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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| City Of London Investment Trust Plc | LSE:CTY | London | Ordinary Share | GB0001990497 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 412.50 | 411.50 | 412.50 | 413.50 | 409.00 | 412.00 | 696,294 | 16:29:55 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Mgmt Invt Offices, Open-end | 74.86M | 61.41M | 0.1222 | 33.76 | 2.07B |
From May 2019 to May 2024
TIDMCTY
RNS Number : 0362N
City of London Investment Trust PLC
20 September 2019
Legal Entity Identifier: 213800F3NOTF47H6AO55
THE CITY OF LONDON INVESTMENT TRUST PLC
Annual financial results for the year ended 30 June 2019
This announcement contains regulated information
INVESTMENT OBJECTIVE
The Company's objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. The Board continues to recognise the importance of dividend income to shareholders.
CHAIRMAN'S COMMENT
"In a flat year for equity returns NAV total return was 2.7%, ahead of our sector and market benchmarks. Our dividend was increased for the 53(rd) consecutive year, by 5.1% and well ahead of inflation."
PERFORMANCE HIGHLIGHTS
Hot Features
Premium
2019 2018
----------------------------------------------- ------- -------
Total Return Performance:
Net asset value per ordinary share ('NAV')(1) 2.7% 6.3%
Share Price(2) 3.0% 6.2%
AIC UK Equity Income sector (Benchmark)(3) -0.8% 6.3%
FTSE All-Share Index 0.6% 9.0%
IA UK Equity Income OEIC sector -2.6% 6.2%
2019 2018
----------------------------------------------- ------- -------
NAV per ordinary share 421.2p 429.2p
Share Price 425.5p 432.0p
Dividends per share 18.6p 17.7p
Gearing at year end 7.9% 7.7%
Revenue Earnings per share 19.8p 18.7p
Revenue Reserve per share 15.4p 15.0p
Ongoing Charge for the year(4) 0.39% 0.41%
Premium 1.0% 0.7%
1 Net asset value per ordinary share total return with debt at market value (including dividends reinvested)
2 Share price total return using mid-market closing price
3 AIC UK Equity Income sector size weighted average NAV total return (shareholders' funds)
4 Calculatd using the methodology prescribed by the Association of Investment Companies ("AIC")
Sources: Morningstar for the AIC, Janus Henderson, Datastream
CHAIRMAN'S STATEMENT
I am pleased to report that, although our net asset value total return was a modest 2.7%, it was ahead of the averages of each of the AIC UK Equity Income and IA UK Equity Income OEIC sectors and the FTSE All-Share Index. The dividend was increased for the 53(rd) consecutive year, by 5.1% and well ahead of inflation.
The Markets
Slowing economic growth and tension over trade tariffs weighed on global equity markets over the twelve months. Sentiment improved in January 2019 as the Federal Reserve, the US central bank, indicated a more Accommodative monetary policy going forward. In the UK, Brexit introduced an extra element of uncertainty with the intended date for departure from the European Union postponed from 31 March to 31 October 2019. Sterling fell some 4% against the US dollar and the 10 year gilt yield fell to 0.8% at 30 June 2019. The FTSE 100, the index of the largest UK listed companies in which City of London's principal investments lie, outperformed the more domestically focused FTSE 250, the index of medium-sized companies, and the FTSE Small Cap Index.
Performance
Earnings and Dividends
Revenue earnings per share rose by 5.9% to 19.8p, reflecting the underlying dividend growth from investments held. Special revenue dividends, which made up 4.8% of gross revenue, were GBP3.7 million, an increase of GBP1.1 million from the previous year.
City of London increased its dividend by 5.1% over the previous year and added GBP5.1 million to revenue reserves. This is the seventh successive year when we have raised the dividend and yet increased revenue reserves to underpin future dividends. Revenue reserves per share now stand at 15.4p, an increase of 2.7% over last year despite continued share issuance by the Company.
The quarterly dividend will next be considered by the Board when the third interim is declared in April 2020.
Net Asset Value Total Return
City of London's net asset value total return was 2.7% which was 3.5% ahead of the AIC UK Equity Income sector average, 5.3% ahead of the IA UK Equity Income OEIC sector average and 2.1% ahead of the FTSE All-Share Index. The net asset value fell by 1.9% but our dividend income over the year took our net asset value total return into positive territory.
