for young people.
Other appointments: Helen is currently a non-executive director of Schroder UK Mid Cap Fund PLC and Orwell Housing Association and a Director at Orwell Homes.
Appointed on 29 June 2017 and as Senior Independent Director on 27 July 2020.
Experience and contribution: He has worked in the financial services industry for over 40 years and was head of Client Relations for Investment Trusts at Invesco Perpetual from 2004 until his retirement in June 2017.
Other appointments: Andrew is currently a non-executive director and chairman of Ashoka India Equity Investment Trust plc and a nonexecutive director of Chelverton UK Dividend Trust PLC, Baillie Gifford European Growth Trust plc and Consistent Unit Trust Management Ltd.
Appointed on 6 May 2020 and as Chairman of the Engagement and Remuneration Committee on 2 December 2020.
Experience and contribution: He has worked in investments for 40 years, most recently as a global equity specialist, previously on Japanese and Asia-Pacific equities. He worked at Flemings then JPMorgan Asset Management and Private Bank for 24 years, subsequently at Caledonia Investment Trust running a global equity income fund and then Jupiter Asset Management. Latterly he also covered investment strategy and multi-asset allocation.
Other appointments: Stephen is currently a Trustee of National Trust for Scotland and chair of its investment committee, and a member of the investment committee at Westminster Almshouses.
All Directors are members of the Engagement and Remuneration Committee and Nomination Committee. All Directors with the exception of John Evans are members of the Audit Committee. No Director holds a directorship elsewhere in common with other members of the Board.
The Directors submit the Annual Report and Financial Statements of the Company for the year to 31 March 2022. The Directors' biographies, Corporate Governance Statement, the Report of the Nomination Committee, the Report of the Engagement and Remuneration Committee, the Report of the Audit Committee and the Directors' Remuneration Report form part of this Report of the Directors.
The Directors consider that, following a detailed review and advice from the Audit Committee, the Annual Report and Financial Statements for the year to 31 March 2022, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. The Audit Committee reviewed the draft Annual Report and Financial Statements for the purpose of this assessment and in reaching this conclusion, the Directors have assumed that the reader of the Annual Report and Financial Statements would have a reasonable level of knowledge of the investment industry in general and investment trusts in particular. The outlook for the Company can be found on pages 8 and 15. Principal risks and uncertainties can be found on pages 27 and 28 with further information in note 21 to the financial statements. There are no instances where the Company is required to make disclosures in respect of Listing Rule 9.8.4R.
The results for the year are set out in the financial statements on pages 63 to 82. The return to shareholders was £2,384,000.
The Company has paid quarterly interim dividends in the year ended 31 March 2022 as follows:
| Interim Dividend Payments | ||||
|---|---|---|---|---|
| Payment date | Rate per Ordinary share |
|||
| Fourth interim for 2021 | 7 May 2021 | 1.43p | ||
| First interim for 2022 | 6 August 2021 | 1.29p | ||
| Second interim for 2022 | 5 November 2021 | 1.29p | ||
| Third interim for 2022 | 4 February 2022 | 1.32p |
Dividend payments in the prior year ended 31 March 2021 are set out in note 9 to the financial statements.
A fourth interim dividend of 1.55p per Ordinary share was paid on 6 May 2022 to Ordinary shareholders on the register at close of business on 8 April 2022. This dividend, together with the first three interim
dividends paid during the year (two of 1.29p per Ordinary share and one of 1.32p per Ordinary share), make a total dividend (for the financial year to 31 March 2022) of 5.45p per Ordinary share. This represents an increase of 2.8% over the 5.30p per Ordinary share paid in respect of the previous financial year.
At the same time as dividend payments are made to Ordinary shareholders, capital repayments of the same amount are made to B shareholders from the special capital reserve.
As set out in the Company's dividend/capital repayment policy on page 30, payments are made quarterly and the Company does not currently pay a final dividend that would require formal shareholder approval at the AGM. This enables the fourth interim dividend/capital repayment to be made in May and earlier than would be possible if classed as a final dividend/capital repayment and subject to shareholder approval at the AGM in July.
As an alternative, the Board proposes to seek formal shareholder approval at the AGM, and in future years, to continue quarterly payments (Resolution 7).
The Company is registered as a Public Limited Company in terms of the Companies Act 2006 (number: SC314671) and is an investment company under section 833 of the Companies Act 2006.
The Company carries on business as an investment trust and has been approved as such by HM Revenue & Customs ('HMRC'), subject to it continuing to meet the relevant eligibility conditions and ongoing requirements. As a result, it is not liable to corporation tax on capital gains. The Company intends to conduct its affairs so as to enable it to comply with the requirements.
The Company is required to comply with company law, the rules of the Financial Conduct Authority, and other legislation and regulations including UK-adopted International Accounting Standards and its own Articles of Association.
The Company is a member of the Association of Investment Companies (the 'AIC').
The Company has a 100 per cent interest in Investors Securities Company Limited (number: SC140578), a company which deals in investments. In the year to 31 March 2022, Investors Securities Company Limited made a profit before taxation of £nil (2021: £nil).
Investors Securities Company Limited did not trade during the year to 31 March 2022 and it has not been consolidated in the financial statements in accordance with section 405 of the Companies Act 2006 on grounds of materiality.
Shareholders will be asked to approve the adoption of the Annual Report and Financial Statements at the AGM (Resolution 1).
The financial statements start on page 63 and the unqualified Independent Auditor's Report on the financial statements is on pages 54 to 62. The significant accounting policies of the Company are set out in note 1 to the financial statements.
In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council and have undertaken a rigorous review of the Company's ability to continue as a going concern and specifically in the context of the COVID-19 pandemic.
Most of the Company's principal risks and uncertainties are market related and comparable to other investment companies investing primarily in listed securities. An explanation of these risks and how they are managed is set out on pages 27 and 28. The Board has, in particular, considered the impact of increased market volatility during the COVID-19 pandemic but does not believe the Company's ability to continue as a going concern is affected.
The Company's investment objective and policy, which is described on pages 9 and 30 and which is subject to regular Board monitoring processes, is designed to ensure that the Company is invested mainly in liquid, listed securities. The value of these investments exceeds the Company's liabilities by a significant margin. The Company retains title to all assets held by its custodian, and has agreements relating to its borrowing facilities with which it has complied during the year. Cash is held only with banks approved and regularly reviewed by the Manager.
As part of the going concern review, the Directors noted that borrowing facilities of a £7.5 million fixed term loan and a £7.5 million revolving credit facility are committed to the Company until 28 September 2022 and that they do not anticipate any difficulty either extending or replacing this with an appropriate level of
borrowing. Further details are set out in note 16 to the financial statements.
Note 21 to the financial statements sets out the financial risk profile of the Company and indicates the effect on the assets and liabilities of falls (and rises) in the value of securities and market rates of interest.
As explained in the Chairman's Statement, an ordinary resolution (Resolution 12) will be proposed at the Annual General Meeting on 20 July 2022 to seek approval from shareholders that the Company continues in existence and the Directors have a reasonable expectation that this will be supported by the Company's shareholders.
The Directors believe, having assessed the principal risks and other matters, including the COVID-19 pandemic and in light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets and revenue and expenditure projections, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For these reasons, they continue to adopt the going concern basis in preparing the financial statements.
The Company's longer term viability is considered in the 'Viability assessment and statement' on page 29.
The Company does not have a fixed life. However, in the event that the net asset value total return performance of the Company is less than that of the FTSE All-Share Index over the relevant five year period, in accordance with the Company's articles of association, shareholders will be given the opportunity to vote on whether the Company should continue in existence, by ordinary resolution at the Company's Annual General Meeting. The current five year period for this purpose ran from 1 April 2017 to 31 March 2022 and as the net asset value total return performance of the Company was less than that of the FTSE All-Share Index an ordinary resolution (Resolution 12) will be proposed at the forthcoming Annual General Meeting on 20 July 2022.
Each of the Directors confirm that, so far as he or she is aware, there is no information relevant to the preparation of the Annual Report and Financial Statements of which the Company's auditor is unaware, and each Director has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Deloitte LLP was re-appointed as the Company's auditor at the Annual General Meeting on 27 July 2021 and it has expressed its willingness to continue in office as the Company's auditor. A resolution proposing its re-appointment and authorising the Directors to determine its remuneration will be submitted at the Annual General Meeting (Resolution 6).
Further information in relation to the re-appointment can be found on page 49.
The Company's capital structure is explained in the 'Capital Structure' section on page 88 of this Annual Report and details of the share capital, including voting rights, are set out in note 17 to the financial statements. Details of voting rights are also set out in the Notes to the Notice of Annual General Meeting.
At 31 March 2022 there were 102,067,144 ordinary shares of 0.1p each listed of which 16,894,491 were held in treasury and 32,076,703 B shares of 0.1p each listed of which 1,367,953 were held in treasury. At 31 March 2022, the total listed share capital of the Company was represented 76.1 per cent by Ordinary shares and 23.9 per cent by B shares.
There are no significant restrictions concerning the transfer of securities in the Company (other than certain restrictions imposed by laws and regulations such as insider trading laws); no agreements known to the Company concerning restrictions on the transfer of securities in the Company or on voting rights; and no special rights with regard to control attached to securities. There are no significant agreements which the Company is a party to that might be affected by a change of control of the Company following a takeover bid.
At 31 March 2022 the Company had received notification of the following holdings of voting rights (under the FCA's Disclosure Guidance and Transparency Rules):
| Ordinary Shares | ||
|---|---|---|
| Number held |
Percentage held* |
|
| 1607 Capital Partners, LLC | 8,500,000 | 10.0 |
| D. C. Thomson & Company Limited | 7,944,869 | 9.3 |
| Thomson Leng Provident Fund | 3,800,000 | 4.5 |
* Based on 85,172,653 Ordinary Shares in issue as at 31 March 2022.
| B Shares | |||
|---|---|---|---|
| Number held |
Percentage held* |
||
| D. C. Thomson & Company Limited | 2,241,623 | 7.3 |
* Based on 30,708,750 B Shares in issue as at 31 March 2022.
The Company has not received any other notification of any changes in these voting rights and no new holdings have been notified since 31 March 2022 up to the date of this report.
Approximately 41% of the Company's share capital is held through the Manager's savings plans. The Manager does not have discretion to exercise any voting rights in respect of the shares held through the savings plans. Instead the nominee company holding these shares votes in line with any voting directions received from the underlying planholders. Where no instruction is received from any underlying planholder, the voting rights attached to their shares will not be exercised.
The Company has drawn down a £7.5 million unsecured term loan from Scotiabank Europe plc with a term to 28 September 2022 at a fixed interest rate of 2.58% per annum. The Company also has a £7.5 million unsecured multicurrency revolving credit facility with Scotiabank (Ireland) Designated Activity Company of which £nil was drawn down at the year-end. Further information is included in note 16 to the financial statements.
The Directors' Remuneration Report, which can be found on pages 50 to 52, provides detailed information on the remuneration arrangements for the Directors of the Company including the Directors' Remuneration Policy. Shareholders will be asked to approve the Annual Report on Directors' Remuneration (Resolution 2) at the AGM on 20 July 2022.
At the Annual General Meeting held on 27 July 2020, shareholders approved the Directors' Remuneration Policy and it is intended that this policy will continue for the three year period ending at the AGM in 2023, when shareholders will next be asked for their approval. There have been no material changes to the policy since approved by shareholders at the AGM held on 27 July 2020.
Biographical details of the Directors, all of whom are non-executive, can be found on page 32 and are incorporated into this report by reference.
All of the Directors held office throughout the year under review.
Julia Le Blan retired from the Board following the AGM on 27 July 2021 and John Evans is not standing for re-election and will therefore retire at the conclusion of the forthcoming Annual General Meeting. As explained in more detail under the Corporate Governance Statement on pages 41 to 43, the Board has agreed that all Directors will retire annually. Accordingly, Helen Galbraith, Stephen Mitchell and Andrew Watkins will retire at the AGM and, being eligible, offer themselves for re-election. The skills and experience each Director brings to the Board for the long-term sustainable success of the Company are set out below.
The Board believes that longer serving Directors should not be prevented from forming part of an independent majority, which is consistent with the view expressed within the AIC Code. The Board believes that a Director's tenure does not necessarily reduce his or her contribution or ability to act independently and, following formal performance evaluations, the Board believes that each Director is independent in character and judgement, that they perform their duties at all times in an independent manner and that there are no relationships or circumstances which are likely to affect the judgement of any Director. The Board believes that continuity and experience add significantly to the strength of the Board. For these reasons and those set out on page 44, the tenure of John Evans, who in May 2022 had served on the Board for nine years, is not considered to compromise his independence. John Evans will retire at the conclusion of the forthcoming AGM. Additional information on diversity and tenure is set out on pages 31 and 44.
The Directors believe that the Board has an appropriate balance of skills, experience, independence and knowledge of the Company to enable it to provide effective strategic leadership and proper governance of the Company. The Chairman and the Board confirms that, following formal performance evaluations, the performance
of each of the Directors continues to be effective and demonstrates commitment to the role and having considered the Directors' other time commitments and Board positions are satisfied that each Director has the capacity to be fully engaged with the Company's business. The Chairman and the Board therefore believes that it is in the interests of shareholders that each of those Directors seeking re‑election is re-elected.
There are no service contracts in existence between the Company and any Directors but each of the Directors has been issued with, and accepted, the terms of a letter of appointment that sets out the main terms of his or her appointment. Amongst other things, the letter includes confirmation that the Directors have a sufficient understanding of the Company and the sector in which it operates, and sufficient time available to discharge their duties effectively taking into account their other commitments. These letters are available for inspection upon request at the Company's registered office during normal business hours and will be available for inspection at the Annual General Meeting.
There were no contracts of significance to which the Company was a party and in which a Director is, or was, materially interested during the year.
The Company has entered into deeds of indemnity in favour of each of the Directors. The deeds give each Director the benefit of an indemnity to the extent permitted by the Companies Act 2006 against liabilities incurred by each of them in the execution of their duties and the exercise of their powers. A copy of each deed of indemnity is available for inspection at the Company's registered office during normal business hours and will be available for inspection at the Annual General Meeting. The Company also maintains directors' and officers' liability insurance.
Under the Companies Act 2006 a Director must avoid a situation where he or she has, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company's interests. The requirement is very broad and could apply, for example, if a Director becomes a Director of another company or a trustee of another organisation. The Companies Act 2006 allows Directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the Articles of Association contain a provision to this effect. The Company's Articles of Association give the Directors authority to approve such situations.
The Board therefore has procedures in place for the authorisation and review of potential conflicts relating to the Directors. The Company maintains a register of Directors' conflicts of interest which have been disclosed and approved by the other Directors. Other than authorisation of Directors' other directorships, no authorisations have been sought. This register is kept up-to-date and the Directors are required to disclose to the Company Secretary any changes to conflicts or any potential new conflicts.
The Company's listed investments are held in safe custody by JPMorgan Chase Bank (the 'Custodian'). Operational matters with the Custodian are carried out on the Company's behalf by the Manager in accordance with the provisions of the investment management agreement. The Custodian is paid a variable fee dependent on the number of trades and location of the securities held.
JPMorgan Europe Limited (the 'Depositary') acts as the Company's depositary in accordance with the AIFMD. The Depositary's responsibilities, which are set out in an Investor Disclosure Document on the Company's website, include, but are not limited to, cash monitoring, ensuring the proper segregation and safe keeping of the Company's financial instruments that are held by the custodian and monitoring the Company's compliance with investment limits and leverage requirements. The Depositary receives for its services a fee of one basis point per annum on the value of the Company's net assets, payable monthly in arrears.
Although the Depositary has delegated the safekeeping of all assets held within the Company's investment portfolio to the Custodian, in the event of loss of those assets that constitute financial instruments under the AIFMD, the Depositary will be obliged to return to the Company financial instruments of an identical type, or the corresponding amount of money, unless it can demonstrate that the loss has arisen as a result of an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary.
The Manager provides management, secretarial and administrative services to the Company. Details of the contract between the Company and BMO Investment Business Limited in respect of management services provided are given in note 4 to the financial statements. BMO Investment Business Limited is the Company's AIFM, for which it does not receive any additional remuneration.
Since the end of the year, the Engagement and Remuneration Committee has reviewed the appropriateness of the Manager's appointment. In carrying out its review the Committee considered the past investment performance of the Company and the ability of the Manager to produce satisfactory investment performance in the future. It also considered the length of the notice period of the investment management contract and fees payable to the Manager, together with the standard of other services provided which include company secretarial, accounting services and marketing. Following this review, which included a comparison against the terms of appointment of investment managers for similar investment companies, it is the Directors' opinion that the continuing appointment of the Manager on the terms agreed is in the best interests of shareholders as a whole.
As set out in the Chairman's Statement on page 6, a change to the investment management fee has been agreed between the Board and the Investment Manager. With effect from 1 April 2022 the investment management fee wil be reduced from 0.65 per cent. per annum to 0.60 per cent. per annum on the net asset value of the Company.
The future success of the Company in pursuit of its investment objective is dependent primarily on the performance of its investments and the outlook for the Company is set out in the Chairman's Statement on page 8 and the Manager's Report on page 15.
