TIDMBHI TIDMBHIB TIDMBHIU
RNS Number : 3147N
BMO UK High Income Trust PLC
31 May 2022
To: RNS
From: BMO UK High Income Trust PLC
Date: 31 May 2022
LEI: 213800B7D5D7RVZZPV45
Statement of Audited Results for the year ended 31 March
2022
Financial Highlights
-- Distribution yield(1) of 6.3% on Ordinary shares at 31 March
2022, compared to the yield on the FTSE All-Share Index of 3.1%.
Total distributions increased by 2.8% to 5.45p per share compared
to the prior year.
-- Distribution yield(1) of 6.2% on B shares at 31 March 2022,
compared to the yield on the FTSE All-Share Index of 3.1%. Total
distributions increased by 2.8% to 5.45p per share compared to the
prior year.
-- Net asset value total return(1) per share for the financial
year was +1.9%, compared to the Benchmark(2) total return of
+13.0%.
-- Ordinary share price total return(1) per share for the
financial year was +0.6%, compared to the Benchmark(2) total return
of +13.0%.
-- B share price total return(1) per share for the financial
year was +1.6% compared to the Benchmark(2) total return of
+13.0%.
(1) Yield and total return - See Alternative Performance
Measures
(2) Benchmark - From launch on 1 March 2007, the Company's
benchmark index was the FTSE All-Share Capped 5% Index. Following
shareholder approval at the Company's AGM on 5 July 2018, the
benchmark was changed to the FTSE All-Share Index.
Chairman's Statement
-- "Ninth consecutive year of dividend/capital repayment
increases and at 31 March 2022 the Ordinary shares and B shares had
yields of 6.3% and 6.2% respectively".
Performance
In the year to 31 March 2022 your Company produced a Net Asset
Value ('NAV') total return of +1.9%. This outcome was some way
behind the +13.0% total return from the FTSE All-Share Index, the
benchmark index.
For the Ordinary shares, the share price total return for the
year was +0.6%, less than the NAV total return as the share price
discount to NAV widened from 7.8% at the start of the year to 9.3%
at the end. For the B shares, the equivalent return was +1.6% as
the discount change was from 7.8% to 8.3%.
The underperformance occurred in the second half of the
financial year - a period that saw strong performances from a
number of large sectors in which your Company was either
underweight or had no exposure to at all. Until then, performance
was comparable to the benchmark index.
In particular, following the invasion of Ukraine by Russian
forces in February 2022, the Oil & Gas and Mining sectors
reacted very positively to rising Oil & Gas prices and a surge
in other commodity prices. The investment portfolio has no exposure
to the large integrated Oil companies and is underweight in the
Mining sectors. This decision is entirely driven by the F und
Manager's view on quality, returns and sustainable competitive
advantage which are not met by these sectors.
We are in a most uncertain period with elevated levels of
geopolitical risk coinciding with high and rising levels of
inflation across the G8 economies. The resurgence of inflation is
being met by central banks raising short term interest rates and
contemplating tightening their balance sheets. Both of these
actions are designed to attempt to slow the surge in inflation but
are being introduced at a time of significant uncertainty on a
global basis.
Your Board has mentioned on a number of occasions that the
structure of the investment portfolio, with approximately 35
holdings, is sufficiently differentiated from the benchmark that
short term performance is unlikely to be in line with the index -
on both a positive and negative basis. This has been demonstrated
over the past two years with periods of significant out and under
performance being produced.
The Fund Manager has more detailed comments on performance and
portfolio construction in his report and performance is a matter I
will return to later in this Statement.
Dividends and Capital Repayments
I am pleased to report that the revenue performance of your
Company was robust in the year and following a sharp reduction in
revenue in the year to 31 March 2021 there was a susbstantial
recovery in the year to 31 March 2022. In fact the revenue earned
increased in the year by 32% compared with 2021. It is fair to say
that the scale of the recovery exceeded the best expectations held
during the depths of lockdown in 2020.
Your Board was happy to use some of the revenue reserve to not
only maintain but increase the dividend to O rdinary shareholders
in the year to 31 March 2021 and has done so again in the year to
31 March 2022. Total distributions to shareholders increased by
2.8% to 5.45p per share compared to the prior year. In order to pay
this total dividend, GBP464,000 was drawn from the revenue reserve
compared with GBP1,512,000 in 2021. After payment of the fourth
interim dividend on 6 May 2022, the revenue reserve is GBP2.9m,
representing 3.41p per Ordinary share.
Your Company has now increased its distribution to shareholders
in each financial year since 2014. The total dividend/capital
repayment for the year to 31 March 2022 represented a yield of 6.3%
and 6.2% based on the Ordinary share price and B share price, which
were 87p and 88p respectively at 31 March 2022.
Discount to NAV
At the financial year end, the Company's Ordinary share price
and B share price stood at a discount to net asset value of 9.3%
and 8.3% respectively. The average discount level at which the
Company's Ordinary shares and B shares traded relative to net asset
value in the year was 6.9% and 5.2% respectively.
The Manager and Company Name
As reported in our Interim Report, on 8 November 2021, Columbia
Threadneedle Investments, part of Ameriprise Financial acquired
BMO's EMEA asset management business. This included your Company's
Manager, BMO Investment Business Limited. As part of the
acquisition agreement, permission was granted to use the BMO prefix
for an interim period. The Manager is now bringing its business
under the Columbia Threadneedle brand and will remove the BMO name
in July. Consequently, a change of name for your Company is
necessary and the Board has agreed that the simplest and clearest
change for shareholders is to CT UK High Income Trust PLC. CT is
the mnemonic of Columbia Threadneedle. A number of other Investment
trusts previously branded BMO and also funds managed by and branded
as Columbia Threadneedle will also be adopting the CT prefix. The
CT brand will receive considerable marketing support from the
Manager and the Savings plans will also change name from BMO to CT.
Consequently, it would appear that the proposed change of name is
logical and sensible. It is planned that these changes (which will
include the renaming of the Company's website and the ticker codes
for its shares on the London Stock Exchange) will take effect
towards the start of July and a further communication to
shareholders will be made in due course. There is however no change
to the personnel running the activities of your Company in terms of
both fund management and administration.
