CT UK High Inc Tst CT UK High Inc-CHIB - Annual Financial Report
31/05/2024 07:00
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RNS Number : 5419Q CT UK High Income Trust PLC 31 May 2024
To: RNS
From: CT UK High Income Trust PLC
Date: 31 May 2024
LEI: 213800B7D5D7RVZZPV45
Statement of Audited Results for the year ended 31 March 2024
Financial Highlights
· Net asset value total return((1)) per share for the financial
year was +11.8%, compared to the total return of the Benchmark((2)) of +8.4%.
· Ordinary share price total return((1)) per share for the
financial year was +10.2%, compared to the total return of the Benchmark((2))
of +8.4%.
· B share price total return((1)) per share for the financial year
was +5.5% compared to the total return of the Benchmark((2)) of +8.4%.
· Distribution yield of 6.7% on Ordinary shares at 31 March 2024,
compared to the yield on the FTSE All-Share Index of 3.8%. Total dividends
increased by 2.0% to 5.62p per Ordinary share compared to the prior year.
· Distribution yield of 6.7% on B shares at 31 March 2024, compared
to the yield on the FTSE All-Share Index of 3.8%. Total capital repayments
increased by 2.0% to 5.62p per B share compared to the prior year.
(1) Yield and total return - See Alternative Performance Measures
(2) Benchmark - FTSE All-Share Index.
Chairman's Statement
"Eleventh consecutive year of dividend/capital repayment increases and at 31
March 2024 the Ordinary shares and B shares had yields of 6.7%"
I am pleased to present the annual results of CT UK High Income Trust PLC for
the financial year ended 31 March 2024. Particularly pleased, in fact, as
against a backdrop during the year of high interest rates and inflation in the
UK and an escalation of global tensions, David Moss, the Company's Portfolio
Manager has produced index-beating returns and generated an increase in
dividends and capital repayments.
These have not been easy times. I hope that one day I shall not have to write
such words and that investment managers, to whom shareholders have entrusted
their savings, will find the investment universe easier to navigate. But for
now, our daily lives seem to be peppered with news of yet another conflict
that threatens world peace. I see that this time last year I believed that
"the worst is behind us". Palpably wrong. Russia seems to have settled in for
the long term in its desire to rebuild the old Soviet Union through destroying
Ukraine and the Israel-Palestine war shows little sign of any permanent
resolution in the short term. How does one manage money in such unpredictable
times?
Well, I'm delighted to say that your Portfolio Manager has indeed maintained
his focus and concentrated on the Company's priorities for its shareholders,
namely, the growth in capital and dividends. Over the last few years, the
Board has employed the Company's revenue reserve to maintain and grow
distributions and this year is no exception. However, the Portfolio Manager is
very well aware of - and is delivering upon - the Board's stated objective to
rebuild revenue reserves and the principal reason for drawing on reserves
again this year was the timing of dividend payments from investee companies
that occurred after our year end.
Performance
In the financial year to 31 March 2024 your Company produced a Net Asset Value
('NAV') total return of +11.8% against a total return of +8.4% from the FTSE
All-Share Index, the benchmark index. This is a very welcome and highly
commendable outperformance of +3.4 percentage points from the Company's
Portfolio Manager, David Moss. This was especially so during another
challenging economic period which saw inflation peak at 11.1% in early 2023
with an attendant rise in the Bank of England base rate to 5.25% in a belated
attempt to combat inflation's harmful effects on consumers and the UK economy.
As you will read in the detailed Manager's Review, the portfolio has been
fine-tuned since the appointment of David Moss in July 2023 to take account of
changing market conditions and sentiment, an approach applauded by your Board
as being not only sensible and pragmatic but also in the best long-term
interests of shareholders.
The Board also concurred with David that the Company should remain geared
throughout the period. This proved painful as interest rates rose but, as he
was confident that positions in quality companies could be acquired at
reasonable prices, it proved tactically correct to do so. Altering gearing
levels on a play-by-play basis seldom proves beneficial and whilst the Company
has a flexible revolving credit facility, maintaining full exposure was a
unanimous decision.
Share Price Performance and Discount to NAV
At the financial year end, the Company's Ordinary share and B share prices
stood at discounts to the net asset value of 10.6% and 11.6% respectively.
