Half-year Report
30/09/2024 07:00
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RNS Number : 1158G North American Income Trust (The) 30 September 2024
Legal Entity Identifier: 5493007GCUW7G2BKY360
THE NORTH AMERICAN INCOME TRUST PLC
Unaudited results for the half-year ended 31 July 2024
INVESTMENT OBJECTIVE
The Company seeks to provide investors with above average dividend income and
long-term capital growth through active management of a portfolio consisting
predominantly of S&P 500 US equities.
PERFORMANCE
Total return performance (including dividends reinvested and excluding
transaction costs)
6 months 1 year 3 years 5 years 10 years
% % % % %
NAV(1) 11.1 13.9 29.3 34.7 182.8
Share price (2) 8.3 13.1 27.3 18.9 171.7
Russell 1000 Value Index (in sterling terms) total return
11.0 15.0 32.6 53.0 210.0
S&P High Yield Dividend Aristocrats (in sterling terms) total return
9.8 9.7 29.7 47.8 256.0
Average sector NAV (3) 8.2 12.3 20.7 72.3 205.0
Financial highlights
Shareholders' funds at 31 July 2024 At 31 July 2023 at 31 Jan 2024
Net assets (£'000) £455,174 £445,068 £436,479
Net asset value per ordinary share 346.2p 317.8p 317.8p
Discount (4) (11.3%) (11.3%) (9.1%)
Share price 307.0p 282.0p 289.0p
Net gearing 7.1% 5.5% 4.1%
Half-year ended Half-year ended Year ended
31 July 2024 31 July 2023 31 Jan 2024
£'000 £'000 £'000
Total return to equity shareholders
Revenue return after taxation 8,068 8,542 16,668
Capital return after taxation 36,797 (27,392) (25,841)
---------- ------------- -------------
Total return 44,865 (18,850) (9,173)
====== ======== ========
Total return per ordinary share
Revenue 5.98p 6.10p 11.95p
Capital 27.30p (19.55p) (18.53p)
---------- ----------- -----------
Total return per ordinary share 33.28p (13.45p) (6.58p)
====== ======== ========
1. Net asset value ('NAV') per ordinary share total return
2. Share price total return using closing price
3. The sector is the Association of Investment Companies ('AIC') North
America
4. The discount is calculated using the net assets and the share price
at each date
Sources: Morningstar Direct, Janus Henderson Investors, BNP Paribas
Total Return Performance
http://www.rns-pdf.londonstockexchange.com/rns/1158G_1-2024-9-27.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1158G_1-2024-9-27.pdf)
Historical record - Year to 31 January
As at 31 Jul
2024(1)
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Net assets(2) (£m) 309 281 379 392 399 414 375 448 473 436 455
NAV(3*) 187.8p 187.1p 264.7p 275.5p 280.4p 288.9p 262.5p 318.8p 337.2p 317.8p 346.2p
Share price* 173.0p 163.0p 246.4p 260.0p 268.0p 290.0p 234.0p 283.0p 306.0p 289.0p 307.0p
Net revenue* 6.54p 7.15p 7.98p 8.42p 10.04p 11.42p 11.79p 10.28p 12.21p 11.95p 5.98p
Net dividends paid per ordinary share* 6.00p 6.60p 7.20p 7.80p 8.50p 9.50p 10.00p 10.30p
11.00p 11.70p 5.40p(4)
( )
(1) Net revenue and net dividends paid are for the six month period ended 31
July 2024
(2) Attributable to ordinary shares
(3) NAV per ordinary share with debt at par value
(4) First interim dividend of 2.70p per ordinary share paid on 25 July 2024
and second interim dividend of 2.70p per ordinary share that will be paid on
31 October 2024.
*Comparative figures for 2015 to 2019 inclusive have been restated to reflect
the sub-division of each existing Ordinary share of 25p into five Ordinary
shares of 5p each on 10 June 2019
INTERIM MANAGEMENT REPORT
Chair's Statement
Performance
For the period from 31 January 2024 to 31 July 2024, NAIT's Net Asset Value
('NAV') per share marginally outperformed the Russell 1000 Value Index
(sterling adjusted), with a return of 11.1% versus 11.0%. Over the same time
period the share price rose 8.3%. NAIT also slightly outperformed the S&P
High Yield Dividend Aristocrat Index (sterling adjusted), another reference
index that the Board will now be tracking, which returned 9.8%. During the
review period, the prior manager, abrdn, was responsible for the management of
the Company. Following the announcement of the change of manager in May 2024,
abrdn agreed with the Board to manage the portfolio on a 'care and
maintenance' basis until transfer to the new manager, Janus Henderson
Investors, on 1 August 2024. As a result, most of the investment activity
was in the early part of the period under review. More details on that
activity can be found in the abrdn commentary. Given the change in investment
manager on 1 August, the Board felt it was important to also include separate
commentary from Janus Henderson which covers the start of their responsibility
to the Company.
US markets in the first six months of calendar 2024 were dominated by a
handful of technology stocks, in particular, Nvidia, which was up considerably
on the back of very strong earnings growth and investors' enthusiasm for
artificial intelligence stocks. The largest 7 technology stocks accounted for
roughly 30% of the S&P 500 in July, helped by strong earnings growth and
increases in their valuation. The Board feels that index investing no longer
holds the same sort of sector or security diversification that it did in the
past, reinforcing the role of an actively managed, diversified portfolio.
Over the last 5 years to 31 July 2024, NAIT has returned 34.7% with a higher
yield (3.6%) than the Russell 1000 Value Index (sterling adjusted) (2.1%) and
has provided a steady and growing dividend. However, it has relatively
underperformed that same index, which was up 53.0% over the same period on a
total return basis. For comparison, the S&P High Yield Dividend Aristocrat
Index had a yield of 2.7% and returned 47.8% over the same period.
