Source - LSE Regulatory
RNS Number : 8360E
CQS New City High Yield Fund Ltd
28 February 2024
 

A copy of the Company's Half Year Report will shortly be available on the Company's website (https://ncim.co.uk/cqs-new-city-high-yield-fund-ltd), on the National Storage Mechanism (https://data.fca.org.uk/#/nsm/nationalstoragemechanism) and will also be provided to those shareholders who have requested a printed or electronic copy.

 

CQS NEW CITY HIGH YIELD FUND LIMITED

Interim Results Announcement

for the six months ended 31 December 2023

 

Statement from the Chair

 

Key Points

 

·       NAV total return of 9.42% for the six months ended 31 December 2023

·       Ordinary share price total return of 11.26%

·       Dividend yield of 9.13%, based on dividends at an annualised rate of 4.49p and a share price of 49.20p at 31 December 2023

·       Ordinary share price at a premium of 3.58% at 31 December 2023

·       £4,014,000 of equity raised

 

NAV and share price performance

 

I am pleased to report on a good six months for your Company, with the period ended 31 December 2023 covered by this interim report seeing positive total returns from both the NAV and share price at 9.42% and 11.26% respectively. The shares of the Company have continued to trade at a premium to their NAV and as at 31 December 2023, the premium stood at 3.58%.

 

Stock markets were stronger into the year-end as markets shrugged off geo-political worries arising from the conflicts in Ukraine and Israel/Gaza and, with inflation continuing to ease, focused on potential interest rate cuts. The Sterling debt market also responded to this environment and the 10-year gilt yield came down sharply from its August 2023 highs, reaching 3.50% at year-end, a number which does suggest interest rates falling at some stage in 2024. Ian "Franco" Francis, your investment manager, discusses the six months in more detail in his review below.

 

Earnings and dividends

 

The Company's revenue earnings per share were 2.18p for the six months, compared to a figure of 2.27p earned in the same period last year. As explained in the Investment Manager's Review, this modest decline is a result of timing of dividends received. Otherwise, the revenue account is fairly stable as portfolio income has continued to benefit from higher interest rates.

 

The Company has declared two dividends of 1.00p so far in this financial period, maintaining the level of those declared in the same period last year. As things stand, the Board expects to follow the same pattern of dividend payments as declared last year and maintain or slightly increase the total level of dividends for the year. Based on an annual dividend rate of 4.49p and a share price of 49.80p at the time of writing, this represents a dividend yield of 9.02%. The Board anticipates that revenue earnings per share for the whole year will cover the total dividend. The Board is very focused on dividend payments which we know are important to our Shareholders and since its launch in 2007, the level of dividends paid by the Company has increased every year. 

 

Gearing

 

The Company has a £45,000,000 loan facility with The Bank of Nova Scotia ("Scotiabank") which renewed in December 2023 for a further 12-month period. Of this facility, £35,000,000 was drawn down as at 31 December 2023 and the Company had an effective gearing rate of 12.76%.

 

Share issuance

 

The investment company sector has come under pressure in 2023 and most companies are trading at a discount to their NAV, but your Company is one of the few that has continued to trade at a premium. Taking advantage of the ability to issue new shares at a premium, £4,014,000 was raised from new and existing shareholders during the six months under review, with 8,250,000 ordinary shares issued from the block listing facility. A further £2,007,000 has been raised since 31 December 2023. Not many investment companies are currently in a position to be able to issue shares and this is another indicator of the attraction of your Company.

 

Parent company

 

During the period under review, CQS (UK) LLP, your Company's Investment Manager, has advised that it is being acquired by Manulife Investment Management and the transaction is expected to close in early 2024. The Board's understanding is that this will not have an impact on your Company for the time being and we will continue to request and monitor information on any changes that do happen.

 

Outlook

 

With the peak in UK inflation and interest rates almost certainly behind us for now, the macro environment for fixed interest investments looks a little calmer than in recent years.  Nevertheless, the economy is not in robust health so ongoing scrutiny of issuers' balance sheets remains vital for the high yield bonds which make up the majority of your company's investments. The turbulent geopolitical backdrop also warrants attention, as do a number of significant elections in 2024, with the resurgence of Donald Trump in the USA and a swing to a Labour government in the UK both looking like real possibilities. Plenty for your investment manager 'Franco' to consider. As always, the broad diversification of the company's investments provides reassurance and the Board is confident we will continue to be able to pay attractive dividends to shareholders.

 

Caroline Hitch

Chair

28 February 2024

 

 

Investment Manager's Review

 

Market and economic review

 

Away from the geopolitical issues that have dominated the headlines, the six-month period from 30 June 2023 to 31 December 2023 was reasonably positive for the high yield market in which the Company invests. Interest rates appear to have reached their peak and inflation in the UK and other western economies has fallen substantially from the double-digit figures seen earlier in 2023. The UK has entered a technical recession with the economy contracting by 0.40% in the second half of 2023. We believe that the risk of a severe recession in the UK has receded slightly.

 

At the end of June 2023, the UK Consumer Price Index reading was an annual increase of 6.80% and by the end of December 2023, this had fallen to 4.00%. There was a similar pattern in other major economies such as the United States ("US") and the European Union ("EU"). Interest rates have not increased in major economies for several months and although there are market commentators calling for interest rates to fall, we believe that central banks will be fairly cautious and will wait to see where inflation settles before reducing rates.

 

UK 10-year gilts reached a 15 year high at 4.75% in August 2023 over worries about a severe recession and the continuing effects of higher interest rates. As the year progressed, the 10-year gilt yield fell substantially and ended the year at 3.54%.