Management Fees
As set out in the Report of the Directors, the Engagement and
Remuneration Committee regularly reviews the Manager's appointment
and the terms of its contract. The investment management fee for
your Company has been 0.65% per annum of its net asset value since
1 April 2018. The Investment Trust industry has seen consistent
reductions in fee levels for some time and your Board and Manager
are committed to ensuring that the fee basis for your Company is
fair and competitive. Reflecting this, it has been agreed that with
effect from 1 April 2022 the investment management fee for the
Company will be reduced to 0.6% per annum of the net asset
value.
Responsible Investment
Environmental, Social and Governance ('ESG') engagement is an
activity in which your Manager has a long and respected record of
achievement and these considerations lie at the core of your
Manager's investment process. Our approach to Responsible
Investment is set out in the Annual Report and illustrates the
engagement the Manager has had with investments within our
portfolio.
Annual General Meeting (AGM)
There are a number of matters that are relevant to discuss
concerning the AGM which it is to be held at 12 noon on 20 July
2022 at Exchange House, Primrose Street, London EC2A 2NY.
First, it is the current intention to hold a "traditional"
meeting to which all shareholders are invited and are most welcome
to attend in person. After two years of COVID related restrictions
your Board is delighted to be able to return to normal and looks
forward to meeting shareholders in person on 20 July 2022.
Second, two of the resolutions being put to the AGM in
particular, deserve further comment.
Continuation Vote
The Articles of Association of your Company require that a
continuation vote be held should the net asset value total return
of the Ordinary shares be less than that of the total return of the
FTSE All-Share Index over a stipulated five-year period.
The most recent five-year period ended on 31 March 2022 and the
relevant returns were +11.2% for the NAV total return and +25.8%
for the FTSE All-Share Index. Consequently, Resolution 12 in the
Notice of AGM is an ordinary resolution for shareholders to approve
that the Company continues in existence.
Your Board closely reviews performance over a number of periods,
including that for the last five years and to monitor the
requirement for a Continuation Vote ('CV'). The performance deficit
for the current period is substantial and in order to recommend
voting in favour of the resolution the Board has to be confident
that an improvement in relative performance is both likely and
probable.
In reaching its decision to recommend continuation, the Board
considered the following factors.
The five-year performance period since 31 March 2017 included a
period in which substantial changes were made to the investment
portfolio. Shareholders will recall that the remainder of the
Corporate Bond portfolio was sold and there was significant change
made to the structure of the equity portfolio. Consequently the
"new" structure has not been running for the full five-year
period.
Performance has not been consistently below the benchmark for
the period and as mentioned earlier there have been periods of
significant outperformance, most notably in the 2021 financial
year. With only seven months until the end of the performance
period remaining, the aggregate returns were comparable to the
benchmark for the relevant timeframe. Unfortunately, relative
performance in the later part of the financial year to 31 March
2022 has proved to be very disappointing for your Company.
The Board is supportive of the Investment Manager and its
ability to successfully deliver the investment strategy for
Shareholders in the future. The Board believes that the recent
acquisition of the Investment Manager by Columbia Threadneedle
Investments will also further broaden the resources available to
the Fund Manager particularly in terms of research and corporate
access.
As from 1 April 2022, a new and reduced fee rate for your
Company has been introduced and the Board is pleased to note the
Manager's commitment to ensuring the Company remains competitive in
terms of fees and total expense ratios.
Finally, the Board is much encouraged by the revenue performance
of the Company. In particular, the underweight/nil positions in
Banks and Integrated Oils (which recently has harmed relative
capital returns) meant that the Company had no exposure to sectors
of the Index that either substantially reduced or passed their
dividends altogether in 2020/21. The buoyancy in the revenue
account that has allowed the Board to continue to increase
distributions to Shareholders against such a difficult background
is down to the Manager's portfolio positioning.
Despite the above, in reaching its decision to recommend
continuation of the Company and having engaged with Shareholders,
the Board did consider that it would be appropriate to make some
changes to the Company's structure. Resolution 13 (which is a
special resolution) proposes that new Articles of Association be
approved and adopted in order that the performance measurement
period for the Company be changed from five years to three years.
If approved this will mean that the current performance period that
commenced on 1 April 2022 will end on 31 March 2025. A CV will be
required to be held at the 2025 AGM if the net asset value total
return for the Company for the three-year period is below that of
the FTSE All-Share Index. The Board does not expect any change to
the fund management process to be made despite the shorter
performance period.
Your Board has taken independent advice on the Continuation Vote
and proposed changes and would encourage Shareholders to vote in
favour of Resolution 12, that the Company continues in existence
and Resolution 13, that new Articles of Association be approved and
adopted, as the Directors intend to do with their
shareholdings.
Board Succession
In line with the long-term succession planning for your Board
and also to maintain the highest standards of corporate governance,
I shall be retiring from the Board at the conclusion of the AGM on
20 July 2022. I was appointed to the Board in May 2013 and have
completed nine years of service. I am delighted that Andrew
Watkins, who has been a Director of your Company since 2017 will be
taking over the Chair. Andrew is an experienced Chairman and has a
deep knowledge of Investment Trusts and is well qualified to Chair
the Company.
Stephen Mitchell, a Director since 2020 will assume the role of
Senior Independent Director. A recruitment process has commenced to
add an additional non-executive Director to the Board and subject
to shareholders voting that the Company should continue in
existence.
Outlook
Financial markets are facing the most difficult combination of
circumstances since the Global Financial crisis in 2008. The
Russian invasion of Ukraine and attached rhetoric has raised
geopolitical risk to levels not seen since the 1960's. Inflation
likewise is at recent high levels as the supply shortages and
bottlenecks caused by recovery from COVID related lockdowns has
been further fuelled by sharp rises in commodity prices and the
potential for shortages in certain key commodities.
Some comfort can be taken from the robust income performance
that the investment portfolio is showing. Many of the companies in
the investment portfolio are producing a strong profits performance
as the businesses are managed to best advantage in the face of
rising costs. Companies with good balance sheets and strong cash
flows will be best placed to deal with rising costs and interest
rates. The investment portfolio is well exposed to such investments
and consequently your Board considers the Company to be relatively
well placed in an uncertain world.
John M Evans
Chairman
30 May 2022
Manager's Review
In the Annual Report last year, I wrote that it was one of the
toughest years in my near two decades in the industry. 2022 didn't
have nearly the same level of volatility, and with COVID headwinds
abating, I was optimistic about the year ahead. While I am still
optimistic given valuations and the quality of the investment
portfolio, we face a new set of challenges with the war in Ukraine,
the rising cost of living and a slowdown in growth.