Review of Management Arrangements
During the period under review, the Board reviewed its management
arrangements, with the aim of improving its capital returns while keeping its
above average dividend income. Following a robust process which saw the Board
evaluate a number of suitable candidates, it was decided to appoint Janus
Henderson Investors as Manager. That decision was driven by Janus Henderson
having an existing stable of well-regarded equity income trusts, a strong US
capability with $180 bn of US equities under management, a pool of 36 US
equity analysts to draw upon and the track record of their portfolio manager,
Jeremiah Buckley. Jeremiah started managing NAIT on 1 August 2024 after a
seamless migration to Janus Henderson. The Board would like to thank abrdn for
its help in this transition, as well as all the advisors and service providers
that were called upon to assist in the move to Janus Henderson. In November
the previous portfolio manager, Fran Radano, will start working alongside
Jeremiah and they will co-manage the portfolio from that point.
The Board feels that NAIT has something different to offer; a higher than
index yield, a rising dividend and capital growth. The Board is confident that
all the ingredients are now in place to help improve the total returns going
forward. In addition, the Board has also put in place a mechanism for
shareholders to redeem part of their shareholding if, after the next three
years, the NAV/share total return does not exceed the total return of the
S&P High Yield Dividend Aristocrat Index. There is also a second condition
on this mechanism such that if, over the six-month period prior to the
calculation date, the Company's ordinary shares have traded at greater than a
7% discount, shareholders can redeem part of their holding at a 2% discount to
the prevailing NAV (less tender offer costs).
Earnings:
Earnings per share for the first 6 months were 5.98p to 31 July compared to
6.10p in the corresponding period last year.
Dividends
The first interim dividend for the 2025 financial year (paid July 2024) was
2.7p, up from 2.6p in the prior year. The intention is to provide a
progressive dividend and it is worth noting that there is one year's worth of
dividends in reserve. A second interim dividend of 2.7p will be paid on 31
October 2024.
Costs
Janus Henderson will receive an annual management fee of 0.55% of the
Company's net assets up to £500m and 0.45% on net assets above £500m. This
represents a meaningful reduction from the fees paid to abrdn Fund Managers
Limited of 0.75% of net assets up to £250m, 0.6% of net assets from £250m up
to £500m and 0.5% of net assets above £500m. In addition, Janus Henderson
has agreed to make a contribution to the Company's costs of the transition, up
to a maximum of three months of management fees from its appointment as AIFM
on 31 July 2024.
Share buy backs
The Board pays close attention to the level of discount which had reached the
low teens during the broad sell off in investment trusts. Over the review
period 5.9m shares have been repurchased against a figure of 198,000 for the
prior year period. The purchases were made at a 12.2% average discount.
Gearing
The Board believes that a sensible use of gearing should enhance returns to
shareholders over the longer term. In December 2020, the Company entered into
a long-term financing agreement for US$50 million with MetLife for two loans
of US$25 million with terms of 10 and 15 years. As a result, net gearing at 31
July 2024 stood at 7.1% (31 July 2023: 5.5%). The change of manager had no
impact on these agreements.
Board changes
The Board would like to thank Dame Susan Rice for her service to the Company
over the last 9 years and in particular for chairing NAIT during the
transition period up to 21 June this year, when I took over that role. The
Board has appointed a recruitment agency to help with the search for a fifth
NED who we hope will complement an experienced Board.
Outlook
As our new manager, Janus Henderson, says 'there is a lot to be positive about
in the US economy'. Interest rates are expected to continue to decline, the
consumer remains resilient, and companies across various sectors are finding
new ways to leverage AI to improve efficiency and customer service and
accelerate the pace of bringing new products and services to market. There
were small signs of the market broadening out since the end of the half year
period and the Board is optimistic that the new manager, with all its
resources and focused team, will improve the total returns in the years ahead.
Charles Park
Chair
27 September 2024
Fund Manager's Report
Abrdn commentary
The Company's investments over the six months ended 31 July 2024 continued to
align with our high-quality stock selection process, emphasising consistent
cash flow generation. Following the announcement of the change of Manager in
May 2024, abrdn agreed with the Board to manage the portfolio on a 'care and
maintenance' basis, while the transition was completed. Consequently, much of
the activity reported below occurred during the first three months of the
review period.
We initiated positions in the following six companies over the six months:
· Honeywell International, an industrial conglomerate with a
storied history rooted in consistent operational improvements and portfolio
high grading. Over the years, it has established successful franchises with
market-leading positions in most end-markets. This includes a comprehensive
portfolio of aerospace solutions, products and services that enable
energy-efficient buildings, warehouse automation systems, specialty chemicals
and much more. Importantly, a majority of sales are derived from offerings
that contribute to ESG-related outcomes, such as improving energy efficiency,
water usage and air quality. Altogether, Honeywell's goal is to create a safer
and more productive world.
· UnitedHealth Group, a large, diversified managed care company
with exposure in the commercial, Medicare and Medicaid markets. The vertically
integrated company also operates a large pharmacy benefit manager, has
expansive care delivery capabilities and offers a broad suite of healthcare
information-technology (IT) solutions. UnitedHealth Group has a veteran
management team and a consistent track record of delivering double-digit
earnings growth, with long-term guidance calling for 13-16% annual growth in
earnings per share. The stock also has an attractive dividend yield of
approximately 1.5%. A pullback in the share price, created by what we believe
to be transitory challenges, offered what we considered an attractive entry
point, with the shares trading at a discount to the company's historical
price/earnings multiple.