Details of the Company's Environmental, Social and Governance policies including voting on portfolio investments is set out on pages 21 to 24.
The Company seeks to conduct its affairs responsibly and environmental factors are, where appropriate, taken into consideration with regard to investment decisions taken on behalf of the Company.
As an investment company with no employees or customers and which does not provide goods or services in the normal course of business, the Company considers that it does not fall within the scope of the Modern Slavery Act 2015 and it is not, therefore, obliged to make a human trafficking statement. The Company's own supply chain which consists predominantly of professional advisers and service providers in the financial services industry, which is highly regulated, is considered to be low risk in relation to this matter. A statement by the Manager under the Act has been published on its website at www.bmogam.com
The Company's financial instruments comprise its investment portfolio, cash balances, bank debt, debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in note 21 to the financial statements.
The Company is required by law to hold an Annual General Meeting ('AGM') and it will be held at Exchange House, Primrose Street, London, EC2A 2NY on 20 July 2022 at 12 noon. The Notice of Annual General Meeting is set out on pages 84 to 87.
Philip Webster, the Fund Manager will give a presentation at the AGM and there will also be an opportunity to ask questions. If you are unable to attend the AGM, you may submit any questions you may have with regard to the resolutions proposed at the AGM or the performance of the Company, in advance of the meeting to the following email address: [email protected]. The Fund Manager's presentation will be available to view on the Company's website, bmoukhighincome.com, following the meeting.
The AGM is currently proposed to be held in person and voting on all resolutions will be conducted by way of a poll. Shareholders are encouraged to exercise their votes either through the Registrar's online portal or by completing and returning their Form of Proxy or Form of Direction. The results of the poll will be announced via a regulatory announcement and posted on the Company's website at bmoukhighincome.com after the meeting. Any changes to the AGM arrangements will be announced via a regulatory announcement and will be included on the Company's website.
Resolutions 8 to 13 are explained below.
The Directors are seeking authority to allot Ordinary shares and B shares.
Resolution 8 will, if passed, authorise the Directors to allot new Ordinary shares up to an aggregate nominal amount of £4,258 consisting of 4,258,000 Ordinary shares and new B shares up to an aggregate nominal amount of £1,535 consisting of 1,535,000 B shares, being approximately 5 per cent of the total issued Ordinary shares and B shares (excluding treasury shares) as at 30 May 2022. This authority therefore authorises the Directors to allot up to 5,793,000 shares in aggregate representing approximately 5 per cent of the total share capital in issue (excluding treasury shares).
Resolution 9 will, if passed, authorise the Directors to allot new Ordinary shares up to an aggregate nominal amount of £4,258 and new B shares up to an aggregate nominal amount of £1,535, being 4.2 per cent and 4.8 per cent of the total issued Ordinary shares and B shares respectively (including treasury shares) as at 30 May 2022, for cash without first offering such shares to existing shareholders pro rata to their existing holdings. This authority therefore authorises the Directors to allot up to 5,793,000 shares in aggregate for cash on a non pre-emptive basis representing 4.3 per cent of the total share capital in issue (including treasury shares). These authorities will continue until the earlier of 30 September 2023 and the conclusion of the Company's next Annual General Meeting.
The Directors have no current intention to exercise these authorities and will only allot new shares pursuant to these authorities if they believe it is advantageous to the Company's shareholders to do so and will not result in a dilution of net asset value per share. The Directors consider that the authorisations proposed in Resolutions 8 and 9 are necessary to retain flexibility, although they do not intend to exercise the powers conferred by these authorisations at the present time.
At the Annual General Meeting held on 27 July 2021 shareholders gave the Company authority to make market puchases of up to 14.99 per cent of each of the issued Ordinary shares and issued B shares (in each case, excluding shares held in treasury). During the year to 31 March 2022 the Company did not purchase any Ordinary shares or B shares through the market.
The current authority of the Company to make market purchases of up to 14.99 per cent of each of the issued Ordinary shares and issued B shares (in each case, excluding shares held in treasury) expires at the end of the Annual General Meeting and Resolution 10, as set out in the notice of the Annual General Meeting, seeks renewal of that authority. The renewed authority to make market purchases will be in respect of a maximum of 14.99 per cent of each of the issued Ordinary shares and issued B shares of the Company on the date of the passing of the resolution. The price paid for shares will not be less than the nominal value of 0.1p per share nor more than the higher of (a) 5 per cent above the average of the middle market values (as derived from the Daily Official List of the London Stock Exchange) of those shares for the five business days before the shares are purchased and (b) the higher of the last independent trade and the highest current independent bid on the London Stock Exchange. This power will only be exercised if, in the opinion of the Directors, a purchase will result in an increase in net asset value per share and is in the interests of the shareholders. Any shares purchased under this authority will be purchased with cash and will either be held in treasury or cancelled. This authority will expire on the earlier of 30 September 2023 and the conclusion of the next Annual General Meeting of the Company.
There were 115,881,403 Ordinary shares and B shares in issue (excluding treasury shares) as at 30 May 2022; of which 73.5 per cent represents Ordinary shares and 26.5 per cent represents B shares. At that date, the Company held 16.6 per cent of the total Ordinary share capital in treasury and 4.3 per cent of the total B share capital in treasury.
The Company therefore in aggregate holds 18,262,444 shares in treasury representing 15.8 per cent of the total share capital in issue (excluding treasury shares).
The Board continues to believe that the effective use of treasury shares assists the liquidity in the Company's securities and management of the discount by addressing imbalances between demand and supply for the Company's securities.
Resolution 11, if passed, will enable the Company to sell shares from treasury without having first to make a pro rata offer to existing shareholders. This authority will be limited to shares representing approximately 8.3 per cent and 9.6 per cent of the Company's issued Ordinary share capital and B share capital respectively (including treasury shares) as at the date of passing of the resolution. The sale of shares from treasury is to be at a price not less than the net asset value per share of the Ordinary shares (in the case of a sale of Ordinary shares) or B shares (in the case of a sale of B shares).
In accordance with the Company's Articles of Association, the Company has no fixed winding up date but, in the event that the prescribed performance criterion is not satisfied in respect of any five year period, the Directors are required to put an ordinary resolution to shareholders at the next Annual General Meeting allowing shareholders to vote on whether the Company should continue in existence. As explained in the Chairman's Statement on pages 5 to 8 the total return net asset value per share of the Ordinary shares was less than the total return performance of the FTSE All-Share index over the 5 years to 31 March 2022 and accordingly such an ordinary resolution will be proposed at this year's Annual General Meeting. In the event that this resolution is not passed, the Directors would then be required to convene a general meeting of the Company within three months at which proposals would be put to shareholders to wind up the Company and proposals may also be put to shareholders to reconstruct the Company, provided that the proposals provide for any shareholder to realise their investment in the Company. The Board believes that it is in the best interests of shareholders for the Company to continue and encourages shareholders to vote in favour of the resolution, as they intend to do in respect of their own shareholdings.
The Board propose to reduce the period stipulated in the Company's Articles of Association over which the Company's performance against the FTSE All-Share Index is measured. It is proposed to reduce the current five year performance period to three years and therefore should the net asset value total return of the Ordinary shares not be equal to or greater than the total return performance of the FTSE All-Share Index for the three years to 31 March 2025 a continuation vote would be held at the 2025 Annual General Meeting. The Board does not expect any change to the fund management process despite the shorter performance period but should the performance hurdle not be met this change would allow shareholders an opportunity to consider the life of the Company sooner than otherwise would have been the case. This resolution will be proposed as a special resolution and, in practical terms, its implementation will be subject to shareholders voting to continue the Company as proposed in Resolution 12.
The Directors consider that the passing of the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and are most likely to promote the success of the Company for the benefit of its shareholders as a whole. Accordingly, they unanimously recommend that all shareholders vote in favour of those resolutions in advance of the Annual General Meeting. The Directors intend to vote in favour of each of the resolutions in respect of their own beneficial holdings of 49,675 Ordinary shares and 5,000 B shares, representing approximately 0.05 per cent. of the issued share capital of the Company as at the date of this document. Information on shareholder voting rights is set out in the Notes to the Annual General Meeting.
The Company's shares are qualifying investments for Individual Savings Accounts. It is the current intention of the Directors that the Company will continue to conduct its affairs to satisfy this requirement.
By order of the Board For BMO Investment Business Limited Company Secretary Quartermile 4 7a Nightingale Way Edinburgh EH3 9EG 30 May 2022
The biographical details of the Directors responsible for the governance of your Company are set out on page 32. Committee membership is also included and the respective terms of reference and biographies are also available on the Company's website bmoukhighincome.com.
In maintaining the confidence and trust of the Company's shareholders, the Board sets out to adhere to the highest standards of corporate governance, business and ethics transparency and it remains committed to doing so. As the Board believes that good governance creates value, it expects the companies in which it invests to apply high standards.
The Board has established an Audit Committee, Engagement and Remuneration Committee and Nomination Committee. The role and responsibilities of these committees are set out in their respective reports, which follow, and their terms of reference are also available on the Company's website. With the exception of the Audit Committee (where John Evans ceased to be a member with effect from 9 July 2019), each of the committees comprises all of the directors.
As set out in the Strategic Report, the Board has appointed the Manager to manage the investment portfolio as well as to carry out the day to day management and administrative functions. Reporting from the Manager is set out on pages 12 to 20 and in the Report of the Audit Committee in respect of internal controls on pages 47 to 48. The Board's appointment of the Manager, its evaluation and alignment with the values of the Board can be found on pages 9 and 10.
The Board has direct access to company secretarial advice and services of the Manager which, through the Company Secretary, is responsible for ensuring that Board and committee procedures are followed and applicable laws, regulations and best practice requirements are complied with. The proceedings at all Board and committee meetings are fully recorded through a process that allows any Director's concerns to be recorded by the Company Secretary in the minutes.
The Board has considered and support the principles and recommendations of the UK Code published in 2018, which can be found at www.frc.org.uk. The Board believes that it has applied the principles and complied with its provisions during the year under review and up to the date of this report except as set out below. The UK Code includes provisions relating to:
executive directors' remuneration;
the need for an internal audit function; and
The Board considers these provisions as not being relevant to the position of the Company, being an externally managed investment company with a Board that has no executive Directors, is composed solely of non-executives and has no employees. Therefore, with the exception of the need for an internal audit function, which is addressed on page 48, we have not reported further in respect of these provisions.
None of the directors standing for re-election at the forthcoming AGM has served in excess of nine years.
The Board also adheres to the principles and recommendations of the AIC Code of Corporate Governance (the "AIC Code") which can be found on www.theaic.co.uk.
The Company's purpose, values and culture and the basis on which it aims to generate value over the longer term is set out within the Purpose, Strategy and Business Model on pages 9 to 10. How the Board seeks to promote the success of the Company is set out on pages 25 to 26.
The Board consists solely of non‑executive Directors and John Evans is the Chairman. The Board is responsible for the effective stewardship of the Company's affairs and has in place a schedule of matters that it has reserved for its decision, which is reviewed periodically.
The Board currently meets at least five times a year and at each meeting the Board reviews the Company's investment performance and considers financial analyses and other reports of an operational nature. The Board monitors compliance with the Company's objectives and is responsible for setting investment and gearing limits within which the Manager has discretion to act, and thus supervises the management of the investment portfolio which is contractually delegated to the Manager.
A management agreement between the Company and its Manager, BMO Investment Business Limited, sets out the matters over which the Manager has authority and the limits beyond which Board approval must be sought. All other matters, including strategy, investment and dividend policies, gearing, and corporate governance procedures, are reserved for the approval of the Board of Directors.
As an externally managed investment company, all the Directors are non-executive and there are no employees. The Chairman, is responsible for the leadership and management of the Board and promotes a culture of openness, challenge and debate. The Chairman sets the agenda for all Board meetings under a regular programme of matters in conjunction with the Company Secretary. There is a strong working relationship with the Manager and the Fund Manager and related personnel attend the meetings throughout the year and report to the Board. Discussions are held in a constructive and supportive manner with appropriate challenge and strategic guidance and advice from the Board whenever necessary consistent with the culture and values.
Andrew Watkins is the Senior Independent Director and he acts as an experienced sounding board for the Chairman or as an intermediary for other Directors and shareholders. He also leads the annual evaluation of the Chairman.
In order to enable them to discharge their responsibilities, all Directors have full and timely access to relevant information. Directors, may at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. No such advice was taken during the year under review. The Company maintains appropriate directors' and officers' liability insurance.
Under the Articles of Association of the Company, the number of Directors on the Board may be no less than two and no more than seven. Directors may be appointed by the Company by ordinary resolution or by the Board. Any Director appointed by the Board would hold office only until the next general meeting and then be eligible for re-election by shareholders. The Board has agreed that all Directors will retire annually and, if appropriate, seek re-election.
Full details of the duties of Directors are provided at the time of appointment. New Directors receive an induction from the Manager on joining the Board, and all Directors are encouraged to attend relevant training courses and seminars and receive regular updates on the industry and changes to regulations from the Company Secretary and other parties, including the AIC. All of the Directors consider that they have sufficient time to discharge their duties.
All Directors are considered by the Board to be independent of the Company's Manager and the Board believes that each Director is independent in character and judgement and that they perform their duties at all times in an independent manner and that there are no relationships or circumstances which are likely to affect the judgement of any Director.
| Directors' attendance during the year ended 31 March 2022 | |||||
|---|---|---|---|---|---|
| Board of Directors |
Audit Committee |
Engagement and Remuneration Committee |
Nomination Committee |
||
| No. of meetings | 5 | 2 | 1 | 2 | |
| J M Evans | 5 | n/a | 1 | 2 | |
| H M Galbraith | 5 | 2 | 1 | 2 | |
| J Le Blan (1) | 2 | 1 | 1 | 1 | |
| S J Mitchell | 5 | 2 | 1 | 2 | |
| A K Watkins | 5 | 2 | 1 | 2 |
(1) Retired on 27 July 2021
During the year, additional meetings were also held to approve matters such as the interim dividends and capital repayments.
The composition of the Board and Committees together with the experience of the members is set out on page 32. The Company's diversity policy is set out on page 31.
John Evans has now served on the Board for more than nine years and will retire following the conclusion of the forthcoming Annual General Meeting. Subject to shareholders supporting the resolution to continue the Company at the forthcoming AGM, the Nomination Committee will then complete a recruitment process to appoint a new non-executive director. This forms part of the Board's succession plan which has enabled the retirement of the longer serving Directors while balancing the need to ensure an adequate level of continuity and experience on the Board.
During the year the performance of the Board and Committees, including the performance of each individual Director, was evaluated through a formal assessment process, led by the Chairman. The performance of the Chairman was evaluated by the other Directors under the leadership of the Senior Independent Director. This process involved discussions with individual Directors, individual feedback from the Chairman to each of the Directors and discussion of the points arising amongst the Directors.
Following this process, it was concluded that the performance of each Director and the Chairman continues to be effective and each remain committed to the Company and that the Board oversees the management of the Company effectively and has the requisite skills and expertise to safeguard shareholders' interests.
The conclusion from the assessment process was also that the Audit Committee, Nomination Committee and Engagement and Remuneration Committees were operating effectively, with the right balance of membership, experience and skills.
Governance Report Other Information Strategic Report Overview Financial Report
The Board has a well established and effective Audit Committee, the report of which is set out on pages 46 to 49. The report includes how the Board oversees the risk management and internal control framework and determines the nature and extent of the principal risks the Company is willing to take in order to achieve its longterm strategic objectives. In the current year this also included the assessment of the operational risks posed by COVID-19 and the implementation of contingency plans by the Manager and other third party service providers. Details of the principal risks and uncertainties are set out on pages 27 to 28 and further information on the Company's risk management and internal control framework can be found on pages 46 to 48.
The rationale for the Company not having established its own internal audit function is also explained.
The report of the Audit Committee explains how the independence and effectiveness of the external auditor is assessed and how the Board satisfies itself on the integrity of financial statements. The report also covers the process under which the Board satisfied itself that the Annual Report and Financial Statements, taken as a whole, presents a fair balanced and understandable assessment of the Company's position and prospects.
Communication with the Company's key stakeholders, who are its shareholders, the Manager, bankers and other key service providers is set out on page 10.
Information on the remuneration arrangements for the non-executive Directors of the Company can be found in the Directors' Remuneration Report on pages 50 to 52 and in note 6 to the financial statements.
The remuneration policy is explained on page 50 and that, as nonexecutive Directors, their fees are set at a level commensurate with the skills and experience necessary for the effective stewardship of the Company and the contribution towards the delivery of the investment objective. While there are no executive Directors and no employees, shareholders should expect that the fees paid to the Manager are aligned with the Company's purpose, values and the successful delivery of its long-term strategy.
Details of the Company's capital structure is set out on page 88 and details of substantial interests in the Company's share capital and other Companies Act 2006 Disclosures are included on pages 35 and 37.
By order of the Board For BMO Investment Business Limited Company Secretary Quartermile 4 7a Nightingale Way Edinburgh EH3 9EG 30 May 2022
The Committee comprises the full Board and is chaired by John Evans and its terms of reference can be found on the website at bmoukhighincome.com
The primary role of the Nomination Committee is to review and make recommendations with regard to Board structure, size and composition and it takes into account the ongoing requirements of the Company and the need to have a balance of skills, experience, diversity including gender, race, ethnicity, socio-economic background, religion, sexual orientation, age or physical ability, independence and knowledge of the Company within the Board and ensuring succession planning is carefully managed.