These discounts were wider than the Board would prefer but may have been
affected, temporarily, by adjustments in the market as the Company's Units
were cancelled at the very end of its financial year. The average discount
levels at which the Company's Ordinary shares and B shares traded relative to
net asset value in the financial year were 6.9% and 5.2% respectively and it
remains the Board's preference for the discounts to be in single figures
whilst maintaining the balance of supply and demand in the market for both
share classes on a daily basis.
Consequently, the share price total return for the Ordinary shares and B
shares was +10.2% and +5.5% respectively.
Dividends and Capital Repayments
As already mentioned, your Board recognises the importance of dividends to
shareholders and has utilised the Company's revenue reserve to maintain and
increase dividend payments to Ordinary shareholders in recent years. Total
distributions to shareholders this year increased by 2% to 5.62p per share
compared to the previous year. In the year to 31 March 2024 the revenue
earnings per share increased by 10.8% but, due to the timing of some dividend
receipts, as explained earlier, it has been necessary to draw £105,000 from
the revenue reserve. This is a very short-term situation as those companies
that were due to pay in March duly paid in April 2024. After payment of the
fourth interim dividend on 3 May 2024, the revenue reserve is £2.3 million,
representing 2.77p per Ordinary share.
Your Company has now increased its distributions to shareholders in each
financial year since 2013 and has been duly recognised by the AIC as being
part of the next generation of "Dividend Heroes" for increasing dividends to
shareholders in ten or more consecutive years. The total dividend/capital
repayment for the year to 31 March 2024 represented a yield of 6.7% based on
the Ordinary share price and B share price of 84.5p and 83.5p respectively at
31 March 2024.
Gearing
As at the end of the year under review, the Company had a total borrowing
facility of £15 million through an unsecured Revolving Credit Facility with
The Royal Bank of Scotland International Limited. Your Board believes that an
investment company should use gearing to enhance returns to shareholders
whenever possible and encourages the Portfolio Manager to use his discretion
accordingly. As at the year end, all of the £15 million facility had been
drawn down.
Annual General Meeting (AGM)
The AGM will be held at 11 am on 26 July 2024 at Columbia Threadneedle
Investments, Cannon Place, 78 Cannon Street, London EC4N 6AG. It is an
opportunity for shareholders to engage with the Board and Manager and I hope
you will be able to attend.
Outlook
It is a relief for all to see that, in spite of recent tensions, energy prices
have come off their highs and domestic bills have correspondingly fallen.
Combined with average wage increases now exceeding inflation, it feels that
discretionary spending power is improving despite it seeming that the cost of
everything is still going up. Personally, I would not be surprised if
manufacturers attempted to rebuild profits through price rises but competition
is a great leveller when vying for the consumer's money. So, that was a
long-winded way of saying that my (relatively) optimistic outlook is back.
With a General Election now called for 4 July 2024, whichever party forms the
next Government is likely to oversee a slowly growing economy, inflation
possibly at the Bank of England's target 2% rate accompanied by a very welcome
(and overdue) fall in interest rates. Global tensions notwithstanding and
assuming no major escalation or serious interruption to trade routes, it is
possible to envision a much better environment for UK equities after a tough
few years of treading water.
If my reading is correct, I firmly believe your Company is in the best
possible shape to benefit accordingly. David Moss has constructed a balanced
portfolio of companies with the potential to grow in capital terms and
increase dividend payments, exactly the recipe required to produce positive
returns for you, our shareholders. It is likely that the portfolio will remain
geared during the Company's 2024-2025 financial year to capitalise
accordingly, especially as interest rates decline and the cost of borrowing
reduces. Making the most of the closed-ended structure of an investment
company by gearing at appropriate times is wholly supported by your Board and
should, I hope, reap rewards over the next 12 months.
As ever, thank you for being a shareholder in CT UK High Income Trust PLC.
Your support is very much appreciated.
Andrew Watkins
Chairman
30 May 2024
Manager's Review
The last financial year has been different from recent ones in that Covid has
not been a subject of discussion nor the key driver of share prices. We have,
though, arguably been dealing with the consequences of the pandemic - namely
the huge increases in Government borrowing and the money supply together with
the breakdown of supply chains exacerbated by the conflict in Ukraine. The
result has been that two directly related topics have been the only real
driver of equity markets in the last twelve months - inflation and interest
rates. When we started our financial year on 1 April 2023, we had already seen
the fastest pace of UK base rate rises ever and we saw a further 100 basis
points before the end of August. While sentiment on inflation has waxed and
waned since then and the Bank of England has kept rates flat, there is clear
evidence of inflation falling and we look forward to the Company's new
financial year with a focus on when the first rate cut will be, rather than if
it will happen.
