REG-M&G Credit Income Investment Trust plc Annual Financial Report
27/03/2025 07:15
============
M&G Credit Income Investment Trust plc (MGCI)
Annual Financial Report
27-March-2025 / 07:00 GMT/BST
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LEI: 549300E9W63X1E5A3N24
M&G CREDIT INCOME INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2024
AND
NOTICE OF ANNUAL GENERAL MEETING
M&G Credit Income Investment Trust plc announces its annual results for
the year ended 31 December 2024 and the publication of its annual report
and accounts for the same period, which includes the notice of Annual
General Meeting.
Chairman’s statement
Performance
Your Company’s opening NAV on 1 January 2024 (adjusted for the last
dividend for 2023) was 94.07p per Ordinary Share and its NAV on 31
December 2024 (adjusted for the last dividend for 2024) was 93.02p per
Ordinary Share. Including dividends paid, the NAV total return for the
year to 31 December 2024 was 8.08%, compared to our benchmark return of
9.50%.
The Investment Manager kept the portfolio defensively positioned
throughout the year because it believed, and continues to believe, that
credit spreads are not compensating investors for longer term corporate
risk; the Investment Manager has therefore focused on improving the credit
quality of the portfolio rather than seeking higher yield. This strategic
decision reduced shorter-term returns, concentrating instead on credits
which should perform better through the cycle. Unfortunately, however, in
the second half of the year, the portfolio did see write-downs which
related to two idiosyncratic and unrelated instances of credit distress,
which primarily accounted for the underperformance against the benchmark.
Despite this, the Company’s NAV total return significantly outperformed
when compared with investment grade indices such as the ICE BofA Sterling
Corporate and Collateralised Index (+1.87%) and the ICE BofA 1-3 Year BBB
Sterling Corporate & Collateralized Index (+5.69%), whilst marginally
underperforming the ICE BofA European Currency Non-Financial High Yield 2%
Constrained Index (+8.74%).
Your Company’s portfolio (including irrevocable commitments) at the year
end was 52% invested in private (non-listed) assets, with an additional
approximately 9% invested in illiquid publicly listed assets which are
intended to be held to maturity. The Investment Manager saw a healthy
pipeline of private opportunities during the year and expects to grow the
private asset portion of the portfolio over time, in line with the
Company’s strategy. That said, having the flexibility to invest across all
areas of the fixed income market is important to achieve the most
attractive risk-adjusted returns for shareholders.
Share issues and discount management
Your board remains committed to seeking to ensure that the Ordinary Shares
trade close to NAV in normal market conditions through buybacks and
issuance of Ordinary Shares. Pleasingly, during the year, the Company
resold all of the 4,126,532 shares held in treasury, which had previously
been repurchased pursuant to our ‘zero discount’ policy. In addition, the
Company issued a further 2,450,000 new shares at a small premium to NAV
during the year. The Company’s Ordinary Shares traded at an average
discount to NAV of 0.7% during the year ended 31 December 2024. On 31
December 2024 the Ordinary Share price was 96.6p, representing a 1.6%
premium to NAV as at that date.
High and sustained investor demand led the Company to issue so many new
shares that it was necessary to renew the relevant shareholder issuance
authorities at a General Meeting held in February 2025. The authorities
were duly renewed and were followed by a placing and retail offer under
which 6,647,969 new Ordinary Shares were issued. Including these, an
additional 13,297,969 new Ordinary Shares have been issued since the year
end.
Dividends
Your Company paid four quarterly interim dividends in respect of the year
ended 31 December 2024 at the target annual rate of SONIA plus 4%,
calculated by reference to the adjusted opening NAV as at 1 January 2024.
These totalled 8.53p per Ordinary Share, which represented a dividend
yield of 8.8% on the Ordinary Share price on 31 December 2024. Your
Company’s Investment Manager continues to believe that an annual total
return, and thus ultimately a dividend yield, of SONIA plus 4% will
continue to be achievable although there can be no guarantee that this
will occur in any individual year.