The Committee met on two occasions during the year and considered and reviewed the following matters:
The Company's Board diversity and tenure policy is shown on page 31 and recruitment searches are open to a diverse range of candidates. Other than the diversity targets set out in the Listing Rules, the Directors have not set any measurable objectives in relation to diversity of the Board and will always appoint the best person for the role.
The Board believes that a Director's tenure does not necessarily reduce his or her contribution or ability to act independently and that continuity and experience can add significantly to the strength of investment trust boards where the characteristics and relationships tend to differ from those of other companies. However, the Board is committed to maintaining the highest levels of corporate governance in terms of independence and would normally expect the Directors to serve for a nine-year term, however this may be adjusted for reasons of flexibility and continuity.
Appointments of all new non-executive Directors are made on a formal basis, normally using professional search consultants, with the Nomination Committee agreeing the selection criteria and the method of recruitment, selection and appointment.
A succession plan, to allow for the retirement of the longer serving Directors, has been in progress over the last few years. The emphasis has been on ensuring the highest level of skills, knowledge and experience of the Board and when recruiting a new Director consideration is given to the current skills and experience of the Board and the remaining tenure of each Director. This assists in identifying the desired attributes of the new Director and ensures that the Board continues to comprise individuals with appropriate and complementary skills and experience and continuity.
Having served on the Board for 10 years Julia Le Blan retired following the conclusion of the Annual General Meeting held on 27 July 2021. On her retirement, Helen Galbraith became the Chair of the Audit Committee, with the previous year since her appointment to the Board, having provided a period of overlap regarding this role.
The Chairman, John Evans who has now served on the Board for more than nine years will retire following the conclusion of the forthcoming Annual General Meeting to be held on 20 July 2022. It is intended that Andrew Watkins will become Chairman when John Evans retires and subject to shareholders voting that the Company should continue in existence, the Nomination Committee will then complete a recruitment process to appoint a new non-executive Director.
The activities of the Committee were considered as part of the Board appraisal process completed in accordance with standard governance arrangements as summarised on page 42. The conclusion from the process was that the Committee was operating effectively, with the right balance of experience and skills.
John M Evans Chairman of the Nomination Committee 30 May 2022
The Committee comprises the full Board and is chaired by Stephen Mitchell. Its terms of reference can be found on the website at bmoukhighincome.com
The Committee meets at least annually and its role is to review the terms and conditions of the Manager's appointment and the services it and other key suppliers provide and the fees charged, and also to review the remuneration of Directors.
The Committee met on one occasion during the year.
Since the end of the year, the Committee has reviewed the appropriateness of the Manager's appointment. In carrying out its review the Committee considered the past investment performance of the Company and the skills, experience and depth of the Manager's team involved in managing the Company's assets and its ability to produce satisfactory investment performance in the future.
Its performance is considered by the Board at every meeting, with a formal evaluation by the Committee each year. For the purposes of its ongoing monitoring, the Board receives reports from the Manager on investment activity, attribution, gearing, risk and performance. This enables it to assess the sources of positive and negative contribution to returns in terms of gearing and stock selection. While shorter term data is important, the assessment of the Manager's performance is considered over a five year period, looking at comparisons against the benchmark and a peer group of other UK Equity Income investment companies. The period of five years matches the period between shareholder continuation votes, in the event that the NAV total return performance of the Company is less than that of the FTSE All-Share Index over the relevant five year period. This allows the Board to assess the management of the investment portfolio against the Company's investment objective on an ongoing basis together with performance against the Company's key performance indicators. As set out in the Chairman's Statement, the most recent five-year performance period ended on 31 March 2022 and as the NAV total return (+11.2%) was less than the total return for the FTSE All-Share Index (+25.8%) over this period a Resolution that the Company continues in existence will be put to shareholders at the AGM on 20 July 2022.
The annual evaluation that took place in May 2022 included a presentation from the Fund Manager and the Manager's Head of Investment Trusts. This included reporting on the investment performance over the last five year period and the reasons for the periods of both over and underperformance and its ability to successfully deliver the investment strategy for shareholders. The Manager also reported on the strength of its current business, progress of the integration of its business with that of Columbia Threadneedle Investments, the resources and opportunities that can be expected as part of the enlarged business and the continued support of the investment trust business.
The Committee also considered the length of the notice period of the investment management contract and fees payable to the Manager, together with the standard of other services provided which include ESG, marketing, company secretarial and accounting services.
As set out in the Chairman's statement on page 6, a change to the investment management fee has been agreed between the Board and the Investment Manager and with effect from 1 April 2022 the investment management fee will be reduced to 0.60% per annum on the net asset value of the Company.
Following this review, it was the Committee's view that the continuing appointment of the Manager on the terms agreed was in the best interests of shareholders as a whole. The Board ratified this recommendation.
The Company Secretary, BMO Investment Business Limited, provides information on comparative levels of Directors' fees in advance of the Committee considering the level of Directors' fees. Following a review for the forthcoming year to 31 March 2023 the Committee concluded the amount paid to Directors should remain unchanged.
The activities of the Committee were considered as part of the Board appraisal process completed in accordance with standard governance arrangements as summarised on page 42. The conclusion from the process was that the Committee was operating effectively, with the right balance of experience and skills.
Chairman of the Engagement and Remuneration Committee 30 May 2022
The Board recognises the requirement for the Audit Committee as a whole to have competence relevant to the sector in which the Company operates and at least one member with recent and relevant experience.
Following the retirement of Julia Le Blan on 27 July 2021, the Audit Committee is chaired by Helen Galbraith who is a Chartered Financial Analyst and has recent and relevant financial experience. The Audit Committee operates within clearly defined terms of reference and comprises the full Board, with the exception of John Evans who is Chairman of the Board. These directors have a combination of relevant financial, investment and business experience and specifically with respect to the investment trust sector and accordingly have sufficient experience to discharge their responsibilities. Details of the members can be found on page 32 and the Committee's terms of reference are available on the Company's website bmoukhighincome.com.
The performance of the Committee was evaluated as part of the Board appraisal process.
The duties of the Audit Committee include ensuring the integrity of the financial reporting and financial statements of the Company, reviewing the annual and interim financial statements, the risk management and internal controls processes, and the terms of appointment and remuneration of the auditor, Deloitte LLP ('Deloitte'), including its independence and objectivity. It also provides a forum through which the auditor reports to the Board of Directors and meets twice yearly including at least two meetings with Deloitte.
The Audit Committee met on two occasions during the year and the attendance of each of the members is set out on page 42. In the due course of its duties, the committee had direct access to Deloitte and senior members of the Manager's Fund Management, Investment Trust and Business Risk teams. Amongst other things, the Audit Committee considered and reviewed the following matters and reported thereon to the Board:
the principal and emerging risks and uncertainties faced by the Company and the effectiveness of the Company's internal control and risk management environment;
consideration of the assumptions underlying the Board's statement on viability;
During the preparation of both the half-yearly report for the six month period ended 30 September 2021 and the annual report and financial statements for the year ended 31 March 2022, the Committee has considered the impact of the COVID-19 pandemic upon the risks, operations and accounting basis of the Company. As noted within Principal Risks and Uncertainties and Viability Statement on pages 27 and 28 the Directors have reviewed the risk register of the Company and agreed that the overall risk from some of its principal risks remain heightened as a consequence of the pandemic. At the onset of the pandemic the Manager implemented 'working from home' arrangements for its staff and the Company's other third party service providers also implemented similar arrangements to ensure no disruption to their service. Following the easing of government COVID-19 related restrictions, the Manager has moved to a hybrid model with staff also returning to work in office locations. The Committee continues to monitor this and is confident that the Company continues to operate as normal with service levels maintained.
With regard to the change of ownership of BMO GAM that took effect on 8 November 2021, the Audit Committee has received confirmation that the existing systems and controls are unchanged and have
continued to operate effectively throughout the year under review and thereafter without any material change to the date of this report. The merger of BMO GAM and Columbia Threadneedle Investments will entail the progressive integration of the two entities, which the Audit Committee will monitor closely from a risk management and internal control perspective.
The Board retains ultimate responsibility for all aspects relating to external financial statements and other significant published financial information as is noted in the Statement of Directors' Responsibilities on page 53.
The Board has established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the related guidance issued by the Financial Reporting Council.
The Manager's Business Risk department provides regular control reports to the Audit Committee and the Board covering risk and compliance and any significant issues of direct relevance to the Company are required to be reported to the Audit Committee and Board immediately.
For the management of risk, a key risk summary is produced to help identify the risks to which the Company is exposed, the controls in place and the actions being taken to mitigate them. The Audit Committee and Board has a robust process for considering the resulting risk control assessment and reviews the significance of the risks and reasons for any changes.
The Company's principal risks and uncertainties and their mitigations are set out on pages 27 and 28 with additional information provided in note 21 to the financial statements. The integration of these risks into the consideration of the Viability Statement on page 29 was also fully considered and the Audit Committee concluded that the Board's Statement was soundly based. The period of five years was also agreed as remaining appropriate for the reasons given in the Statement.
The Board has overall responsibility for the Company's system of risk management and internal control, for reviewing its effectiveness and ensuring that risk management and internal control processes are embedded in the Manager's daily operations.
The Audit Committee has reviewed and reported to the Board on these controls which aim to ensure that the assets of the Company are safeguarded, proper accounting records are maintained, and the financial information used within the business and for publication is reliable.
Control of the risks identified, including financial, operational, compliance and overall risk management is exercised by the Audit Committee and the Board through regular reports provided by the Manager. The reports cover investment performance, performance attribution, compliance with agreed and regulatory investment restrictions, financial analyses, revenue estimates, performance of the third party administrators of the Manager's savings plans and other relevant issues.
At each Board meeting, the Board monitors the investment performance of the Company in comparison to its objective and relevant equity market indices. The Board also reviews the Company's activities since the last Board meeting to ensure that the Manager adheres to the agreed investment policy and approved investments guidelines and, if appropriate, approves changes to such policy and guidelines.
The system of risk management and internal control is designed to manage, rather than eliminate the risk of failure to achieve business objectives and, by their nature, can only provide reasonable, but not absolute, assurance against material misstatement, loss, or fraud. Further to the review by the Audit Committee, the Board has assessed the effectiveness of the Company's internal control systems.
The assessment included a review of the Manager's risk management infrastructure and the Report on Internal Controls in accordance with ISAE 3402 and AAF 01/20 for the year to 31 October 2021 (the 'ISAE/AAF Report') that has been prepared for its clients. The Audit Committee also received confirmation from the Manager that subsequent to this date, there had been no material changes to the control environment. The ISAE/AAF Report contained an unqualified opinion from independent reporting accountants KPMG LLP, and sets out BMO GAM's control environment and procedures with respect to the management of its clients' investments and maintenance of their financial records. The effectiveness of these controls is monitored by the Manager's Group Audit and Compliance Committee, which receives regular reports from BMO's Corporate Audit department. Procedures are also in place to capture and evaluate any failings and weaknesses within the Manager's control environment and those extending to any outsourced service providers to ensure that action would be taken to remedy any significant issues identified and which would be reported to the Board. Any errors or breaches relating to the Company are reported at each Audit Committee and Board Meeting by the Manager, including those relating to the administration of the Manager's savings plans and related complaint levels. No failings or weaknesses that were material to the overall control environment and financial statements in respect of the Company were identified in the year under review nor to the date of this report.
The Audit Committee also reviewed appropriate reports on the internal controls of other significant service providers, such as the Custodian and Registrar and was satisfied that there were no material exceptions.
The review procedures have been in place throughout the full financial year and up to the date of approval of the financial statements, and the Board is satisfied with their effectiveness.
Through the reviews and reporting arrangements set out above and by direct enquiry of the Manager and other relevant parties, the Audit Commitee and the Board have satisfied themselves that there were
no material control failures or exceptions affecting the Company's operations during the financial year or to the date of this report.
The Audit Committee has reviewed the need for an internal audit function. Based on review, observation and enquiry, the Audit Committee has concluded that the systems and procedures employed by the Manager, provide sufficient assurance that a sound system of internal control, which safeguards shareholders' investment and the Company's assets, is maintained and the Board has concurred. In addition, the Company's financial statements are audited by an external auditor. An internal audit function, specific to the Company, is therefore considered unnecessary but this decision will be kept under review.
| Significant Matters Considered by the Audit Committee in Relation to the Financial Statements | |
|---|---|
| Matter | Action |
| Valuation of Investment Portfolio | |
| Possibility of incorrect valuation of the investment | The Company's accounting policy is stated in note 1 to the financial statements. |
| portfolio, including failure to assess stock liquidity | The Board reviews the full portfolio valuation at each Board meeting and receives |
| appropriately. | quarterly monitoring and control reports from the Manager and Depositary. The |
| Committee reviewed the Manager's ISAE/AAF Report for the year ended 31 October | |
| 2021, which is reported on by independent external accountants and which details | |
| the systems, processes and controls around the daily pricing of equity securities. The | |
| Manager has provided further assurance that controls have operated satisfactorily | |
| since that date. | |
| Misappropriation of Assets | |
| Misappropriation or non-existence of the Company's | The Audit Committee reviewed the Manager's ISAE/AAF Report, as referred to |
| investments or cash balances could have a material | overleaf, which is reported on by independent external accountants and which |
| impact on its net asset value per share. | details the controls around the reconciliation of the Manager's records to those of |
| the custodian. The Audit Committee also reviewed the custodian's semi-annual | |
| internal control report, which is reported on by independent external accountants, | |
| and which provides details regarding its control environment. The Depositary has | |
| issued reports confirming, amongst other matters, the safe custody of the Company's | |
| assets for the period to 31 March 2022. | |
| Income Recognition | |
| Incomplete or inaccurate income recognition, including | The Audit Committee reviewed the Manager's ISAE/AAF Report, as previously |
| allocation between revenue and capital, could have an | referred to, which details the systems, processes and controls around the recording |
| adverse effect on the Company's net asset value and | of investment income. It also compared the final level of income received for |
| earnings per share and its level of dividend cover. | the year to the budget which was set at the start of the year and discussed the |
| accounting treatment of all special dividends received with the Manager. | |
| Investment Trust Tax Status | |
| As an investment trust company, the Company is | The Audit Committee reviewed the Company's ongoing compliance with the |
| exempt from taxation arising on capital gains. | investment trust conditions set out in section 1158 of the Corporation Tax Act 2010. In |
| particular, the Audit Committee ensured that the retained revenue after tax for the | |
| Breach of Section 1158 of the Corporation Tax Act 2010 | year was less than 15 per cent of the Company's total income. |
| could lead to the Company being subject to tax on | |
| capital gains. |
The Audit Committee read and discussed this Annual Report and Financial Statements and concluded that it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance objective and strategy.
In carrying out its responsibilities, the Audit Committee has considered the planning arrangements, scope, materiality levels and conclusions of the year end 31 March 2022 external audit. The table on page 48 describes the significant matters considered by the Audit Committee in relation to the financial statements for the year and how these were addressed.
The Audit Committee met in May 2022 to discuss the draft Annual Report and Financial Statements, with representatives of Deloitte and the Manager in attendance and Deloitte presented their year-end report to the Audit Committee. At the conclusion of the audit Deloitte did not report any audit differences in excess of their reporting threshold of £0.06 million, nor any differences below that level which would warrant disclosure on qualitative grounds. In addition Deloitte did not highlight any other issues to the Audit Committee which would cause it to qualify its audit report nor did it highlight any fundamental internal control weaknesses. Deloitte issued an unqualified audit report which is included on pages 54 to 62.
The Committee regards the continued independence of the auditor to be a matter of the highest priority. The Company's policy with regard to the provision of non-audit services by the external auditor ensures that no engagement will be permitted if:
In particular, the Committee has a policy, that the accumulated costs of all non-audit services sought from the auditor in any one year should not exceed 30% of the likely audit fees for that year and not exceed 70% of the average audit fee for the previous three years.
In relation to the provision of non-audit services by the Auditor it has been agreed that all non-audit work to be carried out by the Auditor must be approved in advance by the Audit Committee and any special projects must also be approved in advance. Deloitte did not receive any fees for non-audit services during the year (2021: £nil).
The Audit Committee reviews the re-appointment of the auditor every year and has been satisfied with the effectiveness of Deloitte's performance on the audit just completed.
As part of the review of auditor independence and effectiveness, Deloitte has confirmed that it is independent of the Company and has complied with relevant auditing standards. In evaluating Deloitte, the Audit Committee has taken into consideration the standing, skills and experience of the firm and the audit team. The Audit Committee, from direct observation and enquiry of the Manager, remains satisfied that Deloitte continues to provide effective independent challenge in carrying out its responsibilities.
Following professional guidelines, the audit partner rotates after five years. Andrew Partridge, the current senior statutory auditor was engaged for the first time during the year ended 31 March 2018 and therefore this will be his last year on the engagement. The Audit Committee also considered the evaluation of Deloitte's audit performance through the Audit Quality Review performed by the Financial Reporting Council. Deloitte's fee for the audit (excluding VAT) was £31,500 (2021: £30,000). On the basis of this assessment, the Audit Committee has recommended the re-appointment of Deloitte to the Board.