What has perhaps been surprising is that while the UK economy has clearly
slowed as a result of these interest rate increases, we have seen neither the
collapse in consumer spending nor rise in unemployment predicted by some.
While the UK experienced a very brief technical recession, the impact was
minimal. The biggest liability for UK consumers is their mortgage and the
nature of the majority of UK mortgages, where the rates are fixed typically
for two to five years, has meant that together with the sheer number of UK
homeowners that don't have a mortgage, many households have yet to be
negatively impacted by higher rates. While inflation has clearly had an effect
on household consumption habits, we have also seen rising nominal wages
helping to offset the impact. With employment numbers remaining strong,
inflation now falling and lower long-term rates feeding into lower mortgage
rates, the outlook for the UK consumer is, in our opinion, improving. While we
expect to see interest rates fall this year we do not see them falling to
anywhere near the levels prevailing pre-and during the pandemic. Contrary to
many, we see this as a positive and an environment that we consider 'normal'
where money is not free and accordingly capital should be allocated more
efficiently and one where savers are rewarded rather than punished.
After the turbulence in politics last year, we have had a relatively stable
political backdrop in the last twelve months. We can expect a lot more
political noise at least during the rest of this calendar year as we move
through the general election and see the emergence of actual policy
thereafter. Despite the economy holding up, a better outlook ahead and cuts to
National Insurance contributions, it appears clear that this election will see
a change in Government. Whilst the likelihood of a Labour administration often
causes concern for investors and volatility in markets, for now at least the
messaging from Labour and in particular the Shadow Chancellor has been benign.
We will see the reality in due course but for now we see nothing to disturb
our positive view of the year ahead.
Performance
While UK equities were volatile at times, falling 10% from the initial high
point in April 2023 and then rising and falling over 6% twice more during the
Company's financial year, better economic news, in particular on inflation,
led the UK stock market, as measured by the FTSE All-Share Index, to rise
fairly consistently from the October 2023 low to produce a total return of
8.4% over our financial year.
The net asset value ("NAV") total return of the Company was 11.8% over the
financial year out-performing the benchmark index by 3.4 percentage points,
representing a welcome return to out-performance. This represents an
acceleration in performance from the first part of the financial year helped
by the judicious use of gearing, the Company's portfolio was ahead of a rising
market, with the biggest driver of performance being strong stock selection.
Pleasingly, we have had positive contributions from stocks we have held for
some time, as well as stocks newly purchased this year. It has taken over a
decade, but legal finance group Burford Capital finally received a positive
opinion from the Judge in its case against the Argentinian Government for the
forced nationalisation of YPF. There are still appeals to come but the market
recognised the potential for value generation and the shares responded very
strongly. Two other long-held investments were also amongst the leading
positive contributors with Cairn Homes producing strong results with rising
dividends and share buybacks as they benefit from being the largest
housebuilder in an Irish market with a shortage
of housing. The biggest individual contributor was private markets investor
Intermediate Capital Group where asset raising and investment returns have
been robust. The demand from investors for access to private assets looks set
to remain strong for years to come. Recent purchase SAP was amongst the top
positive contributors as results were consistently good, the company increased
guidance and was seen as a beneficiary of Artificial Intelligence.
Portfolio Changes
There has been an increase in turnover in the financial year as we looked to
position the portfolio for what we felt were the opportunities ahead. This
focused overwhelmingly on increasing the level of sustainable income generated
by the portfolio and investing in companies where we could expect this to grow
into the future. We approached this in two ways; we sold out of companies
where dividends were zero or very low and where there was little prospect of
any meaningful income soon and re-invested the proceeds in companies that have
high current dividend yields and/or have the ability to grow distributions to
shareholders. The latter is, we believe, the most important element as our
strategy is to provide shareholders with a high and growing level of income.
In terms of the companies that we sold, this included THG, ASOS, Wizz Air and
Delivery Hero, all companies that we felt would struggle to fulfil
expectations and where we saw no prospect of dividends on any sensible time
horizon. We also sold a number of stocks with very low dividend yields and
limited growth prospects including Experian, Deutsche Boerse, ASML and Hiscox.