 

In the US, the economy appears to be proving more resilient and the service sector has been a positive contributor to the US economy. US inflation is around 2.00% and all eyes are on the timing of a first interest rate cut. The EU is not in such a good position, as manufacturing is contracting substantially in Germany and France, but any lowering of interest rates, as a policy response, could lead to inflation rising again.

 

For your Company, we had a good outcome with the underlying NAV rising from 45.83p at the end of June 2023 to 47.50p at the end of December 2023. With the inclusion of dividends paid, the total net asset return for the six months ended 31 December 2023 was 9.42%.

 

Portfolio review

 

During the six months ended 31 December 2023, we were able to continue to refinance existing bond holdings at higher coupon rates than we have done previously. Good examples of this are Co-operative 9.5% 2029, which was redeemed and replaced with Co-operative 11.25% 2034, and Azerion 7.25% 2024 which was redeemed and replaced with Azerion 10.625% 2026. A new entry into the Top 10 is TVL Finance, which is part of the hotel group, Travelodge and we have been buying the 10.25% 2028. The portfolio continues to be well diversified across a range of sectors as well as interest rates with a good proportion in floating rate notes. The non-sterling exposure was 28.31% of the portfolio as at 31 December 2023, out of which 15.55% was the US Dollar.

 

For the six months ended 31 December 2023, the revenue account earnings were 2.18p compared to 2.27p for the same period last year. Earnings per ordinary share were slightly lower than last year mainly because the half yearly dividend and repayment of historic arrears from the REA preference shares we hold, were deferred from December 2023 to April 2024. In my regular discussions with Shareholders, revenue and dividends are topics of crucial importance and the ability of any portfolio company to pay its coupon or expected dividend is one of the major indicators we follow.

 

Outlook

 

With the UK going into recession in the second half of 2023 and inflation still sticky, the Bank of England faces a dilemma of when to reduce interest rates. This is now more likely to be slightly sooner than the more pessimistic forecasts of late 2024 and could feasibly happen at the end of the second quarter. In Europe, the economy overall is weak and add this to European Parliament elections in early June, it is possible that rates here too may start the downward trend earlier rather than later. Geopolitics with the wars in Ukraine and Gaza, and the Houti rebels' attacks on shipping will also impact global markets and supply chains with shipping being rerouted around the Cape rather than through the Suez canal. Overall, a lot going on which might impact markets, but the net result is probably less negative for the Western economies than in previous years.

 

Ian "Franco" Francis

New City Investment Managers

28 February 2024

 

 

Directors' Statements

 

Directors' Statement of Principal Risks and Uncertainties

When considering the total return of the Company, the Directors take account of the risk which has been taken in order to achieve that return. The Directors have carried out a robust assessment of the principal risks and mitigating factors facing the Company including those which would threaten its business model, future performance, solvency or liquidity. The following risk factors have been identified and are listed below:

 

Dividend and earnings risk

Market risk leading to a loss of share value

Key person risk

• Gearing risk

• Geopolitical risk

• Operational risk

• Regulatory risk

• Cyber risk

• Market demand

 

Information on these risks and how they are managed is given in the Annual Report and Financial Statements for the year ended 30 June 2023. In the view of the Board, these principal risks and uncertainties are as applicable to the remaining six months of the current financial year as they were in the six months under review.

 

Directors' Responsibility Statement in respect of the Interim Report

We confirm that to the best of our knowledge:

 

• the unaudited condensed financial statements within the Interim Report have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting, as adopted by the EU and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as at 31 December 2023, as required by the Financial Conduct Authority's ("FCA") Disclosure Guidance and Transparency Rule ("DTR") 4.2.4R.

 

• the Statement from the Chair, Investment Manager's Review and the condensed financial statements include a fair review of the information required by DTR 4.2.7R, being an indication of important events that have occurred during the first six months ended 31 December 2023 and their impact on the unaudited condensed financial statements;

 

• the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

 

• the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place during the six months ended 31 December 2023 and that have materially affected the financial position or performance of the Company during that period.

 

Signed on behalf of the Board

Caroline Hitch

Chair

28 February 2024

 

 

Condensed Financial Statements

 

Condensed Statement of Comprehensive Income

 

For the six months ended 31 December 2023 (Unaudited)

 


Notes

Revenue
£'000

Capital
£'000

Total
£'000

Net capital gains


 

 


Gains on financial assets at fair value

8

-

10,812

10,812

Foreign exchange gain1


-

40

40

Revenue





Investment income

3

 13,754

-  

 13,754

Total income


 13,754

 10,852

 24,606

 


 

 

 

Expenses


 

 

 

Investment management fee

4

 (804)

 (268)

 (1,072)

Other expenses

5

 (481)

 (12)

 (493)

Total expenses


 (1,285)

 (280)

 (1,565)

Profit before finance income/(costs) and taxation


12,469

 10,572

 23,041

Finance income/(costs)


 

 

 

Interest income


 107

-  

 107

Interest expense

6

 (882)

 (294)

 (1,176)

Profit before taxation


 11,694

 10,278

 21,972

Irrecoverable withholding tax


 (215)

-  

 (215)

Profit after taxation and total comprehensive income


11,479

 10,278

21,757

Basic and diluted earnings per ordinary share (pence)

7

2.18p

1.95p

4.13p

 

  For the six months ended 31 December 2022 (Unaudited)

 


Notes

Revenue
£'000

Capital
£'000

Total
£'000

Net capital losses


 

 


Losses on financial assets at fair value

8

-

(3,301)

(3,301)

Foreign exchange loss1


-

(163)

(163)

Revenue





Investment income

3

12,764

-

12,764

Total income


12,764

(3,464)

9,300

 


 

 

 

Expenses


 

 

 

Investment management fee

4

(787)

(261)

(1,048)

Other expenses

5

(386)

(50)

(436)

Total expenses


(1,173)

(311)

(1,484)