Full details of the Company's policy with regards to Directors' fees, and fees paid during the year ended 31 March 2022, are shown below. This shows all major decisions on Directors' remuneration, and any substantial changes made during the year relating to Directors' remuneration, including the context in which any changes occurred.
Under company law, the auditor is required to audit certain disclosures provided. Where disclosures have been audited they are indicated as such. The auditor's opinion is included in its report on pages 54 to 62.
The Board consists solely of independent non-executive Directors. The Company has no executive Directors or employees. The Engagement and Remuneration Committee is responsible for determining the level of Directors' fees and its report is set out on page 45.
The Company's policy is that the remuneration of non-executive Directors should be set at a level commensurate with the skills and experience necessary for the effective stewardship of the Company and the expected contribution of the Board as a whole, their responsibilities, duties and time commitment required and be fair and comparable to that of other investment trusts that are similar in size and have similar investment objectives. The policy also provides for the Company's reimbursement of all reasonable travel and associated expenses incurred by the Directors in attending Board and Committee meetings, including those treated as a benefit in kind subject to tax and national insurance.
The Company has not received any direct communications from its shareholders in respect of the levels of Directors' remuneration. It is intended that the policy will continue for the three year period ending at the AGM in 2023.
The fees for the non-executive Directors are determined within the limits set out in the Company's Articles of Association. The present limit is £175,000 per annum in aggregate and may not be changed without seeking shareholder approval at a general meeting. Directors are not eligible for bonuses, pension benefits, share options, longterm incentive schemes or other benefits.
The non-executive Directors are engaged under letters of appointment and do not have service contracts. Each Director has a letter of appointment setting out the terms and conditions of his or her appointment and such letters are available for inspection at the Company's registered office during business hours.
The dates on which each Director was appointed to the Board are set out under their biographies on page 32. The terms of appointment provide that a Director shall retire and be subject to re-election at the first Annual General Meeting after his or her appointment. Directors are thereafter obliged to retire periodically and, if they wish, to offer themselves for reelection by shareholders, at least every three years after that. However, in accordance with the recommendations of the UK Code and the AIC Code the Board has agreed that all Directors will retire annually and, if appropriate, seek re-election. All the Directors were last re-elected at the AGM held on 27 July 2021 and with the exception of John Evans will stand for re-election at the AGM on 20 July 2022. There is no notice period and no provision for compensation upon termination of appointment.
The Directors' Remuneration Policy was last approved by shareholders at the Company's Annual General Meeting, held on 27 July 2020. 97.0 per cent of votes were in favour of the resolution and 3.0 per cent of votes were against.
As Chairman of the Engagement and Remuneration Committee, I confirm that effective 1 April 2021 the amount paid to Directors increased by £4,500 per annum for both the Chairman and Audit Committee Chairman and by £2,500 per annum for each of the other Directors.
Following a review of the level of Directors' fees for the forthcoming year, in comparison to comparable investment trusts, the Engagement and Remuneration Committee concluded that the amount paid to Directors should remain unchanged.
Based on this, Directors' fees for the forthcoming financial year would be as follows:
| 31 March 2023 £ |
31 March 2022* £ |
|
|---|---|---|
| Chairman | 39,000 | 39,000 |
| Audit Committee Chairman | 32,500 | 32,500 |
| Director | 26,000 | 26,000 |
* Actual Directors' fees for the year ended 31 March 2022
The Directors who served during the financial year received the following amounts for services as non-executive Directors for the years ended 31 March 2022 and 2021 and can expect to receive the fees indicated for 2023 as well as reimbursement for expenses necessarily incurred. No other forms of remuneration were paid during the year.
| Fees for services to the Company (audited) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Fees (audited) |
Taxable Benefits(1) (audited) |
Total (audited) |
Anticipated Fees(2) |
|||||||
| Director | 31 March 2022 £ |
31 March 2021 £ |
% change | 31 March 2022 £ |
31 March 2021 £ |
% change | 31 March 2022 £ |
31 March 2021 £ |
% change | 31 March 2023 £ |
| J M Evans (Chairman) | 39,000 | 34,500 | +13.0 | 1,387 | 468 | +196.4 | 40,387 | 34,968 | +15.5 | 11,870 |
| H M Galbraith(3) | 30,461 | 21,230 | +43.5 | – | – | – | 30,461 | 21,230 | +43.5 | 32,500 |
| J Le Blan(4) | 10,529 | 28,000 | -62.4 | – | – | – | 10,529 | 28,000 | -62.4 | n/a |
| S J Mitchell(3) | 26,000 | 21,230 | +22.5 | – | – | – | 26,000 | 21,230 | +22.5 | 26,000 |
| A K Watkins | 26,000 | 23,500 | +10.6 | – | – | – | 26,000 | 23,500 | +10.6 | 35,043 |
| J P Williams(5) | n/a | 7,613 | n/a | n/a | – | n/a | n/a | 7,613 | n/a | n/a |
| Total | 131,990 | 136,073 | -3.0 | 1,387 | 468 | +196.4 | 133,377 | 136,541 | -2.3 | 105,413 |
(1) Comprises amounts reimbursed for expenses incurred in carrying out business for the Company, which have been grossed up to include PAYE and NI contributions (2) Fees expected to be payable to the Directors during the year ended 31 March 2023. Taxable benefits are also anticipated but are not currently quantifiable. (The anticipated fees reflect that J M Evans will retire following the forthcoming AGM and A K Watkins will then become the Chairman)
(3) Appointed as a non-executive director on 6 May 2020.
(4) Retired as a non-executive director on 27 July 2021.
(5) Retired as a non-executive director on 27 July 2020.
The table below shows the actual expenditure during the year in relation to Directors' remuneration (excluding taxable benefits), other expenses and shareholder distributions:
| 31 March 2022 £ |
31 March 2021 £ |
Change % |
|
|---|---|---|---|
| Aggregate Directors' Remuneration | 131,990 | 136,073 | -3.0 |
| Management fee and other expenses | 1,130,000 | 1,050,000 | +7.6 |
| Distributions paid to Shareholders | 6,176,000 | 6,070,000 | +1.7 |
| Aggregate cost of shares repurchased | – | 763,000 | -100.0 |
The Directors who held office at the year end and their interests in the shares of the Company at 31 March 2022 (all of which were beneficially held) were as follows:
| 31 March 2022 | 1 April 2021 | ||||
|---|---|---|---|---|---|
| Director | Ordinary Shares |
B Shares | Ordinary Shares |
B Shares | |
| J M Evans (Chairman) | 15,000 | 5,000 | 15,000 | 5,000 | |
| H M Galbraith | 12,000 | – | 12,000 | – | |
| S J Mitchell | 12,675 | – | 12,675 | – | |
| A K Watkins | 10,000 | – | 10,000 | – |
There have been no changes in any of the Directors' interests in the shares of the Company between 31 March 2022 and 30 May 2022.
The Board is responsible for the Company's investment strategy and performance, whilst the management of the investment portfolio is delegated to the Manager.
An explanation of the performance of the Company is given in the Chairman's Statement and Manager's Review.
The graph below compares, for the required ten year period to 31 March 2022, the total return (assuming all dividends and capital repayments are reinvested) to Ordinary shareholders and B shareholders compared to the total return on the FTSE All-Share Index. This index was chosen for comparison purposes, as it represents a comparable broad equity market index; however it should be noted that up to 25 per cent. of the Company's assets were held in higher yielding securities during part of this period.
Source: Refinitiv Eikon
At the Company's last Annual General Meeting, held on 27 July 2021, shareholders approved the Directors' Remuneration Report in respect of the year ended 31 March 2021. 97.8 per cent of votes were in favour of the resolution and 2.2 per cent were against.
An ordinary resolution for the approval of this Annual Report on Directors' Remuneration will be put to shareholders at the forthcoming Annual General Meeting (Resolution 2).
On behalf of the Board Stephen J Mitchell Director 30 May 2022
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable United Kingdom law and UK-adopted International Accounting Standards. The Directors are also required to prepare a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK-adopted International Accounting Standards.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for that period. In preparing these financial statements the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Annual Report and Financial Statements is published on the bmoukhighincome.com website which is maintained by BMO GAM. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of the Company's website and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors listed on page 32 confirms that to the best of their knowledge:
On behalf of the Board John M Evans Chairman 30 May 2022
to the members of BMO UK High Income Trust PLC
In our opinion the financial statements of BMO UK High Income Trust PLC (the 'Company'):
We have audited the financial statements which comprise:
The financial reporting framework that has been applied in their preparation is applicable law, UK-adopted international accounting standards and the Statement of Recommended Practice issued by the Association of Investment Companies in April 2021 "Financial Statements of Investment Trust Companies and Venture Capital Trusts".
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that we have not provided any non-audit services prohibited by the FRC's Ethical Standard to the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
| Key audit matters | The key audit matter that we identified in the current year was valuation and ownership of quoted |
|---|---|
| investments. | |
| Materiality | The materiality that we used in the current year was £1.11m which was determined on the basis of 1% of |
| net assets at 31 March 2022. | |
| Scoping | Audit work to respond to the risks of material misstatement was performed directly by the audit |
| engagement team. | |
| Significant changes in | There have been no significant changes in our audit approach for the current year. |
| our approach |
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included:
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Company has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| 5.1. Valuation and Ownership of quoted investments | |
|---|---|
| Key audit matter description |
The quoted investments of the Company £111.1m (2021: £123.0m) make up 100% of net assets £111.2m (2021: £115.0m) as at 31 March 2022. |
| Please see accounting policy 1 (investments) and note 11 to the financial statements. | |
| Quoted investments are valued at the closing bid price at the year end. | |
| The financial reporting process is outsourced to BMO Investment Business Limited ("the Manager"), who have in turn delegated certain accounting responsibilities to State Street Bank and Trust Company ("State Street"), who maintain the underlying accounting records for investment transactions and related balances. The safeguarding of the assets has been outsourced to JP Morgan Chase Bank ("JP Morgan"). |
|
| There is a risk that the quoted investments may not be valued correctly or may not represent the property of the Company. |
|
| How the scope of our audit responded to the key audit |
We have performed the following procedures to test the valuation and ownership of investments at 31 March 2022: |
| matter | • obtained an understanding of relevant controls at the Manager ("BMO") and the Administrator ("State Street") over the ownership and valuation of quoted investments and tested relevant controls; |
| • agreed 100% of the Company's quoted investment portfolio at the year end to confirmations received directly from the custodian ("JP Morgan"); and |
|
| • agreed 100% of the bid prices of quoted investments on the investment ledger at year end to closing bid prices published by an independent pricing source. |
|
| In addition, we have: | |
| • tested the recording of a sample of purchases and sales of quoted investments by agreeing the transactions to supporting documentation and tracing the cash movements to bank statements; and |
|
| • assessed the completeness and appropriateness of disclosures in relation to fair value measurements. |
|
| Key observations | Based on the work performed we concluded that the valuation and ownership of quoted investments is appropriate. |
Auditor's Report
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 70% of materiality for the 2022 audit (2021: 70%). In determining performance materiality, we considered the following factors:
iii. there have been no uncorrected misstatements noted in audits during prior years.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £55,000 (2021: £57,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the audit committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team. As described in Note 1 to the financial statements, the Company does not prepare group accounts and as such our audit was scoped for the Company only.
The financial reporting process is outsourced to BMO Investment Business Limited ("the Manager"), who have in turn delegated certain accounting responsibilities to State Street (Global Fund Accounting), who maintain the underlying accounting records for investment transactions and related balances.
As part of our audit, we assessed the controls in place at the Manager and also the relevant controls in place at State Street (Global Fund Accounting). We have reviewed the Service Organisation Reports to assess the control environments in place and the extent relevant to our audit. As part of this, we relied upon the controls report of the administrator and adopted a controls reliance approach with respect to valuation and ownership of investments.
In planning our audit, we have considered the potential impact of climate change on the business and its financial statements. The Company continues to develop its assessment of the potential impacts of environmental, social and governance ("ESG") related risks, including climate change, as outlined on page 24. As a part of our audit, we held discussions to understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on the Company's financial statements. We performed our own qualitative risk assessment of the potential impact of climate change on the account balances and classes of transactions.We have read the annual report to consider whether they are materially consistent with the financial statements and our knowledge obtained in the audit.
The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Report Other Information Strategic Report Overview Financial Report
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor's report.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following:
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the valuation and ownership of quoted investments. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and UK tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the Company's ability to operate or to avoid a material penalty. This included the requirements of the United Kingdom's Financial Conduct Authority (FCA).
As a result of performing the above, we identified the valuation and ownership of quoted investments as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report.
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Company's compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
13.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the directors' remuneration report to be audited is not in agreement with the accounting records and returns.
Following the recommendation of the audit committee, we were appointed by the members of the Company on 29 June 2017 to audit the financial statements for the year ending 31 March 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 5 years, covering the years ending 31 March 2018 to 31 March 2022.
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Andrew Partridge (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor Glasgow, United Kingdom 30 May 2022
| For the year to 31 March | |||||||
|---|---|---|---|---|---|---|---|
| Revenue Year to |
Capital Year to |
Total Year to |
Revenue Year to |
Capital Year to |
Total Year to |
||
| 31 March | 31 March | 31 March | 31 March | 31 March | 31 March | ||
| 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Capital (losses)/gains on investments | |||||||
| 11 | (Losses)/gains on investments held at fair value through profit or loss | – | (1,087) | (1,087) | – | 29,988 | 29,988 |
| Exchange gains/(losses) | – | 5 | 5 | – | (35) | (35) | |
| Revenue | |||||||
| 2 | Income | 5,013 | – | 5,013 | 3,788 | – | 3,788 |
| Total income | 5,013 | (1,082) | 3,931 | 3,788 | 29,953 | 33,741 | |
| Expenditure | |||||||
| 4 | Investment management fee | (227) | (529) | (756) | (212) | (494) | (706) |
| 5 | Other expenses | (506) | – | (506) | (480) | – | (480) |
| Total expenditure | (733) | (529) | (1,262) | (692) | (494) | (1,186) | |
| Profit/(loss) before finance costs and tax | 4,280 | (1,611) | 2,669 | 3,096 | 29,459 | 32,555 | |
| Finance costs | |||||||
| 7 | Interest on bank loans | (78) | (183) | (261) | (69) | (160) | (229) |
| Total finance costs | (78) | (183) | (261) | (69) | (160) | (229) | |
| Profit/(loss) before tax | 4,202 | (1,794) | 2,408 | 3,027 | 29,299 | 32,326 | |
| 8 | Taxation | (24) | – | (24) | (7) | – | (7) |
| Profit/(loss) and total comprehensive income/(expense) for the year | 4,178 | (1,794) | 2,384 | 3,020 | 29,299 | 32,319 | |
| 10 | Earnings per share | 3.61p | (1.55)p | 2.06p | 2.59p | 25.16p | 27.75p |
The total column of this statement represents the Company's Income Statement and Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year.