We have made new investments in several areas but activity within the
financials sector stands out. As stated above, we believe we are now in an era
in which money is no longer free, i.e. interest rates will be positive even if
lower than now. This is a significant change for banks in particular which
have struggled to generate acceptable returns for some time. After many years
of limited demand for credit and strict regulation, UK banks are very well
capitalised, highly liquid and, having been ignored by investors for years,
are now very attractively valued. In this new era, they are able to generate
low-mid teens returns on equity and can deliver significant returns to
shareholders including very attractive and growing dividends and we have,
therefore, bought a position in NatWest Group. All the previous points apply
to NatWest but in addition, at the time of purchase, the resolution of
well-publicised internal issues and the change of CEO gave us even greater
comfort.
We also added to our position in specialist buy-to-let lender OSB Group and
bought UK asset manager and insurance company M&G.
Two of our purchases this year have been the largest stocks in the UK market -
AstraZeneca and Shell. While we believe we can add a lot of value at the
smaller end of the market we will not be dogmatic about what makes a good
business whether that be size or type. AstraZeneca under CEO Pascal Soriot's
tenure has proven to be one of the UK's most dynamic and high growth companies
and one of the world's foremost pharmaceutical companies. Shell in common with
most of its peers, has had a radical transformation in its approach to capital
allocation. The oil companies have experienced high oil prices many times in
the past but this boon normally results in big increases in capital
expenditure on increasingly marginal projects and ultimately weaker returns
for shareholders. In this cycle, Shell has been very disciplined on investment
and the result has been high and growing returns to shareholders.
Outlook
What is most important for us is the quality of companies we invest in and the
price we pay, not any particular economic view. That said, few of our investee
companies operate in isolation and we are positive for the year ahead as the
combination of an improving economic outlook, falling inflation and lower
interest rates should be a very positive backdrop for equities. We can look at
other equity markets and question whether this is priced in, but we are firmly
of the view that this is not the case in the UK and especially in the more
domestically exposed areas of the market. We and others have written
extensively about the low valuation of UK equities but for our Company this
provides fantastic opportunities. We can invest in companies that have the
levels of dividends we need to meet our ambitions for our shareholders but the
reason for these high dividends is not because they are weak or low returning
businesses, but because they are in an out-of-favour market - the UK - and
often in out-of-favour sectors. The result is that not only do these companies
pay high dividends now, but we strongly believe they can grow these dividends
into the future. Dividends grew 7.7% last year in the UK and we would expect
more growth this coming year, together with a continuation of share buybacks
if low valuations persist.
David Moss
Portfolio Manager
Columbia Threadneedle Investment Business Limited
30 May 2024
Statement of Comprehensive Income
Year to
31 March 2024
Note Revenue Capital Total
£'000 £'000 £'000
Capital gains on investments
Gains on investments held at fair value through profit or loss
- 7,674 7,674
Exchange gains 1 9 10
Revenue
Income 5,603 - 5,603
Total income 5,604 7,683 13,287
Expenditure
Investment management fee (186) (435) (621)
Other expenses (518) - (518)
Total expenditure (704) (435) (1,139)
Profit before finance costs and tax 4,900 7,248 12,148
Finance costs
Interest on bank loans (269) (627) (896)
Total finance costs (269) (627) (896)
Profit before tax 4,631 6,621 11,252
Taxation (30) - (30)
Profit and total comprehensive income for the year
4,601 6,621 11,222
Earnings per share 2 4.01p 5.77p 9.78p
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.
Statement of Comprehensive Income
Year to
31 March 2023
Note Revenue Capital Total
£'000 £'000 £'000
Capital gains/(losses) on investments
Losses on investments held at fair value through profit or loss
- (4,177) (4,177)
Exchange gains/(losses) 3 (16) (13)
Revenue
Income 5,007 - 5,007
Total income 5,010 (4,193) 817
Expenditure
Investment management fee (183) (427) (610)
Other expenses (521) - (521)
Total expenditure (704) (427) (1,131)
Profit/(loss) before finance costs and tax 4,306 (4,620) (314)
Finance costs
Interest on bank loans (67) (155) (222)
Total finance costs (67) (155) (222)
Profit/(loss) before tax 4,239 (4,775) (536)
Taxation (47) - (47)
Profit/(loss) and total comprehensive income/(expense) for the year
4,192 (4,775) (583)
Earnings per share 2 3.62p (4.12)p (0.50)p
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.