· Corteva, a leading global provider of seed and crop protection
solutions for the agricultural industry. The seed business utilises a
best-in-class genetics platform to develop patented seeds with advanced traits
that significantly improve a crop's resistance to weather, diseases and
insects while also enhancing its food and nutritional characteristics. The
crop protection segment develops pesticides (herbicides, insecticides and
fungicides) and disease management solutions, which also improve plant health
and farmer profitability. Together, these two platforms create one of the
broadest portfolios of agricultural solutions, making Corteva a one-stop shop
for farmers.
· Oracle Corporation, the technology conglomerate. With its roots
in relational databases, Oracle has grown into one of the largest software
companies in the world, and today offers a full suite of applications,
middleware and infrastructure to its customers through on-premise licenses or
software-as-a-service subscriptions. Over the last several years, Oracle has
grown its public cloud offering - Oracle Cloud Infrastructure ('OCI') - and
has reported strong growth in cloud bookings due to customer interest in
generative artificial intelligence ('AI'). Oracle is rapidly growing its data
centre footprint to keep up with the strong demand for public cloud services
globally and should benefit from secular growth in cloud and AI over the
coming years. Oracle has grown its dividend per share at approximately 15% per
annum over the last three to five years, and we expect continued growth in the
coming years in line with expected growth in earnings per share. Oracle has
committed to 100% renewable energy use by 2025, including for all of its OCI
data centres, and has a net-zero emissions target by 2050.
· Union Pacific Corporation, a railroad operator with one of the
most strategically advantaged networks among all Class 1 peers. Unit economics
have been consistently impressive. While the cost structure has been more than
adequate, there is a clear path to further improvement. The company has a
broad-based network across the US, including six crossings at the Mexico
border. Its end-markets are well diversified across the industrial economy and
by customer. Near-term growth remains somewhat challenged, resulting in
multiple compression, which we believe presents an opportunity for future
outperformance. The return of Jim Vena as CEO should accelerate the recovery
in the operating ratio, given his expertise and past execution efforts in
precision railroading. Railroads remain one of the most environmentally
friendly and lowest-cost means of transporting a wide array of goods and have
multiple ways to further enhance their capabilities in this area. Union
Pacific has consistently returned capital to shareholders through a
combination of dividends and share repurchases, given its healthy free cash
flows and strong balance sheet. We believe the margin opportunity can offset
any revenue weakness in the near term if the economy were to weaken. Over the
longer term, margin opportunities are expected to enhance future leverage in a
more favourable market.
· Rockwell Automation, a leading US automation pure play that is
set to benefit from a short cycle recovery, in our opinion. Rockwell is a
leader in discrete automation, in particular, holding ~50% market share in the
US. The company is innovative and has a business model of developing software
in-house and undertaking small bolt-on acquisitions to expand its verticals or
strengthen its current product offerings. Rockwell has a goal of being carbon
neutral by 2030 (scope 1 and 2), and in 2023 was able to recycle 88% of its
waste and generated over $2 billion of revenue from energy-efficient products
and offerings (per SASB's definition).
In terms of sales, we exited two positions over the six-month period under
review:
· Cisco Systems, the network equipment manufacturer. It continued
to struggle with excess inventory of networking equipment with its customers
and appeared to have missed out on the resurgence in IT spending related to
generative AI. The company initiated a significant restructuring to reduce
costs in response to a challenging demand environment for its products.
· FMC Corporation, the agricultural sciences company. This sale was
to help fund our initiation of Corteva (see above). Both companies are key
suppliers of agricultural chemicals and have struggled through a period of
intense industry destocking. However, as we approached the later stages of the
destocking cycle and both stocks traded at depressed levels, we decided to
sell our holding in FMC in favour of the more diversified Corteva. FMC remains
a high-quality company with a strong competitive business edge, but we were
able to gain similar exposure with a more resilient business model.
In terms of options activity, considering the timing around the management
transfer, all open option positions at the time of the change of Manager
announcement were held until exercise or expiry, and no new options contracts
were entered into. As at 31 July 2024, there were no open option positions.
abrdn Inc.
Investment Manager, until 31 July 2024
Janus Henderson commentary
Portfolio changes:
We've made material changes to the portfolio since taking over management at
the beginning of August. From a sector standpoint, we've materially
increased the exposure to Information Technology as we have added a number of
companies that we think will benefit from the increased spending on Artificial
Intelligence over the coming years, boosting our exposure to IT Services,
semiconductors and semi-cap equipment, and software. We've also increased
the weighting to the healthcare sector which we believe continues to offer
both defensive and offensive characteristics. We believe the sector will
hold up well in the case of an unexpected slowdown in the economy, but should
also do well over the cycle given the amount of innovation we are seeing in
biotech and medical devices. Lastly, we've also increased the exposure to
Real Estate Investment Trusts given the attractive dividend yields in the
sector, consistency of growth of those dividends, and a return to normal
occupancy trends following the disruption during the pandemic.
To fund these increases in exposure, we have sold the bond positions in the
portfolio and reduced exposure to the Materials, Financials, and Consumer
Staples sectors. Given the recent rotation in the market toward more
interest rate sensitive and defensive sectors, we have found valuations in
these sectors to be less attractive. We continue to be disappointed with the
organic growth in balance sheet oriented financials and have reduced exposure
given our lower total return assumptions. We also continue to be
disappointed with the volume trends for consumer staples companies after
aggressive price increases over the last couple of years to maintain margins
in the higher cost environment have led to consumers drawing down pantry
inventories and trading down to private label. We also believe that the hope
of lower interest rates catalysing faster growth in sectors like Materials is
premature.