For the financial year to 31 March 2022, the net asset value
('NAV') total return of the Company's shares was 1.9% as compared
to the 13.0% total return from the benchmark. As explained in the
Chairman's Statement, the year to 31 March 2022 was also the last
year of five, over which the Company's NAV total return is measured
against the total return of the FTSE All-Share index. This is
illustrated below, and that over the 5-year period, the NAV total
return was 11.2% as compared to the total return of the FTSE
All-Share Index of 25.8%.
As the Fund Manager of the Company for the last five years, and
as we approach a continuation vote, it is timely to reflect on the
discrete years, and changes that the Company has been through.
While performance is the ultimate measurement of success or
failure, it should be evaluated over an appropriate time horizon.
For a high-income strategy, such as this, where the payment of an
attractive distribution is an integral part of the investment
objective, then relative performance alone does not tell the full
story. The changes we have made to the investment portfolio over
the last five years have put the Company in a much stronger
position to weather these events and pay a dividend. These changes
helped to mitigate the worst of the fall in dividends experienced
in the financial year to 31 March 2021 and have strengthened the
resilience of the Company's revenue, enabling the Board to continue
to increase the dividend to shareholders over the last five years
and indeed, the last nine years.
Discrete Performance
-----------------------------------------------------------------------
Full 5
Year to 31 March 2018 2019 2020 2021 2022 years
------ ------ ------ ------ ------ --------
NAV total return -2.5% 3.5% -21.4% 37.4% 1.9% 11.2%
------ ------ ------ ------ ------ --------
FTSE All-Share Index
TR 1.2% 6.4% -18.5% 26.7% 13.0% 25.8%
------ ------ ------ ------ ------ --------
- Deficit/Surplus -3.7% -2.9% -2.9% 10.7% -11.1% -14.6%
------ ------ ------ ------ ------ --------
Distribution per
share 4.88p 5.04p 5.21p 5.30p 5.45p
------ ------ ------ ------ ------ --------
Source: BMO GAM
While the investment portfolio has evolved, there have been some
structural changes that have also taken place. For those of you
that have been invested for the full five years, you will perhaps
remember the hybrid vehicle of predominately equities, with a fixed
income component.
We exited the remainder of the fixed income portfolio at the
start of 2018, focusing the mandate on a pure equity strategy; with
the main changes taking place within the equity portfolio. When I
assumed management of the investment portfolio it had 53 holdings
and followed what is typically called a traditional UK equity
income style strategy - i.e. value orientated and comprised most of
the top 20 market constituents.
With the support of the Board and the provision that the
dividend payment to Shareholders could not be reduced, I undertook
a repositioning of the investment portfolio, taking over two years
to execute. This wasn't an easy undertaking against the backdrop of
Brexit, and with the UK and value very out of favour. I was
reticent to rotate too heavily toward growth given the valuation
gap, and unwillingness to buy at the top of the cycle. The quantum
of this undertaking shouldn't be underestimated. Of the 53 holdings
I inherited in 2017, only 13 remain. This level of change for the
investment portfolio was always going to take time to bed in
properly. This is not an excuse for the five-year performance, but
I believe that our concentrated (35 names), differentiated strategy
will come to the fore over the longer term. Given the time it took
to implement these changes I feel a longer period of performance is
however needed to fully assess the strategy.
Performance
As illustrated in the preceding table, the early years of my
tenure were challenging. The Company gave up 3-4% of performance
against the benchmark each year. 2021 was the first year when we
saw our style bear fruit, and proof of how differentiated a
strategy this has become. The Chairman alluded to this in his
report - we have built a portfolio that will not behave like the
index, or my peers who are in the main, value investors.
As most of you are aware, we have been transitioning away from
the low-growth mega-cap sectors. The breakdown of the portfolio is
more balanced today with the FTSE 100 accounting for 44% of
investments and the FTSE 250, 32%. These mid-cap 250 names are
better quality, have a sustainable competitive advantage and offer
superior growth over the medium term. A further 11% of investments
are non-index/AIM and around 13% is now in European names. Europe
further diversifies and differentiates the portfolio and taps into
my skill set as a pan-European investor. The strategy with the
European holdings is to own business models that provide a unique,
or where I see, a quality or valuation opportunity. The current
holdings include ASML, Richemont and Scout24. These are all
high-quality growth assets that I have initiated at attractive
valuations.
The performance in the financial year to 31 March 2021 was very
broad-based with technology, or online plays particular
beneficiaries of the pandemic lockdown. We also benefitted from
significant declines from some of the UK's largest sectors as
dividends were cut or suspended. In the case of Shell, the dividend
was reduced for the first time since WWII. We had continued to hold
onto this performance until around the summer of 2021 when the
rotation towards value commenced, coupled with a recovery in some
sectors which had been hardest hit by the pandemic.
The war in Ukraine has been another headwind to our performance
given our zero weighting to the oil and gas sector. I had felt that
the near 100% recovery we had seen in oil & gas, or the very
strong rise in mining, was already priced in. This, however, was
not the case, with oil spiking to new highs, inflation grabbing
hold, and with a sell-off in pandemic winning technology companies,
we have been hit by a near perfect short-term storm.
What now?
Having felt we were emerging from the bleak COVID lockdowns,
despite the new and contagious Omicron variant, we now face a new
set of challenges. Markets were rocked by the tragic and
unjustified invasion of Ukraine, inflation has spiked to a
multi-decade high and central banks are reacting by raising
interest rates. The question we are all trying to answer is how
will the rising cost of living impact the consumer and in turn
global growth?
While we face many challenges, the backdrop isn't all negative.
Employment levels and activity indicators, for now, remain robust.
We are seeing low single-digit wage inflation and consumers have
built up significant savings during the pandemic. Demand also seems
to be holding firm, and consumers are also looking forward to their
first restriction-free summer for a few years, which may buoy
travel and leisure sectors.
Turning to markets, the FTSE All-Share reacted negatively to the
start of the Ukraine war. Having bottomed in early March, we have
seen it recover all the losses, trading back at pre-invasion
levels. While this may seem anomalous, this is more to do with the
composition of the index, and the mega-cap FTSE 100 sectors. Most
of the large sectors have been beneficiaries; oil & gas/mining
have been supported by strong commodity prices, pharmaceuticals and
tobacco by improving earnings trajectories and the defensive nature
of their earnings. Banks are the one sector the portfolio doesn't
own that has been weak, although the largest index constituent,
HSBC, has been particularly strong, rising over 100% from the
pandemic lows. This has masked some of the weaker parts of the
market. The FTSE 250, which has a more domestic earnings bias, is
down approximately 10% since the onset of the war and to give you
an idea of the disparity at a stock specific level, in the first
five months of 2022, British American Tobacco is up 32% and
Delivery Hero down 63%.
