To:
RNS
From:
CT UK High Income Trust PLC
Date:
31 May 2024
LEI:
213800B7D5D7RVZZPV45
Statement of Audited Results for the year
ended 31 March 2024
Financial Highlights
· Net
asset value total return(1) per share for the financial
year was +11.8%, compared to the total return of the
Benchmark(2) of +8.4%.
· Ordinary share price total return(1) per share for
the financial year was +10.2%, compared to the total return of the
Benchmark(2) of +8.4%.
· B
share price total return(1) per share for the financial
year was +5.5% compared to the total return of the
Benchmark(2) of +8.4%.
· Distribution yield of 6.7% on Ordinary shares at 31 March
2024, compared to the yield on the FTSE All-Share Index of 3.8%.
Total dividends increased by 2.0% to 5.62p per Ordinary share
compared to the prior year.
· Distribution yield of 6.7% on B shares at 31 March 2024,
compared to the yield on the FTSE All-Share Index of 3.8%. Total
capital repayments increased by 2.0% to 5.62p per B share compared
to the prior year.
(1) Yield and total return -
See Alternative Performance Measures
(2) Benchmark - FTSE All-Share
Index.
Chairman's Statement
"Eleventh consecutive year of
dividend/capital repayment increases and at 31 March 2024 the
Ordinary shares and B shares had yields of 6.7%"
I am pleased to present the annual
results of CT UK High Income Trust PLC for the financial year ended
31 March 2024. Particularly pleased, in fact, as against a
backdrop during the year of high interest rates and inflation in
the UK and an escalation of global tensions, David Moss, the
Company's Portfolio Manager has produced index-beating returns and
generated an increase in dividends and capital
repayments.
These have not been easy times. I
hope that one day I shall not have to write such words and that
investment managers, to whom shareholders have entrusted their
savings, will find the investment universe easier to navigate. But
for now, our daily lives seem to be peppered with news of yet
another conflict that threatens world peace. I see that this time
last year I believed that "the worst is behind us". Palpably wrong.
Russia seems to have settled in for the long term in its desire to
rebuild the old Soviet Union through destroying Ukraine and the
Israel-Palestine war shows little sign of any permanent resolution
in the short term. How does one manage money in such unpredictable
times?
Well, I'm delighted to say that your
Portfolio Manager has indeed maintained his focus and concentrated
on the Company's priorities for its shareholders, namely, the
growth in capital and dividends. Over the last few years, the Board
has employed the Company's revenue reserve to maintain and grow
distributions and this year is no exception. However, the Portfolio
Manager is very well aware of - and is delivering upon - the
Board's stated objective to rebuild revenue reserves and the
principal reason for drawing on reserves again this year was the
timing of dividend payments from investee companies that occurred
after our year end.
Performance
In the financial year to 31 March
2024 your Company produced a Net Asset Value ('NAV') total return
of +11.8% against a total return of +8.4% from the FTSE All-Share
Index, the benchmark index. This is a very welcome and highly
commendable outperformance of +3.4 percentage points from the
Company's Portfolio Manager, David Moss. This was especially so
during another challenging economic period which saw inflation peak
at 11.1% in early 2023 with an attendant rise in the Bank of
England base rate to 5.25% in a belated attempt to combat
inflation's harmful effects on consumers and the UK
economy.
As you will read in the detailed
Manager's Review, the portfolio has been fine-tuned since the
appointment of David Moss in July 2023 to take account of changing
market conditions and sentiment, an approach applauded by your
Board as being not only sensible and pragmatic but also in the best
long-term interests of shareholders.
The Board also concurred with David
that the Company should remain geared throughout the period. This
proved painful as interest rates rose but, as he was confident that
positions in quality companies could be acquired at reasonable
prices, it proved tactically correct to do so. Altering gearing
levels on a play-by-play basis seldom proves beneficial and whilst
the Company has a flexible revolving credit facility, maintaining
full exposure was a unanimous decision.
Share Price Performance and Discount to NAV
At the financial year end, the
Company's Ordinary share and B share prices stood at discounts to
the net asset value of 10.6% and 11.6% respectively. These
discounts were wider than the Board would prefer but may have been
affected, temporarily, by adjustments in the market as the
Company's Units were cancelled at the very end of its financial
year. The average discount levels at which the Company's Ordinary
shares and B shares traded relative to net asset value in the
financial year were 6.9% and 5.2% respectively and it remains the
Board's preference for the discounts to be in single figures whilst
maintaining the balance of supply and demand in the market for both
share classes on a daily basis.
Consequently, the share price total
return for the Ordinary shares and B shares was +10.2% and +5.5%
respectively.
Dividends and Capital Repayments
As already mentioned, your Board
recognises the importance of dividends to shareholders and has
utilised the Company's revenue reserve to maintain and increase
dividend payments to Ordinary shareholders in recent years. Total
distributions to shareholders this year increased by 2% to 5.62p
per share compared to the previous year. In the year to 31 March
2024 the revenue earnings per share increased by 10.8% but, due to
the timing of some dividend receipts, as explained earlier, it has
been necessary to draw £105,000 from the revenue reserve. This is a
very short-term situation as those companies that were due to pay
in March duly paid in April 2024. After payment of the fourth
interim dividend on 3 May 2024, the revenue reserve is £2.3
million, representing 2.77p per Ordinary share.
Your Company has now increased its
distributions to shareholders in each financial year since 2013 and
has been duly recognised by the AIC as being part of the next
generation of "Dividend Heroes" for increasing dividends to
shareholders in ten or more consecutive years. The total
dividend/capital repayment for the year to 31 March 2024
represented a yield of 6.7% based on the Ordinary share price and B
share price of 84.5p and 83.5p respectively at 31 March
2024.
Gearing
As at the end of the year under
review, the Company had a total borrowing facility of £15 million
through an unsecured Revolving Credit Facility with The Royal Bank
of Scotland International Limited. Your Board believes that an
investment company should use gearing to enhance returns to
shareholders whenever possible and encourages the Portfolio Manager
to use his discretion accordingly. As at the year end, all of the
£15 million facility had been drawn down.