Profit/(loss) before finance income/(costs) and taxation


11,591

(3,775)

7,816

Finance income/(costs)


 

 

 

Interest income


38

-

38

Interest expense

6

(450)

(150)

(600)

Profit/(loss) before taxation


11,179

(3,925)

7,254

Irrecoverable withholding tax


(197)

-

(197)

Profit/(loss) after taxation and total comprehensive income/(loss)


10,982

(3,925)

7,057

Basic and diluted earnings/(losses) per ordinary share (pence)

 

7

2.27p

(0.81)p

1.46p

 

For the year ended 30 June 2023 (Audited)

 


Notes

Revenue
£'000

Capital
£'000

Total
£'000

Net capital losses


 

 


Losses on financial assets at fair value

8

-

(17,988)

(17,988)

Foreign exchange loss1


-

(252)

(252)

Revenue





Investment income

3

26,229

-

26,229

Total income


26,229

(18,240)

7,989

 


 

 

 

Expenses


 

 

 

Investment management fee

4

(1,591)

(530)

(2,121)

Other expenses

5

(647)

(89)

(736)

Total expenses


(2,238)

(619)

(2,857)

Profit/(loss) before finance income/(costs) and taxation


 

23,991

 

(18,859)

 

5,132

Finance income/(costs)


 

 

 

Interest income


124

-

124

Interest expense

6

(1,167)

(389)

(1,556)

Profit/(loss) before taxation


22,948

(19,248)

3,700

Irrecoverable withholding tax


(505)

-

(505)

Profit/(loss) after taxation and total comprehensive income/(loss)


22,443

(19,248)

 

3,195

Basic and diluted earnings/(losses) per ordinary share (pence)

 

7

4.51p

(3.87)p

 

0.64p

 

1Excludes foreign exchange gains and losses on financial assets at fair value through profit and loss, which are presented within 'gains/(losses) on financial assets at fair value'.

 

The total column of this statement represents the Company's Condensed Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU (refer to note 2.1). The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies ("AIC").

 

There is no other comprehensive income as all income is recorded in the Condensed Statement of Comprehensive Income above.

 

All revenue and capital items in the above statement are derived from continuing operations.

 

No operations were acquired or discontinued during the period.

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Condensed Statement of Financial Position

As at 31 December 2023

 


Notes

As at 31 December 2023

(Unaudited)

£'000

As at 31 December 2022

(Unaudited)

£'000

As at 30 June 2023

(Audited)

£'000

Non-current assets





Financial assets at fair value through profit or loss

8

281,647

263,811

266,011

Current assets





Debtors and other receivables


5,023

                  5,818

7,010

Cash and cash equivalents


2,696

                  2,781

6,597



7,719

8,599

13,607

Total assets


289,366

272,410

279,618

Current liabilities


 



Bank loan

6

(35,000)

(33,000)

(35,000)

Creditors and other payables


(1,244)

(517)

(4,187)

Total liabilities


(36,244)

(33,517)

(39,187)

Net asset value


253,122

238,893

240,431

Stated capital and reserves


 



Stated capital account

9

248,898

229,368

244,884

Special distributable reserve


50,385

50,385

50,385

Capital reserve


(60,580)

(55,535)

(70,858)

Revenue reserve


14,419

14,675

16,020

Equity Shareholders' funds


253,122

238,893

240,431

Net asset per ordinary share (pence)

10

47.50p

48.39p

45.83p

 

The condensed financial statements were approved by the Board of Directors and authorised for issue on 28 February 2024 and were signed on its behalf by:

 

Caroline Hitch

Chair

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Condensed Statement of Changes in Equity

For the six months ended 31 December 2023 (Unaudited)

 

 

 

 

 

 

Notes

Stated capital account1

£'000

Special distributable reserve2
£'000

Capital

 reserve1

 

£'000

Revenue
reserve3

 

£'000

Total

 

£'000

At 1 July 2023


244,884

50,385

(70,858)

16,020

240,431

Total comprehensive income for the period:







Profit for the period


-

-

10,278

11,479

21,757

Transactions with owners recognised directly in equity:







Dividends paid

11

-

-

-

(13,080)

(13,080)

Net proceeds from issue of ordinary shares

 

9

4,014

-

-

-

4,014

At 31 December 2023


248,898

50,385

 (60,580)

14,419

 

For the six months ended 31 December 2022 (Unaudited)

 

 

 

 

 

Notes

Stated capital account1

£'000

Special distributable reserve2
£'000

Capital

 reserve1

 

£'000

Revenue
reserve3

 

£'000

Total

 

£'000

At 1 July 2022


220,649

50,385

(51,610)

15,562

234,986

Total comprehensive income for the period:







Profit/(loss) for the period


-

-

(3,925)

10,982

7,057

Transactions with owners recognised directly in equity:







Dividends paid

11

-

-

-

    (11,869)

    (11,869)

Net proceeds from issue of ordinary shares


8,719

-

-

-

8,719

At 31 December 2022


229,368

50,385

 (55,535)

 

For the year ended 30 June 2023 (Audited)

 


 

 

 

Notes

Stated capital account1

£'000

Special distributable reserve2
£'000

Capital
reserve1

 

£'000

Revenue
reserve3

 

£'000

Total

 

£'000

At 1 July 2022


220,649

50,385

(51,610)

15,562

234,986

Total comprehensive income for the year:







Profit/(loss) for the year


-

-

(19,248)

22,443

3,195

Transactions with owners recognised directly in equity:







Dividends paid

11

-

-

-

(21,985)

(21,985)

Net proceeds from issue of ordinary shares


24,235

-

-

-

24,235

At 30 June 2023


244,884

50,385

(70,858)

16,020

240,431

 

1 Following a change in Companies (Jersey) Law 1991 effective 27 June 2008, dividends can be paid out of any capital account of the Company subject to certain solvency restrictions. However, it is the Company's policy to account for revenue items and pay dividends, drawing where necessary from a separate revenue reserve.