The table below illustrates the relative return of the top 20
constituents of the FTSE All-Share Index by weight, and why
whenever possible, I choose not to hold the traditional income
mega-caps. These behemoths often lack the qualities I seek in my
investments, struggle to deliver growth in earnings or dividends,
and in a number of cases are at the mercy of underlying commodity
prices. I also wanted to outline how extreme the year-to-date had
been, the first time in a decade that they have outperformed by
double-digits. This has been driven in the main by rising commodity
prices and the fallout from the war in Ukraine. While I have no
insight into where the oil price will settle, the share price
growth we have seen from the commodity sector is not sustainable
over the medium-term.
FTSE All-Share Top 20 - Weighted
Index Total Return Average Relative
Calendar Year % Return
2022 (to 29 April) 0.95 13.12
------------------- -----------------
2021 18.30 3.46
------------------- -----------------
2020 -9.67 -1.92
------------------- -----------------
2019 19.25 -3.93
------------------- -----------------
2018 -9.41 3.41
------------------- -----------------
2017 13.15 1.31
------------------- -----------------
2016 16.85 5.61
------------------- -----------------
2015 0.97 0.33
------------------- -----------------
2014 1.29 -1.16
------------------- -----------------
2013 20.88 -1.71
------------------- -----------------
2012 12.35 -5.05
------------------- -----------------
Source: BMO GAM
This polarisation makes the headline index irrelevant for the
Company, this is all about stock picking. For a Manager this should
be the perfect environment to set your portfolio up as fear
dominates the backdrop. Against this backdrop I have taken the
opportunity to initiate quality growth positions at valuations I
haven't seen since I took over the investment management for the
Company. This is the market I have been waiting for when my style
is out of favour even if we are facing some shorter-term
headwinds.
This is also a time where you can be contrarian. Several of the
Company's technology holdings are offering what I believe is a once
in a decade opportunity to buy quality assets at heavily discounted
valuations. Many of you will have heard me say this before but in
the space of a few months these businesses have gone from being
loved to hated.
Asos is one such name. Investors are reticent to own this given
the consumer backdrop, but this is a business that is quite
focussed on the 20-something consumer who they believe don't face
the same inflationary pressures as the rest of the market due to
rising interest rates and energy bills. Asos have also had
supply-chain issues and shortages of the right inventory, in
particular dresses, which they have rectified for summer. While I
can't tell you how long this will take to sort, I feel many of the
headwinds are transitory in nature and despite this backdrop they
still believe they can grow the revenue 10-15% in 2022. For a
market-leading business with very strong positions in the UK and
Europe and a US business with potential, you are paying 14/11x P/E
for 2023/24 expected earnings. This is not an isolated example,
there are several in the technology sector. It's not a very
comfortable place to sit at the moment as there are pressures on
earnings but for the patient investor this is exactly the decision
you should be taking given the attractive valuations on offer.
Activity
We have been opportunistic on the recent deployment of capital
given the uncertainty caused by the war in Ukraine. We have
conducted calls with all our holdings that had exposure to either
Ukraine or Russia. The exposure has been minimal, less than 2% of
sales and less of profits in most cases.
In the majority of cases, they have ceased or are in the process
of selling operations in the region. We had announcements from
Imperial Tobacco, Asos, Compass Group and Wizz Air. Wizz Air have
diverted a fleet of five aircraft to other bases across the network
where they see higher levels of demand. Wizz Air has been one of
the harder hit names due to the conflict, indirectly through a
rising oil price. We cut our holding on the first day of trading
post the invasion. We have no insight into where the oil price will
end up, but the risks are for a higher-than-normal level until we
find a more balanced solution to our energy needs, most of which
will mean a lower dependence on Russian oil.
I have been adding to some of the global names in the investment
portfolio, where earnings are more diversified. This helps to
mitigate the earnings risk from an escalation of the crisis in
Ukraine and the direct impact a higher energy price will have
across Europe. The US is much more insulated, given the consumer
focus of the growth, oil independence and $3 trillion of excess
lockdown savings. I added to Diageo, Compass and Kerry Group, all
of which provide this exposure.
I also initiated a position in Experian post a period of
weakness. I have wanted to own this for some time and felt this was
a great opportunity to own a quality asset at an attractive
valuation. Experian is the world's leading provider of information
and credit bureau services. The group uses customer data and
technology to help businesses manage credit risk, originate new
customers, collect bills and prevent fraud. With information on
1.3bn consumers and 166m businesses, they are well positioned to
continue to grow in most environments. They have a strong balance
sheet and generate a lot of cash flow, which should support
investment and higher cash returns in the future.
In February I also initiated a position in ASML, a new European
holding. ASML is the world market-leader in the manufacturing of
lithography machines. Their lithography technology is fundamental
to mass production of semiconductor chips. Their technology allows
the world's top chipmakers to create microchips that are more
powerful, faster and more energy efficient. The chances are
whatever device, PC, tablet or phone you are reading this on will
have a chip that is manufactured with ASML's machines. They have a
monopoly position in leading-edge technology, an orderbook that
spans over a year, and are ramping up production to meet the very
high demand for these critical components.
Towards the Company's year end, Brewin Dolphin received a bid
approach from Royal Bank of Canada (RBC). The GBP1.6bn, GBP5.15 per
share bid was at a 62% premium to the previous day's share price.
Brewin was a top 10 position in the portfolio at 4.6% of NAV,
reflecting the qualities of the business model and the value we saw
in the asset. The acquisition price valued Brewin at 2.8% of its
GBP55bn of AUM, which we saw as a full and fair price.
This is a reminder of how cheap UK assets are, especially if an
acquirer thinks they can make a return after paying such a
substantial premium. Given how cash rich private equity is, I
wouldn't be surprised to see more M&A activity. Scout24, the
German Rightmove, has been the subject of speculation of a bid
although no tangible offer has yet been made and I would expect
M&A to be a bigger focus over the coming 12-18 months.
Gearing
We have gone from a position of being nearly fully geared with
GBP13m invested in December 2021, to being in a neutral position.