Statement of Financial Position
as at 31 March
31 March 31 March
2024 2023
Note £'000 £'000
Non-current assets
Investments held at fair value through profit or loss
121,267 113,018
Current assets
Receivables 1,203 1,394
Cash and cash equivalents 1,086 2,288
2,289 3,682
Total assets 123,556 116,700
Current liabilities
Payables (790) (529)
Bank loan (15,000) (12,000)
(15,790) (12,529)
Total liabilities (15,790) (12,529)
Net assets 107,766 104,171
Equity attributable to equity shareholders
Share capital 134 134
Share premium 153 153
Capital redemption reserve 5 5
Buy-back reserve 79,022 80,315
Special capital reserve 8,320 10,012
Capital reserves 16,444 9,823
Revenue reserve 3,688 3,729
Equity shareholders' funds 107,766 104,171
Net asset value per Ordinary share 6 94.51p 89.97p
Net asset value per B share 6 94.51p 89.97p
Cash Flow Statement
for the year to 31 March
Year to Year to
31 March 2024 31 March 2023
£'000 £'000
Cash flows from operating activities
Profit/ (loss) before taxation 11,252 (536)
Adjustments for:
(Gains)/ losses on investments held at fair value through profit or loss
(7,674) 4,177
Exchange (gains)/ losses (10) 13
Interest income (84) (70)
Interest received 84 70
Dividend income (5,519) (4,937)
Dividend income received 5,727 4,698
Decrease/(increase) in receivables 1 (64)
Increase/(decrease) in payables 45 (15)
Finance costs 896 222
Overseas tax suffered (69) (76)
Cash flows from operating activities 4,649 3,482
Cash flows from investing activities
Purchases of investments (62,065) (45,856)
Sales of investments 61,699 42,153
Cash flows from investing activities (366) (3,703)
Cash flows before financing activities 4,283 (221)
Cash flows from financing activities
Dividends paid on Ordinary shares (4,642) (4,690)
Capital returns paid on B shares (1,692) (1,692)
Shares purchased for treasury (1,293) (79)
Interest on bank loans (868) (203)
Drawdown of bank loans 3,000 4,500
Cash flows from financing activities (5,495) (2,164)
Net decrease in cash and cash equivalents (1,212) (2,385)
Cash and cash equivalents at the beginning of the year 2,288 4,686
Effect of movement in foreign exchange 10 (13)
Cash and cash equivalents at the end of the year 1,086 2,288
Represented by:
Cash at bank 176 199
Short term deposits 910 2,089
1,086 2,288
Statement of Changes in Equity
for the year to 31 March 2024
Capital Reserve - Investments sold Capital Reserve - Investments held
Capital Redemption Reserve Special Capital Reserve
Share Capital Share Premium Buy-back Reserve Revenue Reserve
Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at 31 March 2023 134 153 5 80,315 10,012 7,965 1,858 3,729 104,171
Movement during the year ended 31 March 2024
(Loss)/profit for the year - - - - - (6,716) 13,337 4,601 11,222
Total comprehensive income/ (expense) for the year
- - - - - (6,716) 13,337 4,601 11,222
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury - - - (1,293) - - - - (1,293)
Dividends paid on Ordinary shares - - - - - - - (4,642) (4,642)
Capital returns paid on B shares - - - - (1,692) - - - (1,692)
Balance as at 31 March 2024 134 153 5 79,022 8,320 1,249 15,195 3,688 107,766
Statement of Changes in Equity
for the year to 31 March 2023
Capital Reserve - Investments sold Capital Reserve - Investments held
Capital Redemption Reserve Special Capital Reserve
Share Capital Share Premium Buy-back Reserve Revenue Reserve
Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at 31 March 2022 134 153 5 80,394 11,704 8,001 6,597 4,227 111,215
Movement during the year ended 31 March 2023
(Loss)/profit for the year - - - - - (36) (4,739) 4,192 (583)
Total comprehensive income/ (expense) for the year
- - - - - (36) (4,739) 4,192 (583)
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury - - - (79) - - - - (79)
Dividends paid on Ordinary shares - - - - - - - (4,690) (4,690)
Capital returns paid on B shares - - - - (1,692) - - - (1,692)
Balance as at 31 March 2023 134 153 5 80,315 10,012 7,965 1,858 3,729 104,171
CT UK High Income Trust PLC
Principal Risks and Uncertainties and Viability Statement
As an investment company investing primarily in listed securities, most of the
Company's principal risks and uncertainties that could threaten the
achievement of its objective, strategy, future performance, liquidity and
solvency are market-related.