Outlook:
As we enter the second half of the year, there is a lot to be positive about
in the U.S. economy, with unemployment remaining low and solid job growth.
Households are feeling the impact of inflation and are being more selective in
their consumption, however, we still believe consumer balance sheets remain
relatively healthy and should contribute to a strong overall economic
backdrop.
Equity markets have embraced this optimism, pricing in a soft landing
scenario. Year-over-year S&P 500 earnings estimates are up over 10% for
this year and next, which appear realistic based on our company interactions.
However, we believe the realisation of these estimates hinges on two critical
factors: productivity and innovation.
Recent gains in U.S. labour productivity are particularly encouraging. Nonfarm
labour productivity has increased from 2.4% to 2.9% year over year in each of
the past three quarters, significantly above the 1.5% 10-year average. This
uptick bodes well for corporate margins and may help mitigate inflationary
pressures. The productivity gains are particularly evident among tech and
internet firms, many of which streamlined operations while still growing
revenues.
To capitalise on productivity trends, we're focused on two key areas: AI
infrastructure providers, which offer enabling technologies like
semiconductors and AI services, and large-scale companies with large enough
R&D and capital spending budgets to fully leverage these technologies.
Companies across various sectors are finding new ways to leverage AI to
improve efficiency and customer service and accelerate the pace of bringing
new products and services to market.
While AI dominates innovation discussions, we see breakthroughs extending
beyond tech into sectors like health care. Innovations are emerging in gene
editing, antibody drug conjugates, Car T therapies and cell therapies for
autoimmune diseases. The continued investment in R&D within healthcare is
expected to drive growth and differentiation among companies in the sector.
Key economic risks we are watching include consumer spending trends and the
dampening effects that higher interest rates can have on long-cycle capital
spending. Consumer spending, while still resilient, has shown signs of a
slight slowdown in certain areas. High-income consumers with strong asset
positions continue to spend, particularly on travel and experiences, while
more leveraged consumers are being selective in their spending choices. The
construction industry is another area of focus, with weakening data outside of
data centers. This includes housing, multifamily homes, and manufacturing
capacity. However, government and nonresidential spending has remained robust,
due to data center and chip manufacturing plant buildouts.
Our focus remains on companies providing attractive current income and growth
potential. We believe our emphasis on companies with consistent cash flows and
healthy balance sheets can help buffer shareholder returns in the event
economic demand is weaker than anticipated.
Jeremiah Buckley
Fund Manager
27 September 2024
Ten Largest Investments
MetLife Gaming & Leisure Properties
MetLife provides individual insurance, employee benefits, and financial Gaming and Leisure Properties owns and leases casinos and other entertainment
services with operations throughout the United States and the regions of Latin facilities.
America, Europe, and Asia Pacific.
Medtronic Baker Hughes
Medtronic develops therapeutic and diagnostic medical products for a wide Baker Hughes provides oilfield products and services. The Company engages in
range of conditions, diseases and disorders. surface logging, drilling, pipeline operations, petroleum engineering, and
fertiliser solutions, as well as offers gas turbines, valves, actuators,
pumps, flow meters, generators, and motors. Baker Hughes serves oil and gas
industries worldwide.
Philip Morris Citigroup
Philip Morris, through its subsidiaries, manufactures and sells cigarettes and Citigroup is a diversified financial services holding company that provides a
other tobacco products. broad range of financial services to consumer and corporate customers. The
company services include investment banking, retail brokerage, corporate
banking, and cash management products and services. Citigroup serves customers
globally.
Merck & Co Air Products & Chemicals
Merck & Co. is a global health care company that delivers health solutions Air Products and Chemicals produces industrial atmospheric and specialty gases
through its prescription medicines, vaccines, biological therapies, animal and performance materials and equipment. The Company's products include
health, and consumer care products, which it markets directly and through its oxygen, nitrogen, argon, helium, specialty surfactants and amines,
joint ventures. The Company has operations in pharmaceutical, animal health, polyurethane, epoxy curatives, and resins.
and consumer care.
L3 Harris Technologies American International Group ("AIG")
L3 Harris Technologies is an aerospace and defence technology innovator. The American International Group is an international insurance organisation
company designs, develops, and manufactures radio communications products and serving commercial, institutional and individual customers. AIG provides
systems, including single channel ground and airborne radio systems. property- casualty insurance, life insurance, and retirement services.