As we exited lockdowns and with a lot of value on offer, this
stance made a lot of sense but with a change in policy from central
banks around the interest rate cycle, and more recently the war in
Ukraine, we no longer felt this as a sensible stance.
Should we get more clarity on these issues, I can
opportunistically deploy this capital again, raising some of the
positions that have dipped below my minimum 2% threshold. This
would also help to add to our dividend income further, but for now
we feel downside protection is the sensible course of action.
Dividend
As stated at the outset of this report, capital performance is
only part of the story. The work we have done to reposition the
portfolio protected us from the worst of the dividend decline
during the pandemic.
The UK market saw a very strong dividend recovery from the
pandemic lows. Headline dividends rose 46.1% year-on-year to
GBP94.1bn, although this was boosted by GBP16.9bn of special
dividends, three times the normal level. If we strip out these
special payments, the underlying growth was a more modest 21.9%
year-on-year. Looking ahead, Link Asset Monitor are forecasting
underlying dividend growth - excluding special dividends - of 5%
for calendar 2022.
While the Company benefitted from special dividends from Rio
Tinto and Berkeley Group in 2021, I'm encouraged by our initial
conservative forecasts for the year ahead. There are several
dividends that have not fully recovered from pre-pandemic levels,
and several of the investment portfolio's larger names that have
already announced significantly higher returns for 2022. I do have
to caveat this statement given the backdrop of Ukraine, and the
fact that special dividends are unlikely to be of the same level as
in the previous year.
Given the backdrop and volatility, quality business models with
rock solid balance sheets and high levels of dividend cover will
protect you if we do see a slowdown, or a recession.
Outlook
At this point in the year, and with a lot of uncertainty ahead,
we are seeing a very cautious outlook from management teams. There
are still supply chain constraints coupled with pent-up demand, but
the rising cost of living will weigh on the consumer.
Pricing is the topic of discussion and who has managed to pass
through inflation to mitigate the margin pressure. In the main, the
businesses that have a brand, IP or a sustainable competitive
advantage have a much stronger position and have to date managed
this exceptionally well. The focus has also shifted to high
recurring revenue stream business models, where the decision is
non- discretionary, for example software or healthcare where you
have no choice.
That said, I did talk about Asos, and I do feel that the
valuations on some of the consumer names are pricing a lot of
distress. This comes back to simple 'fear and greed', when all are
fearful that may well be your opportunity, especially for the
patient investor. This contrarian stance in quality businesses will
I believe be the right strategy to adopt which is why I am
opportunistically adding to these names on weakness.
The investment portfolio has therefore faced a perfect storm of
events which I do not believe will recur in the coming years. I'm
not saying this is an easy path to walk in the short-term, but
quality business models, at current attractive valuations, will
emerge in a stronger competitive position.
Philip Webster
Fund Manager
BMO Investment Business Limited
30 May 2022
Statement of Comprehensive Income
Year to 31 March 2022
Note Revenue Capital Total
GBP'000 GBP'000 GBP'000
--------------------------------------- ----- -------- ---------- ----------
Capital losses on investments
Losses on investments held at
fair value through profit or
loss - (1,087) (1,087)
Exchange gains - 5 5
Revenue
Income 5,013 - 5,013
Total income 5,013 (1,082) 3,931
--------------------------------------- ----- -------- ---------- ----------
Expenditure
Investment management fee (227) (529) (756)
Other expenses (506) - (506)
Total expenditure (733) (529) (1,262)
--------------------------------------- ----- -------- ---------- ----------
Profit/(loss) before finance
costs and tax 4,280 (1,611) 2,669
Finance costs
Interest on bank loans (78) (183) (261)
Total finance costs (78) (183) (261)
--------------------------------------- ----- -------- ---------- ----------
Profit/(loss) before tax 4,202 (1,794) 2,408
Taxation (24) - (24)
Profit/(loss) and total comprehensive
income for the year 4,178 (1,794) 2,384
--------------------------------------- ----- -------- ---------- ----------
Earnings per share 2 3.61p (1.55)p 2.06p
--------------------------------------- ----- -------- ---------- ----------
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 2021
Note Revenue Capital Total
GBP'000 GBP'000 GBP'000
--------------------------------- ----- -------- --------- ---------
Capital gains on investments
Gains on investments held at
fair value through profit or
loss - 29,988 29,988
Exchange losses - (35) (35)
Revenue
Investment income 3,788 - 3,788
Total income 3,788 29,953 33,741
--------------------------------- ----- -------- --------- ---------
Expenditure
Investment management fee (212) (494) (706)
Other expenses (480) - (480)
Total expenditure (692) (494) (1,186)
--------------------------------- ----- -------- --------- ---------
Profit before finance costs and
tax 3,096 29,459 32,555
Finance costs
Interest on bank loans (69) (160) (229)
Total finance costs (69) (160) (229)
--------------------------------- ----- -------- --------- ---------
Profit before tax 3,027 29,299 32,326
Taxation (7) - (7)
Profit and total comprehensive
income for the
year 3,020 29,299 32,319
Earnings per share 2 2.59p 25.16p 27.75p
--------------------------------- ----- -------- --------- ---------
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
2022 2021
Note GBP'000 GBP'000
------------------------------ ----- ---------- ----------
Non-current assets
Investments held at fair
value through profit or
loss 111,362 123,249
------------------------------- ----- ---------- ----------
Current assets
Receivables 3,210 990
Cash and cash equivalents 4,686 2,310
------------------------------- ----- ---------- ----------
7,896 3,300
------------------------------ ----- ---------- ----------
Total assets 119,258 126,549
------------------------------- ----- ---------- ----------
Current liabilities
Payables (543) (542)
Bank loan (7,500) (3,500)
(8,043) (4,042)
------------------------------ ----- ---------- ----------
Non-current liabilities
Bank loan - (7,500)
- (7,500)
------------------------------ ----- ---------- ----------
Total liabilities (8,043) (11,542)
------------------------------- ----- ---------- ----------
Net assets 111,215 115,007
------------------------------- ----- ---------- ----------
Equity attributable to
equity shareholders
Share capital 134 134
Share premium 153 153
Capital redemption reserve 5 5
Buy back reserve 80,394 80,394
Special capital reserve 11,704 13,340
Capital reserves 14,598 16,392
Revenue reserve 4,227 4,589
------------------------------- ----- ---------- ----------
Equity shareholders' funds 111,215 115,007
------------------------------- ----- ---------- ----------
Net asset value per Ordinary
share 6 95.97p 99.25p