Annual General Meeting (AGM)
The AGM will be held at 11 am on 26
July 2024 at Columbia Threadneedle Investments, Cannon Place, 78
Cannon Street, London EC4N 6AG. It is an opportunity for
shareholders to engage with the Board and Manager and I hope you
will be able to attend.
Outlook
It is a relief for all to see that,
in spite of recent tensions, energy prices have come off their
highs and domestic bills have correspondingly fallen. Combined with
average wage increases now exceeding inflation, it feels that
discretionary spending power is improving despite it seeming that
the cost of everything is still going up. Personally, I would not
be surprised if manufacturers attempted to rebuild profits through
price rises but competition is a great leveller when vying for the
consumer's money. So, that was a long-winded way of saying
that my (relatively) optimistic outlook is back. With a General
Election now called for 4 July 2024, whichever party forms the next
Government is likely to oversee a slowly growing economy, inflation
possibly at the Bank of England's target 2% rate accompanied by a
very welcome (and overdue) fall in interest rates. Global tensions
notwithstanding and assuming no major escalation or serious
interruption to trade routes, it is possible to envision a much
better environment for UK equities after a tough few years of
treading water.
If my reading is correct, I firmly
believe your Company is in the best possible shape to benefit
accordingly. David Moss has constructed a balanced portfolio of
companies with the potential to grow in capital terms and increase
dividend payments, exactly the recipe required to produce positive
returns for you, our shareholders. It is likely that the portfolio
will remain geared during the Company's 2024-2025 financial year to
capitalise accordingly, especially as interest rates decline and
the cost of borrowing reduces. Making the most of the closed-ended
structure of an investment company by gearing at appropriate times
is wholly supported by your Board and should, I hope, reap rewards
over the next 12 months.
As ever, thank you for being a
shareholder in CT UK High Income Trust PLC. Your support is very
much appreciated.
Andrew Watkins
Chairman
30
May 2024
Manager's Review
The last financial year has been
different from recent ones in that Covid has not been a subject of
discussion nor the key driver of share prices. We have, though,
arguably been dealing with the consequences of the pandemic -
namely the huge increases in Government borrowing and the money
supply together with the breakdown of supply chains exacerbated by
the conflict in Ukraine. The result has been that two directly
related topics have been the only real driver of equity markets in
the last twelve months - inflation and interest rates. When we
started our financial year on 1 April 2023, we had already seen the
fastest pace of UK base rate rises ever and we saw a further 100
basis points before the end of August. While sentiment on inflation
has waxed and waned since then and the Bank of England has kept
rates flat, there is clear evidence of inflation falling and we
look forward to the Company's new financial year with a focus on
when the first rate cut will be, rather than if it will
happen.
What has perhaps been surprising is
that while the UK economy has clearly slowed as a result of these
interest rate increases, we have seen neither the collapse in
consumer spending nor rise in unemployment predicted by some. While
the UK experienced a very brief technical recession, the impact was
minimal. The biggest liability for UK consumers is their mortgage
and the nature of the majority of UK mortgages, where the rates are
fixed typically for two to five years, has meant that together with
the sheer number of UK homeowners that don't have a mortgage, many
households have yet to be negatively impacted by higher rates.
While inflation has clearly had an effect on household consumption
habits, we have also seen rising nominal wages helping to offset
the impact. With employment numbers remaining strong, inflation now
falling and lower long-term rates feeding into lower mortgage
rates, the outlook for the UK consumer is, in our opinion,
improving. While we expect to see interest rates fall this year we
do not see them falling to anywhere near the levels prevailing
pre-and during the pandemic. Contrary to many, we see this as a
positive and an environment that we consider 'normal' where money
is not free and accordingly capital should be allocated more
efficiently and one where savers are rewarded rather than
punished.
After the turbulence in politics last
year, we have had a relatively stable political backdrop in the
last twelve months. We can expect a lot more political noise at
least during the rest of this calendar year as we move through the
general election and see the emergence of actual policy thereafter.
Despite the economy holding up, a better outlook ahead and cuts to
National Insurance contributions, it appears clear that this
election will see a change in Government. Whilst the likelihood of
a Labour administration often causes concern for investors and
volatility in markets, for now at least the messaging from Labour
and in particular the Shadow Chancellor has been benign. We will
see the reality in due course but for now we see nothing to disturb
our positive view of the year ahead.
Performance
While UK equities were volatile at
times, falling 10% from the initial high point in April 2023 and
then rising and falling over 6% twice more during the Company's
financial year, better economic news, in particular on inflation,
led the UK stock market, as measured by the FTSE All-Share Index,
to rise fairly consistently from the October 2023 low to produce a
total return of 8.4% over our financial year.
The net asset value ("NAV") total
return of the Company was 11.8% over the financial year
out-performing the benchmark index by 3.4 percentage points,
representing a welcome return to out-performance. This represents
an acceleration in performance from the first part of the financial
year helped by the judicious use of gearing, the Company's
portfolio was ahead of a rising market, with the biggest driver of
performance being strong stock selection.
Pleasingly, we have had positive
contributions from stocks we have held for some time, as well as
stocks newly purchased this year. It has taken over a decade, but
legal finance group Burford Capital finally received a positive
opinion from the Judge in its case against the Argentinian
Government for the forced nationalisation of YPF. There are still
appeals to come but the market recognised the potential for value
generation and the shares responded very strongly. Two other
long-held investments were also amongst the leading positive
contributors with Cairn Homes producing strong results with rising
dividends and share buybacks as they benefit from being the largest
housebuilder in an Irish market with a shortage
of housing. The biggest individual
contributor was private markets investor Intermediate Capital Group
where asset raising and investment returns have been robust. The
demand from investors for access to private assets looks set to
remain strong for years to come. Recent purchase SAP was amongst
the top positive contributors as results were consistently good,
the company increased guidance and was seen as a beneficiary of
Artificial Intelligence.