Sector exposure (% of portfolio excluding cash)
at 31 July 2024
%
Financial Services 20.1
Consumer Staples 13.8
Healthcare 13.8
Industrials 9.7
Energy 7.9
Technology 7.2
Real 6.9
Estate
Utilities 6.0
Telecommunications 5.0
Consumer Discretionary 4.6
Basic 3.4
Materials
Fixed 1.6
Interest
100.0
Geographical exposure (% of portfolio excluding cash)
at 31 July 2024 at 31 January 2024
% %
USA 94.1 93.9
Canada 5.9 6.1
100.0 100.0
Portfolio
Valuation Valuation
Company Industry classification £'000 %
MetLife Insurance 20,041 4.1
Gaming & Leisure Properties Specialised REITs 19,538 4.0
Medtronic Health Care Equipment & Supplies 18,758 3.8
Baker Hughes Energy Equipment & Services 18,090 3.7
Philip Morris Tobacco 17,931 3.7
Citigroup Banks 17,679 3.6
Merck & Co Pharmaceuticals 17,614 3.6
Air Products & Chemicals Chemicals 16,432 3.4
L3 Harris Technologies Aerospace & Defence 15,894 3.3
American International Group ("AIG") Insurance 15,419 3.2
Ten largest investments 177,396 36.4
Broadcom Semiconductors & Semiconductor Equipment 15,029 3.1
Keurig Dr Pepper Beverages 14,674 3.0
Omega Healthcare Investors Health Care REITs 14,173 2.9
CVS Health Health Care Providers & Services 14,089 2.9
JPMorgan Chase & Co. Banks 13,253 2.7
Coca-Cola Beverages 12,984 2.7
Bristol-Myers Squibb Pharmaceuticals 12,957 2.7
Comcast Media 12,843 2.6
Honeywell Industrial Conglomerates 12,752 2.6
Cogent Communications Diversified Telecommunication 11,543 2.4
Twenty largest investments 311,693 64.0
Genuine Parts Distributors 11,453 2.4
Emerson Electric Electrical Equipment 11,399 2.3
PNC Financial Services Banks 11,276 2.3
UnitedHealth Health Care Providers & Services 11,214 2.3
CMS Energy Multi-Utilities 11,097 2.3
Restaurant Brands International Hotels, Restaurants & Leisure 10,897 2.2
Analog Devices Semiconductors & Semiconductor Equipment 10,804 2.2
Enbridge Oil, Gas & Consumable Fuels 10,199 2.1
Phillips 66 Oil, Gas & Consumable Fuels 10,194 2.1
NextEra Energy Electric Utilities 10,110 2.1
Thirty largest investments 420,336 86.3
Essential Utilities Water Utilities 7,910 1.6
Royal Bank of Canada Banks 7,832 1.6
Corteva Chemicals 7,424 1.5
OneMain Consumer Finance 6,510 1.4
AbbVie Biotechnology 6,490 1.3
CME Group Capital Markets 6,031 1.3
Oracle Software and Computer Services 5,426 1.1
Rockwell Automation Electrical Equipment 4,311 0.9
Texas Instruments Semiconductors & Semiconductor Equipment 3,965 0.8
Union Pacific Road and Rail 2,881 0.6
Forty largest investments 479,116 98.4
Venture Global Calcasie 8.375% 01/06/31 Oil, Gas & Consumable Fuels 1,423 0.3
CCO Holdings 7.375% 03/03/31 Media 1,415 0.3
CCO Holdings 4.75% 01/02/32 Media 1,397 0.3
NRG Energy 3.625% 15/02/31 Multi-Utilities 773 0.2
Venture Global Calcasie 6.25% 15/01/30 Oil, Gas & Consumable Fuels 719 0.2
Viatris 2.7% 22/06/30 Pharmaceuticals 713 0.1
Venture Global Calcasie 3.875% 01/11/33 Oil, Gas & Consumable Fuels 701 0.1
NCL 5.875% 15/02/27 Consumer Discretionary 693 0.1
Total investments 486,950 100.0
Principal Risks and Uncertainties
The principal risks and uncertainties associated with the Company's business
can be divided into various areas:
Market risk
Major Market Event or Geopolitical Risk
Income and Dividend Risk
Operational
Regulatory Risk
Gearing Risk
Discount Volatility
Derivatives
Potential Impact of Environmental, Social and Governance ("ESG") Investment
Principles
Information on these risks and how they are managed is given in the Annual
Report for the year ended 31 January 2024. The Board has completed a thorough
review of the principal risks, and the uncertainties facing the Company. As
a result of this review, the Board considers that the principal risks and
uncertainties remain largely unchanged and that they are as applicable to the
remaining six months of the financial year as they were to the six months
under review.
Statement of Directors' Responsibilities
The Directors confirm that, to the best of their knowledge:
(a) the set of financial statements for the half-year to 31 July
2024 has been prepared in accordance with "FRS 104 Interim Financial
Reporting";
(b) the Interim Management Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule 4.2.7R
(indication of important events during the first six months and description of
principal risks and uncertainties for the remaining six months of the year);
and
(c) the Interim Management Report includes a fair review of the
information required by the Disclosure Guidance and Transparency Rule 4.2.8R
(disclosure of related party transactions and changes therein).
On behalf of the Board
Charles Park
Chair
27 September 2024
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Half-year ended Half-year ended Year ended
31 July 2024 31 July 2023 31 January 2024
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
return return return return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Net gains/(losses) on investments - 37,274 37,274 - (28,238) (28,238) - (25,504) (25,504)
Net currency gains - 439 439 - 1,573 1,573 - 1,375 1,375
Income 10,468 207 10,675 11,135 429 11,564 21,952 620 22,572
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,468 37,920 48,388 11,135 (26,236) (15,101) 21,952 (23,509) (1,557)
Expenses
Management fees (455) (1,063) (1,518) (451) (1,052) (1,503) (894) (2,088) (2,982)
Other operating expenses (445) - (445) (464) - (464) (943) - (943)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Return before finance costs and taxation 9,568 36,857 46,425 10,220 (27,288) (17,068) 20,115 (25,597) (5,482)
Finance costs (168) (393) (561) (165) (385) (550) (368) (858) (1,226)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Return before taxation 9,400 36,464 45,864 10,055 (27,673) (17,618) 19,747 (26,455) (6,708)
Taxation (1,332) 333 (999) (1,513) 281 (1,232) (3,079) 614 (2,465)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Return after taxation 8,068 36,797 44,865 8,542 (27,392) (18,850) 16,668 (25,841) (9,173)
======= ======= ======= ======= ======= ======= ======= ======= =======
Return per ordinary share - pence (note 2) 5.98 27.30 33.28 6.10 (19.55) (13.45) 11.95 (18.53) (6.58)
======= ======= ======= ======= ======= ======= ======= ======= =======
The total columns of this statement represent the Income Statement of the
Company, prepared in accordance with FRS 104. The revenue and capital columns
are supplementary to this and are published under guidance from the
Association of Investment Companies.