Net asset value per B
share 6 95.97p 99.25p
Cash Flow Statement
for the year to 31 March
Year to Year to
31 March 31 March
2022 2021
GBP'000 GBP'000
-------------------------------------------- ---------- -----------
Cash flows from operating activities
Profit before taxation 2,408 32,326
Adjustments for:
Losses/(gains) on investments held
at fair value through profit or loss 1,087 (29,988)
Exchange (gains)/losses (5) 35
Interest income (5) (1)
Interest received 5 1
Dividend income (5,008) (3,787)
Dividend income received 4,935 3,638
(Increase)/decrease in receivables (5) 8
Increase in payables 2 33
Finance costs 261 229
Overseas tax suffered (49) (21)
-------------------------------------------- ---------- -----------
Cash flows from operating activities 3,626 2,473
-------------------------------------------- ---------- -----------
Cash flows from investing activities
Purchases of investments (10,594) (19,430)
Sales of investments 19,264 18,849
-------------------------------------------- ---------- -----------
Cash flows from investing activities 8,670 (581)
-------------------------------------------- ---------- -----------
Cash flows before financing activities 12,296 1,892
Cash flows from financing activities
Dividends paid on Ordinary shares (4,540) (4,465)
Capital returns paid on B shares (1,636) (1,605)
Shares purchased for treasury - (763)
Interest on bank loans (249) (217)
(Repayment)/drawdown of loan (3,500) 3,500
Cash flows from financing activities (9,925) (3,550)
-------------------------------------------- ---------- -----------
Net increase/(decrease) in cash and
cash equivalents 2,371 (1,658)
Cash and cash equivalents at the beginning
of the year 2,310 4,003
Effect of movement in foreign exchange 5 (35)
-------------------------------------------- ---------- -----------
Cash and cash equivalents at the
end of the year 4,686 2,310
Represented by:
Cash at bank 77 161
Short term deposits 4,609 2,149
-------------------------------------------- ---------- -----------
4,686 2,310
-------------------------------------------- ---------- -----------
Statement of Changes in Equity
for the year to 31 March 2022
Capital Capital
Capital Special Reserve Reserve
Share Share Redemption Buy Capital - - Revenue
Capital Premium Reserve Back Reserve Investments Investments Reserve Total
Reserve sold held
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Balance as at
31 March
2021 134 153 5 80,394 13,340 3,083 13,309 4,589 115,007
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Movement
during the
year ended 31
March
2022
Profit/(loss)
for the
year - - - - - 4,918 (6,712) 4,178 2,384
Total
comprehensive
income for
the year - - - - - 4,918 (6,712) 4,178 2,384
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Transactions
with
owners of the
Company
recognised
directly
in equity
Dividends paid
on Ordinary
shares - - - - - - - (4,540) (4,540)
Capital
returns paid
on B shares - - - - (1,636) - - - (1,636)
Balance as at
31 March
2022 134 153 5 80,394 11,704 8,001 6,597 4,227 111,215
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Statement of Changes in Equity
for the year to 31 March 2021
Capital Capital
Capital Special Reserve Reserve
Share Share Redemption Buy Capital - - Revenue
Capital Premium Reserve Back Reserve Investments Investments Reserve Total
Reserve sold held
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
Balance as at
31 March
2020 134 153 5 81,157 14,945 1,819 (14,726) 6,034 89,521
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
Movement
during the
year ended 31
March
2021
Profit for the
year - - - - - 1,264 28,035 3,020 32,319
Total
comprehensive
income for
the year - - - - - 1,264 28,035 3,020 32,319
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
Transactions
with
owners of the
Company
recognised
directly
in equity
Shares bought
back
for treasury - - - (763) - - - - (763)
Dividends paid
on Ordinary
shares - - - - - - - (4,465) (4,465)
Capital
returns paid
on B shares - - - - (1,605) - - - (1,605)
Balance as at
31 March
2021 134 153 5 80,394 13,340 3,083 13,309 4,589 115,007
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ---------
BMO UK High Income Trust PLC
Principal Risks and Uncertainties and Viability Statement
Most of the Company's principal risks and uncertainties that
could threaten its objective, strategy, future performance,
liquidity and solvency are market related and comparable to those
of other investment companies investing primarily in listed
securities.
A summary of the Company's risk management and internal control
arrangements is included within the Report of the Audit Committee
in the Annual Report. 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. 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. Consideration has been given to the impact
from Coronavirus (COVID-19) and is referred to in Financial Risk.
They have also regularly reviewed the effectiveness of the
Company's risk management and internal control systems for the
period.
As explained in the Chairman's Statement, BMO GAM (EMEA) has
been acquired by Ameriprise and its business is to be merged with
Columbia Threadneedle Investments. The Board looks favourably upon
this transaction and expects there to be little change for your
Company. Nevertheless, an acquisition such as this may introduce
some uncertainty, until the integration of systems is fully
implemented. Therefore, the Board is treating this aspect as an
emerging risk that it will monitor closely.
The principal risks and uncertainties faced by the Company, and
the Board's mitigation approach are described below.
Financial Risk.
The Company's assets consist mainly of listed equity securities
and its principal financial risks are therefore market related and
include market risk (comprising currency risk, interest rate risk
and other price risk), liquidity risk and credit risk.
Since early 2020 there has been increased uncertainty in markets
due to the effect of COVID-19 and more recently the war in Ukraine,
which has led to volatility in the Company's NAV.
Climate change is likely to have an impact on some of our
investee companies in the coming years potentially affecting their
operating models for example, supply chains and energy costs.
Increase in overall risk given the war in Ukraine and continuing
economic and market uncertainty.
Mitigation:
The Board regularly considers the composition and
diversification of the Investment Portfolio and considers
individual stock performance together with purchases and sales of
investments. Investments and markets are discussed in detail at
each meeting with the Manager.
Engagement on environmental, social and governance matters is
undertaken by the Manager.
The Board has, in particular, considered the impact of market
volatility during the COVID-19 pandemic and the recent war in
Ukraine and is discussed in the Chairman's Statement and Manager's
Review. As a closed-end investment trust the Company is not
constrained by asset sales to meet redemptions and is well suited
to investors seeking longer term returns and to remain invested
through volatile market conditions.
An explanation of these risks and the way in which they are
managed are contained in the notes to the financial statements.
Investment and strategic risk .