A summary of the Company's risk management and internal controls arrangements
is included within the Report of the Audit Committee in the Annual Report and
Financial Statements. 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. The Board also considers
emerging risks which might affect the Company and related updates from the
Manager on such risks are also considered. During the year risks included the
outlook for inflation and ongoing macroeconomic and geopolitical concerns. 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. They have also
regularly reviewed the effectiveness of the Company's risk management and
internal control systems for the period.
In November 2021, the Company's Manager, which was part of BMO GAM (EMEA) was
acquired by Ameriprise and the integration of its business with Columbia
Threadneedle Investments then progressed. There has been little change for
your Company, however, an acquisition such as this introduces some
uncertainty, until the integration of systems is fully implemented. A critical
milestone was the move to a new order management system, Aladdin, which is
widely regarded as the market leading system. This change was successfully
completed in October 2023 and this risk is now viewed as reduced.
The principal risks and uncertainties faced by the Company, and the Board's
mitigation approach, are described below.
Investment performance risk
Inappropriate strategy, asset allocation, stock selection, (in the context of
the market, economic or geopolitical backdrop) 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 but given macroeconomic and geopolitical concerns,
this risk remains heightened.
Mitigation:
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 Board regularly considers the composition and diversification of the
Investment Portfolio (which comprises listed securities) and considers
individual stock performance together with purchases and sales of investments.
Investments and markets are discussed in detail with the Manager on a regular
basis.
Engagement on environmental, social and governance matters is undertaken by
the Manager and its approach is explained in the Annual Report and Financial
Statements.
As a closed-end investment company, it is not constrained by asset sales to
meet redemptions so can remain invested through volatile market conditions and
is well suited to investors seeking longer term returns.
The Board regularly considers ongoing charges combined with underlying
dividend income from portfolio companies and the consequent dividend paying
capacity of the Company.
Legal and regulatory risk
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.
No change in overall risk.
Mitigation:
The Board liaises with advisors to ensure compliance with laws or regulations.
The Manager and its Operational Risk Management team 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 Operational Risk Management and
requires any significant issues directly relevant to the Company to be
reported immediately.
Third party service delivery and Cyber risks
Failure of the Manager as the Company's main service provider 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.
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 integration with Columbia
Threadneedle's systems, this risk was heightened.
Mitigation:
The Board meets regularly with the management of the Manager and its
Operational Risk Management 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 certain functions to State Street Bank and Trust
Company ('State Street') and supervision of such third party service
providers, including the administrator of the Manager's savings plans, has
been maintained by the Manager. This includes the review of IT security and
heightened cyber threats.
The Manager also closely monitors the performance of its technology platform
to ensure it is functioning within acceptable service levels.
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.
Viability assessment and statement
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:
· The Board looks to long-term outperformance rather than
short-term opportunities.
· The Company's investment objective, strategy and policy, which
are subject to regular Board monitoring, mean that the Company is invested
primarily in liquid listed securities and that the level of borrowing is
restricted.
· The Company is a listed closed-end investment trust, whose shares
are not subject to redemptions by shareholders.
· Subject to shareholder continuation votes, 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 period, the Company's business
model and strategy is not time limited. The current performance measurement
period for this purpose will be the three years to 31 March 2025.
Also relevant were a number of aspects of the Company's operational
arrangements:
· The Company retains title to all assets held by the Custodian
under the terms of the formal agreement with the Custodian and Depositary.
· The borrowing facility, which remains available until September
2025, is also subject to a formal agreement, including financial covenants
with which the Company complied in full during the year.
· Revenue and expenditure forecasts are reviewed by the Directors
at each Board Meeting.
· Cash is held with banks approved and regularly reviewed by the
Manager.
· The operational robustness of key service providers and the
effectiveness of alternative working arrangements.
· That alternative service providers could be engaged at relatively
short notice if necessary.
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 and
solvency. This included the impact of market volatility and 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 above within
Principal Risks and Uncertainties and in the Report of the Audit Committee and
in the notes of the financial statements within the Annual Report.
The Directors have also considered:
· The level of ongoing charges incurred by the Company which are
modest and predictable and (at 31 March 2024) total 1.08% of average net
assets.
· Future revenue and expenditure projections.
· The Company's ability to meet liquidity requirements given its
investment portfolio consists mainly of readily realisable listed equity
securities which can be realised if required.
· The ability to undertake share buy-backs if required.