 

2 The balance on the special distributable reserve of £50,385,000 (as at 31 December 2022: £50,385,000; as at 30 June 2023: £50,385,000) is treated as distributable profits available to be used for all purposes permitted by Jersey Company Law including the buying back of ordinary shares, the payment of dividends and the payment of preliminary expenses.

 

3 The balance on the revenue reserve of £14,419,000 (as at 31 December 2022: £14,675,000; as at 30 June 2023: £16,020,000) is also available for paying dividends.

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Condensed Cash Flow Statement       

For the six months ended 31 December 2023


Notes

Six months ended
31 December 2023

(Unaudited)
£'000

Six months ended
31 December 2022

(Unaudited)
£'000

Year ended
30 June 2023

(Audited)
£'000

Operating activities


 



Profit before taxation1


21,972

7,254

3,700






Adjustments to reconcile profit before taxation to net cash flows:





Realised (gains)/losses on financial assets at fair value through profit or loss

8

 (2,240)

(5,131)

1,273

Unrealised (gains)/losses on financial assets at fair value through profit or loss

8

 (8,572)

8,432

 16,715

Effective interest adjustment

8

 (193)

(121)

 (243)

Foreign exchange (gain)/loss


 (40)

163

 252

Finance costs1


 1,069

562

1,432






Purchase of financial assets at fair value through profit or loss2


 

 (53,464)

(41,403)

 (77,242)

Proceeds from sale of financial assets at fair value through profit or loss3


 48,829

37,192

57,170



 



Changes in working capital


 



Decrease/(increase) in debtors and other receivables


 1,987

(1,998)

(3,191)

(Decrease)/increase in creditors and other payables


 (2,931)

(2,097)

657

Irrecoverable withholding tax paid


 (215)

(197)

 (505)

Net cash generated from operating activities


 6,202

2,656

18

 


 



Financing activities


 



Dividends paid

11

 (13,080)

(11,869)

 (21,985)

Drawdown of bank loan

6

 -  

-

2,000

Finance costs


 (1,077)

(547)

(1,404)

Net proceeds from issuance of ordinary shares4

9

 4,014

8,719

24,235

Net cash (used in)/generated from financing activities


 (10,143)

(3,697)

2,846



 



(Decrease)/increase in cash and cash equivalents


(3,941)

(1,041)

2,864

Cash and cash equivalents at the start of the period/year


 6,597

3,985

 3,985

Exchange gain/(loss)


 40

(163)

 (252)

Cash and cash equivalents at the end of the period/year


 2,696

2,781

6,597

 

1 For the comparative period, six months ended 31 December 2022, in accordance with IAS 7 Statement of Cash Flows, the Cash Flow Statement has been re-presented to start with 'profit before taxation' of £7,254,000 instead of 'profit before finance income/costs and taxation' of £7,816,000. Subsequently, 'finance costs' of £562,000 have been added under 'Adjustments to reconcile profit before taxation to net cash flows'.

Included within 'profit before taxation' is dividend income of £2,458,000 (six months ended 31 December 2022: £2,507,000; year ended 30 June 2023: £4,964,000) and interest income of £11,296,000 (six months ended 31 December 2022: £10,257,000; year ended 30 June 2023: £21,265,000).

 

2 Amounts due to brokers as at 31 December 2023 relating to purchases of financial assets at fair value through profit amounted to £900,000 (as at 31 December 2022: £nil; as at 30 June 2023: £904,000).

 

3 Amounts due from brokers as at 31 December 2023 relating to sales of financial assets at fair value through profit amounted to £nil (as at 31 December 2022: £nil; as at 30 June 2023: £nil).

           

4 Amounts due on new share issuance not yet received as at 31 December 2023 amounted to £nil (as at 31 December 2022: £nil; as at 30 June 2023: £nil).

 

The accompanying notes below are an integral part of these condensed financial statements.

 

Notes to the Condensed Financial Statements

 

1 General information

The Company is a closed-ended investment company and was incorporated with limited liability in Jersey under the Companies (Jersey) Law 1991 on 17 January 2007, with registered number 95691. The Company's ordinary shares are listed on the Official List as maintained by the FCA and admitted to trading on the Main Market of the London Stock Exchange on 7 March 2007.

 

The Company's registered address is IFC1, The Esplanade, St Helier, Jersey, JE1 4BP.

 

2 Accounting policies

2.1 Basis of accounting

The Annual Report and Financial Statements are prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Financial Reporting Standards ("IFRS") as adopted by the European Union which comprise standards and interpretations approved by the International Accounting Standards Board, and interpretations issued by the International Financial Reporting Standards and Standing Interpretations Committee as approved by the International Accounting Standards Committee which remain in effect. The Annual Report and Financial Statements are also prepared in accordance with the guidance set out in the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (the "AIC SORP") updated most recently in July 2022 with consequential amendments where this does not conflict with IFRS. The Interim Report has been prepared in accordance with International Accounting Standards ("IAS") 34 - Interim Financial Reporting ("IAS 34") as adopted by the European Union. They have also been prepared using the same accounting policies applied for the year ended 30 June 2023 Annual Report and Financial Statements, which was prepared in accordance with IFRS, except for any new standards and interpretations applicable to the Company during the six-month period under review.