The Company has no recognised gains or losses other than those disclosed in
the Income Statement and Statement of Changes in Equity.
All items in the above statement derive from continuing operations. No
operations were acquired or discontinued during the period.
The accompanying notes are an integral part of the condensed financial
statements.
CONDENSED Statement of Changes in Equity
Called up share Share Capital redemption reserve Revenue reserve Total
Half-year ended capital premium £'000 Capital £'000 £'000
31 July 2024 £'000 account reserve
(unaudited) £'000 £'000
Balance at 1 February 2024 6,868 51,806 15,748 340,003 22,054 436,479
Buy-back of ordinary shares (note 3) (294) - 294 (17,297) - (17,297)
Return after taxation - - - 36,797 8,068 44,865
Ordinary dividends paid - - - - (8,873) (8,873)
---------- ---------- ---------- ---------- ---------- -----------
Balance at 31 July 2024 6,574 51,806 16,042 359,503 21,249 455,174
====== ====== ====== ====== ====== ======
Called up share Share Capital redemption reserve Revenue reserve Total
Half-year ended capital premium £'000 Capital £'000 £'000
31 July 2023 £'000 account reserve
(unaudited) £'000 £'000
Balance at 1 February 2023 7,012 51,806 15,604 373,828 24,641 472,891
Buy-back of ordinary shares (note 3) (10) - 10 (565) - (565)
Return after taxation - - - (27,392) 8,542 (18,850)
Ordinary dividends paid - - - - (8,408) (8,408)
----------- ----------- ----------- ----------- ----------- -----------
Balance at 31 July 2023 7,002 51,806 15,614 345,871 24,775 445,068
====== ====== ====== ====== ====== ======
Year ended 31 January 2024 Called up share Share Capital redemption reserve Other Revenue reserve Total
(audited) capital premium £'000 capital £'000 £'000
£'000 account reserves
£'000 £'000
Balance at 1 February 2023 7,012 51,806 15,604 373,828 24,641 472,891
Buy-back of ordinary shares (note 3) (144) - 144 (7,984) - (7,984)
Return after taxation - - - (25,841) 16,668 (9,173)
Ordinary dividends paid - - - - (19,255) (19,255)
---------- ---------- ---------- ---------- ---------- ----------
Balance at 31 January 2024 6,868 51,806 15,748 340,003 22,054 436,479
====== ====== ====== ====== ====== ======
The accompanying notes are an integral part of these condensed financial
statements.
CONDENSED STATEMENT OF FINANCIAL POSITION
At 31 July 2024 At 31 July 2023 At 31 January 2024
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 486,950 470,477 454,932
-------------- -------------- --------------
Current assets
Debtors and prepayments 1,040 7,538 951
Cash and short-term deposits 6,694 19,363 21,285
-------------- -------------- --------------
7,734 26,901 22,236
-------------- -------------- --------------
Creditors: amounts falling due within one year
Traded options - (291) (162)
Other creditors (643) (13,227) (1,329)
-------------- -------------- --------------
(643) (13,518) (1,491)
-------------- -------------- --------------
Net current assets 7,091 13,383 20,745
======== ======== ========
Total assets less current liabilities 494,041 483,860 475,677
-------------- -------------- --------------
Creditors: amounts falling due after more than one year
Senior Loan Notes (38,867) (38,792) (39,198)
-------------- -------------- --------------
Net assets 455,174 445,068 436,479
======== ======== ========
Capital and reserves
Called-up share capital (note 3) 6,574 7,002 6,868
Share premium account 51,806 51,806 51,806
Capital redemption reserve 16,042 15,614 15,748
Capital reserve 359,503 345,871 340,003
Revenue reserve 21,249 24,775 22,054
-------------- -------------- --------------
Total equity 455,174 445,068 436,479
======== ======== ========
Net asset value per ordinary share - basic and diluted (note 4) 346.21 317.82 317.78
======== ======== ========
The accompanying notes are an integral part of these condensed financial
statements.
CONDENSED Cash Flow Statement
Half-year ended Half-year ended Year ended
31 July 2024 31 July 2023 31 January 2024
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Operating activities
Net return before taxation 45,864 (17,618) (6,708)
Adjustments for:
Net (gains)/losses on investments (37,309) 28,075 25,410
Net gains on foreign exchange transactions (439) (1,573) (1,375)
Decrease/(increase) in dividend income receivable 18 (248) (60)
Decrease/(increase) in fixed interest income receivable 16 (64) (2)
(Decrease)/increase in derivatives (162) 27 (102)
(Increase)/decrease in other debtors (153) 16 155
(Decrease)/increase in other creditors (574) 687 (53)
Tax on overseas income (896) (1,053) (2,465)
Amortisation of fixed income book cost (39) (45) (94)
------------ ------------ ------------
Net cash flow from operating activities 6,326 8,204 14,706
------------ ------------ ------------
Investing activities
Purchases of investments (61,163) (72,882) (140,765)
Sales of investments 66,312 66,493 147,854
------------ ------------ ------------
Net cash flow from investing activities 5,149 (6,389) 7,089
------------ ------------ ------------
Financing activities
Equity dividends paid (8.873) (8,408) (19,225)
Buy-back of ordinary shares (17,297) (565) (7,984)
------------ ------------ ------------
Net cash used in financing activities (26,170) (8,973) (27,239)
------------ ------------ ------------
Decrease in cash (14,695) (7,158) (5,444)
------------ ------------ ------------
Analysis of changes in cash during the period
Opening balance 21,285 26,699 26,699
Effect of exchange rate fluctuations on cash held 104 (178) 30
Decrease in cash as above (14,695) (7,158) (5,444)
------------ ------------ ------------
Closing balance 6,694 19,363 21,285
======= ======= =======
The accompanying notes are an integral part of these condensed financial
statements.