· Whether the Company's objective and investment policy continue to
be relevant to investors.
· The effect of significant future falls in investment values and
the ability to maintain dividends and capital repayments, particularly given
the uncertainty in markets and macroeconomic and geopolitical concerns.
These matters were assessed over a three year period to May 2027, and the
Board will continue to assess viability over three year rolling periods.
As part of this assessment the Board considered stress tests and scenarios
which considered the impact of severe stock market volatility on shareholders'
funds and declines in income over a three 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 three 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 three year period to May
2027.
Statement of Directors' Responsibilities in Relation to the Annual Report and
Financial Statements
The Directors confirm, in respect of the Annual Report and Financial
Statements for the year ended 31 March 2024 of which this statement of results
is an extract, that to the best of their knowledge:
· the financial statements contained within the Annual Report
have been prepared in accordance with UK-adopted International Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and return of the Company;
· the Strategic Report and the Report of the Directors include a
fair review of the development and performance of the business and the
position of the Company together with a description of the principal risks and
uncertainties that they face; and
· taken as a whole, the Annual Report and Financial Statements are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the performance, strategy and business model of the
Company.
On behalf of the Board
Andrew Watkins
Chairman
30 May
2024
Notes
1. The financial statements of the Company which are the
responsibility of, and were approved by, the Board on 30 May 2024, have been
prepared on a going concern basis and in accordance with the Companies Act
2006 and UK-adopted 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.
2. The Company's earnings per share are based on the
profit for the year of £11,222,000 (year to 31 March 2023: loss of
£(583,000)) and on 84,025,522 Ordinary shares (2023: 85,118,954) and
30,708,750 B shares (2023: 30,708,750), 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 £4,601,000 (year to 31 March 2023: £4,192,000) and on the
weighted average number of shares in issue as above.
The Company's capital earnings per share are based on the capital profit for
the year of £6,621,000 (year to 31 March 2023: loss £(4,775,000)) and on the
weighted average number of shares in issue as above.
3. A fourth interim dividend in respect of the year
ended 31 March 2024 of 1.66p per Ordinary share was paid on 3 May 2024 to
Ordinary shareholders on the register on 5 April 2024. A fourth capital
repayment in respect of the year ended 31 March 2024 of 1.66p per B share was
paid on 3 May 2024 to B shareholders on the register on 5 April 2024.
4. The Company has an unsecured revolving credit
facility ("RCF") with The Royal Bank of Scotland International Limited for
£15 million which is available until 28 September 2025. At 31 March 2024,
£15 million was drawn down (31 March 2023: £12 million).
The loan agreement contains certain financial covenants with which the Company
must comply. These include a financial covenant with respect to the ratio of
the Adjusted Portfolio Value (as defined in the loan agreement) to the level
of debt and also that the Adjusted Portfolio Value does not fall below £50
million. The Company complied with the required financial covenants throughout
the period since drawdown.
5. During the year the Company bought back 1,750,000
Ordinary shares (2023: 100,000 Ordinary shares) to hold in treasury at a cost
of £1,293,000 (2023: £79,000). During the year the Company bought back nil B
shares (2023: nil B shares).
At 31 March 2024 the Company held 18,744,491 Ordinary shares (2023: 16,994,491
Ordinary shares) and 1,367,953 B shares (2023: 1,367,953 B shares) in
treasury.
6. The Company's basic net asset value per share of
94.51p (2023: 89.97p) is based on the equity shareholders' funds of
£107,766,000 (2023: £104,171,000) and on 114,031,403 equity shares,
consisting of 83,322,653 Ordinary shares and 30,708,750 B shares (2023:
115,781,403 equity shares, consisting of 85,072,653 Ordinary shares and
30,708,750 B shares), being the number of shares in issue at the year end.
The Company's treasury net asset value per share, incorporating the 18,744,491
Ordinary shares and 1,367,953 B shares held in treasury at the year end (2023:
16,994,491 Ordinary shares and 1,367,953 B shares), was 94.51p (2023: 89.97p).
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.
7. Financial Instruments
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 2024 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 below and have remained unchanged for the year under
review.
Credit risk
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.
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.
Market price risk
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,
geopolitical backdrop 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. 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 in the Annual
Report and Financial Statements.
Liquidity risk
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 facility 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.
Interest rate risk
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.
Floating rate
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 5.25 per cent at 31
March 2024 (2023: 4.25 per cent).