Incorrect strategy, asset allocation, stock selection,
inappropriate capital structure, insufficient monitoring of costs,
failure to maintain an appropriate level of discount/premium 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.
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
Investment Portfolio is diversified and comprises listed securities
and its composition is reviewed regularly with the Board. BMO GAM's
Investment Risk team provides oversight on investment risk
management.
Market intelligence is maintained via the Company's broker and
the effectiveness of the marketing strategy together with the level
of discount to NAV at which the Company's shares trade are also
reviewed at each meeting. The Manager also meets with major
shareholders.
The Board regularly considers ongoing charges combined with
underlying dividend income from portfolio companies and the
consequent dividend paying capacity of the Company.
Regulatory.
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. Changes to tax regulations could alter the market
competitiveness of the Company's B shares.
No change in overall risk.
Mitigation:
The Board liaises with advisors to ensure compliance with laws
or regulations.
The Manager and its Business Risk department 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 Business Risk and
requires any significant issues directly relevant to the Company to
be reported immediately.
Operational.
Failure of the Manager's systems 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.
This risk includes failures or disruption as a consequence of
external events such as the COVID-19 pandemic.
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 impact of COVID-19 on
working practices and the eventual integration with Columbia
Threadneedle's systems this risk remains heightened.
Mitigation:
The Board has considered the acquisition of BMO GAM (EMEA) by
Columbia Threadneedle Investments during the year and has met with
senior management to discuss this. Comfort was taken from its
long-term financial strength and resources and commitment towards
BMO GAM's investment trust business.
The Board meets regularly with the management of the Manager and
its Business Risk team to review internal control and risk reports
which includes oversight of 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 trade processing, valuation and
middle office tasks and systems to State Street Bank and Trust
Company ('State Street') and supervision of such third party
service providers, including SS&C who administer the BMO
savings plans, has been maintained by the Manager. This includes
the review of IT security and heightened cyber threats.
Following the easing of government COVID-19 related
restrictions, the Manager has moved from a remote 'working from
home' arrangement to a hybrid model with staff also returning to
work in office locations. Throughout the pandemic the Manager has
continued to serve clients and keep operations running effectively
and in compliance with its regulatory obligations. These
arrangements have and continue to operate without incident or
interruption. The Manager also closely monitors the performance of
its technology platform to ensure it is functioning within
acceptable service levels. The Company's other third party service
providers have also implemented similar arrangements to ensure no
disruption to their service. Having considered these arrangements
and reviewed the service levels over the last year, the Board is
confident that the Company continues to operate as normal and
expected service levels will be maintained.
Custody Risk.
Safe custody of the Company's assets may be compromised through
control failures by the custodian.
No change in overall risk but due to the impact of COVID-19 on
working practices this risk remains heightened.
Mitigation:
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 mainly in liquid listed securities and that the
level of borrowing is restricted.
-- The Company is a 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
first such resolution will be proposed at the forthcoming AGM on 20
July 2022.
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 facilities, which remain available until
September 2022, are also subject to formal agreements, 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 business continuity plans in place in particular
given the impact of COVID-19.
-- 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, liquidity and solvency. This included
the impact of COVID-19 and the recent war in Ukraine and the impact
of 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 total 0.98% of average net
assets,
-- Future revenue and expenditure projections,
-- The Company's borrowing and liquidity in the context of the
fixed rate loan which is due to mature in September 2022 and that
the Board does not anticipate any difficulty either extending or
replacing this with an appropriate level of borrowing,
-- Its ability to meet liquidity requirements given the
Company's investment portfolio consists mainly of readily
realisable listed equity securities which can be realised to meet
liquidity requirements if required,
-- The ability to undertake share buybacks if required,
-- Whether the Company's objective and 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 impact of the COVID-19 pandemic and its
impact on the global economy and
-- The resolution that the Company continues in existence which
will be proposed at the forthcoming AGM and that they have a
reasonable expectation that this resolution will be supported by
the Company's shareholders.
These matters were assessed over a five year period to May 2027,
and the Board will continue to assess viability over five year
rolling periods. As part of this assessment the Board considered a
number of stress tests and scenarios which considered the impact of
severe stock market volatility on shareholders' funds over a five
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 five 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 five 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 2022 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
John M. Evans
Chairman
30 May 2022
Notes
1. The financial statements of the Company which are the
responsibility of, and were approved by, the Board on 30 May 2022,
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 GBP2,384,000 (year to 31 March 2021: GBP32,319,000) and
on 85,172,653 Ordinary shares (2021: 85,648,406) and 30,708,750 B
shares (2021: 30,802,860), 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 GBP4,178,000 (year to 31 March 2021:
GBP3,020,000) and on the weighted average number of shares in issue
as above.
The Company's capital earnings per share are based on the
capital loss for the year of GBP1,794,000 (year to 31 March 2021
profit: GBP29,299,000) 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 2022 of 1.55p per Ordinary share was paid on 6 May 2022 to
Ordinary shareholders on the register on 8 April 2022. A fourth
capital repayment in respect of the year ended 31 March 2022 of
1.55p per B share was paid on 6 May 2022 to B shareholders on the
register on 8 April 2022.
4. The Company has a GBP7.5 million unsecured term loan from
Scotiabank Europe plc until 28 September 2022 and at a fixed
interest rate of 2.58 per cent per annum. The Company also has a
GBP7.5 million unsecured multicurrency revolving credit facility
("RCF") with Scotiabank (Ireland) Designated Activity Company
available until 28 September 2022. None of the RCF was drawn down
at 31 March 2022 (GBP3.5 million at 31 March 2021). Arrangement and
legal fees of GBP60,000 were incurred and are being amortised over
the term of these facilities.
The loan agreements contain certain financial covenants with
which the Company must comply. These include a financial covenant
with respect to the ratio of the Adjusted Net Asset Value (as
defined in the loan agreements) to the level of debt and also that
the Net Asset Value does not fall below GBP65 million. The Company
complied with the required financial covenants throughout the
period since drawdown.
The fair value of the GBP7.5 million term loan, calculated using
a discounted cashflow technique, is not materially different from
the value reflected in the Statement of Financial Position.
5. During the year the Company bought back nil Ordinary Shares
(2021: 750,000 Ordinary shares) to hold in treasury at a cost of
GBPnil (2021: GBP634,000) and nil B shares (2021: 150,000 B shares)
to hold in treasury at a cost of GBPnil (2021: GBP129,000).