Portfolio Changes
There has been an increase in
turnover in the financial year as we looked to position the
portfolio for what we felt were the opportunities ahead. This
focused overwhelmingly on increasing the level of sustainable
income generated by the portfolio and investing in companies where
we could expect this to grow into the future. We approached this in
two ways; we sold out of companies where dividends were zero or
very low and where there was little prospect of any meaningful
income soon and re-invested the proceeds in companies that have
high current dividend yields and/or have the ability to grow
distributions to shareholders. The latter is, we believe, the most
important element as our strategy is to provide shareholders with a
high and growing level of income. In terms of the companies that we
sold, this included THG, ASOS, Wizz Air and Delivery Hero, all
companies that we felt would struggle to fulfil expectations and
where we saw no prospect of dividends on any sensible time horizon.
We also sold a number of stocks with very low dividend yields and
limited growth prospects including Experian, Deutsche Boerse, ASML
and Hiscox.
We have made new investments in
several areas but activity within the financials sector stands out.
As stated above, we believe we are now in an era in which money is
no longer free, i.e. interest rates will be positive even if lower
than now. This is a significant change for banks in particular
which have struggled to generate acceptable returns for some time.
After many years of limited demand for credit and strict
regulation, UK banks are very well capitalised, highly liquid and,
having been ignored by investors for years, are now very
attractively valued. In this new era, they are able to generate
low-mid teens returns on equity and can deliver significant returns
to shareholders including very attractive and growing dividends and
we have, therefore, bought a position in NatWest Group. All the
previous points apply to NatWest but in addition, at the time of
purchase, the resolution of well-publicised internal issues and the
change of CEO gave us even greater comfort.
We also added to our position in
specialist buy-to-let lender OSB Group and bought UK asset manager
and insurance company M&G.
Two of our purchases this year have
been the largest stocks in the UK market - AstraZeneca and Shell.
While we believe we can add a lot of value at the smaller end of
the market we will not be dogmatic about what makes a good business
whether that be size or type. AstraZeneca under CEO Pascal Soriot's
tenure has proven to be one of the UK's most dynamic and high
growth companies and one of the world's foremost pharmaceutical
companies. Shell in common with most of its peers, has had a
radical transformation in its approach to capital allocation. The
oil companies have experienced high oil prices many times in the
past but this boon normally results in big increases in capital
expenditure on increasingly marginal projects and ultimately weaker
returns for shareholders. In this cycle, Shell has been very
disciplined on investment and the result has been high and growing
returns to shareholders.
Outlook
What is most important for us is the
quality of companies we invest in and the price we pay, not any
particular economic view. That said, few of our investee companies
operate in isolation and we are positive for the year ahead as the
combination of an improving economic outlook, falling inflation and
lower interest rates should be a very positive backdrop for
equities. We can look at other equity markets and question whether
this is priced in, but we are firmly of the view that this is not
the case in the UK and especially in the more domestically exposed
areas of the market. We and others have written extensively about
the low valuation of UK equities but for our Company this provides
fantastic opportunities. We can invest in companies that have the
levels of dividends we need to meet our ambitions for our
shareholders but the reason for these high dividends is not because
they are weak or low returning businesses, but because they are in
an out-of-favour market - the UK - and often in out-of-favour
sectors. The result is that not only do these companies pay high
dividends now, but we strongly believe they can grow these
dividends into the future. Dividends grew 7.7% last year in the UK
and we would expect more growth this coming year, together with a
continuation of share buybacks if low valuations
persist.
David Moss
Portfolio Manager
Columbia Threadneedle Investment
Business Limited
30
May 2024
Statement of Comprehensive Income
|
|
|
Year to
31 March 2024
|
|
|
Note
|
Revenue
|
Capital
|
Total
|
|
|
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
|
|
Capital gains on investments
|
|
|
|
|
|
Gains on investments held at fair
value through profit or loss
|
|
-
|
7,674
|
7,674
|
|
Exchange gains
|
|
1
|
9
|
10
|
|
Revenue
|
|
|
|
|
|
Income
|
|
5,603
|
-
|
5,603
|
|
|
|
|
|
|
|
Total income
|
|
5,604
|
7,683
|
13,287
|
|
|
|
|
|
|
|
Expenditure
|
|
|
|
|
|
Investment management fee
|
|
(186)
|
(435)
|
(621)
|
|
Other expenses
|
|
(518)
|
-
|
(518)
|
|
|
|
|
|
|
Total expenditure
|
|
(704)
|
(435)
|
(1,139)
|
|
|
|
|
|
|
Profit before finance costs and
tax
|
|
4,900
|
7,248
|
12,148
|
|
|
|
|
|
|
|
Finance costs
|
|
|
|
|
|
Interest on bank loans
|
|
(269)
|
(627)
|
(896)
|
|
|
|
|
|
|
|
Total finance costs
|
|
(269)
|
(627)
|
(896)
|
|
|
|
|
|
|
|
Profit before tax
|
|
4,631
|
6,621
|
11,252
|
|
Taxation
|
|
(30)
|
-
|
(30)
|
|
|
|
|
|
|
|
Profit and total comprehensive income for the
year
|
|
4,601
|
6,621
|
11,222
|
|
|
|
|
|
|
|
Earnings per share
|
2
|
4.01p
|
5.77p
|
9.78p
|
The total column of this statement
represents the Company's Income Statement and Statement of
Comprehensive Income, prepared in accordance with UK-adopted
International Accounting Standards.
The supplementary revenue return and
capital return columns are both prepared under guidance published
by the Association of Investment Companies.
All revenue and capital items in the
above statement derive from continuing operations.
No operations were acquired or
discontinued in the year.