 

Standards and amendments to existing standards effective in the current period:

 

The following new standards, amendments and interpretations to existing standards have been issued and are effective in the current period and the Directors believe that the application of these amendments and interpretations do not significantly impact the Company's condensed financial statements:

 

Standards

Effective for periods beginning on or after

·     IFRS 17 Insurance Contracts

1 January 2023

·     Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2

1 January 2023

·     Definition of Accounting Estimates - Amendments to IAS 8

1 January 2023

·     Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12

1 January 2023

·     International Tax Reform-Pillar Two Model Rules - Amendments to IAS 12

27 May 2023

 

Standards, amendments and interpretations issued but not yet effective

 

The following standards, amendments and interpretations to existing standards become effective in future accounting periods and have not been early adopted by the Company, as the Directors believe that these amendments are not relevant to the Company's operations:

 

Standards

Effective for periods beginning on or after

·     Non-current Liabilities with Covenants and Classification of Liabilities as Current or Non-current - Amendments to IAS 1

1 January 2024

·     Lease Liability in a Sale and Leaseback - Amendments to IFRS 16

1 January 2024

·     Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7

1 January 2024

·     IFRS S1** General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2** Climate-related Disclosures

1 January 2024

·     Lack of Exchangeability - Amendments to IAS 21

1 January 2025

·     Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28

Optional

 

2.2 Going concern

The condensed financial statements have been prepared on the going concern basis. In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council. The Company's existing loan facility as detailed in Note 6 is due to expire on 18 December 2024 after which it is anticipated the Company will take out a new facility on comparable terms. After making enquiries with the Investment Manager and having considered the Company's investment objective, nature of the investment portfolio, loan facility, expenditure projections and the impact of the current geo-political and market uncertainty, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the interim financial statements.

 

2.3 Segmental reporting

The Company holds a wide variety of different investments in a wide range of issues locating in different geographies and operating in different sectors. However, resources are allocated and the business is managed by the Directors on an aggregated basis. Strategic and financial management decisions are determined centrally by the Directors and on this basis, the Company operates as a single investment management business and no segmental reporting is provided.

 

2.4 Seasonality

The Company's business is not subject to seasonal fluctuations.

 

3 Investment income


Six months ended

31 December 2023
(Unaudited)

£'000

Six months ended
31 December 2022

(Unaudited)
£'000

Year ended

30 June 2023

(Audited)
£'000

Income from financial assets at fair value through profit or loss1




Dividend income

2,458

2,507

4,964

Interest on fixed income securities2

11,296

10,257

21,265

Total income

13,754

12,764

26,229

1 All investment income arises from financial assets valued at fair value through profit or loss.

2 Fixed income securities include fixed and floating rate securities, convertible securities and preference shares.

 

4 Investment management fee

The Company's investment manager is CQS (UK) LLP.

 

As per the Investment Management Agreement dated 18 September 2019, the management fee is charged at a rate of 0.80% per annum on the Company's total assets (being total assets less current liabilities, other than bank borrowings and ignoring any taxation which is or may be payable by the Company) up to £200,000,000, 0.7% per annum of Assets in excess of £200,000,000 and up to and including £300,000,000 and 0.60% per annum thereafter. The management fee is paid monthly in arrears.

                                                                                                           

The contract between the Company and CQS (UK) LLP may be terminated by either party giving not less than 12 months' notice of termination.    

 

During the six months ended 31 December 2023, investment management fees of £1,072,000 were incurred (six months ended 31 December 2022: £1,048,000; year ended 30 June 2023: £2,121,000), of which £174,000 was payable at the period end (as at 31 December 2022: £343,000; as at 30 June 2023: £176,000). Investment management fees have been allocated 75% to revenue and 25% to capital.

                                                           

5 Other expenses

During the six months ended 31 December 2023, the Company's other expenses were £493,000 (six months ended 31 December 2022: £436,000; year ended 30 June 2023: £736,000).

 

Secretarial and administration fees

Secretarial and administration fees were £104,000 during the six months ended 31 December 2023 (six months ended 31 December 2022: £102,000; year ended 30 June 2023: £206,000).

                                                                                                           

Directors' fees

The Directors' yearly remuneration, effective from 1 July 2023, is as follows:

 

Chair                 £45,000

Audit Chair        £39,000

Other                £32,500

 

The Board has not approved any change in remuneration during the six months ended 31 December 2023.

                                                                                               

Directors fees for the six months ended 31 December 2023 were £91,000 (six months ended 31 December 2022: £85,000; year ended 30 June 2023: £169,000).

 

Audit fees and non-audit fees paid to the auditor

Audit fees incurred for the six months under review were £25,000 (six months ended 31 December 2022: £25,000; year ended 30 June 2023: £51,000).                                                                                                

There were no non-audit fees paid to the auditor during the six months ended 31 December 2023 (six months ended 31 December 2022: £nil; year ended 30 June 2023: £nil)

                                                                                                           

6 Bank loan and interest expense


Six months ended

31 December 2023
(Unaudited)

£'000

Six months ended

31 December 2022

(Unaudited)
£'000

Year ended

30 June 2023

(Audited)
£'000

Bank loan facility - opening balance

                  35,000

                        33,000

33,000

Drawdown

-

-

2,000

Bank loan facility - closing balance

35,000

33,000

35,000

 

The Company had a short-term unsecured loan facility with Scotiabank up to a limit of £45,000,000 which expired on 17 December 2023. On 20 December 2023, the Company entered into an Amendment and Restatement Agreement with Scotiabank to renew the loan facility, under the following terms:

•     the Agreement contains an option to increase the facility by a further £5,000,000 - no commitment fees are payable on the £5,000,000 until this option is exercised;

•     the loan facility is due to expire on 18 December 2024;

•     the interest on the loan is a margin of 2.00% per annum plus the daily non-cumulative compounded Reference Rate (RFR); and

•     the commitment fees payable is 0.675% per annum on the daily available commitment.

 

As at 31 December 2023, the drawn down amount of the facility was £35,000,000 (as at 31 December 2023: £33,000,000; as at 30 June 2023: £35,000,000).