Notes to the condensed financial statements
1. Accounting policies
a) Basis of preparation
The condensed financial statements have been prepared in accordance with
Financial Reporting Standard 104 (Interim Financial Reporting) and with the
Statement of Recommended Practice for 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts'. They have also been prepared on a
going concern basis and on the assumption that approval as an investment trust
will continue to be granted. Annual financial statements are prepared under
Financial Reporting Standard 102.
The condensed interim financial statements have been prepared using the same
accounting policies as the preceding annual financial statements.
2. Return per ordinary share
The return per ordinary share is based on the profit for the half-year of
£44,865,000 (half-year ended 31 July 2023: loss of £18,850,000; year ended
31 January 2024: loss of £9,173,000) and on 134,828,246 ordinary shares
(half-year ended 31 July 2023: 140,135,287 and year ended 31 January 2024:
139,474,109), being the weighted average number of ordinary shares in issue
during the period.
The return per ordinary share detailed above can be further analysed between
revenue and capital, as below.
Half-year ended Half-year ended Year ended
31 July 2024 31 July 2023 31 January 2024
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Revenue return 8,068 8,542 16,668
Capital return 36,797 (27,392) (25,841)
---------- ---------- ----------
Total return 44,865 (18,850) (9,173)
====== ====== ======
Half-year ended Half-year ended Year ended
31 July 2024 31 July 2023 31 January 2024
(unaudited) (unaudited) (audited)
Pence pence pence
Revenue return per ordinary share 5.98 6.10 11.95
Capital return per ordinary share 27.30 (19.55) (18.53)
---------- ---------- ----------
Total return per ordinary share 33.28 (13.45) (6.58)
====== ====== ======
3. Share capital
At 31 July 2024 there were 131,472,857 ordinary shares in issue (31 July 2023:
140,037,175; 31 January 2024: 137,352,347).
During the half-year ended 31 July 2024, the Company repurchased 5,879,490
ordinary shares for cancellation, at a total cost of £17,297,000 (31 July
2023: 197,574 and 31 January 2024: 2,882,402). No ordinary shares were issued
(31 July 2023 and 31 January 2024: same).
4. Net asset value per ordinary share
The net asset value per ordinary share is based on the net assets attributable
to equity shareholders of £455,174,000 (31 July 2023: £445,068,000; 31
January 2024: £436,479,000) and on 131,472,857 ordinary shares (31 July 2023:
140,037,175; 31 January 2024: 137,352,347), being the number of ordinary
shares in issue at the period end.
5. Dividends
The Company has declared an interim dividend of 2.70p per ordinary share (31
July 2023: 2.60p) payable on 31 October to members on the register as at 11
October 2024. The shares will trade ex-dividend on 10 October 2024.
A fourth interim dividend of 3.90p per ordinary share was paid on 3 May 2024
from the Company's revenue account in respect of the year ended 31 January
2024. A first interim dividend of 2.70p per ordinary share was paid on 25 July
2024 from the Company's revenue account in respect of the year ending 31
January 2025.
6. Transaction costs
Purchase transaction costs for the half-year ended 31 July 2024 were £35,000
(half-year ended 31 July 2023: £39,000; year ended 31 January 2024:
£65,000). These comprise mainly stamp duty and commission. Sales transaction
costs for the half-year ended 31 July 2024 were £39,000 (half-year ended 31
July 2023: £59,000; year ended 31 January 2024: £107,000).
7. Management and performance fees
Until 31 July 2024 the Company had an agreement with abrdn Fund Managers
Limited ("aFML") for the provision of investment management, secretarial,
accounting and administration and promotional activity services.
Under the terms of an agreement effective from 1 August 2024 the Company has
appointed wholly owned subsidiaries of Janus Henderson Investors to provide
investment management, accounting, administrative and company secretarial
services. Janus Henderson Investors has contracted with BNP Paribas S.A. to
provide accounting and administration services.
Until 31 July the annual management fee was charged on gross assets after
deducting current liabilities and borrowings and excluding commonly managed
funds (net assets), on a tiered basis. The annual management fee was charged
at 0.75% of net assets up to £250 million, 0.6% between £250 million and
£500 million, and 0.5% over £500 million, payable quarterly.
With effect from 1 August 2024 Janus Henderson Investors will receive an
annual management fee of 0.55% of the Company's net asset value up to £500
million and 0.45% on net assets above £500 million, payable quarterly.
The fee is allocated 30% to revenue and 70% to capital. During the period
£1,518,000 (31 July 2023 - £1,503,000) of investment management fees were
payable to the aFML, with a balance of £263,000 (31 July 2023 - £1,503,000)
being due to aFML at the period end.
No fee was payable to Janus Henderson during the period.
8. Financial instruments
At the period end the carrying value of financial assets and financial
liabilities approximates their fair value.
Fair value hierarchy
The table below analyses recurring fair value measurements for financial
assets and financial liabilities. These fair value measurements are
categorised into different levels in the fair value hierarchy based on the
inputs to valuation techniques used. Categorisation within the hierarchy has
been determined on the basis of the lowest level of input that is significant
to the fair value measurement of the relevant asset or liability. The
different levels are defined as follows:
Level 1: valued using quoted prices in active markets for identical
assets;
Level 2: valued by reference to valuation techniques using observable
inputs other than quoted prices included within Level 1; and
Level 3: valued by reference to valuation techniques that are not based on
observable market data.