| As at 31 March | |||
|---|---|---|---|
| Notes | 2022 £'000 |
2021 £'000 |
|
| Non-current assets | |||
| 11 | Investments held at fair value through profit or loss | 111,362 | 123,249 |
| Current assets | |||
| 13 | Receivables | 3,210 | 990 |
| 14 | Cash and cash equivalents | 4,686 | 2,310 |
| 7,896 | 3,300 | ||
| Total assets | 119,258 | 126,549 | |
| Current liabilities | |||
| 15 | Payables | (543) | (542) |
| 16 | Bank loan | (7,500) | (3,500) |
| (8,043) | (4,042) | ||
| Non-current liabilities | |||
| 16 | Bank loan | – | (7,500) |
| – | (7,500) | ||
| Total liabilities | (8,043) | (11,542) | |
| Net assets | 111,215 | 115,007 | |
| Equity attributable to equity shareholders | |||
| 17 | Share capital | 134 | 134 |
| 18 | Share premium | 153 | 153 |
| Capital redemption reserve | 5 | 5 | |
| Buy back reserve | 80,394 | 80,394 | |
| Special capital reserve | 11,704 | 13,340 | |
| Capital reserves | 14,598 | 16,392 | |
| Revenue reserve | 4,227 | 4,589 | |
| Equity shareholders' funds | 111,215 | 115,007 | |
| 19 | Net asset value per Ordinary share | 95.97p | 99.25p |
| 19 | Net asset value per B share | 95.97p | 99.25p |
Approved by the Board and authorised for issue on 30 May 2022 and signed on its behalf by:
| For the year to 31 March | |||
|---|---|---|---|
| Year to 31 March |
Year to 31 March |
||
| 2022 | 2021 | ||
| Notes | £'000 | £'000 | |
| Cash flows from operating activities | |||
| Profit before taxation | 2,408 | 32,326 | |
| Adjustments for: | |||
| 11 | Losses/(gains) on investments held at fair value through profit or loss | 1,087 | (29,988) |
| Exchange (gains)/losses | (5) | 35 | |
| 2 | Interest income | (5) | (1) |
| Interest received | 5 | 1 | |
| 2 | Dividend income | (5,008) | (3,787) |
| Dividend income received | 4,935 | 3,638 | |
| (Increase)/decrease in receivables | (5) | 8 | |
| Increase in payables | 2 | 33 | |
| Finance costs | 261 | 229 | |
| Overseas tax suffered | (49) | (21) | |
| Cash flows from operating activities | 3,626 | 2,473 | |
| Cash flows from investing activities | |||
| 11 | Purchases of investments | (10,594) | (19,430) |
| Sales of investments | 19,264 | 18,849 | |
| Cash flows from investing activities | 8,670 | (581) | |
| Cash flows before financing activities | 12,296 | 1,892 | |
| Cash flows from financing activities | |||
| 9 | Dividends paid on Ordinary shares | (4,540) | (4,465) |
| 9 | Capital returns paid on B shares | (1,636) | (1,605) |
| 17 | Shares purchased for treasury | – | (763) |
| Interest on bank loans | (249) | (217) | |
| (Repayment)/drawdown of loan | (3,500) | 3,500 | |
| Cash flows from financing activities | (9,925) | (3,550) | |
| Net increase/(decrease) in cash and cash equivalents | 2,371 | (1,658) | |
| Cash and cash equivalents at the beginning of the year | 2,310 | 4,003 | |
| Effect of movement in foreign exchange | 5 | (35) | |
| Cash and cash equivalents at the end of the year | 4,686 | 2,310 | |
| Represented by: | |||
| Cash at bank | 77 | 161 | |
| Short term deposits | 4,609 | 2,149 | |
| 4,686 | 2,310 |
| For the year to 31 March 2022 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Notes | Share Capital £'000 |
Share Premium £'000 |
Capital Redemption Reserve £'000 |
Buy back Reserve £'000 |
Special Capital Reserve £'000 |
Capital Reserve – investments sold £'000 |
Capital Reserve – investments held £'000 |
Revenue Reserve £'000 |
Total £'000 |
|
| Balance as at 31 March 2021 | 134 | 153 | 5 | 80,394 | 13,340 | 3,083 | 13,309 | 4,589 | 115,007 | |
| Movement during the year ended 31 March 2022 |
||||||||||
| Profit/(loss) for the year | – | – | – | – | – | 4,918 | (6,712) | 4,178 | 2,384 | |
| Total comprehensive income for the year |
– | – | – | – | – | 4,918 | (6,712) | 4,178 | 2,384 | |
| Transactions with owners of the Company recognised directly in equity |
||||||||||
| 9 | Dividends paid on Ordinary shares | – | – | – | – | – | – | – | (4,540) | (4,540) |
| 9 | Capital returns paid on B shares | – | – | – | – | (1,636) | – | – | – | (1,636) |
| Balance as at 31 March 2022 | 134 | 153 | 5 | 80,394 | 11,704 | 8,001 | 6,597 | 4,227 | 111,215 |
| For the year to 31 March 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Notes | Share Capital £'000 |
Share Premium £'000 |
Capital Redemption Reserve £'000 |
Buy back Reserve £'000 |
Special Capital Reserve £'000 |
Capital Reserve – investments sold £'000 |
Capital Reserve – investments held £'000 |
Revenue Reserve £'000 |
Total £'000 |
|
| Balance as at 31 March 2020 | 134 | 153 | 5 | 81,157 | 14,945 | 1,819 | (14,726) | 6,034 | 89,521 | |
| Movement during the year ended 31 March 2021 |
||||||||||
| Profit for the year | – | – | – | – | – | 1,264 | 28,035 | 3,020 | 32,319 | |
| Total comprehensive income for the year |
– | – | – | – | – | 1,264 | 28,035 | 3,020 | 32,319 | |
| Transactions with owners of the Company recognised directly in equity |
||||||||||
| 17 | Shares bought back for treasury | – | – | – | (763) | – | – | – | – | (763) |
| 9 | Dividends paid on Ordinary shares | – | – | – | – | – | – | – | (4,465) | (4,465) |
| 9 | Capital returns paid on B shares | – | – | – | – | (1,605) | – | – | – | (1,605) |
| Balance as at 31 March 2021 | 134 | 153 | 5 | 80,394 | 13,340 | 3,083 | 13,309 | 4,589 | 115,007 |
A summary of the principal accounting policies is set out below.
The financial statements of the Company have been prepared on a going concern basis and in accordance with the Companies Act 2006 and UKadopted International Accounting Standards.
The Company's subsidiary undertaking Investors Securities Company Limited has not been consolidated in the financial statements as it is exempt in accordance with section 405(2) of the Companies Act 2006 on grounds of materiality. Investors Securities Company Limited has been classified at fair value through profit or loss in the Statement of Financial Position.
Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") is consistent with the requirements of UK-adopted International Accounting Standards, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
The notes and financial statements are presented in pounds sterling (functional and presentational currency) because that is the currency of the primary economic environment in which the Company operates. They are rounded to the nearest thousand except where otherwise indicated.
The Board confirms that no significant accounting judgements or estimates have been applied to the financial statements and therefore there is not a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council (including that due to COVID-19). After making enquiries, and bearing in mind the nature of the Company's business and assets, and that the Directors have a reasonable expectation that shareholders will support the resolution, that the Company continues in existence, at the forthcoming AGM, the Directors consider that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Further detail is included in the Report of the Directors on page 34.
The accounting policies adopted are consistent with those of the previous financial year, and no new standards have been adopted in the current year.
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The net revenue return is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in section 1158 Corporation Tax Act 2010.
Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value.
Investments are classified as fair value through profit or loss. As the entity's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, listed equities are designated as fair value through profit or loss on initial recognition.
Financial assets designated as at fair value through profit or loss are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Unlisted investments, including the subsidiary, are valued at fair value by the Directors on the basis of all information available to them at the time of valuation.
Where securities are designated upon initial recognition as fair value through profit or loss, gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item. On derecognition any gain or loss arising is transferred from the Capital reserve – Investments Held to Capital reserve – Investments Sold.
Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:
Level 1 – quoted (unadjusted) prices in active markets for identical assets or liabilities.
Receivables do not carry any interest and are short term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash in banks and short term deposits that are held to maturity are carried at cost. Cash and cash equivalents consist of cash in hand and short term deposits in banks with an original maturity of three months or less.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Financial liabilities and equity instruments are initially recorded at the proceeds received, net of issue costs.
Interest‑bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Payables are not interest bearing and are stated at their nominal value.
Capital reserve – investments sold – gains and losses on realisation of investments are dealt with in this reserve together with the proportion of management fees, interest and taxation allocated to capital. This reserve also includes dividends of a capital nature. Capital reserve – investments held – increases and decreases in the valuation of investments held are accounted for in this reserve, together with unrealised exchange differences on forward foreign currency contracts.
The Company's Articles of Association allow distributions to be made from realised capital reserves where the balance on this reserve is positive.
(f) Revenue reserve – the net profit/(loss) arising in the revenue column of the Statement of Comprehensive Income is added to or deducted from this reserve. Available for paying dividends on the Ordinary shares.
Dividends are recognised as income on the date that the related investments are marked ex‑dividend.
Dividends receivable on equity shares where no ex‑dividend date is quoted are brought into account when the Company's right to receive payment is established.
Special dividends of a non‑capital nature are recognised through the revenue column of the Statement of Comprehensive Income. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, an amount equal to the cash dividend is recognised as income.
Interest income from fixed interest securities is accrued on a time apportioned basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. Other investment income and deposit interest are included on an accruals basis.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Investment trusts which have approval under section 1158 Corporation Tax Act 2010 are not liable for taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of Comprehensive Income except where incurred in connection with the maintenance or enhancement of the value of the Company's investment portfolio taking account of the expected long term split of returns as follows:
Transactions denominated in foreign currencies are expressed in pounds sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end. Non‑monetary non current assets held at fair value through profit and loss and denominated in foreign currencies are reported at the rates of exchange prevailing when the fair value was assessed. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in either the capital or revenue column of the Statement of Comprehensive Income depending on whether the gain or loss is of a capital or revenue nature respectively.
| Rates of exchange at 31 March | 2022 | 2021 |
|---|---|---|
| Euro | 1.1834 | 1.1739 |
| Swiss Franc | 1.2117 | 1.2985 |
| 2022 | 2021 | |
|---|---|---|
| £'000 | £'000 | |
| Income from investments | ||
| UK dividend income | 3,920 | 3,379 |
| UK dividend income – special dividends | 656 | 86 |
| Overseas dividend income | 305 | 220 |
| Property income distributions | 127 | 102 |
| 5,008 | 3,787 | |
| Other income | ||
| Interest on cash and cash equivalents | 5 | 1 |
| Total income | 5,013 | 3,788 |
| Total income comprises: | ||
| Dividends | 5,008 | 3,787 |
| Interest on cash and cash equivalents | 5 | 1 |
| Total income | 5,013 | 3,788 |
| Income from investments: | ||
| Listed | 5,008 | 3,787 |
The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Company is engaged in a single segment of business, of investing in equity and that therefore the Company has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Company. The key measure of performance used by the Board to assess the Company's performance is the total return on the Company's net asset value as calculated under UK-adopted International Accounting Standards and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Management fee | 227 | 529 | 756 | 212 | 494 | 706 |
The Company's investment manager is BMO Investment Business Limited. The contract between the Company and BMO Investment Business Limited may be terminated at any date by either party giving six months' notice of termination. In the event of the Company terminating the contract by giving less than six months' notice, BMO Investment Business Limited is entitled to compensation calculated as a proportion of the fees payable by the Company in respect of the previous financial year.
With effect from 1 April 2018 until 31 March 2022 the investment management fee was 0.65 per cent per annum on the net asset value of the Company. As set out in the Report of the Directors, with effect from 1 April 2022 the investment management fee will be reduced to 0.60 per cent per annum on the net asset value of the Company.
The investment management fee for the quarter ended 31 March 2022 of £178,000 (2021: £184,000) is due to the Company's investment manager at the year end.
| 2022 | 2021 | |
|---|---|---|
| £'000 | £'000 | |
| Auditor's remuneration: | ||
| – for audit services | 38 | 36 |
| Broker and professional fees | 49 | 52 |
| Custody and depository | 20 | 18 |
| Directors' fees for services to the Company (Note 6) | 132 | 136 |
| Marketing | 88 | 57 |
| Printing and postage | 41 | 40 |
| Registrar's fees | 33 | 35 |
| Revolving credit facility committment fee | 20 | 32 |
| Subscription and listing fees | 46 | 43 |
| Sundry expenses | 39 | 31 |
| Total other expenses | 506 | 480 |
The emoluments of the Chairman, the highest paid Director, were at the rate of £39,000 per annum (2021: £34,500).
Other Directors' emoluments amounted to £26,000 (2021: £23,500) each per annum, with the chairman of the Audit Committee receiving an additional £6,500 (2021: £4,500) per annum. Full details are provided in the Directors' Remuneration Report on pages 50 to 52.
| 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | ||
|---|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Finance costs attributable to term loan | 62 | 146 | 208 | 62 | 143 | 205 | |
| Finance costs attributable to revolving credit facility | 16 | 37 | 53 | 7 | 17 | 24 | |
| Total finance costs | 78 | 183 | 261 | 69 | 160 | 229 |
Finance costs have been allocated 30 per cent to revenue and 70 per cent to capital in accordance with the Company's accounting policies.
| 2022 Revenue £'000 |
2022 Capital £'000 |
2022 Total £'000 |
2021 Revenue £'000 |
2021 Capital £'000 |
2021 Total £'000 |
|
|---|---|---|---|---|---|---|
| Overseas taxation | 24 | – | 24 | 7 | – | 7 |
| Total taxation charge (see note 8(b)) | 24 | – | 24 | 7 | – | 7 |
A reconciliation of the current tax charge for the current year is set out below:
| 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | |
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Profit/(loss) before tax | 4,202 | (1,794) | 2,408 | 3,027 | 29,299 | 32,326 |
| Profit/(loss) multiplied by the effective | ||||||
| rate of corporation tax of 19.0% (2021: 19.0%) | 798 | (341) | 457 | 575 | 5,567 | 6,142 |
| Effects of: | ||||||
| Non taxable dividend income | (927) | – | (927) | (701) | – | (701) |
| Expenses not utilised in the year | 129 | 135 | 264 | 126 | 124 | 250 |
| Overseas taxation suffered | 24 | – | 24 | 7 | – | 7 |
| Non taxable capital losses/(gains) | – | 206 | 206 | – | (5,691) | (5,691) |
| Total taxation (see note 8(a)) | 24 | – | 24 | 7 | – | 7 |
The deferred tax asset of £3,400,000 (2021: £2,320,000) in respect of unutilised expenses at 31 March 2022 has not been recognised as it is uncertain that there will be taxable profits from which the future reversal of the deferred tax asset could be deducted. The deferred tax asset has been calculated at the prospective UK corporation tax rate of 25% which takes effect from 1 April 2023 (2021: 19% standard rate of corporation tax).
| 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | ||
|---|---|---|---|---|---|---|---|
| Payment | Revenue | Capital | Total | Revenue | Capital | Total | |
| date | £'000 | £'000 | £'000 | £'000 | £'000 – 414 – 398 – 397 – 396 1,605 – 439 |
£'000 | |
| Amounts recognised as distributions to shareholders in the year: | |||||||
| For the year ended 31 March 2021 | |||||||
| Fourth interim dividend at 1.43p (2020: 1.34p) per Ordinary share | 7-May-21 | 1,218 | – | 1,218 | 1,151 | 1,151 | |
| Fourth capital repayment at 1.43p (2020: 1.34p) per B share | 7-May-21 | – | 439 | 439 | – | 414 | |
| For the year ended 31 March 2022 | |||||||
| First interim dividend at 1.29p (2021: 1.29p) per Ordinary share | 6-Aug-21 | 1,099 | – | 1,099 | 1,108 | 1,108 | |
| First capital repayment at 1.29p (2021: 1.29p) per B share | 6-Aug-21 | – | 396 | 396 | – | 398 | |
| Second interim dividend at 1.29p (2021: 1.29p) per Ordinary share | 5-Nov-21 | 1,099 | – | 1,099 | 1,107 | 1,107 | |
| Second capital repayment at 1.29p (2021: 1.29p) per B share | 5-Nov-21 | – | 396 | 396 | – | 397 | |
| Third interim dividend at 1.32p (2021: 1.29p) per Ordinary share | 4-Feb-22 | 1,124 | – | 1,124 | 1,099 | 1,099 | |
| Third capital repayment at 1.32p (2021: 1.29p) per B share | 4-Feb-22 | – | 405 | 405 | – | 396 | |
| 4,540 | 1,636 | 6,176 | 4,465 | 6,070 | |||
| Amounts relating to the year but not paid at the year end: | |||||||
| Fourth interim dividend at 1.55p (2021: 1.43p) per Ordinary share | 6-May-22 | 1,320 | – | 1,320 | 1,218 | 1,218 | |
| Fourth capital repayment at 1.55p (2021: 1.43p) per B share | 6-May-22 | – | 476 | 476 | – | 439 | |
| 1,320 | 476 | 1,796 | 1,218 | 439 | 1,657 |
As shown in the preceding table, the Directors have declared a fourth interim dividend and capital repayment in respect of the year ended 31 March 2022 of 1.55p per share, which was paid on 6 May 2022 to shareholders on the register on 8 April 2022. Although these payments relate to the year ended 31 March 2022, under UK-adopted International Accounting Standards they will be accounted for in the period during which they are paid.
The dividends paid and payable in respect of the financial year ended 31 March 2022, which form the basis of the retention test under Chapter 4, Part 24 of the Corporation Taxes Act 2010 are as follows:
| Transferred from revenue reserve | (464) |
|---|---|
| Fourth of four interims for the year ended 31 March 2022 of 1.55p per share* | (1,320) |
| Third of four interims for the year ended 31 March 2022 of 1.32p per share | (1,124) |
| Second of four interims for the year ended 31 March 2022 of 1.29p per share | (1,099) |
| First of four interims for the year ended 31 March 2022 of 1.29p per share | (1,099) |
| Revenue available for distribution by way of dividends for the year | 4,178 |
| £'000 | |
| 2022 |
*based on 85,172,653 Ordinary shares in issue at the record date of 8 April 2022.
The Company's earnings per share are based on the profit for the year of £2,384,000 (year to 31 March 2021: £32,319,000) and on 85,172,653 Ordinary shares (2021: 85,648,406) and 30,708,750 B shares (2021: 30,802,860), being the weighted average number of shares in issue of each share class during the year.
The Company's revenue earnings per share are based on the revenue profit for the year of £4,178,000 (year to 31 March 2021: £3,020,000) and on the weighted average number of shares in issue as above.