Statement of Comprehensive Income
|
|
|
Year to
31 March 2023
|
|
|
Note
|
Revenue
|
Capital
|
Total
|
|
|
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
|
|
Capital gains/(losses) on investments
|
|
|
|
|
|
Losses on investments held at fair
value through profit or loss
|
|
-
|
(4,177)
|
(4,177)
|
|
Exchange gains/(losses)
|
|
3
|
(16)
|
(13)
|
|
Revenue
|
|
|
|
|
|
Income
|
|
5,007
|
-
|
5,007
|
|
|
|
|
|
|
|
Total income
|
|
5,010
|
(4,193)
|
817
|
|
|
|
|
|
|
|
Expenditure
|
|
|
|
|
|
Investment management fee
|
|
(183)
|
(427)
|
(610)
|
|
Other expenses
|
|
(521)
|
-
|
(521)
|
|
|
|
|
|
|
Total expenditure
|
|
(704)
|
(427)
|
(1,131)
|
|
|
|
|
|
|
Profit/(loss) before finance costs
and tax
|
|
4,306
|
(4,620)
|
(314)
|
|
|
|
|
|
|
|
Finance costs
|
|
|
|
|
|
Interest on bank loans
|
|
(67)
|
(155)
|
(222)
|
|
|
|
|
|
|
|
Total finance costs
|
|
(67)
|
(155)
|
(222)
|
|
|
|
|
|
|
|
Profit/(loss) before tax
|
|
4,239
|
(4,775)
|
(536)
|
|
Taxation
|
|
(47)
|
-
|
(47)
|
|
|
|
|
|
|
|
Profit/(loss) and total comprehensive income/(expense) for the
year
|
|
4,192
|
(4,775)
|
(583)
|
|
|
|
|
|
|
|
Earnings per share
|
2
|
3.62p
|
(4.12)p
|
(0.50)p
|
The total column of this statement
represents the Company's Income Statement and Statement of
Comprehensive Income, prepared in accordance with UK-adopted
International Accounting Standards.
The supplementary revenue return and
capital return columns are both prepared under guidance published
by the Association of Investment Companies.
All revenue and capital items in the
above statement derive from continuing operations.
No operations were acquired or
discontinued in the year.
Statement of Financial Position
as
at 31 March
|
|
|
31 March
2024
|
31 March
2023
|
|
|
|
Note
|
£'000
|
|
£'000
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
Investments held at fair value
through profit or loss
|
|
|
121,267
|
|
113,018
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Receivables
|
|
|
1,203
|
|
1,394
|
|
|
Cash and cash equivalents
|
|
|
1,086
|
|
2,288
|
|
|
|
|
|
2,289
|
|
3,682
|
|
|
Total assets
|
|
|
123,556
|
|
116,700
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Payables
|
|
|
(790)
|
|
(529)
|
|
|
Bank loan
|
|
|
(15,000)
|
|
(12,000)
|
|
|
|
|
|
(15,790)
|
|
(12,529)
|
|
|
Total liabilities
|
|
|
(15,790)
|
|
(12,529)
|
|
|
Net
assets
|
|
|
107,766
|
|
104,171
|
|
|
Equity attributable to equity shareholders
|
|
|
|
|
|
|
|
Share capital
|
|
|
134
|
|
134
|
|
|
Share premium
|
|
|
153
|
|
153
|
|
|
Capital redemption
reserve
|
|
|
5
|
|
5
|
|
|
Buy-back reserve
|
|
|
79,022
|
|
80,315
|
|
|
Special capital reserve
|
|
|
8,320
|
|
10,012
|
|
|
Capital reserves
|
|
|
16,444
|
|
9,823
|
|
|
Revenue reserve
|
|
|
3,688
|
|
3,729
|
|
|
Equity shareholders' funds
|
|
|
107,766
|
|
104,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per Ordinary share
|
|
6
|
94.51p
|
|
89.97p
|
|
|
Net
asset value per B share
|
|
6
|
94.51p
|
|
89.97p
|
|
Cash Flow Statement
for
the year to 31 March
|
|
|
|
|
|
Year to
31 March
2024
|
Year to
31 March
2023
|
|
|
£'000
|
£'000
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
Profit/ (loss) before
taxation
|
11,252
|
(536)
|
|
Adjustments for:
|
|
|
|
(Gains)/ losses on investments held
at fair value through profit or loss
|
(7,674)
|
4,177
|
|
Exchange (gains)/ losses
|
(10)
|
13
|
|
Interest income
|
(84)
|
(70)
|
|
Interest received
|
84
|
70
|
|
Dividend income
|
(5,519)
|
(4,937)
|
|
Dividend income received
|
5,727
|
4,698
|
|
Decrease/(increase) in
receivables
|
1
|
(64)
|
|
Increase/(decrease) in
payables
|
45
|
(15)
|
|
Finance costs
|
896
|
222
|
|
Overseas tax suffered
|
(69)
|
(76)
|
|
Cash flows from operating activities
|
4,649
|
3,482
|
|
Cash flows from investing activities
Purchases of investments
Sales of investments
|
(62,065)
61,699
|
(45,856)
42,153
|
|
Cash flows from investing activities
|
(366)
|
(3,703)
|
|
Cash flows before financing activities
|
4,283
|
(221)
|
|
Cash flows from financing activities
|
|
|
|
Dividends paid on Ordinary
shares
|
(4,642)
|
(4,690)
|
|
Capital returns paid on B
shares
|
(1,692)
|
(1,692)
|
|
Shares purchased for
treasury
|
(1,293)
|
(79)
|
|
Interest on bank loans
|
(868)
|
(203)
|
|
Drawdown of bank loans
|
3,000
|
4,500
|
|
Cash flows from financing activities
|
(5,495)
|
(2,164)
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
(1,212)
|
(2,385)
|
|
Cash and cash equivalents at the
beginning of the year
|
2,288
|
4,686
|
|
Effect of movement in foreign
exchange
|
10
|
(13)
|
|
Cash and cash equivalents at the end of the
year
|
1,086
|
2,288
|
|
Represented by:
|
|
|
|
Cash at bank
|
176
|
199
|
|
Short term deposits
|
910
|
2,089
|
|
|
1,086
|
2,288
|
CT
UK High Income Trust PLC
Principal Risks and Uncertainties and Viability
Statement
As an investment company investing
primarily in listed securities, most of the Company's principal
risks and uncertainties that could threaten the achievement of its
objective, strategy, future performance, liquidity and solvency are
market-related.