 

During the six months ended 31 December 2023 and up until the date of this report, the Company has complied with all covenants of the loan facility which are as follows:

•     the borrower shall not permit the adjusted asset coverage to be less than 4 to 1;

•     the borrower shall not permit the NAV to be less than £95,000,000 at any time; and

•     the borrower shall maintain an additional adjusted asset coverage of at least 1.5 to 1 at all times.

 

During the period, the Company incurred interest expense of £1,176,000 (six months ended 31 December 2022: £600,000; year ended 30 June 2023: £1,556,000).

 

7 Basic and diluted earnings/(losses) per ordinary share


Revenue

Capital

Total

for the six months ended 31 December 2023

2.18p

1.95p

4.13p

for the six months ended 31 December 2022

2.27p

(0.81)p

1.46p

for the year ended 30 June 2023

4.51p

(3.87)p

0.64p

 

The revenue earnings per ordinary share is based on the net profit after taxation of £11,479,000 (six months ended 31 December 2022: £10,982,000; year ended 30 June 2023: £22,443,000) and the capital return per ordinary share is based on a net capital gain of £10,278,000 (six months ended 31 December 2022: net capital loss of £3,925,000; year ended 30 June 2023: net capital loss of £19,248,000). Both the revenue earning and capital return per ordinary share are based on a weighted average of 526,645,336 (six months ended 31 December 2022: 483,222,238; year ended 30 June 2023: 497,695,146) ordinary shares in issue throughout the period.

                                                                                                                                               

There have been no transactions involving the Company's ordinary shares between 31 December 2023 and 28 February 2024 other than those disclosed in note 13.

 

8 Financial assets at fair value through profit or loss

All financial assets are valued at fair value through profit or loss. Gains or losses arising from changes in the fair value of investments are included in the Statement of Comprehensive Income.

 


Six months ended

31 December 2023
(Unaudited)

£'000

Six months ended
31 December 2022

(Unaudited)

£'000

Year ended

30 June 2023

(Audited)

£'000

Opening valuation

266,011

263,393

263,393

Purchases at cost

53,460

40,790

77,533

Sales proceeds

(48,829)

(37,192)

(57,170)

Realised gains/(losses) on sales1

2,240

5,131

(1,273)

Effective interest adjustment

193

121

243

Unrealised gains/(losses)2

8,572

(8,432)

(16,715)

Closing valuation

281,647

263,811

266,011

 

Net capital gains/(losses)

10,812

(3,301)

(17,988)

 

1 'Realised gains/(losses)' are made up of gains of £5,027,000 (six months ended 31 December 2022: £5,131,000; year ended 30 June 2023: £6,030,000) and losses of £2,787,000 (six months ended 31 December 2022: £nil; year ended 30 June 2023: £7,303,000).

2 'Unrealised gains/(losses)' are made up of gains of £20,211,000 (six months ended 31 December 2022: £6,113,000; year ended 30 June 2023: £8,225,000) and losses of £11,639,000 (six months ended 31 December 2022: £14,545,000; year ended 30 June 2023: £24,940,000).                                                                      

 

Fair Value Hierarchy

IFRS 13 Fair Value Measurement requires an analysis of investments valued at fair value based on the reliability and significance of information used to measure their fair value. The Level is determined by the lowest (that is the least reliable or independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

·   Level 1 - investments quoted in an active market;

·   Level 2 - investments whose fair value is based directly on observable current market prices or indirectly being derived from market prices;

·   Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or based on observable market data.

 

Transfers in and out of the levels are deemed to have occurred at the start of the reporting period.

 

Investments valued using stock market active prices are disclosed as Level 1 and this is the case for the quoted equity investments that the Company holds. Securities in Level 2 are priced using evaluated prices from a third party vendor, together with a price comparison made to evaluated secondary and tertiary third party sources, including broker quotes and benchmarks. As a result, these investments are disclosed as Level 2 - recognising that the fair values of these investments are not as visible as quoted investments and their higher inherent pricing risk.

 

Investments included as Level 3 are priced by the investment manager using a valuation technique reviewed by the Board taking into account, where appropriate, latest dealing prices, broker statements, valuation information and other relevant factors.

 

Financial assets at fair value

Level 1
£'000

Level 2
£'000

Level 3
£'000

Total
£'000

Fixed income securities1

234

 233,703

 2,356

236,293

Equity shares2

41,668

 3,200

 486

45,354

As at 31 December 2023

41,902

 236,903

 2,842

281,647

 

Financial assets at fair value

Level 1
£'000

Level 2
£'000

Level 3
£'000

Total
£'000

Fixed income securities1

235

209,180

4,513

213,928

Equity shares2

45,926

3,834

123

49,883

As at 31 December 2022

46,161

213,014

4,636

 263,811

 

Financial assets at fair value

Level 1
£'000

Level 2
£'000

Level 3
£'000

Total
£'000

Fixed income securities1

228

219,970

50

220,248

Equity shares2

42,088

3,621

54

45,763

As at 30 June 2023

42,316

223,591

104

266,011

1 Fixed income securities include fixed and floating rate securities, convertible securities and preference shares.

2 Equity shares include investment funds.

 

Financial assets at fair value through profit or loss reconciliation - Level 3

IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. On that basis, the Board believes that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly. The following shows a reconciliation from the beginning to the end of the period for fair value measurements in Level 3 of the fair value hierarchy.

 

Level 3 Financial Assets

Six months ended

31 December 2023

(Unaudited)

£'000

Opening valuation

104

Purchases

 1,457

Sales

 (344)

Unrealised gains

1,993

Realised losses

                         (1,544)

Transfers into Level 3

1,184

Transfers out of Level 3

(8)

Closing valuation

2,842

 

Transfers into Level 3

Secured Income Fund PLC of £18,000 (as at 30 June 2023: £321,000) was transferred out of Level 2 to Level 3 because its shares were delisted during the six months ended 31 December 2023.