Compared with the FTSE All Share Index, stock selection contributed 3.0%. In general, international and defensive companies performed well and the largest stock contributor was Nestlé of Switzerland followed by Merck and Verizon of the U.S. The fourth largest stock contribution and best UK listed stock over the year was Greggs, the bakery retailer. RELX, Unilever and Diageo were notable contributors among our largest holdings. The underweight position in AstraZeneca was the biggest stock detractor, followed by the performance of travel group TUI and the absence of a holding in Shire which was taken over. Gearing, which began the year at 7.7%, rose to 11.9% at the half-way point and ended the twelve month period at 7.9%, also detracted by 0.6%.
You will see from the Fund Manager's Report that he has reduced the number of stocks held by the Company from 115 to 97 over the last two years. Your Board believes that this will increase the focus of the portfolio and improve the scope for outperformance.
Share Issues
During the year City of London's ordinary shares have again been in strong demand and have continued to trade at a premium. A total of 24 million ordinary shares were issued at a premium to net asset value for proceeds of GBP99 million. In the past nine years, City of London has issued 170 million shares, which has increased its share capital by 81.6%. Since 30 June 2019, we have issued a further 2.5 million ordinary shares.
Reduced Management Fee and Expenses
I reported at the half year that, with effect from 1 January 2019, the management fee rate which we pay to Janus Henderson has been reduced to 0.325% per annum of net assets. Partly as a result of this, our ongoing charge for the year declined from 0.41% to 0.39%. Given that these new fee arrangements were in place for only half of the period under review, I would expect the ongoing charge to fall further for the 2019/20 financial year. Our costs remain very competitive compared with other actively managed equity funds.
Benchmark
Since 2009 our benchmark has been the size-weighted average of the AIC UK Equity Income sector which consists of 25 investment trusts. Your Board has periodically considered the relevance of this benchmark but has to date considered that there is no one more relevant benchmark.
We believe that one defining feature of an Equity Income fund is that it delivers a yield at a premium to the market and this is indeed the approach adopted by the Investment Association in its classification of open-ended funds. City of London's portfolio typically yields between 10% and 30% above the average dividend yield for the UK market, although it is currently towards the lower end of this range given the concentration of dividends in a small number of very large companies in many of which the Company tends to be underweight.
The AIC has recently undertaken a review of its sector classifications. As a result, the constituents of the Equity Income sector remain unchanged save for one addition. The largest trust in our sector (City is the second largest) has a dividend yield of only 1.7%, well below the market average. In addition, given that the sector consists of a small number of trusts, some very small trusts and some with portfolio characteristics very different from our own, we no longer consider it appropriate to use the sector average as our benchmark.
Your Board has decided to use the FTSE All-Share Index as our benchmark from 1 July 2019. It is the most popular benchmark for UK equity funds and the factors driving the performance of our portfolio relative to the FTSE All-Share Index can be readily identified. In the long run, City of London has outperformed the FTSE All-Share Index. For example, over ten years City of London's net asset value total return is 226.1% compared with 167.1% for the FTSE All-Share Index. We will continue to show in our Annual Report comparative data for the AIC UK Equity Income and IA UK Equity Income OEIC sector averages because peer group performance is relevant to investors and the Board in holding the Manager to account.
The Board
We take the appointment of directors, and governance generally, very seriously. Each year, we assess the composition of the Board and its performance, including that of individual directors. Every three years we conduct an external review and this was carried out this year by Lintstock on our behalf. I am delighted to say that they concluded that the Board remains highly effective, with a very good range of skills represented on the Board and a clear understanding of the risks facing the Company.
We announced on 13 September 2019 that Clare Wardle would join the Board on 1 November 2019. She brings to the Board valuable experience from her background in law and company secretarial. She has been Group General Counsel and Company Secretary of Coca-Cola European Partners and of Kingfisher plc. In accordance with best practice, we employed a specialist external search firm to find Clare.