A summary of the Company's risk
management and internal controls arrangements is included within
the Report of the Audit Committee in the Annual Report and
Financial Statements. By means of the procedures set out in that
summary, the Board has established an ongoing process for
identifying, evaluating and managing the significant risks faced by
the Company. The Board also considers emerging risks which might
affect the Company and related updates from the Manager on such
risks are also considered. During the year risks included the
outlook for inflation and ongoing macroeconomic and geopolitical
concerns. Any emerging risks that are identified and that are
considered to be of significance would be included on the Company's
risk register with any mitigations. These significant risks,
emerging risks and other risks are regularly reviewed by the Audit
Committee and the Board. They have also regularly reviewed the
effectiveness of the Company's risk management and internal control
systems for the period.
In November 2021, the Company's
Manager, which was part of BMO GAM (EMEA) was acquired by
Ameriprise and the integration of its business with Columbia
Threadneedle Investments then progressed. There has been little
change for your Company, however, an acquisition such as this
introduces some uncertainty, until the integration of systems is
fully implemented. A critical milestone was the move to a new order
management system, Aladdin, which is widely regarded as the market
leading system. This change was successfully completed in October
2023 and this risk is now viewed as reduced.
The principal risks and
uncertainties faced by the Company, and the Board's mitigation
approach, are described below.
Investment performance risk
Inappropriate strategy, asset
allocation, stock selection, (in the context of the market,
economic or geopolitical backdrop) and the use of gearing could all
lead to poor returns for shareholders including impacting the
capacity to pay dividends.
No change in overall risk but given
macroeconomic and geopolitical concerns, this risk remains
heightened.
Mitigation:
The Company's objective and
investment policy and performance against peers and the benchmark
are considered by the Board at each meeting and strategic issues
are considered regularly.
The Board regularly considers the
composition and diversification of the Investment Portfolio (which
comprises listed securities) and considers individual stock
performance together with purchases and sales of investments.
Investments and markets are discussed in detail with the Manager on
a regular basis.
Engagement on environmental, social
and governance matters is undertaken by the Manager and its
approach is explained in the Annual Report and Financial
Statements.
As a closed-end investment company,
it is not constrained by asset sales to meet redemptions so can
remain invested through volatile market conditions and is well
suited to investors seeking longer term returns.
The Board regularly considers
ongoing charges combined with underlying dividend income from
portfolio companies and the consequent dividend paying capacity of
the Company.
Legal and regulatory risk
Breach of regulatory rules could
lead to the suspension of the Company's stock exchange listing,
financial penalties, or a qualified audit report. Breach of section
1158 of the Corporation Tax Act 2010 could lead to the Company
being subject to tax on capital gains.
No change in overall
risk.
Mitigation:
The Board liaises with advisors to
ensure compliance with laws or regulations.
The Manager and its Operational Risk
Management team provide regular reports to the Board and Audit
Committee on their monitoring and oversight of such rules and are
reviewed by the Board. This includes the conditions to maintain
investment trust status including the income distribution
requirement.
The Board has access to the
Manager's Head of Operational Risk Management and requires any
significant issues directly relevant to the Company to be reported
immediately.
Third party service delivery and Cyber risks
Failure of the Manager as the
Company's main service provider or disruption to its business, or
that of an outsourced or third party service provider, could lead
to an inability to provide accurate reporting and monitoring or a
misappropriation of assets leading to a potential breach of the
Company's investment mandate or loss of shareholders'
confidence.
External cyber attacks could cause
such failure or could lead to the loss or sabotage of
data.
No change in overall risk but due to
the integration with Columbia Threadneedle's systems, this risk was
heightened.
Mitigation:
The Board meets regularly with the
management of the Manager and its Operational Risk Management team
to review internal control and risk reports which includes
oversight of its own third party service providers. The Manager's
appointment is reviewed annually and the contract can be terminated
with six months' notice. The Manager has a business continuity plan
in place to ensure that it is able to respond quickly and
effectively to an unplanned event that could affect the continuity
of its business.
The Manager has outsourced certain
functions to State Street Bank and Trust Company ('State Street')
and supervision of such third party service providers, including
the administrator of the Manager's savings plans, has been
maintained by the Manager. This includes the review of IT security
and heightened cyber threats.
The Manager also closely monitors
the performance of its technology platform to ensure it is
functioning within acceptable service levels.
The Board receives quarterly reports
from the Depositary confirming safe custody of the Company's assets
and cash and holdings are reconciled to the Custodian's records.
The Custodian's internal controls reports are also reviewed by the
Manager and key points reported to the Audit Committee. The Board
also receives periodic updates from the custodian on its own
cyber-security controls.
The Depositary is specifically
liable for loss of any of the Company's assets that constitute
financial instruments under the AIFMD.
Viability assessment and statement
In accordance with the UK Corporate
Governance Code, the Board is required to assess the future
prospects for the Company and has considered that a number of
characteristics of its business model and strategy were relevant to
this assessment:
· The
Board looks to long-term outperformance rather than short-term
opportunities.
· The
Company's investment objective, strategy and policy, which are
subject to regular Board monitoring, mean that the Company is
invested primarily in liquid listed securities and that the level
of borrowing is restricted.
· The
Company is a listed closed-end investment trust, whose shares are
not subject to redemptions by shareholders.
· Subject to shareholder continuation votes, in the event that
the net asset value total return performance of the Company is less
than that of the FTSE All-Share Index over the relevant period, the
Company's business model and strategy is not time limited. The
current performance measurement period for this purpose will be the
three years to 31 March 2025.
Also relevant were a number of
aspects of the Company's operational arrangements:
· The
Company retains title to all assets held by the Custodian under the
terms of the formal agreement with the Custodian and
Depositary.
· The
borrowing facility, which remains available until September 2025,
is also subject to a formal agreement, including financial
covenants with which the Company complied in full during the
year.
· Revenue and expenditure forecasts are reviewed by the
Directors at each Board Meeting.
· Cash
is held with banks approved and regularly reviewed by the
Manager.
· The
operational robustness of key service providers and the
effectiveness of alternative working arrangements.
· That
alternative service providers could be engaged at relatively short
notice if necessary.
In considering the viability of the
Company, the Directors carried out a robust assessment of the
principal risks and uncertainties which could threaten the
Company's objective and strategy, future performance and solvency.