 

REA Trading 13.5% 21-30/09/2027 of £851,000 (as at 30 June 2023: £863,000) was transferred out of Level 2 to Level 3 due to the lack of observable data at period end.

 

Oro Negro Drilling 7.5% 14-24/01/2019 DFLT £15,000 (as at 30 June 2023: £8,000) were transferred out of Level 3 to Level 2 since it has been priced through broker quotes.

 

Quantitative information of significant unobservable inputs - Level 3

The following table summarises the significant unobservable inputs the Company used to value its significant investments categorised within Level 3 as at 31 December 2023:

 

Description

Fair value as at

31 December 2023

£000

Valuation technique

Significant

Unobservable

inputs

Range/input

Weighted Average

Gaming Innov 23-18/12/2026 FRN

1,474

Cost

N/A

N/A

N/A

REA Trading 13.5% 21-30/09/2027

851

Vendor pricing

Unadjusted broker quote

1

N/A

Cabonline Group Holding AB

398

Cost

N/A

N/A

N/A

R.E.A. Holdings Plc CW 15/07/2025

70

Black Scholes model

Volatility

52.3

N/A

ORO SG 12% 19-20/12/2025 DFLT

31

Vendor pricing

Unadjusted broker quote

1

N/A

Secured Income Fund PLC

18

Vendor pricing

Unadjusted broker quote

1

N/A

Total

2,842





 

The remaining 24 investments classified as Level 3 have not been included in the above analysis as they have fair value of nil as at 31 December 2023.

 

9 Stated capital account

Authorised

The authorised share capital of the Company is represented by an unlimited number of ordinary shares of no par value.

 

Allotted, called up and fully-paid

 

Number of
ordinary shares

 

Amount

received

£'000

 

Share issue costs

£'000

Share

 capital

£'000

Total as at 1 July 2023

524,601,858

 

 

244,884

1,750,000 ordinary shares of no par value allotted on 29 September 2023 at 49.00p

 1,750,000

858

 (6)

852

1,500,000 ordinary shares of no par value allotted on 1 November 2023 at 48.15p

 1,500,000

722

 (5)

717

1,500,000 ordinary shares of no par value allotted on 24 November 2023 at 48.80p

 1,500,000

732

 (5)

727

500,000 ordinary shares of no par value allotted on 30 November 2023 at 49.00p

 500,000

245

 (2)

243

750,000 ordinary shares of no par value allotted on 7 December 2023 at 49.00p

 750,000

367

 (3)

364

500,000 ordinary shares of no par value allotted on 14 December 2023 at 49.10p

 500,000

245

 (2)

243

500,000 ordinary shares of no par value allotted on 20 December 2023 at 49.90p

 500,000

250

 (2)

248

750,000 ordinary shares of no par value allotted on 21 December 2023 at 50.00p

 750,000

375

 (3)

372

500,000 ordinary shares of no par value allotted on 22 December 2023 at 50.00p

 500,000

250

 (2)

248

Total issued share capital at 31 December 2023

532,851,858

4,044

 (30)

248,898

 

The balance of shares held in treasury by the Company at 31 December 2023 was nil (as at 31 December 2022: nil; as at 30 June 2023: nil).

 

Refer to note 13 for further information subsequent to the reporting period.

 

10 Net asset per ordinary share


31 December 2023
(Unaudited)

31 December 2022
(Unaudited)

30 June 2023
(Audited)

NAV (£'000)

253,122

238,893

240,431

Net asset per ordinary share (pence)

47.50

48.39

45.83p

 

Net asset per ordinary share has been calculated based on the share capital in issue as at year end. The issued share capital as at 31 December 2023 comprised of 532,851,858 ordinary shares (as at 31 December 2022: 493,651,858; as at 30 June 2023: 524,601,858).

 

11 Dividends


Six months ended

31 December 2023
(Unaudited)

£'000

Six months ended

31 December 2022

(Unaudited)
£'000

Year ended

30 June 2023

(Audited)
£'000

Amounts recognised as distributions to equity holders in the period/year:

 



     Dividends in respect of the previous period

 



- Fourth interim dividend

7,816

7,054

7,054

     Dividends in respect of the period under review

 



- First interim dividend

5,264

4,815

4,815

- Second interim dividend

-

-

4,963

- Third interim dividend

-

-

5,153


13,080

11,869

21,985

 

Refer to note 13 for further information subsequent to the reporting period.        

 

A second interim dividend of 1.00p per ordinary share in respect of the quarter ended 31 December 2023 is payable on 28 February 2024 to shareholders on the register on 26 January 2024. In accordance with the IFRS, this dividend has not been included as a liability in this set of condensed financial statements.

                                   

12 Related Parties

All transactions with related parties are carried out on an arm's length basis.

 

The Board

As at 31 December 2023, the Directors each beneficially held the following shares in the Company:

 

Caroline Hitch:               211,5001 ordinary shares

Wendy Dorman:            149,529 ordinary shares

Duncan Baxter:                         195,127 ordinary shares

Ian Cadby:                    25,000 ordinary shares

John Newlands:             10,000 ordinary shares

 

1 inclusive of 41,500 shares held by Ms Hitch's mother.

 

There were no other transactions with the Board during the period, other than the above and the directors' fees disclosed in note 5.

 

Investment Manager

During the period, there were no transactions with the Investment Manager other than investment manager fees. Refer to note 4 for further information.

 

On 15 November 2023, the Company announced that the Investment Manager and AIFM, CQS (UK) LLP, has advised that it is being acquired by Manulife Investment Management, a leading international financial services group. There are no planned changes to the investment management team. The transaction is expected to close in early 2024.