In February 2019 the AIC published an updated Code of Governance which largely mirrors the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council ("FRC") save that the strict nine year cap on the Chairman's tenure contained in the FRC's code has been disapplied by the AIC. I see no reason why the rules which apply to the length of time which the chairman of an investment company can serve should be more relaxed than those which apply to other listed companies, and so I will be stepping down as Chairman of City of London during 2020. Simon Barratt, our Senior Independent Director, is leading the search for my replacement and it is expected that he will also leave the Board next year once this appointment is made, as he too will have been on the Board for nine years.
Annual General Meeting
The 2019 Annual General Meeting will be held at the offices of Janus Henderson Investors, 201 Bishopsgate, London EC2M 3AE on Thursday, 24 October 2019. I would encourage as many shareholders as possible to attend for the opportunity to meet the Board and to watch a presentation from Job Curtis, our Fund Manager. If you are unable to attend in person, you can watch the meeting as it happens by visiting www.janushenderson.com/trustslive.
Outlook
The record low level of 10 year bond yields, with Japan and several European countries in negative territory, indicates the considerable uncertainty about economic growth prospects. The growth of internet commerce is having a deflationary impact globally. Rising trade tariffs are likely to reduce growth and the outcome of the disputes between the US and its various trading partners is uncertain. While the UK economic growth rate has fallen over the last year, in common with other European countries, there are positive aspects, notably the strength of the labour market with record numbers in work.
The path of the UK's future relationship with the European Union remains unclear but a general election is now imminent. In conjunction with our managers, we have continued to consider the direct practical consequences of Brexit on the operations of City of London and do not consider them to be material. To the extent that concerns about Brexit continue to put pressure on sterling, this would be a positive for City of London's portfolio given the predominance of international companies where profits and dividends will increase when translated from overseas currencies into sterling. On the other hand, a resolution of Brexit could help investment in the UK as businesses and investors gain greater clarity.
City of London's portfolio is predominantly invested in large, international companies. The dividend yield of our portfolio is much higher than fixed interest yields and bank deposit rates. We have a 53 year record of annual dividend increases and we are confident of continuing our record given the quality of the companies in which we are invested and the advantages which our closed end, investment trust structure gives us.
Philip Remnant CBE
Chairman
FUND MANAGER'S REPORT
Investment Background
The first half of the period under review was characterised by monetary tightening and falling stock markets. In the US, interest rates were increased by the Federal Reserve, the central bank, which also engaged in quantitative tightening or not reinvesting the proceeds from bonds it held as they matured. The European Central Bank stopped buying bonds at the end of 2018. In the UK, the base rate was increased from 0.5% to 0.75%. Given this monetary environment, world equity markets fell in the six months to 31 December 2018 and the UK equity market, as measured by the FTSE All-Share Index, produced a negative total return of 11.0%.
Sentiment changed in January 2019, with the Federal Reserve indicating a more dovish approach as inflation was below target and market expectations in the US shifted to the anticipation of interest rate cuts. Despite disappointing economic growth globally and tension over trade tariffs, stock markets rallied. Bond yields fell with the US 10 year government bond yield falling from 2.7% at the start of January to 2.0% by the end of June. 10 year government bond yields for Germany and France ended June in negative territory.
In the UK, the situation was complicated by Brexit with stock building ahead of 31 March, the first intended Brexit date, reversing in the second quarter of 2019. Economic growth was adversely affected by weak investment and slowing export markets but helped by the strong labour market with the numbers in employment continuing to rise. The 10 year gilt yield fell to end the period at 0.8%. The equity market recovered from its losses of the second half of 2018 to produce a total return for the twelve month period to 30 June 2019 of 0.6%, as measured by the FTSE All-Share Index.
Over the twelve months, the exchange rate of sterling against the US dollar fell from 1.32 to 1.27; against the euro, the fall was marginal from 1.13 to 1.12. The relatively high US economic growth rate helped the dollar and the uncertainty over Brexit and UK politics weighed on sterling.
The oil price (Brent crude) started the period at US$77/bbl but fell to US$53/bbl by 31st December 2018 as US shale oil production rose faster than expected. During the first half of 2019, the oil price recovered to US$64/bbl with OPEC (the cartel of oil producing countries) showing supply discipline, Iranian sales restricted by sanctions and production issues for some other countries.