This included the impact of market volatility and a significant
fall in equity markets on the Company's investment portfolio. These
risks, their mitigations and the processes for monitoring them are
set out above within Principal Risks and Uncertainties and in the
Report of the Audit Committee and in the notes of the financial
statements within the Annual Report.
The Directors have also
considered:
· The
level of ongoing charges incurred by the Company which are modest
and predictable and (at 31 March 2024) total 1.08% of average net
assets.
· Future
revenue and expenditure projections.
· The
Company's ability to meet liquidity requirements given its
investment portfolio consists mainly of readily realisable listed
equity securities which can be realised if required.
· The
ability to undertake share buy-backs if required.
· Whether the Company's objective and investment policy continue
to be relevant to investors.
· The
effect of significant future falls in investment values and the
ability to maintain dividends and capital repayments, particularly
given the uncertainty in markets and macroeconomic and geopolitical
concerns.
These matters were assessed over a
three year period to May 2027, and the Board will continue to
assess viability over three year rolling periods.
As part of this assessment the Board
considered stress tests and scenarios which considered the impact
of severe stock market volatility on shareholders' funds and
declines in income over a three year period. The results
demonstrated the impact on the Company's net assets and its
expenses and its ability to meet its liabilities over that
period.
A rolling three year period
represents the horizon over which the Directors believe they can
form a reasonable expectation of the Company's prospects, balancing
the Company's financial flexibility and scope with the current
outlook for longer-term economic conditions affecting the Company
and its shareholders.
Based on their assessment, and in
the context of the Company's business model, strategy and
operational arrangements set out above, the Directors have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the three
year period to May 2027.
Statement of Directors' Responsibilities in
Relation to the Annual Report and Financial
Statements
The Directors confirm, in respect of
the Annual Report and Financial Statements for the year ended 31
March 2024 of which this statement of results is an extract, that
to the best of their knowledge:
· the
financial statements contained within the Annual Report
have been prepared in accordance with UK-adopted International
Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and return of the
Company;
· the
Strategic Report and the Report of the Directors include a fair
review of the development and performance of the business and the
position of the Company together with a description of the
principal risks and uncertainties that they face;
and
· taken
as a whole, the Annual Report and Financial Statements are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the performance, strategy and business
model of the Company.
On behalf of the Board
Andrew Watkins
Chairman
30 May
2024
Notes
1.
The financial statements of the Company which are the
responsibility of, and were approved by, the Board on 30 May 2024,
have been prepared on a going concern basis and in accordance with
the Companies Act 2006 and UK-adopted International Accounting
Standards.
The Company's subsidiary undertaking
Investors Securities Company Limited has not been consolidated in
the financial statements as it is exempt in accordance with Section
405(2) of the Companies Act 2006 on grounds of materiality.
Investors Securities Company Limited has been classified at fair
value through profit or loss in the Statement of Financial
Position.
Where presentational guidance set
out in the Statement of Recommended Practice (''SORP'') for
investment trusts issued by the Association of Investment Companies
(''AIC'') is consistent with the requirements of UK-adopted
International Accounting Standards, the Directors have sought to
prepare the financial statements on a basis compliant with the
recommendations of the SORP.
2.
The Company's earnings per share are based on the profit for the
year of £11,222,000 (year to 31 March 2023: loss of £(583,000)) and
on 84,025,522 Ordinary shares (2023: 85,118,954) and 30,708,750 B
shares (2023: 30,708,750), being the weighted average number of
shares in issue of each share class during the
year.
The Company's revenue earnings per
share are based on the revenue profit for the year of £4,601,000
(year to 31 March 2023: £4,192,000) and on the weighted average
number of shares in issue as above.
The Company's capital earnings per
share are based on the capital profit for the year of £6,621,000
(year to 31 March 2023: loss £(4,775,000)) and on the weighted
average number of shares in issue as above.
3.
A fourth interim dividend in respect of the year ended 31 March
2024 of 1.66p per Ordinary share was paid on 3 May 2024 to Ordinary
shareholders on the register on 5 April 2024. A fourth capital
repayment in respect of the year ended 31 March 2024 of 1.66p per B
share was paid on 3 May 2024 to B shareholders on the register on 5
April 2024.
4.
The Company has an unsecured revolving credit facility ("RCF") with
The Royal Bank of Scotland International Limited for £15 million
which is available until 28 September 2025. At 31 March 2024, £15
million was drawn down (31 March 2023: £12 million).
The loan agreement contains certain
financial covenants with which the Company must comply. These
include a financial covenant with respect to the ratio of the
Adjusted Portfolio Value (as defined in the loan agreement) to the
level of debt and also that the Adjusted Portfolio Value does not
fall below £50 million. The Company complied with the required
financial covenants throughout the period since
drawdown.
5.
During the year the Company bought back 1,750,000 Ordinary shares
(2023: 100,000 Ordinary shares) to hold in treasury at a cost of
£1,293,000 (2023: £79,000). During the year the Company bought back
nil B shares (2023: nil B shares).
At 31 March 2024 the Company held
18,744,491 Ordinary shares (2023: 16,994,491 Ordinary shares) and
1,367,953 B shares (2023: 1,367,953 B shares) in
treasury.
6.
The Company's basic net asset value per share of 94.51p (2023:
89.97p) is based on the equity shareholders' funds of £107,766,000
(2023: £104,171,000) and on 114,031,403 equity shares, consisting
of 83,322,653 Ordinary shares and 30,708,750 B shares (2023:
115,781,403 equity shares, consisting of 85,072,653 Ordinary shares
and 30,708,750 B shares), being the number of shares in issue at
the year end.
The Company's treasury net asset
value per share, incorporating the 18,744,491 Ordinary shares and
1,367,953 B shares held in treasury at the year end (2023:
16,994,491 Ordinary shares and 1,367,953 B shares), was 94.51p
(2023: 89.97p). The Company's current policy is to only
re‑sell shares held
in treasury at a price not less than the net asset value per
share.
7.
Financial Instruments
The Company's financial instruments
comprise equity investments, cash balances, receivables and
payables that arise directly from its operations and borrowings. As
an investment trust the Company holds a portfolio of financial
assets in pursuit of its investment objective. The Company makes
use of borrowings to achieve enhanced returns. The downside risk of
borrowings can be mitigated by raising the level of cash balances
held.