 

13 Subsequent events

The Board have evaluated subsequent events for the Company through to 28 February 2024, the date the condensed financial statements were available to be issued and has concluded that the material events listed below do not require adjustment of the condensed financial statements.

Share issues

Following the six months ended 31 December 2023, the Company undertook a further three issues of ordinary shares issuing, in total, an additional 4,000,000 ordinary shares of no par value for total consideration of £2,007,000. As at the date of this report, the issued share capital of the Company was 536,851,858 ordinary shares of no par value.

 

Dividend declaration

On 18 January 2024, the Company announced its second interim dividend of 1.00p per ordinary share, payable on 28 February 2024 to shareholders on the register on 26 January 2024, having an ex-dividend date of 25 January 2024.

 

Glossary of Terms and Definitions

 

Alternative

Performance Measures

("APMs")

Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes IFRS and the AIC SORP. Refer to below for further details.

Dividend yield

The annual dividend per ordinary share expressed as a percentage of the share price (bid price).

Net asset value or NAV and NAV per ordinary share

The value of total assets less total liabilities. Liabilities for this purpose include current and long-term liabilities. To calculate the Net asset value per ordinary share, the Net asset value is divided by the number of ordinary shares in issue.

Reference rate (RFR)

The SONIA (Sterling Overnight Index Average) reference rate displayed in the relevant screen of any authorized distributor of that reference.

Shareholder

Investor who holds shares in the Company.

 

Alternative Performance Measures

 

In accordance with European Securities and Markets Authority Guidelines on APMs, the Board has considered what APMs are included in the Interim Financial Statements which require further clarification.

 

The Company uses the following APMs (as described below) to present a measure of profitability which is aligned with the requirements of our investors and potential investors, to draw out meaningful data around revenues and earnings, and to provide additional information not required for disclosure under accounting standards:

 

·       NAV and ordinary share price total return

·       Revenue earnings per ordinary share

·       Dividends per ordinary share

·       Premium/Discount

·       Gearing

 

All APMs relate to past performance. The following tables detail the methodology of the Company's APMs.

 

NAV and ordinary share price total return

The return to Shareholders is calculated on a per ordinary share basis by adding dividends paid and declared in the period to the increase or decrease in the share price (bid) or NAV. The dividends are assumed to have been reinvested in the form of ordinary shares or net assets.

 

2023

Dividend per ordinary share

NAV

Share
price (bid)

31 December 2023 (Unaudited)

2.00p

47.50

49.20

30 June 2023 (Audited)

4.49p

45.83

46.60

Capital return

 

3.64%

5.58%

Effect of dividend reinvestment


5.78%

5.68%

Total return

 

9.42%

11.26%

 

 

2022

Dividend per ordinary share

NAV

Share
price (bid)

31 December 2022 (Unaudited)

2.00p

48.39

52.60

30 June 2022 (Audited)

4.48p

49.30

51.20

Capital return

 

(1.85)%

2.73%

Effect of dividend reinvestment


5.10%

5.02%

Total return

 

3.25%

7.75%

 

Revenue earnings per ordinary share

Revenue earnings (which includes dividends paid out during the six months ended 31 December 2023) divided by the weighted average number of ordinary shares in issue during the six months ended 31 December 2023.

 

 

 

Six months to

31 December 2023

(Unaudited)

Six months to

31 December 2022

(Unaudited)

Revenue earnings

a

£11,479,000

£10,982,000

Weighted average number of ordinary shares in issue

b

526,645,336

483,222,238

Revenue earnings per ordinary share

(a/b)*100

2.18p

2.27p

 

Dividends per ordinary share

The total amount of dividends declared for every issued ordinary share over the six months ended 31 December 2023.

 

Dividend History

Rate

xd date

Record date

Payment date

First interim 2024

1.00p

26 October 2023

27 October 2023

30 November 2023

Second interim 2024

1.00p

25 January 2024

26 January 2024

28 February 2024

Interim dividend per ordinary share

2.00p









First interim 2023

1.00p

27 October 2022

28 October 2022

25 November 2022

Second interim 2023

1.00p

26 January 2023

27 January 2023

28 February 2023

Interim dividend per ordinary share

2.00p




 

Premium/Discount

A premium is the amount by which the market price per ordinary share of an investment company is higher than the NAV per ordinary share. If the market price per ordinary share is lower than the NAV, this is called a discount. The premium or discount is expressed as a percentage of the NAV per ordinary share.

 

 

 

31 December 2023

(Unaudited)

30 June 2023

(Audited)

Share price (bid price)

a

49.20p

46.60p

NAV per ordinary share

b

47.50p

45.83p

Premium

(a-b)/b

3.58%

1.68%

 

Gearing

The level of borrowing that the Company has undertaken. Represented by total assets (being total assets less current liabilities (excluding borrowings)) less all cash, expressed as a percentage of shareholders' funds (being the NAV of the Company) minus 100.

 

 

 

31 December 2023

(Unaudited)

£'000

30 June 2023

(Audited)

£'000

Total assets


289,366

279,618

Current liabilities (excluding borrowings)


(1,244)

(4,187)

Cash and cash equivalents


(2,696)

(6,597)

Total

a

285,426

268,834





NAV

b

253,122

240,431

Gearing

((a/b)-1)*100                                                                                              

12.76%

11.81%

 

A copy of the Company's Interim Report will be available shortly from the Company Secretary, (BNP Paribas S.A., Jersey Branch, IFC 1, The Esplanade, St Helier, Jersey, JE1 4BP), or will be circulated on the Company's website (https://ncim.co.uk/cqs-new-city-high-yield-fund-ltd).

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
IR BUGDDUDDDGSI
Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Related Charts

Cqs New City High Yield Fund Limited (NCYF)

-0.20p (-0.39%)
delayed 16:30PM