Outlook
The technical backdrop in fixed income markets remains firm, with the
amount of capital seeking to take advantage of historically high corporate
bond yields, still exceeding supply. This is keeping sterling credit
spreads anchored at multi-year lows. The level of compensation on offer
for taking credit default risk is at odds with the outlook for the UK
economy which faces a confluence of headwinds including higher business
taxation, Trump 2.0 tariffs, and the prospect of reaccelerating inflation
and higher-for-longer interest rates.
This hugely uncertain economic outlook warrants a cautious, patient and
disciplined approach to investing and favours active management. In such
times, the Investment Manager’s ability to invest across the breadth of
both public and private credit markets distinguishes the Company in being
able to seek out attractive risk-adjusted returns for our investors. As it
has done since inception, the Investment Manager will use capital gains to
help achieve its return and dividend objectives, as set out above in the
section entitled ‘Dividends’. The currently undrawn £25 million credit
facility is available to take advantage of opportunities as they occur.
David Simpson
Chairman
26 March 2025
Financial highlights
Key data
As at As at
31 December 31 December
2024 2023
Net assets (£’000) 139,995 135,285
Net asset value (NAV) per Ordinary Share 95.11p 96.21p
Ordinary Share price (mid-market) 96.6p 92.2p
Premium/(Discount) to NAVa 1.6% (4.2)%
Ongoing charges figurea 1.28% 1.28%
Return and dividends per Ordinary Share
Year ended Year ended
31 December 31 December
2024 2023
Capital return 1.5p 3.3p
Revenue return 6.0p 6.0p
NAV total returna 8.1% 10.4%
Share price total returna 14.6% 9.5%
Total dividends declaredb 8.53p 7.96p
a Alternative performance measure. Further information can be found on
pages 115 to 116 of the full Annual Report and Accounts.
b The total dividends declared in respect of each financial year equated
to a dividend yield of SONIA +4% on the adjusted opening NAV.
Investment manager’s report
We are pleased to provide commentary on the factors that have had an
impact on our investment approach since the start of the financial year.
In particular we discuss the performance and composition of the portfolio.
Over the course of the year, inflation in core economies continued to cool
and trend toward the key 2% target of central banks. However, the
aggressive rate cutting expectations with which we entered 2024 unwound as
economic performance in both the US and UK remained stronger than
expected. Despite arriving later in the year than markets had anticipated,
central banks did start to cut interest rates, led initially by the ECB in
June, with the Bank of England and US Federal Reserve following suit
shortly after in August and September respectively. Concern over rising
fiscal deficits occupied investor thinking more and more in the second
half of the year, driving political upheaval and affecting rates markets
in Europe, and becoming a key topic of political debate during the US
election campaign and in the aftermath of the Autumn budget in the UK.
In addition to monetary policy, it was geopolitical risk which functioned
as a key driver of the market narrative during the year. A groundswell of
support for populist political parties across core member states in the
European Parliamentary elections preceded further political turmoil in
France and Germany which eventually led to the collapse of their
respective governments as we approached the year end. In the UK, a ‘tax
and spend’ budget by the new Labour government, sparked concerns over
growth and inflation, putting pressure on gilt yields and complicating
future policy decisions for the Bank of England. Arguably the most
significant event of the year was the US presidential election in
November, resulting in a victory for Donald Trump, as well as Republican
control of the House of Representatives and the Senate. This left
financial markets digesting the implications for future US foreign and
economic policy, with Trump announcing plans to impose tariffs on Europe,
China, Mexico and Canada.
The technical backdrop in fixed income remained strong throughout the
year. All-in bond yields continued to screen favourably to other asset
classes and the supply/ demand imbalance in corporate bond markets
resulted in a significant tightening in credit spreads. Rating bands also
compressed, with investor risk appetite buoyed by easing financial
conditions and resilient economic growth. This meant that as credit
investors we weren’t being compensated for taking risk and therefore we
deliberately kept the portfolio defensively positioned.