The Company may use derivatives for
efficient portfolio management from time to time. No derivative
financial instruments were used during the current year or prior
year. The Company may also write call options over some investments
held in the investment portfolio. There were no call options
written during the current year or prior year.
The fair value of the financial
assets and liabilities of the Company at 31 March 2024 is not
materially different from their carrying value in the financial
statements.
The Company is exposed to various
types of risk that are associated with financial instruments. The
most important types are credit risk, market price risk, liquidity
risk, interest rate risk and foreign currency risk.
The Board reviews and agrees
policies for managing its risk exposure. These policies are
summarised below and have remained unchanged for the year under
review.
Credit risk
Credit risk is the risk that an
issuer or counterparty will be unable or unwilling to meet a
commitment that it has entered into with the Company.
The Company's principal financial
assets are bank balances and cash and other receivables, whose
carrying amounts in the Statement of Financial Position represent
the Company's maximum exposure to credit risk in relation to
financial assets. The Company did not have any exposure to any
financial assets which were past due or impaired at the current or
prior year end.
The Company is exposed to potential
failure by counterparties to deliver securities for which the
Company has paid, or to pay for securities which the Company has
delivered. A list of pre-approved counterparties used in such
transactions is maintained and regularly reviewed by the Manager,
and transactions must be settled on a basis of delivery against
payment. Broker counterparties are selected based on a combination
of criteria, including credit rating, balance sheet strength and
membership of a relevant regulatory body. Risk relating to
unsettled transactions is considered to be small due to the short
settlement period involved and the acceptable quality of the
brokers used. The rate of default in the past has been
insignificant.
All of the investments of the
Company are held by JPMorgan Chase Bank, the Company's custodian.
Bankruptcy or insolvency of the custodian may cause the Company's
rights with respect to the securities held by the custodian to be
delayed or limited. The Board monitors the Company's risk by
reviewing the custodian's internal control reports.
The credit risk on liquid funds and
derivative financial instruments is limited because the
counterparties are banks with high credit ratings, normally rated A
or higher, assigned by international credit rating agencies.
Bankruptcy or insolvency of such financial institutions may cause
the Company's ability to access cash placed on deposit to be
delayed, limited or lost.
The Company has no significant
concentration of credit risk with exposure spread over a number of
counterparties and financial institutions.
Market price risk
The fair value of equity and other
financial securities held in the Company's portfolio fluctuates
with changes in market prices. Prices are themselves affected by
movements in currencies and interest rates and by other financial
issues, including the market perception of future risks. Other
external events such as protectionism, inflation or deflation,
economic recessions, geopolitical backdrop and terrorism could also
affect share prices in particular markets. The Company's strategy
for the management of market price risk is driven by the Company's
investment policy. The Board sets policies for managing this risk
and meets regularly to review full, timely and relevant information
on investment performance and financial results. The management of
market price risk is part of the fund management process and is
typical of equity investment. The portfolio is managed with an
awareness of the effects of adverse price movements through
detailed and continuing analysis with an objective of maximising
overall returns to shareholders. Investment performance is
discussed in more detail in the Manager's Review in the Annual
Report and Financial Statements.
Liquidity risk
Liquidity risk is the risk that the
Company will encounter difficulty in realising assets or otherwise
raising funds to meet financial commitments. The risk of the
Company not having sufficient liquidity at any time is not
considered by the Board to be significant, given the liquid nature
of the portfolio of investments and the level of cash and cash
equivalents ordinarily held. Cash balances are held with a spread
of reputable banks with a credit rating of normally A or higher,
usually on overnight deposit. The Manager reviews liquidity at the
time of making each investment decision. The Board reviews
liquidity exposure at each meeting.
In certain circumstances, the terms
of the Company's bank facility entitle the lender to demand early
repayment and, in such circumstances, the Company's ability to
maintain dividend levels and the net asset value attributable to
equity shareholders could be adversely affected. Such early
repayment may be required on the occurrence of certain events of
default which are customary for facilities of this type. These
include events of non payment, breach of other obligations,
misrepresentations, insolvency and insolvency proceedings,
illegality and a material adverse change in the financial condition
of the Company.
Interest rate risk
Some of the Company's financial
instruments are interest bearing. They are a mix of both fixed and
variable rate instruments with differing maturities. As a
consequence, the Company is exposed to interest rate risk due to
fluctuations in the prevailing market rate. The Company's exposure
to floating interest rates gives cashflow interest rate risk and
its exposure to fixed interest rates gives fair value interest rate
risk.
Floating rate
When the Company retains cash
balances the majority of the cash is held in deposit accounts. The
benchmark rate which determines the interest payments received on
cash balances is the bank base rate, which was 5.25 per cent at 31
March 2024 (2023: 4.25 per cent).
When the Company draws down amounts
under its revolving credit facility, interest is payable based on
SONIA (which can vary on a daily basis) plus a margin.
Fixed rate
At 31 March 2024 and 31 March 2023,
the Company's investment portfolio did not contain any fixed
interest or floating rate interest assets. At 31 March 2024 the
Company had no fixed interest liabilities.
Foreign currency risk
It is not the Company's policy to
hedge any overseas currency exposure on equity
investments.
8.
Going Concern
The Company's investment objective
and investment policy, which is subject to regular Board monitoring
processes, is designed to ensure that the Company is invested
mainly in liquid, listed securities. The value of these investments
exceeds the Company's liabilities by a significant margin. The
Company retains title to all assets held by its custodian and has
an agreement relating to its borrowing facility with which it has
complied during the year. Cash is only held with banks approved and
regularly reviewed by the Manager.
In assessing the going concern basis
of accounting the Directors have had regard to the guidance issued
by the Financial Reporting Council. After making enquiries, and
bearing in mind the nature of the Company's business and assets and
revenue and expenditure projections, the Directors consider that
the Company has adequate resources to continue in operational
existence for a period of at least twelve months from the date of
approval of the financial statements. For this reason, they
continue to adopt the going concern basis in preparing the
financial statements.