When the Company draws down amounts under its revolving credit facility,
interest is payable based on SONIA (which can vary on a daily basis) plus a
margin.
Fixed rate
At 31 March 2024 and 31 March 2023, the Company's investment portfolio did not
contain any fixed interest or floating rate interest assets. At 31 March 2024
the Company had no fixed interest liabilities.
Foreign currency risk
It is not the Company's policy to hedge any overseas currency exposure on
equity investments.
8. Going Concern
The Company's investment objective and investment policy, 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 an agreement relating to its
borrowing facility with which it has complied during the year. Cash is only
held with banks approved and regularly reviewed by the Manager.
In assessing the going concern basis of accounting the Directors have had
regard to the guidance issued by the Financial Reporting Council. After making
enquiries, and bearing in mind the nature of the Company's business and assets
and revenue and expenditure projections, 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.
9. The Directors of the Company are considered a related
party. Under the FCA Listing Rules, the Manager is also defined as a related
party. However, 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 for accounting purposes.
There are no transactions with the Board other than aggregated remuneration
for services as Directors as disclosed in the Directors' Remuneration Report
within the Annual Report and 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 in the Annual Report and Financial Statements.
Transactions between the Company and Columbia Threadneedle Investment Business
Limited are detailed in the notes to the financial statements.
10. This statement was approved by the Board on 30 May
2024. It is not the Company's full statutory financial statements in terms of
Section 434 of the Companies Act 2006. The statutory Annual Report and
Financial Statements for the year ended 31 March 2024 has been approved and
audited and received an unqualified audit report and did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying the report. This will be sent to shareholders
during June 2024 and will be available for inspection at 6(th) Floor,
Quartermile 4, 7a Nightingale Way, Edinburgh, EH3 9EG the registered office of
the Company.
The full Annual Report and Financial Statements are available on the website
maintained on behalf of the Company at ctukhighincome.co.uk
The Annual General Meeting of CT UK High Income Trust PLC will be held at 11
am on 26 July 2024 at Columbia Threadneedle Investments, Cannon Place, 78
Cannon Street, London EC4N 6AG.
The audited financial statements for the year to 31 March 2024 will be lodged
with the Registrar of Companies following the Annual General Meeting.
Alternative Performance Measures ("APMs")
The Company uses the following 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 2024
Ordinary B shares
shares
Net asset value per share (a) 94.51p 94.51p
Share price (b) 84.50p 83.50p
Discount (c=(b-a)/(a)) (c) -10.6% -11.6%
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.
Ongoing charges calculation
31 March
2024
£'000
Total expenditure 1,139
Less revolving credit facility commitment fee (7)
Less non-recurring expenses (39)
Total (a) 1,093
Average daily net assets (b) 100,939
Ongoing charges (c = a/b) (c) 1.08%
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
2024
£'000
Investments held at fair value through profit or loss (a) 121,267
Net assets (b) 107,766
Gearing (c = (a/b)-1)% (c) 12.5%
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
2024
Ordinary shares/
B shares
NAV per share at start of financial year 89.97p
NAV per share at end of financial year 94.51p
Change in the year +5.0%
Impact of dividend/capital repayment reinvestment(†) +6.8%
NAV total return for the year +11.8%
( )
(†)During the year to 31 March 2024 dividends/capital repayments totalling
5.51p (Ordinary shares/B shares) went ex-dividend.
31 March 2024
Ordinary B shares
shares
Share price per share at start of financial year 82.0p 84.5p
Share price per share at end of financial year 84.5p 83.5p
Change in the year +3.0% -1.2%
Impact of dividend/capital repayment reinvestment(†) +7.2% +6.7%
Share price total return for the year +10.2% +5.5%
( )
(†)During the year to 31 March 2024 dividends/capital repayments totalling
5.51p (Ordinary shares/B shares) went ex-dividend.
Yield - The total annual dividend/capital repayment expressed as a percentage
of the year end share price.
31 March 2024
Ordinary B shares
shares
Annual dividend/capital repayment (a) 5.62p 5.62p
Share price (b) 84.50p 83.50p
Yield = (c=a/b) (c) 6.7% 6.7%
For further information, please contact:
David
Moss
Portfolio Manager to CT UK High Income Trust
PLC Tel: 0131 573 8300
Ian Ridge
For Columbia Threadneedle Investment Business Limited
Company Secretary to CT UK High Income Trust
PLC Tel: 0131 573 8300
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