Portfolio activity focused on reducing risk and increasing credit quality,
rotating out of tighter yielding public bonds and redeploying proceeds
into comparable or higher rated asset backed securities (ABS) and
collateralised loan obligations (CLOs), as well as attractively priced
private assets. In selling down public corporate bonds and reallocating
capital into private and alternative sectors of the fixed income market,
we were able to achieve a significant spread pick-up and improve both the
overall yield and credit quality of the portfolio.
We continued to reduce our European real estate investment trust exposure
throughout the year, and having purchased bonds at heavily discounted
prices in 2022, the strong recovery from those levels allowed us to
realise notable capital gains upon sale. The outstanding loan balance on
the Company’s credit facility remained undrawn over the course of the
year.
The funded private asset portion of the portfolio decreased over the
period to 52.4% (versus 53.8% at 31 December 2023). The portfolio’s
sub-investment grade holdings increased by some 5% from the start of the
year (23.5% vs 18.8%). This was driven a number of private investment
grade facilities repaying over the period, and market pricing leading us
to find more attractive relative value in increasing our exposure to
direct lending loans, which are typically sub-investment grade. In
addition, some private credits previously rated BBB- (the lowest rung of
investment grade) were downgraded to BB (the highest band of
sub-investment grade). This was counterbalanced by improvements in quality
in the public investment grade portion of the portfolio, where exposure to
AA-rated credit increased by 6%.
We actively monitor the portfolio for signs of distress and currently have
exposure to two issuers amounting to 0.7% of the latest published NAV,
which are either in technical default or at some stage of a restructuring
process. These are the two positions referred to in the Chairman’s
statement: they are already marked-to-market or otherwise reserved against
in respect of non-public market instruments in your Company’s latest
published NAV. Looking ahead, we retain confidence in our credit analysis
process and perceive these particular and regrettable examples of credit
stress to have been idiosyncratic in nature.
Outlook
Geopolitical risk, which became the predominant driver of market moves in
the latter part of last year, has continued to ratchet up in the early
part of 2025. The trade and defence policy shifts of the Trump
administration have upended the well established international order,
creating a global economic realignment which is seeing historical
alliances reshaped. The already rapid escalation of President Trump’s
tariff war has seen a notable weakening in US equity and credit, with
uncertainty on the extent of the tariffs, their permanence and the scope
of retaliatory action, spooking investors and causing market volatility to
spike. Additionally, a change in the supportive stance for Ukraine in its
war against Russia seen under the Biden administration, and Trump’s
apparent hostile position on NATO, has catalysed a paradigm shift in
Europe with an urgent reprioritisation of defence spending which will
require looser fiscal policy going forward. This has caused increased
volatility and widening in European government yields.
The volatile backdrop to the first quarter of this year has also seen a
softening in sterling credit spreads. However, this should viewed in the
context of retracing the grind tighter seen over the last few months,
during which multi-decade lows were reached, rather than anything more
notable at this stage. Viewed over a longer term horizon, public sterling
credit is still screening expensively on a spread basis, despite the
attraction for all-in yield buyers remaining strong given the elevated
rates component. Given the lack of compensation for default risk currently
priced into public credit spreads, and our expectation for wider macro
uncertainty to continue to weigh on markets, we intend to keep the
portfolio defensively positioned. Our focus will be to derisk where
possible, still opting for credit quality over adding yield. As the public
corporate bond market currently offers scant risk-adjusted value relative
to our return target, we will sell down tighter yielding public credits
and redeploy proceeds into higher yielding private investments. Under
these market conditions, we believe that our flexibility in being able to
invest across the breadth of both public and private markets can be a
powerful differentiator in generating what we feel are the most attractive
risk-adjusted returns for our shareholders. We begin 2025 with a healthy
and diverse pipeline of private investment opportunities which we hope to
add to the portfolio in the coming months. Should further volatility
present us with attractive opportunities, we have access to a £25 million
credit facility and a further £23 million invested in two AAA/AA-rated,
daily dealing ABS funds, ready to be reallocated should the right
risk-reward opportunities arise.