The Company's capital earnings per share are based on the capital loss for the year of £1,794,000 (year to 31 March 2021 profit: £29,299,000) and on the weighted average number of shares in issue as above.
| 2022 | 2021 | |
|---|---|---|
| £'000 | £'000 | |
| Listed securities | 111,112 | 122,999 |
| Subsidiary undertaking | 250 | 250 |
| 111,362 | 123,249 |
| Listed/ Quoted (Level 1) £'000 |
Subsidiary/ Unlisted (Level 3)* £'000 |
Total £'000 |
|
|---|---|---|---|
| Cost brought forward | 109,690 | 250 | 109,940 |
| Gains brought forward | 13,309 | – | 13,309 |
| Fair value of investments at 31 March 2021 | 122,999 | 250 | 123,249 |
| Purchases at cost | 10,594 | – | 10,594 |
| Sales proceeds | (21,394) | – | (21,394) |
| Gains on investments sold in year | 5,625 | – | 5,625 |
| Losses on investments held at year end | (6,712) | – | (6,712) |
| Fair value of investments at 31 March 2022 | 111,112 | 250 | 111,362 |
| Cost at 31 March 2022 | 104,515 | 250 | 104,765 |
| Gains at 31 March 2022 | 6,597 | – | 6,597 |
| Fair value of investments at 31 March 2022 | 111,112 | 250 | 111,362 |
* Level 3 is the investment in the subsidiary undertaking, Investors Securities Company Limited, which is valued at its net asset value and for which observable market data is not applicable.
| 2022 £'000 |
2021 £'000 |
|
|---|---|---|
| Equity investments | 111,362 | 123,249 |
| Gains on investments sold in year | 5,625 | 1,953 |
| (Losses)/gains on investments held at year end | (6,712) | 28,035 |
| Total (losses)/gains in year | (1,087) | 29,988 |
The Company incurred transaction costs of £31,500 (2021: £44,000) on the purchase of assets and £8,900 (2021: £10,200) on the sale of assets in the year.
Gains on investments sold in the year represents the difference between the net proceeds of sale and the book cost of the investments sold. Investments sold during the year have been revalued over time since their original purchase, and until they were sold any unrealised gains/ losses were included in the fair value of the investments.
Losses on investments held at year end represents the decrease in the difference between the book cost of investments held and their market value at 31 March 2022 compared with the difference between the book cost of investments held and their market value at 31 March 2021.
As at 31 March 2022, the Company's subsidiary undertaking which deals in investments is:
| Share | Valuation | ||||||
|---|---|---|---|---|---|---|---|
| Country of | Capital and | Profit for | % of | % of | at 31.03.22 | ||
| incorporation | Class of | Reserves | the year | Class | Equity | and 31.03.21 | |
| Name | or Registration | Capital | £'000 | £'000 | held | held | £'000 |
| Investors Securities Company Limited | Scotland | Ordinary | 250 | – | 100 | 100 | 250 |
The registered office of Investors Securities Company Limited is 6th Floor, Quartermile 4, 7a Nightingale Way, Edinburgh EH3 9EG.
At 31 March 2022, no investments were held by the dealing subsidiary and it did not trade during the year. The accounts of this subsidiary have not been consolidated with those of the Company as, in the opinion of the Directors, it is not material.
| 2022 | 2021 | |
|---|---|---|
| £'000 | £'000 | |
| Income receivable from shares and securities | 936 | 863 |
| Due from brokers in settlement of sales of investments | 2,130 | – |
| Withholding tax recoverable | 111 | 86 |
| Sundry debtors and prepayments | 33 | 41 |
| 3,210 | 990 |
All cash balances in the current and prior year were held in cash, current accounts or in banks on short term deposits with an original maturity of three months or less at the year end.
| 2022 | 2021 | |
|---|---|---|
| £'000 | £'000 | |
| Loan from subsidiary undertaking repayable on demand | 250 | 250 |
| Investment management fee payable to the manager | 178 | 184 |
| Loan Interest | 2 | 3 |
| Accrued expenses | 113 | 105 |
| 543 | 542 |
| 2022 £'000 |
2021 £'000 |
|
|---|---|---|
| £7.5 million multicurrency revolving credit facility | – | 3,500 |
The Company has a £7.5 million unsecured multicurrency revolving credit facility ("RCF") with Scotiabank (Ireland) Designated Activity Company available until 28 September 2022. None of the RCF was drawn down at 31 March 2022 (2021: £3.5 million was drawn down).
| 2022 £'000 |
2021 £'000 |
|
|---|---|---|
| £7.5 million term loan maturing 28 September 2022 | 7,500 | 7,500 |
The Company has a £7.5 million unsecured term loan from Scotiabank Europe plc until 28 September 2022 and at a fixed interest rate of 2.58 per cent per annum. Arrangement and legal fees of £60,000 were incurred and are being amortised over the term of these facilities.
The loan agreements contain certain financial covenants with which the Company must comply. These include a financial covenant with respect to the ratio of the Adjusted Net Asset Value (as defined in the loan agreements) to the level of debt and also that the Net Asset Value does not fall below £65 million. The Company complied with the required financial covenants throughout the period since drawdown.
The fair value of the £7.5 million term loan, calculated using a discounted cashflow technique, is not materially different from the value reflected in the Statement of Financial Position.
| Listed | Held in Treasury | In Issue | ||||
|---|---|---|---|---|---|---|
| Number | £ | Number | £ | Number | £ | |
| Ordinary Shares of 0.1p each | ||||||
| Balance at 1 April 2021 | 102,067,144 | 102,067 | (16,894,491) | (16,894) | 85,172,653 | 85,173 |
| Balance at 31 March 2022 | 102,067,144 | 102,067 | (16,894,491) | (16,894) | 85,172,653 | 85,173 |
| B shares of 0.1 pence each | ||||||
| Balance at 1 April 2021 | 32,076,703 | 32,077 | (1,367,953) | (1,368) | 30,708,750 | 30,709 |
| Balance at 31 March 2022 | 32,076,703 | 32,077 | (1,367,953) | (1,368) | 30,708,750 | 30,709 |
| Total at 31 March 2022 | 134,143,847 | 134,144 | (18,262,444) | (18,262) | 115,881,403 | 115,882 |
During the year the Company bought back nil Ordinary Shares (2021: 750,000 Ordinary shares) to hold in treasury at a cost of £nil (2021: £634,000) and nil B Shares (2021: 150,000 B Shares) to hold in treasury at a cost of £nil (2021: £129,000).
At 31 March 2022 the Company held 16,894,491 Ordinary Shares (2021: 16,894,491 Ordinary shares) and 1,367,953 B Shares (2021: 1,367,953 B Shares) in treasury.
The Company has two classes of shares: Ordinary Shares and B Shares. The rights of each class of shares are identical, save in respect of the right to participate in dividends and capital repayments. Ordinary Shares are entitled to all dividends paid by the Company and no dividends may be paid to B Shareholders. B Shareholders are entitled to capital repayments from the Company at an amount per share equal to, but not exceeding, any dividend paid per share to Ordinary Shareholders. The capital repayments are paid out of the special capital reserve and accordingly will only be able to be paid for so long as the amount of the special capital reserve remains sufficient. If and when this reserve is exhausted, the Articles of Association provide that all the Ordinary shares and all the B Shares automatically convert into Ordinary shares with identical rights.
The net asset value attributable to each class of share is the same. Apart from voting rights entitlements at separate class meetings, every Ordinary Share and every B Share carries equal voting rights. Upon a winding up or reconstruction of the Company, each Ordinary Share and each B Share shall have an equal right to share in the residual assets of the Company.
In 2007, the Court of Session confirmed the cancellation of the entire amount originally standing to the credit of the share premium account and the creation of two distinct reserves, the first reserve relating to that part of the cancelled share premium account arising from premiums paid on the A Shares (the "buy back reserve") and the second reserve relating to that part of the cancelled share premium account arising from premiums paid on the B Shares (the "special capital reserve").
The Company will apply these two reserves as follows:
The Company's capital is represented by the issued share capital, share premium account, capital redemption reserve, buy back reserve, special capital reserve, capital reserve – investments sold, capital reserve – investments held and revenue reserve. Details of the movement through each reserve are shown in the Statement of Changes in Equity. The Company is not subject to any externally imposed capital requirements.
The capital of the Company is managed in accordance with its investment policy, in pursuit of its investment objective, both of which are detailed in the Purpose, Strategy and Business Model and Principal Policies and the Report of the Directors. In order to maintain an optimal capital structure through varying market conditions the Company has the ability to:
The Company has the power under its Articles to borrow an amount up to 100 per cent of the Company's Adjusted Capital and Reserves. The Directors currently intend that the aggregate borrowings of the Company will be limited to approximately 20 per cent of the Company's gross assets immediately following drawdown of any new borrowings. The Directors will, however, retain flexibility to increase or decrease the level of gearing to take account of changing market circumstances and in pursuit of the Company's investment objectives.
| 2022 | 2021 | |
|---|---|---|
| Net assets attributable at the year end | £111,215,000 | £115,007,000 |
| Equity shares in issue at the year end(1) | 115,881,403 | 115,881,403 |
| Net asset value per Ordinary/B share | 95.97p | 99.25p |
(1) Consisting of 85,172,653 Ordinary Shares and 30,708,750 B Shares (2021: 85,172,653 Ordinary Shares and 30,708,750 B Shares), being the number of shares in issue at the year end.
The Company's shares may also be traded as units, each unit consisting of three Ordinary Shares and one B Share. The basic net asset value per unit as at 31 March 2022 was therefore 383.88p (2021: 397.00p).
The Company's treasury net asset value per share, incorporating the 16,894,491 Ordinary shares and 1,367,953 B Shares held in treasury at the year end (2021: 16,894,491 Ordinary Shares and 1,367,953 B Shares), was 95.97p (2021: 99.25p). The Company's treasury net asset value per unit at the end of the year was 383.88p (2021: 397.00p). The Company's current policy is to only re‑sell shares held in treasury at a price not less than the net asset value per share.
| 2022 £'000 |
2021 £'000 |
|
|---|---|---|
| Opening liabilities from financing activities | 11,000 | 7,500 |
| Cash-flows: | ||
| Drawdown of bank loan | 2,000 | 3,500 |
| Repayment of bank loan | (5,500) | – |
| Closing liabilities from financing activities | 7,500 | 11,000 |
The Company's financial instruments comprise equity investments, cash balances, receivables and payables that arise directly from its operations and borrowings. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings to achieve enhanced returns. The downside risk of borrowings can be mitigated by raising the level of cash balances held.
The Company may use derivatives for efficient portfolio management from time to time. No derivative financial instruments were used during the current year or prior year. The Company may also write call options over some investments held in the Investment Portfolio. There were no call options written during the current year or prior year.
The fair value of the financial assets and liabilities of the Company at 31 March 2022 is not materially different from their carrying value in the financial statements.
The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, market price risk, liquidity risk, interest rate risk and foreign currency risk.
The Board reviews and agrees policies for managing its risk exposure. These policies are summarised overleaf and have remained unchanged for the year under review.
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.
The Company's principal financial assets are bank balances and cash and other receivables, whose carrying amounts in the Statement of Financial Position represent the Company's maximum exposure to credit risk in relation to financial assets. The Company did not have any exposure to any financial assets which were past due or impaired at the current or prior year end.
The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities which the Company has delivered. A list of pre‑approved counterparties used in such transactions is maintained and regularly reviewed by the Manager, and transactions must be settled on a basis of delivery against payment. Broker counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable quality of the brokers used. The rate of default in the past has been insignificant.
All of the investments of the Company, are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to the securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports as described in the Report of the Audit Committee.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.
The Company has no significant concentration of credit risk with exposure spread over a number of counterparties and financial institutions.
The fair value of equity and other financial securities held in the Company's portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. Other external events such as protectionism, inflation or deflation, economic recessions and terrorism could also affect share prices in particular markets. The Company's strategy for the management of market price risk is driven by the Company's investment policy as outlined within the Purpose, Strategy and Business Model on pages 9 and 10 and Principal Policies on pages 30 and 31. The Board sets policies for managing this risk and meets regularly to review full, timely and relevant information on investment performance and financial results. The management of market price risk is part of the fund management process and is typical of equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Investment performance is discussed in more detail in the Manager's Review and further information on the investment portfolio is set out in the sections of this report entitled 'Classification of Investments' and 'Investment Portfolio'.
Any changes in market conditions will directly affect the profit or loss reported through the Statement of Comprehensive Income. A 20 per cent increase in the value of the Investment Portfolio as at 31 March 2022 would have increased net assets and income for the year by £22,272,000 (2021: an increase of 20 per cent in the Investment Portfolio would have increased net assets and income by £24,650,000). A decrease of 20 per cent (2021: 20 per cent) would have had an equal but opposite effect.
The calculations above are based on investment valuations at the respective statement of financial position dates and are not representative of the year as a whole, nor are they reflective of future market conditions.
Disclosure of the hierarchy of fair value measurements for financial instruments, as required by IFRS 13, is provided in note 11 and in the accounting policies.
Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given the liquid nature of the portfolio of investments and the level of cash and cash equivalents ordinarily held. Cash balances are held with a spread of reputable banks with a credit rating of normally A or higher, usually on overnight deposit. The Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting.
In certain circumstances, the terms of the Company's bank loans entitle the lender to demand early repayment and, in such circumstances, the Company's ability to maintain dividend levels and the net asset value attributable to equity shareholders could be adversely affected. Such early repayment may be required on the occurrence of certain events of default which are customary for facilities of this type. These include events of non payment, breach of other obligations, misrepresentations, insolvency and insolvency proceedings, illegality and a material adverse change in the financial condition of the Company.
The remaining contractual maturities of the financial liabilities at 31 March 2022, based on the earliest date on which payment can be required, were as follows:
| Three months or less £'000 |
More than three months but less than one year £'000 |
More than one year but less than two years £'000 |
More than two years but less than five years £'000 |
Total £'000 |
|
|---|---|---|---|---|---|
| 31 March 2022 | |||||
| Current liabilities | |||||
| Payables | 293 | – | – | – | 293 |
| Bank loans | 48 | 7,548 | – | – | 7,596 |
| 31 March 2021 | |||||
| Current liabilities | |||||
| Payables | 292 | – | – | – | 292 |
| Bank loans | 3,504 | – | – | – | 3,504 |
| Non-current liabilities | |||||
| Bank loan | 48 | 145 | 7,597 | – | 7,790 |
The figures in the above table are on a contractual maturity basis and therefore include interest payments where applicable.
Some of the Company's financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Company's exposure to floating interest rates gives cashflow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.
When the Company retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate, which was 0.75 per cent at 31 March 2022 (2021: 0.1 per cent).
Considering the effect on cash balances, an increase of 100 basis points in interest rates would have increased net assets and income for the year by £47,000 (year to 31 March 2021: £23,000). A decrease of 100 basis points would have had an equal but opposite effect. The calculations are based on the net cash balances at the respective statement of financial position date and are not representative of the year as a whole, nor are they reflective of future market conditions.
At 31 March 2022 and 31 March 2021 the Company's Investment Portfolio did not contain any fixed interest or floating rate interest assets. Details of the Company's Investment Portfolio are given in Note 11 and in the section of this report entitled 'Classification of Investments' and 'Investment Portfolio'. At 31 March 2022 and 31 March 2021 the Company had fixed interest liabilities.
| Weighted average interest |
2022 Average duration until |
Weighted average interest |
||||
|---|---|---|---|---|---|---|
| £'000 | rate | maturity | £'000 | rate | until maturity |
|
| Fixed interest liabilities: | ||||||
| Term loan | 7,500 | 2.58% | 0.5 years | 7,500 | 2.58% | 1.5 years |
| Revolving credit facility | – | – | – | 3,500 | 1.50% | 0.1 years |
The £7.5 million term loan carries a fixed interest rate of 2.58 per cent per annum. An interest rate sensitivity analysis has not been performed as the Company has borrowed at a fixed rate of interest.
It is not the Company's policy to hedge any overseas currency exposure on equity investments. Foreign currency exposure (which includes Euro and Swiss Franc denominated equity investments) at 31 March 2022 and 31 March 2021 was as follows:
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| Net | Net | |||||
| Current | Current | |||||
| Investments | Assets | Total | Investments | Assets | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Swiss Franc | 3,851 | 26 | 3,877 | 3,765 | 8 | 3,773 |
| Euro | 14,634 | 80 | 14,714 | 14,165 | 56 | 14,221 |
| Total | 18,485 | 106 | 18,591 | 17,930 | 64 | 17,994 |
Total gains in the year from foreign exchange transactions and balances held in cash were £5,000 (2021 losses: £35,000).
At 31 March 2022, if the value of sterling had weakened against the Euro and Swiss Franc by 10 per cent the impact on the profit or loss and the net asset value would have been an increase of £2,054,000 (2021: £2,088,000). If the value of sterling had strengthened against the Euro and Swiss Franc by 10 per cent the effect the impact on the profit or loss and the net asset value would have been a decrease of £1,680,000 (2021: £1,552,000).
The Directors of the Company are considered a related party. There are no transactions with the Board other than aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report on pages 50 to 52 and as set out in note 6 to the financial statements. There are no outstanding balances with the Board at year end.
The beneficial interests of the Directors in the Ordinary shares and B shares of the Company are disclosed on page 51.
Transactions between the Company and BMO Investment Business Limited are detailed in note 4 on management fees and in note 15 in relation to fees owed to BMO Investment Business Limited at the statement of financial position date. The existence of an independent Board of Directors demonstrated that the Company is free to pursue its own financial and operating policies and therefore under the AIC SORP, the Manager is not considered a related party.
Since 31 March 2022, there are no post balance sheet events which would require adjustment of or disclosure in the financial statements.
In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, BMO Investment Business Limited, is required to be made available to investors. Detailed regulatory disclosures including those on the AIFM's remuneration policy and costs are available on the Company's website or from BMO GAM on request.