Throughout the twelve months the dividend yield for the UK equity market, which ranged from 3.6% to 4.5%, was significantly above the 10 year gilt yield and the base rate. In addition, UK equity market dividends increased above the rate of inflation. Over the twelve months, companies in City of London's portfolio increased their dividends on average by 3.3% (excluding special dividends).
The Company's gearing started the period at 7.7% and increased to 11.9% by 31 December 2018 which was appropriate given the cheaper valuation of equities after the fall in the market at that point. As share prices recovered in the first half of 2019, gearing declined to end the Company's financial year at 7.9%.
Over the twelve months, the FTSE 350 Lower Yield Index outperformed reflecting the gains from lower yielding sectors such as technology and beverages and the underperformance of some higher yielding sectors such as telecommunications and utilities.
Estimated Performance Attribution Analysis (relative to FTSE All-Share Index Total Return)
2019 2018
% %
----------------- ------ ------
Stock Selection +2.99 -2.89
Gearing -0.61 +0.47
Expenses -0.39 -0.41
Share Issues +0.11 +0.09
Total +2.10 -2.74
Source: Janus Henderson
City of London outperformed the FTSE All-Share Index by 2.1% over the twelve months to 30 June 2019. Stock selection contributed 2.99% while gearing detracted 0.61%. Expenses were down from 0.41% to 0.39% as a result of the renegotiated management fee rate effective from 1 January 2019.
The overseas listed holdings were notable contributors with Nestlé, Merck, Verizon, Novartis and Microsoft being five of the top six contributors of stocks held. The largest UK listed contributor of stocks held (and fourth overall) was Greggs, the ready-to-eat bakery retailer.
Although AstraZeneca, the pharmaceutical company which had a strong share price performance over the twelve months, is held in the portfolio, the size of the stake is significantly under represented relative to the FTSE All-Share Index and it was the biggest stock detractor. The next biggest detractor was travel company TUI which had been the best stock contributor the previous year. The holding in TUI was reduced but not enough given the challenging conditions for travel companies in Europe during this period.
Over the long-term, City has significantly outperformed the Index. For example, over ten years City's net asset value total return is 226.1% compared to 167.1% of the FTSE All-Share Index.
Portfolio Review
Over the last two years, the number of holdings in the portfolio has been reduced from 115 (at 30 June 2017) to 102 (at 30 June 2018) and to 97 (at 30 June 2019). In our view, while it is beneficial for a conservative portfolio to be diversified, at 97 holdings there is more focus with each holding having more of an impact.
A common theme among three of the top five contributing sectors to performance was making and selling consumer staples products that are used on an everyday basis for which demand is not particularly sensitive to economic growth. The biggest contributing sector was food producers, the fourth best beverages and the fifth personal goods. The largest stocks held in the portfolio, in these three sectors, are in descending order of size: Diageo, followed by Unilever, Nestlé and Coca-Cola. These companies have in common that they are global and provide basic consumer products where there is relatively stable demand. With government bond yields falling, indicating fears of an economic slowdown, the stability of profits and dividends from this group of companies is attractive. In addition, there is long-term structural growth for these companies in emerging markets where they already have a significant presence. As the income of large populations in emerging markets improve over time, it is likely that their consumption of branded consumer goods will steadily increase.
One consumer staples sector that performed poorly over the twelve months was tobacco. Cigarette smoking has been in long-term decline for many years but new forms of nicotine consumption, such as vaping and e-cigarettes, have increased the rate of the decline. City of London's exposure to the tobacco sector has been in line with the FTSE All-Share Index over the last year with British American Tobacco and Imperial Brands continuing to deliver attractive dividends.
The second best contributing sector was fixed line telecommunications, where City's largest holding was Verizon Communications. The US telecommunications market, where Verizon operates, is well structured with two leading operators, of which Verizon is one. Verizon has increased its dividend consistently over the last five years. In contrast, Vodafone cut its dividend due to rising indebtedness after the acquisition of cable assets from Liberty Global and the regulatory and competitive pressure in European telecommunication markets. City of London's position in Vodafone was reduced in the months ahead of the dividend cut so that we were under represented relative to the weighting in the FTSE All-Share Index. Vodafone has some attractive assets, such as its position as the second largest operator in Germany, and it should benefit from the growth in mobile data usage going forward. Elsewhere in the telecommunications sector, the holding in Manx Telecom was sold after it agreed to be taken over. Profits were also taken in Swisscom which appeared to be fully valued given its limited growth prospects.