M&G Alternatives Investment Management Limited
26 March 2025
Portfolio analysis
Geographical exposure
Percentage of portfolio of investments
as at 31 December 2024 (2023)*
Percentage of portfolio of investments
United Kingdom 50.90% (53.60%)
Europe 41.80% (35.55%)
United States 4.24% (6.31%)
Australasia 1.97% (2.26%)
Global 1.09% (2.28%)
* Excluding cash on deposit and derivatives.
Source: M&G and State Street as at 31 December 2024
Portfolio overview
As at 31 December 2024 2023
% %
Cash on deposit 0.97 0.90
Public 46.57 45.59
Asset-backed securities 24.62 17.50
Bonds 14.50 23.20
Investment funds 7.45 4.89
Private 52.38 53.80
Asset-backed securities 4.57 5.08
Bonds 2.06 2.35
Investment funds 11.40 13.05
Loans 23.06 18.89
Private placements 1.25 2.28
Other 10.04 12.15
Derivatives 0.08 (0.29)
Debt derivatives 0.05 (0.33)
Forwards 0.03 0.04
Total 100.00 100.00
Source: State Street
Credit rating breakdown
As at 31 December 2024 2023
% %
Unrated 0.08 (0.29)
Cash and investment grade 76.40 81.48
Sub-investment grade 23.52 18.81
Total 100.00 100.00
Source: State Street
For the detailed breakdown of the credit ratings of the investment
portfolio, please refer to page 101 of the full Annual Report and Accounts
in note 13 to the Financial Statements.
Top 20 holdings
Percentage of portfolio
of investmentsa
Company description
As at 31 December 2024
(2023)
Open-ended fund managed by M&G which invests in
leveraged loans issued by, generally,
substantial private companies located in the UK
M&G European Loan Fund and Continental Europe. The fund’s objective is
to create attractive levels of current income
11.40% (11.48%) for investors while maintaining relatively low
volatility of NAV. (Private)
Open-ended fund managed by M&G which invests
M&G Investment Grade ABS primarily in high grade European ABS with on
Fund average AA risk. The fund seeks to find value in
credits which offer an attractive structure or
8.50% (n/a) price for their risk profile. (Public)
Open-ended fund managed by M&G investing in a
diversified pool of investment grade ABS. In
usual market conditions, the fund will invest
predominantly in senior tranches of ABS, with
M&G Senior Asset Backed 80% expected to be of a credit rating of at
Credit Fund least AA– or higher. The latest average credit
rating of the underlying portfolio is AAA. The
7.45% (4.89%) daily dealing fund is used by the Investment
Manager as an alternative to holding cash.
(Public)
Income Contingent Student Floating-rate, junior mezzanine tranche of a
Loans 14.95% portfolio comprised of income contingent
repayment student loans originally advanced by
24/07/2058 the UK Secretary of State for Education.
(Public)
2.00% (0.76%)
Delamare Finance FRN Floating-rate, senior tranche of a CMBS secured
1.279% 19 Feb 2029 by the sale and leaseback of 33 Tesco
superstores and 2 distribution centres. (Public)
1.77% (1.76%)
Floating-rate, senior secured infrastructure
Project Energy from Waste loan funding the design, build, maintain,
UK Var. Rate 29 Nov 2041 operate and finance contract of a residual waste
treatment facility. (Private)
1.54% (0.52%)
Millshaw SAMS No. 1 Var. Floating-rate, single tranche of an RMBS backed
Rate 15 Jun 2054 by shared-appreciation mortgages. (Public)
1.43% (1.33%)
Secured, bilateral real estate development loan
Hammond Var. Rate 28 Oct backed by a combined portfolio of 2 office
2025 assets leased to an underlying roster of global
corporate tenants. (Private)
1.39% (1.42%)
Floating-rate, senior tranche of a
Aria International Var. securitisation of invoice receivables originated
Rate 23 Jun 2025 by a specialist digital recruitment platform.