The Company's maximum and average actual leverage levels at 31 March 2022 are shown below:
| Gross | Commitment | |
|---|---|---|
| Leverage exposure | method | method |
| Maximum limit | 260% | 260% |
| Actual | 100% | 104% |
For the purposes of the AIFM Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a percentage of the Company's exposure to its net asset value and is calculated on both a gross and commitment method.
Under the gross method, exposure represents the sum of the Company's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other.
The leverage limits are set by the AIFM and approved by the Board and are in line with the maximum leverage levels permitted in the Company's Articles of Association. The AIFM is also required to comply with the gearing parameters set by the Board in relation to borrowings.
Detailed regulatory disclosures to investors in accordance with the AIFM Directive are contained on the Company's website under Key Documents.
Notice is hereby given that the fifteenth Annual General Meeting of BMO UK High Income Trust PLC (Company registration number SC314671 and to be renamed CT UK High Income Trust PLC (the 'Company')) will be held at Exchange House, Primrose Street, London EC2A 2NY, on 20 July 2022 at 12 noon for the following purposes. To consider and, if thought fit, pass the following Resolutions, of which Resolutions 1 to 8 and 12 will be proposed as Ordinary Resolutions and Resolutions 9 to 11 and 13 as Special Resolutions:
such authority to expire at the conclusion of the Company's next Annual General Meeting or on 30 September 2023, whichever is the earlier, unless previously revoked, varied or extended by the Company in a general meeting, save that the Company may at any time prior to the expiry of this authority make an offer or enter into an agreement which would or might require shares in the Company to be allotted or Rights to be granted after the expiry of such authority and the Directors shall be entitled to allot shares in the Company or grant Rights in pursuance of such an offer or agreement as if such authority had not expired.
(b) shall be limited to the allotment of equity securities up to an aggregate nominal value of £4,258 in respect of Ordinary Shares and £1,535 in respect of B Shares (being approximately 4.3 per cent of the total nominal value of the issued share capital of the Company (including treasury shares), as at 30 May 2022) at a price of not less than the net asset value per share of the existing Ordinary Shares (in the case of an allotment of Ordinary Shares) or B Shares (in the case of an allotment of B Shares).
(d) unless previously varied, revoked or renewed by the Company in a general meeting, the authority hereby conferred shall expire at the conclusion of the Company's next Annual General Meeting or on 30 September 2023 whichever is the earlier, save that the Company may, prior to such expiry, enter into a contract to purchase Ordinary Shares and/or B Shares under such authority which will or might be completed or executed wholly or partly after the expiration of such authority and may make a purchase of Ordinary Shares and/or B Shares pursuant to any such contract.
That, the Directors of the Company be and they are hereby empowered pursuant to section 573 of the Companies Act 2006 (as amended) (the "Act") to sell equity securities (within the meanings of sections 560(1) and 560(2) of the Act) wholly for cash as if section 561 of the Act did not apply to any such sale, provided that this power shall be limited to the sale of equity securities for cash out of treasury up to an aggregate nominal amount of £8,517 in respect of Ordinary Shares and £3,070 in respect of B Shares, representing approximately 8.3 per cent of the Company's Ordinary share capital in issue (including treasury shares) as at the date of the passing of this resolution and approximately 9.6 per cent of the Company's B share capital in issue (including treasury shares) as at the date of the passing of this resolution and shall expire on the earlier of 30 September 2023 or at the conclusion of the Company's next Annual General Meeting, unless renewed at a general meeting prior to such time, save that the Company may before such expiry make offers, agreements or arrangements which would or might require equity securities to be allotted after such expiry and so that the Directors of the Company may allot equity securities in pursuance of such offers, agreements or arrangements as if the power conferred hereby had not expired.
By order of the Board For BMO Investment Business Limited Company Secretary Quartermile 4, 7a Nightingale Way Edinburgh EH3 9EG
30 May 2022
The statements of the rights of members in relation to the appointment of proxies in Notes 1 and 2 above do not apply to a Nominated Person. The rights described in those Notes can only be exercised by registered members of the Company.
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those holders of shares entered on the Register of Members of the Company as at 6.30 p.m. on 18 July 2022 or, in the event that the meeting is adjourned, on the Register of Members as at 6.30 pm on the day two days (excluding non‑working days) prior to any adjourned meeting, shall be entitled to attend or vote at the meeting in respect of the number of Shares registered in their names at that time. Changes to the entries on the Register of Members after 6.30 p.m. on 18 July 2022 or, in the event that the meeting is adjourned, in the Register of Members as at 6.30 pm on the day two days prior to any adjourned meeting (excluding non‑working days), shall be disregarded in determining the rights of any person to attend or vote at the meeting, notwithstanding any provisions in any enactment, the Articles of Association of the Company or other instrument to the contrary.
cent. of the number of Ordinary shares and 14.99 per cent. of the number of B shares in issue (excluding treasury shares) immediately prior to the passing of the resolution).
The Company has a capital structure comprising Ordinary shares and B shares. In addition, the Company has a bank loan and borrowing facility.
The Company's capital structure offers shareholders the opportunity to receive quarterly returns in the form of either dividends, capital repayments, or both, to suit their own particular circumstances.
The Company has two classes of shares: Ordinary shares and B shares. The rights of each class of shares are identical, save in respect of the right to participate in dividends and capital repayments. Irrespective of these rights, the net asset value attributable to each class of shares is the same.
Only Ordinary shares carry a right to participate in dividends paid by the Company. B shares are not entitled to dividends but each B share instead carries the right to receive a capital repayment at the same time as, and in an amount equal to, each dividend paid in respect of Ordinary shares. The capital repayments are paid out of the special capital reserve and accordingly will only be able to be paid for so long as the amount of the special capital reserve remains sufficient. If and when this reserve is exhausted, the Articles of Association provide that all the Ordinary shares and all the B Shares automatically convert into Ordinary shares with identical rights.
The tax treatment on distributions received from Ordinary shares will be different from that on distributions received from B shares. Dividends paid on the Ordinary shares will be taxed on receipt in the normal way for dividends. Capital repayments received on B shares will fall to be taxed in accordance with the rules relating to the taxation of chargeable gains (see further information below) for non‑corporate holders (including individuals).
It is the Company's current policy to maintain the ratio of Ordinary shares to B shares (excluding shares held in Treasury) within the range 72.5% : 27.5% and 77.5% : 22.5%. The Board may if it considers it to be in the best interests of the Company, amend the ratio from time to time. However, the Board will always be mindful in setting the ratio of any impact on the level of revenue available for the Ordinary shares.
These two securities can be traded together in the form of a unit with each unit consisting of three Ordinary shares and one B share.
The Company has a £7.5 million unsecured term loan until 28 September 2022 at a fixed rate of interest of 2.58 per cent per annum. It also has a £7.5 million revolving credit facility available until 28 September 2022. The returns of both the Ordinary shares and B shares are geared by these bank facilities.
The B shares are just like any other ordinary share except that, instead of dividends, B shareholders receive capital repayments, so B shareholders will receive the same amount of cash on a quarterly basis as Ordinary shareholders, but when it comes to the tax on these capital repayments the tax treatment will be different. Effectively, no UK tax is due on receipt of the capital repayments.
So a higher rate taxpayer, for example, will not be liable on receipt to the additional income tax that would normally be applicable on receipt of a dividend. This is because the capital repayment is taxed under UK Capital Gains Tax ('CGT') rules rather than Income Tax rules for non‑corporate holders (including individuals). It is only when the B shares are disposed of that the capital repayments received need to be taken into account as part of the CGT disposal calculation. If the shares continue to be held until death, no CGT arises in respect of the capital repayments. The value of the holding will, however, be taken into account for Inheritance Tax purposes, if applicable.
The capital repayments paid on the B shares will be taxed for individuals under CGT rules rather than Income Tax rules. Holders of B shares therefore have more scope for tax planning (for example, by selling shares within the annual CGT exempt amount, or by offsetting gains against capital losses).
UK tax is not, in normal circumstances, due on receipt of the quarterly capital repayments and you do not need to include them on your tax return. Instead, when you dispose of B shares, an amount equivalent to the capital repayments you have received is deducted from the tax base cost as part of the CGT calculation. This treatment applies because the quarterly sums are treated as 'small capital receipts' under CGT rules; being either less than 5 per cent of the market value of the B shareholding at the date of receipt or less than £3,000.
An individual B shareholder's annual exempt amount for CGT purposes is not reduced or prejudiced by this treatment of capital repayments. Non‑UK resident shareholders will not be subject to UK tax on capital repayments, although local tax could arise.
The above is based on an understanding of legislation and HM Revenue and Customs' practice at the time of publication. Tax rates and reliefs depend on the circumstances of the individual investor, are subject to government legislation and may change in the future. You should consult your tax adviser on your own individual tax circumstances.
Dividends on Ordinary shares and capital repayments on B shares are paid quarterly in August, November, February and May each year. Shareholders who wish to have distributions paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandates may be obtained from Equiniti Limited (see back cover page for contact details) on request. Where distributions are paid directly into shareholders' bank accounts, dividend and capital repayment tax vouchers are sent directly to shareholders' registered addresses.
If you hold B shares through one of the BMO savings plans, you can elect to have the quarterly repayments automatically reinvested to buy further shares; contact BMO for further information.
The Company's securities are listed on the London Stock Exchange under 'Investment Trusts'. Prices are given daily in the Financial Times and other newspapers. The net asset value of the Company's shares can be obtained by contacting BMO Investor Services on 0345 600 3030.
Communications with shareholders are mailed to the address held on the share register. In the event of a change of address or other amendment this should be notified to Equiniti Limited, under the signature of the registered holder
The Company is committed to protecting and respecting the confidentiality, integrity and security of the personal data it holds. For information on the processing of personal data, please see the privacy policy on the Company's website at www.bmoukhighincome.com.
Profile of the Company's Ownership % of Shares held at 31 March 2022
BMO Savings Plans (41%)
Fraudsters use persuasive and high‑pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non‑existent, or to buy shares at an inflated price in return for an upfront payment.
If you receive unsolicited investment advice or requests:
If you are approached by fraudsters please tell the FCA by using the share fraud reporting form at www.fca.org.uk/scams where you can find out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
One of the most convenient ways to invest in BMO UK High Income Trust is through one of the savings plans run by BMO.
You can use your ISA allowance to make an annual tax efficient investment of up to £20,000 for the current tax year with a lump sum from £100 or regular savings from £25 a month. You can also transfer any existing ISAs to us whilst maintaining the tax benefits.
A tax efficient way to invest up to £9,000 per tax year for a child. Contributions start from £100 lump sum or £25 a month. JISAs or CTFs with other providers can be transferred to BMO.
For those aged 18-39, a Lifetime ISA could help towards purchasing your first home or retirement in later life. Invest up to £4,000 for the current tax year and receive a 25% Government bonus up to £1,000 per year. Invest with a lump sum from £100 or regular savings from £25 a month.
If your child already has a CTF you can invest up to £9,000 per birthday year, from £100 lump sum or £25 a month. CTFs with other providers can be transferred to BMO.
This is a flexible way to invest in our range of Investment Trusts. There are no maximum contributions, and investments can be made from £100 lump sum or £25 a month.
This is a flexible way to save for a child in our range of Investment Trusts. There are no maximum contributions, and the plan can easily be set up under bare trust (where the child is noted as the beneficial owner) or kept in your name if you wish to retain control over the investment. Investments can be made from a £100 lump sum or £25 a month per account. You can also make additional lump sum top-ups at any time from £100 per account.
*The CTF and JISA accounts are opened by parents in the child's name and they have access to the money at age 18. **Calls may be recorded or monitored for training and quality purposes.
bmoinvestments.co.uk
facebook.com/bmoinvestmentsuk
Annual management charges and other charges apply according to the type of plan.
Annual account charge
ISA/LISA: £60+VAT GIA: £40+VAT JISA/JIA/CTF: £25+VAT
You can pay the annual charge from your account, or by direct debit (in addition to any annual subscription limits).
£12 per fund (reduced to £0 for deals placed through the online BMO Investor Portal) for ISA/GIA/LISA/JIA and JISA. There are no dealing charges on a CTF.
Dealing charges apply when shares are bought or sold but not on the reinvestment of dividends or the investment of monthly direct debits. Government stamp duty of 0.5% also applies on the purchase of shares (where applicable).
The value of investments can go down as well as up and you may not get back your original investment. Tax benefits depend on your individual circumstances and tax allowances and rules may change. Please ensure you have read the full Terms and Conditions, Privacy Policy and relevant Key Features documents before investing. For regulatory purposes, please ensure you have read the Pre-sales Cost & Charges disclosure related to the product you are applying for, and the relevant Key Information Documents (KIDs) for the investment trusts you want to invest into.
To open a new BMO plan, apply online at bmogam.com/apply
Online applications are not available if you are transferring an existing plan with another provider to BMO, or if you are applying for a new plan in more than one name but paper applications are available at bmoinvestments.co.uk/documents or by contacting BMO.
Call: 0800 136 420** (8.30am – 5.30pm, weekdays) Email: [email protected]
| Call: | 0345 600 3030** (9.00am – 5.00pm, weekdays) |
|---|---|
| Email: | [email protected] |
| By post: | BMO Administration Centre, PO Box 11114, Chelmsford, CM99 2DG |
You can also invest in the trust through online dealing platforms for private investors that offer share dealing and ISAs. Companies include: Barclays Stockbrokers, EQi, Halifax, Hargreaves Lansdown, HSBC, Interactive Investor, Lloyds Bank, The Share Centre
© 2022 BMO Global Asset Management. BMO Global Asset Management is a registered trading name for various affiliated entities of BMO Global Asset Management (EMEA) that provide investment management services, institutional client services and securities products. Financial promotions are issued for marketing and information purposes; in the United Kingdom by BMO Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority. This entity is a wholly owned subsidiary of Columbia Threadneedle Investments UK International Limited, whose direct parent is Ameriprise Inc., a company incorporated in the United States. It was formerly part of BMO Financial Group and is currently using the "BMO" mark under licence. 186311 (04/22) UK
at 31 March
| £'000s | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total assets less current liabilities | 143,158 139,498 144,552 144,886 134,528 149,649 129,825 127,605 | 97,021 126,007 118,715 | |||||||||
| Bank loans at fair value* | 34,245 | 18,186 | 17,692 | 18,103 | 18,156 | 18,078 | 7,500 | 7,500 | 7,500 | 11,000 | 7,500 |
| Net assets, debt at fair value | 108,913 121,312 126,860 126,783 116,372 131,571 122,325 120,105 | 89,521 115,007 111,215 | |||||||||
| * includes interest rate swap, where applicable | |||||||||||
| Net Asset Value (NAV)* | |||||||||||
| at 31 March | |||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| NAV per A/Ordinary share and per B share | 85.9p | 97.9p | 102.8p | 103.6p | 96.3p | 111.1p | 103.7p | 102.4p | 76.7p | 99.3p | 96.0p |
| NAV High | 88.7p | 98.5p | 105.8p | 107.5p | 107.3p | 112.3p | 116.3p | 115.3p | 111.8p | 103.9p | 107.8p |
| NAV Low | 74.5p | 78.9p | 93.0p | 95.0p | 87.3p | 92.6p | 101.1p | 91.1p | 66.3p | 71.2p | 84.4p |
| NAV total return on 100p – 5 years | 111.2p | ||||||||||
| NAV total return on 100p – 10 years | 180.3p |
* includes debt at fair value
at 31 March
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Middle market price per share | 82.0p | 93.5p | 95.0p | 100.8p | 89.8p | 104.0p | 96.5p | 95.0p | 69.5p | 91.5p | 87.0p |
| Discount to NAV % | (4.5)% | (4.5)% | (7.6)% | (2.7)% | (6.7)% | (6.4)% | (7.0)% | (7.2)% | (9.3)% | (7.8)% | (9.3)% |
| Share price High | 83.5p | 93.5p | 97.5p | 101.0p | 100.0p | 104.5p | 108.0p | 106.0p | 102.0p | 92.0p | 100.0p |
| Share price Low | 70.5p | 76.5p | 90.0p | 87.5p | 84.0p | 87.5p | 96.0p | 86.3p | 59.5p | 64.0p | 79.5p |
| Share price total return on 100p – 5 years | 111.5p | ||||||||||
| Share price total return on 100p – 10 years | 180.6p |
| at 31 March | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Middle market price per share | 86.5p | 94.5p | 102.3p | 100.8p | 91.5p | 104.3p | 95.8p | 95.0p | 67.5p | 91.5p | 88.0p |
| Discount to NAV % | 0.7% | (3.5)% | (0.5)% | (2.7)% | (5.0)% | (6.1)% | (7.7)% | (7.2)% (11.9)% | (7.8)% | (8.3)% | |
| Share price High | 91.5p | 94.5p | 103.5p | 102.3p | 102.0p | 104.3p | 107.0p | 107.0p | 102.5p | 92p | 106.5p |
| Share price Low | 78.0p | 79.0p | 90.5p | 88.5p | 84.5p | 86.5p | 95.8p | 86.0p | 58.0p | 64p | 82.0p |
| Share price total return on 100p – 5 years | 110.9p | ||||||||||
| Share price total return on 100p – 10 years | 170.0p | ||||||||||
at 31 March
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Middle market price per share | 322.5p | 369.0p | 375.0p 402.5p | 354.0p | 409.5p | 397.0p | 373.0p | 273.0p | 365.0p | 336.0p | |
| Discount to NAV % | (6.2)% | (5.7)% | (8.8)% | (2.9)% | (8.1)% | (7.9)% | (4.3)% | (8.9)% (11.0)% | (8.1)% (12.5)% | ||
| Share price High | 334.5p | 369.0p | 375.0p 402.5p 400.5p | 409.5p | 425.0p | 418.0p | 403.0p | 365p | 398.0p | ||
| Share price Low | 300.0p 300.0p | 358.0p | 349.5p | 335.0p | 336.5p | 397.0p | 335.0p | 234.0p | 258p | 310.0p | |
| Share price total return on 100p – 5 years | 108.1p | ||||||||||
| Share price total return on 100p – 10 years | 175.8p | ||||||||||
| Revenue | |||||||||||
| For the year ended 31 March | |||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Available for A/Ordinary shares – £'000s | 4,704 | 4,391 | 4,598 | 4,848 | 4,571 | 4,585 | 4,764 | 4,451 | 4,053 | 3,020 | 4,178 |
| Revenue earnings per share | 3.70p | 3.52p | 3.73p | 3.95p | 3.74p | 3.82p | 4.03p | 3.77p | 3.46p | 2.59p | 3.61p |
| Dividends per A/Ordinary share | 4.28p | 4.28p | 4.37p | 4.48p | 4.60p | 4.72p | 4.88p | 5.04p | 5.21p | 5.30p | 5.45p |
| Capital repayments per B share | 4.28p | 4.28p | 4.37p | 4.48p | 4.60p | 4.72p | 4.88p | 5.04p | 5.21p | 5.30p | 5.45p |
| Performance | |||||||||||
| (rebased at 100 at 31 March 2012) | |||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| NAV per A/Ordinary share, B share and Unit | 100.0 | 114.2 | 119.6 | 120.9 | 112.3 | 129.6 | 120.7 | 119.4 | 89.6 | 117.0 | 112.2 |
| Middle market price per A/Ordinary share | 100.0 | 114.0 | 115.9 | 122.9 | 109.5 | 126.8 | 117.7 | 115.9 | 84.8 | 111.6 | 106.1 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Middle market price per B share | 100.0 | 109.2 | 118.2 | 116.5 | 105.8 | 120.5 | 110.7 | 109.8 | 78.0 | 105.8 | 101.7 |
| Middle market price per Unit | 100.0 | 114.4 | 116.3 | 124.8 | 109.8 | 127.0 | 123.1 | 115.7 | 84.7 | 113.2 | 104.2 |
| Dividends per A/Ordinary share | 100.0 | 100.0 | 100.0 | 102.1 | 104.7 | 107.5 | 110.3 | 114.0 | 117.8 | 121.7 | 127.3 |
| Capital repayments per B share | 100.0 | 100.0 | 100.0 | 102.1 | 104.7 | 107.5 | 110.3 | 114.0 | 117.8 | 121.7 | 127.3 |
For the year ended 31 March
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Expressed as a percentage of average net assets | |||||||||||
| – excluding performance fees | 1.14% | 1.15% | 1.06% | 1.05% | 1.06% | 1.11% | 0.91% | 0.98% | 0.96% | 1.04% | 0.98% |
| – including performance fees | 1.14% | 1.15% | 1.51% | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
| Gearing at 31 March |
|||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net gearing | 20.1% | 10.1% | 10.0% | 7.9% | 9.7% | 3.5% | 4.4% | 4.3% | 3.4% | 7.2% | 0.1% |
The Company uses the following Alternative Performance Measures ("APMs"):
Discount/Premium – the share price of an Investment Trust is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the net asset value (NAV) per share of the underlying assets less liabilities of the Company. If the share price is lower than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers of shares than buyers. Shares trading at a price above NAV per share are deemed to be at a premium.