9.
The Directors of the Company are considered a related party. Under
the FCA Listing Rules, the Manager is also defined as a related
party. However, the existence of an independent Board of Directors
demonstrated that the Company is free to pursue its own financial
and operating policies and therefore under the AIC SORP, the
Manager is not considered a related party for accounting
purposes.
There are no transactions with the
Board other than aggregated remuneration for services as Directors
as disclosed in the Directors' Remuneration Report within the
Annual Report and Financial Statements. There are no outstanding
balances with the Board at year end.
The beneficial interests of the
Directors in the Ordinary shares and B shares of the Company are
disclosed in the Annual Report and Financial Statements.
Transactions between the Company and
Columbia Threadneedle Investment Business Limited are detailed in
the notes to the financial statements.
10.
This statement was approved by the Board on 30 May 2024. It is not
the Company's full statutory financial statements in terms of
Section 434 of the Companies Act 2006. The statutory Annual Report
and Financial Statements for the year ended 31 March 2024 has been
approved and audited and received an unqualified audit report and
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying the report.
This will be sent to shareholders during June 2024 and will be
available for inspection at 6th Floor, Quartermile 4, 7a
Nightingale Way, Edinburgh, EH3 9EG the registered office of the
Company.
The full Annual Report and Financial
Statements are available on the website maintained on behalf of the
Company at ctukhighincome.co.uk
The Annual General Meeting of CT UK
High Income Trust PLC will be held at 11 am on 26 July 2024 at
Columbia Threadneedle Investments, Cannon Place, 78 Cannon Street,
London EC4N 6AG.
The audited financial statements for
the year to 31 March 2024 will be lodged with the Registrar of
Companies following the Annual General Meeting.
Alternative Performance Measures ("APMs")
The Company uses the following
APMs:
Discount/Premium - the share
price of an Investment Trust is derived from buyers and sellers
trading their shares on the stock market. This price is not
identical to the net asset value (NAV) per share of the underlying
assets less liabilities of the Company. If the share price is lower
than the NAV per share, the shares are trading at a discount. This
usually indicates that there are more sellers of shares than
buyers. Shares trading at a price above NAV per share are deemed to
be at a premium.
|
|
|
At 31 March
2024
|
|
|
|
Ordinary
shares
|
B shares
|
|
Net asset value per share
|
(a)
|
94.51p
|
94.51p
|
|
Share price
|
(b)
|
84.50p
|
83.50p
|
|
Discount (c=(b-a)/(a))
|
(c)
|
-10.6%
|
-11.6%
|
Ongoing Charges - all operating
costs expected to be incurred in future and that are payable by the
Company, expressed as a proportion of the average net assets of the
Company over the reporting year. The costs of buying and selling
investments and derivatives are excluded, as are interest costs,
taxation, non‑recurring costs and the costs of buying back or
issuing shares.
Ongoing charges calculation
|
|
|
31 March
2024
£'000
|
|
Total expenditure
|
|
1,139
|
|
Less revolving credit facility
commitment fee
|
|
(7)
|
|
Less non-recurring
expenses
|
|
(39)
|
|
Total
|
(a)
|
1,093
|
|
Average daily net assets
|
(b)
|
100,939
|
|
Ongoing charges (c = a/b)
|
(c)
|
1.08%
|
Gearing - represents the excess
amount above shareholders' funds of total investments, expressed as
a percentage of the shareholders funds. If the amount
calculated is negative, this is a 'net cash' position and no
gearing.
|
|
|
31 March
2024
£'000
|
|
Investments held at fair value
through profit or loss
|
(a)
|
121,267
|
|
Net assets
|
(b)
|
107,766
|
|
Gearing (c = (a/b)-1)%
|
(c)
|
12.5%
|
Total return - the theoretical
return to shareholders calculated on a per share basis by adding
dividends/capital repayments paid in the period to the increase or
decrease in the Share Price or NAV in the period. The
dividends/capital repayments are assumed to have been re‑invested
in the form of shares or net assets, respectively, on the date on
which the shares were quoted ex‑dividend.
The effect of reinvesting these
dividends/capital repayments on the respective ex‑dividend dates
and the share price total returns and NAV total returns are shown
below.
|
|
31 March
2024
|
|
|
Ordinary
shares/
B shares
|
|
NAV per share at start of financial
year
|
89.97p
|
|
NAV per share at end of financial
year
|
94.51p
|
|
Change in the year
|
+5.0%
|
|
Impact of dividend/capital repayment
reinvestment†
|
+6.8%
|
|
NAV total return for the
year
|
+11.8%
|
†During the year to 31 March 2024 dividends/capital
repayments totalling 5.51p (Ordinary shares/B shares) went
ex-dividend.
|
|
31 March
2024
|
|
|
Ordinary
shares
|
B shares
|
|
Share price per share at start of
financial year
|
82.0p
|
84.5p
|
|
Share price per share at end of
financial year
|
84.5p
|
83.5p
|
|
Change in the year
|
+3.0%
|
-1.2%
|
|
Impact of dividend/capital repayment
reinvestment†
|
+7.2%
|
+6.7%
|
|
Share price total return for the
year
|
+10.2%
|
+5.5%
|
†During the year to 31 March 2024 dividends/capital
repayments totalling 5.51p (Ordinary shares/B shares) went
ex-dividend.
Yield - The total annual
dividend/capital repayment expressed as a percentage of the year
end share price.
|
|
|
31 March
2024
|
|
|
|
Ordinary
shares
|
B shares
|
|
Annual dividend/capital
repayment
|
(a)
|
5.62p
|
5.62p
|
|
Share price
|
(b)
|
84.50p
|
83.50p
|
|
Yield = (c=a/b)
|
(c)
|
6.7%
|
6.7%
|
For further information, please
contact:
David
Moss
Portfolio Manager to CT UK High
Income Trust
PLC
Tel: 0131 573
8300
Ian Ridge
For Columbia Threadneedle Investment
Business Limited
Company Secretary to CT UK High
Income Trust
PLC
Tel: 0131 573
8300