At 31 March 2022 the Company held 16,894,491 Ordinary Shares
(2021: 16,894,491 Ordinary shares) and 1,367,953 B shares (2021:
1,367,953 B shares) in treasury.
6. The Company's basic net asset value per share of 95.97p
(2021: 99.25p) is based on the equity shareholders' funds of
GBP111,215,000 (2021: GBP115,007,000) and on 115,881,403 equity
shares, consisting of 85,172,653 Ordinary Shares and 30,708,750 B
Shares (2021: 115,881,403 equity shares, consisting of 85,172,653
Ordinary Shares and 30,708,750 B Shares), being the number of
shares in issue at the year end.
The Company's shares may also be traded as units, each unit
consisting of three Ordinary Shares and one B Share. The basic net
asset value per unit as at 31 March 2022 was therefore 383.88p
(2021: 397.00p).
The Company's treasury net asset value per share, incorporating
the 16,894,491 Ordinary Shares and 1,367,953 B Shares held in
treasury at the year end (2021: 16,894,491 Ordinary Shares and
1,367,953 B Shares), was 95.97p (2021: 99.25p). The Company's
treasury net asset value per unit at the end of the year was
383.88p (2021: 397.00p). 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 2022 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 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.
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 loans
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 0.75 per cent at 31 March 2022 (2021: 0.1 per
cent).
Fixed rate
At 31 March 2022 and 31 March 2021, the Company's Investment
Portfolio did not contain any fixed interest or floating rate
interest assets. At 31 March 2022 and 31 March 2021, the Company
had fixed interest liabilities.
The GBP7.5 million term loan carries a fixed interest rate of
2.58 per cent per annum.
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 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 agreements relating to its borrowing
facilities with which it has complied during the year. Cash is only
held with banks approved and regularly reviewed by the Manager.
As explained in the Chairman's Statement, an ordinary resolution
(Resolution 12) will be proposed at the Annual General Meeting on
20 July 2022 to seek approval from shareholders that the Company
continues in existence and the Directors have a reasonable
expectation that this will be supported by the Company's
shareholders.
The Directors believe, having assessed the principal risks and
other matters, including the COVID-19 pandemic and in light of the
controls and review processes noted above and bearing in mind the
nature of the Company's business and assets and revenue and
expenditure projections, 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.
There are no transactions with the Board other than aggregated
remuneration for services as Directors as disclosed in the
Directors' Remuneration Report within the 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 BMO Investment Business
Limited are detailed in the notes to the financial statements. 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.
10. This statement was approved by the Board on 30 May 2022. 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 2022
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 in early June 2022 and
will be available for inspection at 6(th) Floor, Quartermile 4, 7a
Nightingale Way, Edinburgh, EH3 9EG the registered office of the
Company.
The full annual report and financial statements are available on
the website maintained on behalf of the Company at
www.bmoukhighincome.com .
The audited financial statements for the year to 31 March 2022
will be lodged with the Registrar of Companies following the Annual
General Meeting to be held on 20 July 2022.
Alternative Performance Measures ("APMs")
The Company uses the following Alternative Performance Measures
("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 2022
---------------------------
Ordinary
shares B shares Units
------------------------- ---- -------- -------- -------
Net asset value per
share (a) 95.97p 95.97p 383.88p
Share price (b) 87.00p 88.00p 336.00p
------------------------- ---- -------- -------- -------
(Discount) (c=(b-a)/(a)) (c) -9.3% -8.3% -12.5%
------------------------- ---- -------- -------- -------
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
2022
GBP'000
---------------------------------------------- ---- --------
Total expenditure 1,262
Less management fee at rate of 0.65% of NAV (756)
Add management fee at revised rate of 0.6% of
NAV 667
Less revolving credit facility commitment fee (20)
Less non-recurring expenses (16)
Total (a) 1,137
Average daily net assets (b) 116,551
Ongoing charges (c = a/b) (c) 0.98%
---------------------------------------------- ---- --------
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
2022
GBP'000
---------------------------------------------- ---- --------
Investments held at fair value through profit
or loss (a) 111,362
Net assets (b) 111,215
---------------------------------------------- ---- --------
Gearing (c = (a/b)-1)% (c) 0.1%
---------------------------------------------- ---- --------
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 2022
------------------
Ordinary
shares/
B shares Units
--------------------------------------- --------- -------
NAV per share at start of financial
year 99.25p 397.00p
NAV per share at end of financial year 95.97p 383.88p
Change in the year -3.3% -3.3%
Impact of dividend/capital repayment
reinvestment +5.2% +5.2%
--------------------------------------- --------- -------
NAV total return for the year +1.9% +1.9%
--------------------------------------- --------- -------
During the year to 31 March 2022 dividends/capital repayments
totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went
ex dividend.
31 March 2022
--------------------------
Ordinary
shares B shares Units
------------------------------------- -------- -------- ------
Share price per share at start
of financial year 91.5p 91.5p 365.0p
Share price per share at end of
financial year 87.0p 88.0p 336.0p
Change in the year -4.9% -3.8% -7.9%
Impact of dividend/capital repayment
reinvestment +5.5% +5.4% +5.3%
------------------------------------- -------- -------- ------
Share price total return for the
year +0.6% +1.6% -2.6%
------------------------------------- -------- -------- ------
During the year to 31 March 2022 dividends/capital repayments
totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went
ex dividend.
Yield - The total annual dividend/capital repayment expressed as
a percentage of the year end share price.
31 March 2022
---------------------------
Ordinary
shares B shares Units
------------------------ ---- -------- -------- -------
Annual dividend/capital
repayment (a) 5.45p 5.45p 21.80p
Share price (b) 87.00p 88.00p 336.00p
------------------------ ---- -------- -------- -------
Yield = (c=a/b) (c) 6.3% 6.2% 6.5%
------------------------ ---- -------- -------- -------
For further information, please contact:
Philip Webster
Fund Manager to BMO UK High Income Trust PLC Tel: 0207 628 8000
Ian Ridge
For BMO Investment Business Limited
Company Secretary to BMO UK High Income Trust PLC Tel: 0207 628 8000
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
FR SDWEFSEESESI
(END) Dow Jones Newswires
May 31, 2022 02:01 ET (06:01 GMT)
CT UK High Income (LSE:BHI)
Historical Stock Chart
From May 2024 to Jun 2024
CT UK High Income (LSE:BHI)
Historical Stock Chart
From Jun 2023 to Jun 2024