| At 31 March 2022 | At 31 March 2021 | ||||||
|---|---|---|---|---|---|---|---|
| Ordinary shares |
B shares | Units | Ordinary shares |
B shares | Units | ||
| Net asset value per share | (a) | 95.97p | 95.97p | 383.88p | 99.25p | 99.25p | 397.00p |
| Share price | (b) | 87.00p | 88.00p | 336.00p | 91.50p | 91.50p | 365.00p |
| (Discount) (c=(b-a)/(a)) | (c) | -9.3% | -8.3% | -12.5% | -7.8% | -7.8% | -8.1% |
Ongoing Charges – all operating costs expected to be incurred in future and that are payable by the Company, expressed as a proportion of the average net assets of the Company over the reporting year. The costs of buying and selling investments and derivatives are excluded, as are interest costs, taxation, non‑recurring costs and the costs of buying back or issuing shares.
| 31 March | 31 March | ||
|---|---|---|---|
| 2022 | 2021 | ||
| Page | £'000 | £'000 | |
| Total expenditure | 63 | 1,262 | 1,186 |
| Less management fee at rate of 0.65% of NAV | 63 | (756) | – |
| Add management fee at revised rate of 0.60% of NAV (see note 4) | 667 | – | |
| Less revolving credit facility commitment fee | 72 | (20) | (32) |
| Less non-recurring expenses | (16) | (51) | |
| Total | (a) | 1,137 | 1,103 |
| Average daily net assets | (b) | 116,551 | 105,838 |
| Ongoing charges (c = a/b) | (c) | 0.98% | 1.04% |
Gearing – represents the excess amount above shareholders' funds of total investments, expressed as a percentage of the shareholders funds. If the amount calculated is negative, this is a 'net cash' position and no gearing.
| 31 March 2022 |
31 March 2021 |
|||
|---|---|---|---|---|
| Page | £'000 | £'000 | ||
| Investments held at fair value through profit or loss | (a) | 64 | 111,362 | 123,249 |
| Net assets | (b) | 64 | 111,215 | 115,007 |
| Gearing (c = (a/b) – 1)% | (c) | 0.1% | 7.2% |
Total return – the theoretical return to shareholders calculated on a per share basis by adding dividends/capital repayments paid in the period to the increase or decrease in the Share Price or NAV in the period. The dividends/capital repayments 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 effect of reinvesting these dividends/capital repayments on the respective ex‑dividend dates and the share price total returns and NAV total returns are shown below.
| 31 March 2022 | 31 March 2021 | |||
|---|---|---|---|---|
| Ordinary shares/ B shares |
Units | Ordinary shares/ B shares |
Units | |
| NAV per share at start of financial year | 99.25p | 397.00p | 76.66p | 306.64p |
| NAV per share at end of financial year | 95.97p | 383.88p | 99.25p | 397.00p |
| Change in the year | -3.3% | -3.3% | +29.5% | +29.5% |
| Impact of dividend/capital repayment reinvestments† | +5.2% | +5.2% | +7.9% | +7.9% |
| NAV total return for the year | +1.9% | +1.9% | +37.4% | +37.4% |
† During the year to 31 March 2022 dividends/capital repayments totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went ex dividend. During the year to 31 March 2021 the equivalent figures were 5.21p (Ordinary shares/B shares) and 20.84p (units).
| 31 March 2022 | 31 March 2021 | |||||
|---|---|---|---|---|---|---|
| Ordinary shares |
B shares | Units | Ordinary shares |
B shares | Units | |
| Share price per share at start of financial year | 91.5p | 91.5p | 365.0p | 69.5p | 67.5p | 273.0p |
| Share price per share at end of financial year | 87.0p | 88.0p | 336.0p | 91.5p | 91.5p | 365.0p |
| Change in the year | -4.9% | -3.8% | -7.9% | +31.7% | +35.6% | +33.7% |
| Impact of dividend/capital repayment reinvestment† |
+5.5% | +5.4% | +5.3% | +9.1% | +9.3% | +6.9% |
| Share price total return for the year | +0.6% | +1.6% | -2.6% | +40.8% | +44.9% | +40.6% |
† During the year to 31 March 2022 dividends/capital repayments totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went ex dividend. During the year to 31 March 2021 the equivalent figures were 5.21p (Ordinary shares/B shares) and 20.84p (units).
Yield – The total annual dividend/capital repayment expressed as a percentage of the year end share price.
| 31 March 2022 | 31 March 2021 | ||||||
|---|---|---|---|---|---|---|---|
| Ordinary shares |
B shares | Units | Ordinary shares |
B shares | Units | ||
| Annual dividend/capital repayment | (a) | 5.45p | 5.45p | 21.80p | 5.30p | 5.30p | 21.20p |
| Share price | (b) | 87.00p | 88.00p | 336.00p | 91.50p | 91.50p | 365.00p |
| Yield = (c=a/b) | (c) | 6.3% | 6.2% | 6.5% | 5.8% | 5.8% | 5.8% |
AAF – Audit and Assurance Faculty guidance issued by the Institute of Chartered Accountants in England and Wales.
AIC – Association of Investment Companies, the trade body for Closed‑end Investment Companies.
AIFMD – Alternative Investment Fund Managers Directive. Issued by the European Parliament in 2012 and 2013, the Directive required that all investment vehicles in the European Union, including Investment Trusts, must have appointed a Depositary and an Alternative Investment Fund Manager before 22 July 2014. The Board of Directors of an Investment Trust, remain fully responsible for all aspects of the company's strategy, operations and compliance with regulations.
Ordinary Shares – a security issued by the Company. The net asset value attributable to each Ordinary share is equal to the Net Asset Value of the Company divided by the total number of Ordinary shares and B shares in issue. Therefore the net asset value attributable to each of the Ordinary shares and B shares is the same. The Ordinary shares are entitled to dividends paid by the Company.
Benchmark – from 5 July 2018 the FTSE All-Share Index is the benchmark against which the increase or decrease in the Company's net asset value is measured. This index represents the performance of all eligible companies listed on the London Stock Exchange's main market, which pass screening for size and liquidity. Prior to that the benchmark index was the FTSE All-Share Capped 5% Index. This Index averages the performance of 98% of the market value of all eligible companies listed on London Stock Exchange's main market and gives an indication of how this market has performed in any period. Constituents of the Index are capped at 5% of the total index quarterly to avoid over‑concentration in any one stock. As the investments within these indices are not identical to those of the Company, the indices do not take account of operating costs and the Company's strategy does not include replicating (tracking) these indices, there is likely to be some level of divergence between the performance of the Company and the Index.
B Shares – a security issued by the Company. The net asset value attributable to each B share is equal to the Net Asset Value of the Company divided by the total number of Ordinary shares and B shares in issue. Therefore the net asset value attributable to each of the Ordinary shares and B shares is the same. The B shares are entitled to capital repayments paid by the Company. These capital repayments will be paid at the same time as, and in an amount equal to, each dividend paid on the Ordinary shares.
Closed‑end company – a company, including an Investment Company, with a fixed issued ordinary share capital which is traded on an exchange at a price not necessarily related to the net asset value of the company and in which shares can only be issued or bought back by the company in certain circumstances. This contrasts with an open‑ended company or Fund, which has units not traded on an exchange but issued or bought back from investors at a price directly related to net asset value.
Cum‑dividend – shares are classified as cum‑dividend when the buyer of a security is entitled to receive a dividend that has been declared, but not paid. Shares which are not cum‑dividend are described as ex‑dividend.
Custodian – a specialised financial institution responsible for safeguarding, worldwide, the listed securities and certain cash assets of the Company, as well as the income arising therefrom, through provision of custodial, settlement and associated services. The Company's Custodian is JPMorgan Chase Bank.
Depositary – under AIFMD rules applying from July 2014, the Company must appoint a Depositary, whose duties in respect of investments, cash and similar assets include: safekeeping; verification of ownership and valuation; and cash monitoring. Under AIFMD regulations, the depositary has strict liability for the loss of the Company's financial assets in respect of which it has safe‑keeping duties. The Depositary's oversight duties will include but are not limited to oversight of share buy backs, dividend payments and adherence to investment limits. The Company's Depositary is JPMorgan Europe Limited.
Derivative – a contract between two or more parties, the value of which fluctuates in accordance with the value of an underlying security. The contract is usually short‑term (for less than one year). Examples of derivatives are Put and Call Options, Swap contracts, Futures and Contracts for Difference. A derivative can be an asset or a liability and is a form of gearing because the fluctuations in its value are usually greater than the fluctuations in the underlying security's value.
Dividend Dates – reference is made in announcements of dividends to three dates. The "ex‑dividend" date is the date up to which the shareholder needs to hold the shares in order to be entitled to receive the next dividend. As it takes time for a stock purchase to be recorded on the register, dividends are actually paid to the holders of shares on the share register on the "record" date. If a share transfer prior to the ex‑dividend date is not recorded on the register before the record date, the selling party will need to pass on the benefit or dividend to the buying party. The "ex‑dividend" date is currently the business day
prior to the record date. The "payment" date is the date that dividends are credited to shareholders' bank accounts. This may be several weeks or even months after the record date.
Gearing – this is the ratio of the borrowings of the Company to its net assets. Borrowings have a "prior charge" over the assets of a company, ranking before shareholders in their entitlement to capital and/or income. They include: overdrafts and short and long‑term loans from banks; and derivative contracts. If the Company has cash assets, these may be assumed either to net off against borrowings, giving a "net" or "effective" gearing percentage, or to be used to buy investments, giving a "gross" or "fully invested" gearing figure. Where cash assets exceed borrowings, the Company is described as having "net cash". The Company's maximum permitted level of gearing is set by the Board and is described within the Strategic Report.
Investment Company (Section 833) – UK Company Law allows an Investment Company to make dividend distributions out of realised distributable reserves, even in circumstances where it has made capital losses in any year provided the Company's assets remaining after payment of the dividend exceed 150% of the liabilities. An Investment Company is defined as investing its funds in shares, land or other assets with the aim of spreading investment risk.
Investment Trust taxation status (Section 1158) – UK Corporation Tax law allows an Investment Company (referred to in Tax law as an Investment Trust) to be exempted from tax on its profits realised on investment transactions, provided it complies with certain rules. These are similar to Section 833 Company law rules but further require that the Company must be listed on a regulated stock exchange and that it cannot retain more than 15% of income received (set out in note 9 to the financial statements). The Report of the Directors contains confirmation of the Company's compliance with this law and its consequent exemption from taxation on capital gains.
Manager – BMO Investment Business Limited. The responsibilities and remuneration of the Manager are set out in the Purpose, Strategy and Business Model, Report of the Directors and note 4 to the financial statements.
Market capitalisation – the stock market quoted price of the Company's shares, multiplied by the number of shares in issue. If the Company's shares trade at a discount to NAV, the market capitalisation will be lower than the Net asset value.
Net asset value (NAV) – the assets less the liabilities of the Company, as set out on the Statement of Financial Position, all valued in accordance with the Company's Accounting Policies (see note 1 to the financial statements) and UK-adopted International Accounting Standards. The net assets correspond to Equity Shareholders' Funds, which comprise the share capital account, share premium, capital redemption reserve, buy back reserve, special capital reserve and capital and revenue reserves.
Net asset value (NAV), Debt at par – the Company's bank loans are valued in the Accounts at par (the actual amount borrowed) and this NAV including this number is referred to as "NAV, Debt at par".
Non‑executive Director – a Director who has a contract for services, rather than a contract of employment, with the Company. The Company does not have any executive directors. Non‑executive Directors' remuneration is described in detail in the Remuneration Report. The duties of the Directors, who govern the Company through the auspices of a Board and Committees of the Board, are set out in the Corporate Governance Statement.
Ongoing Charges – all operating costs expected to be incurred in future and that are payable by the Company, expressed as a proportion of the average net assets of the Company over the reporting year. The costs of buying and selling investments and derivatives are excluded, as are interest costs, taxation, non‑recurring costs and the costs of buying back or issuing shares.
SORP – Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the AIC.
Units – a way of holding and trading in the Ordinary shares and B shares issued by the Company. Each unit consists of three Ordinary shares and one B share.
J M Evans (Chairman) H M Galbraith (nee Driver) S J Mitchell A K Watkins
BMO Investment Business Limited 6th Floor, Quartermile 4 7a Nightingale Way Edinburgh EH3 9EG
Panmure Gordon (UK) Limited One New Change London EC4M 9AF
Deloitte LLP, Statutory Auditor 110 Queen Street Glasgow G1 3BX
JPMorgan Europe Limited 25 Bank Street Canary Wharf London E14 5JP
JPMorgan Chase Bank 25 Bank Street Canary Wharf London E14 5JP
Scotiabank Europe 201 Bishopsgate London EC2M 3NS
Dickson Minto W.S. 16 Charlotte Square Edinburgh EH2 4DF
SC314671
www.bmoukhighincome.com
Annual Report and Financial Statements 31 March 2022
shareview.co.uk
* Lines open 8.30 am to 5.30 pm, Monday to Friday, excluding public holidays in England and Wales.
© 2022 BMO Asset Management Limited is authorised and regulated by the Financial Conduct Authority. BMO Asset Management Limited is a wholly owned subsidiary of Columbia Threadneedle Investments UK International Limited, whose direct parent is Ameriprise Inc., a company incorporated in the United States. BMO Asset Management Limited was formerly part of BMO Financial Group and is currently using the "BMO" mark under licence.
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.