(Private)
1.38% (1.16%)
Signet Excipients Var.
Rate 20 Oct 2025 Fixed-rate loan secured against 2 large
commercial premises in London, currently leased
1.27% (1.29%) to 2 FTSE listed UK corporations. (Public)
Income Contingent Student
Loans 1 2002-2006 FRN Floating-rate, mezzanine tranche of a portfolio
comprised of income-contingent repayment student
2.76% 24 Jul 2056 loans originally advanced by the UK Secretary of
State for Education. (Public)
1.22% (1.17%)
Atlas 2020 1 Trust Var. Floating-rate, senior tranche of a bilateral
Rate 30 Sep 2050 RMBS transaction backed by a pool of Australian
equity release mortgages. (Private)
1.19% (1.32%)
Floating-rate, mezzanine tranche of a regulatory
Citibank FRN 0.01% 25 Dec capital transaction backed by a portfolio of
2029 loans to large global corporates, predominantly
in North America. (Private)
1.16% (1.15%)
Floating-rate, mezzanine tranche in a regulated
STCHB 7 A Var. Rate 25 capital securitisation where the portfolio
Apr 2031 consists of 36 loans, secured on the undrawn
Limited Partner (LP) investor capital
1.15% (1.15%) commitments. (Private)
PFI (Private Finance Initiative) floating-rate,
Regenter Myatt Field amortising term loan relating to the already
North Var. Rate 31 Mar completed refurbishment and ongoing maintenance
2036 of residential dwellings and communal
infrastructure in the London borough of Lambeth.
1.12% (1.23%) (Private)
Floating-rate, senior secured term loan lending
Whistler Finco 1% 30 Nov to an outdoor media infrastructure owner which
2028 invests and manages a large billboard portfolio
in the UK, Netherlands, Spain, Ireland and
1.10% (1.12%) Germany. (Private)
Floating-rate, senior secured position in a
Project Grey 1% 30 Apr bilateral real estate loan to fund the
2025 acquisition and refurbishment of an office block
in the London CBD. (Private)
1.04% (1.11%)
NewRiver REIT PLC operates as a real estate
NewRiver REIT 3.5% investment trust investing in retail properties
07/03/2028 throughout the United Kingdom. Fixed, callable
bond. Senior Unsecured. (Public)
1.03% (1.02%)
Finance for Residential
Social Housing 8.569% High grade (AA/Aa3), fixed-rate bond backed by
cash flows from housing association loans.
04 Oct 2058 (Public)
1.02% (1.13%)
Fontwell II Securities Floating-rate, mezzanine tranche in a regulated
2020 9.2208% 18/12/2028 capital securitisation where the underlying
portfolio is long-term mortgages for farms and
1.01% (1.02%) rural businesses across the UK. (Private)
a Including cash on
deposit and derivatives.
Annual General Meeting
The Company's Annual General Meeting will be held at the offices of M&G
Alternatives Investment Management Limited, 10 Fenchurch Avenue, London
EC3M 5AG at 10:00am on Wednesday, 21 May 2025. The formal Notice of AGM
can be found within the Annual Report.
Further Information
The full Annual Report and Accounts can be obtained from the Company's
website at 1 www.mandg.co.uk/creditincomeinvestmenttrust or by contacting
the Company Secretary at 2 mandgcredit@cm.mpms.mufg.com.
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at
the NSM, which is situated at:
3 https://data.fca.org.uk/#/nsm/nationalstoragemechanism, in accordance
with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules.
ENDS
Neither the contents of the Company's website nor the contents of any
website accessible from hyperlinks on this announcement (or any other
website) is incorporated into, or forms part of, this announcement.
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Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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ISIN: GB00BFYYL325, GB00BFYYT831
Category Code: ACS
TIDM: MGCI
LEI Code: 549300E9W63X1E5A3N24
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 380269
EQS News ID: 2107084
End of Announcement EQS News Service
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