Financial assets and financial liabilities at fair value Level 1 Level 2 Level 3 Total
through profit or loss at 31 July 2024 £'000 £'000 £'000 £'000
Investments at fair value through profit or loss
Quoted equities 479,116 - - 479,116
Quoted bonds - 7,834 - 7,834
------------ ---------- ----------- ------------
Total financial assets and liabilities carried at fair value 479,116 7,834 - 486,950
======= ======= ======= =======
Financial liabilities at fair value through profit or loss - - - -
Derivatives
------------ ------------ ------------ ------------
Net fair value 479,116 7,834 - 486,950
======= ====== ====== =======
Financial assets and financial liabilities at fair value Level 1 Level 2 Level 3 Total
through profit or loss at 31 July 2023 £'000 £'000 £'000 £'000
Investments at fair value through profit or loss
Quoted equities 460,888 - - 460,888
Quoted bonds - 9,589 - 9,589
------------ ---------- ----------- ------------
Total financial assets and liabilities carried 460,888 9,589 - 470,477
at fair value
======= ====== ====== =======
Financial liabilities at fair value through profit or loss - (291) - (291)
Derivatives
------------ ------------ ------------ ------------
Net fair value 460,888 9,298 - 470,186
======= ====== ====== =======
Financial assets and financial liabilities at fair value Level 1 Level 2 Level 3 Total
Through profit or loss at 31 January 2024 £'000 £'000 £'000 £'000
Investments at fair value through profit or loss
Quoted equities 446,443 - - 446,443
Quoted bonds - 8,489 - 8,489
------------ ------------ ------------ ------------
Total financial assets and liabilities carried 446,443 8,489 - 454,932
at fair value
======= ====== ====== =======
Financial liabilities at fair value through profit or loss - (162) - (162)
Derivatives
------------ ------------ ------------ ------------
446,443 8,327 - 454,770
======= ====== ====== =======
There were no transfers between levels of fair value hierarchy during the
period. Transfers between levels of fair value hierarchy are deemed to have
occurred at the date of the event or through a change in circumstances that
caused the transfer.
The fair value of the senior unsecured loan notes at 31 July 2024 has been
estimated to be £35,749,000 (31 July 2023: £35,764,000; 31 January 2024:
£36,256,000). The fair value of the senior unsecured loan notes is calculated
using a discount rate which reflects the yield on a US Treasury Bond of
similar maturity. The senior unsecured loan notes are categorised as level 3
in the fair value hierarchy.
9. Going concern
The assets of the Company consist mainly of securities, most of which are
readily realisable and, accordingly, the Company has adequate financial
resources to continue in operational existence for at least twelve months from
the date of approval of the financial statements. The Directors have also
considered the impact of geopolitical developments and believes that there
will be a limited resulting financial impact on the Company's portfolio, its
operational resources and existence. Having assessed these factors and the
principal risks, the Directors have determined that it is appropriate for the
financial statements to be prepared on a going concern basis.
10. Related party transactions
The Company's transactions with related parties in the period were with the
directors and the investment manager. There were no material transactions
between the Company and its directors during the period and the only amounts
paid to the directors were in respect of expenses and remuneration for which
there were no outstanding amounts payable at the period end. In relation to
the provision of services by the investment manager, other than fees payable
by the Company in the ordinary course of business and the facilitation of
marketing activities with third parties, there were no material transactions
with the investment manager affecting the financial position of the Company
during the period under review.
In addition to the above, Janus Henderson Investors has agreed to make a
contribution to the Company's costs of the transition from abrdn, subject to a
maximum of three months' management fees. Costs in respect of the transition
that were incurred in the half year to 31 July 2024 totalled £190,000 and are
recoverable from Janus Henderson Investors.
11. Comparative information
The financial information contained in this half-year report does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The financial information for the half-years ended 31 July 2024 and 31
July 2023 has not been audited or reviewed by the Company's auditors. The
figures and financial information for the year ended 31 January 2024 are an
extract based on the latest published accounts and do not constitute statutory
accounts for that year. Those accounts have been delivered to the Registrar of
Companies and include the Independent Auditor's Report which was unqualified
and did not contain a statement under either section 498(2) or 498(3) of the
Companies Act 2006.
12. Website
Details of the Company's share price and net asset value, together with
general information about the Company, monthly factsheets and data,
announcements, reports and details of general meetings can be found at
www.northamericanincome.com
13. Half-year report
The Company's half-year report is available on the Company's website. An
update extracted from the Company's report for the half-year ended 31 July
2024 will be posted to shareholders in October 2024 and will be available on
the website thereafter.
14. Company status
The North American Income Trust plc is registered in Scotland, No. SC005218,
has its registered office at 4 North St. Andrew Street, Edinburgh EH2 1HJ.
The Company is listed on the main market of the London Stock Exchange.
SEDOL/ISIN: BJ00Z30/ GB00BJ00Z303
London Stock Exchange (TIDM) code: NAIT
Global Intermediary Identification Number (GIIN): XYAARK.99999.SL.826
Legal Entity Identifier (LEI): 5493007GCUW7G2BKY360
15. Directors and Secretary
At the date of this report, the directors of the Company are Charles Park
(Chair), Karyn Lamont (Chair of the Audit Committee), Patrick Edwardson
(Senior Independent Director), and Susannah Nicklin. The Corporate Secretary
is Janus Henderson Secretarial Services UK Limited.
For further information please contact:
Jeremiah Buckley, Fund Manager Harriet Hall, PR Manager
The North American Income Trust plc Janus Henderson Investors
Telephone: +13033367872 Telephone: 020 7818 2919
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) are
incorporated into, or form part of, this announcement.
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