The third biggest contributing sector was mining where Rio Tinto, BHP and Anglo American were held. All three companies benefited from the rising price of iron ore due partly to growing demand from customers in China and partly due to supply constraints following the Brazilian miner Vale closing one of its mines because a collapsed dam had caused flooding and fatalities. The mining companies held in the portfolio delivered improvements in operating efficiency and attractive dividends.
The sector that detracted most from relative performance was financial services but the cost was relatively modest at 0.4%. The biggest stock negative in financial services was not holding London Stock Exchange, which has a low dividend yield but performed strongly over the twelve months. In addition TP ICAP, which was held, disappointed expectations for savings from its merger. Subsequently management was changed.
The second biggest detracting sector was Real Estate Investment Trusts (REITs). The sector suffered from the problems of high street and shopping centre retailers loosing sales to the internet. There were a number of high profile bankruptcies of retailers and also some Company Voluntary Agreements which allow a retailer to reduce its rent. As a result, rental income for retail property was under pressure and values slid. The holding in leading shopping centre owner Unibail-Rodamco-Westfield was sold as was the small Supermarket Income REIT. In addition, RDI (formerly Redefine International) was also sold on account of its high leverage. Within the REITs held in the portfolio, Segro was a notable outperformer as it specialises in industrial property, including warehouses, needed by internet retailers as they expand. The portfolio's exposure to retailers was also reduced. N Brown and Pendragon were sold and the holding in Marks and Spencer which cut its dividend, was reduced by 50%. The third biggest detracting sector was industrial transportation where Royal Mail had a poor year. Falling volumes in letters offset the growth in its parcels business.
Five new holdings were bought over the twelve months which were all in our view, quality companies offering some additional diversification for the portfolio. Mondi is a vertically integrated paper and packaging company with some of the lowest cost mills. It is an international leader in its sector and provides an essential product to a wide range of industries.
Senior manufactures specialist engineering products. About half are in fluid systems, which allow gas/liquids to be pumped through at high temperature/pressure in small spaces with no leakage, and the other half are in structures where key products are wing structures and engine casings. Some 65% of sales are to the aerospace sector with the rest to industrial and automotive customers. Cost and production efficiencies as new product sales grow should improve profitability over the medium term.
Ferguson is UK listed but has 86% of its turnover in the U.S. It is a leading specialist plumbing and heating distributor focused primarily on the repair, maintenance and improvement markets. It augments its organic growth through the acquisition of much smaller operators.
National Express is a bus and coach company with profits split 36% from Spain, 35% from North America and 27% from the UK. The company has a good record of delivering operational excellence to grow passenger volumes as well as using technology to cut costs. It also makes bolt-on acquisitions to supplement organic growth.
St James's Place specialises in the provision of financial services and advice through a network of tied advisers. It has experienced impressive growth in assets under management over the last five years and should benefit from favourable long-term demographics.
Two holdings were sold ahead of dividend cuts; Centrica, the utility that owns the British Gas brand, and Low and Bonar, the specialist materials manufacturer. In addition, Melrose, which had taken over GKN in the previous year, was sold given the poor outlook for car sales.
The portion of the portfolio invested in large UK listed companies increased over the year from 73% to 78%. This was mainly due to the decline in the portion invested in medium-sized and small UK companies from 16% to 12%. The part of the portfolio invested in overseas listed companies also declined from 11% to 10%.
Large companies outperformed medium-sized and small companies over this twelve month period. Large international companies in sectors such as beverages and pharmaceuticals were particularly strong performers.
Portfolio Outlook
The portfolio is biased towards large international companies. Among the top ten holdings, only Lloyds Banking has more than half its business in the UK. The other large holding in the banks sector is HSBC which earns the majority of its profits from the Asia Pacific region. Both banks are well capitalised with attractive dividend yields that, in our view, are sustainable.
Oil companies Royal Dutch Shell and BP are respectively the largest and fourth largest holdings. While their profits are affected by the oil price, both companies have significantly reduced their cost of production in recent years. A similar self-help story has been experienced at miners Rio Tinto (tenth largest holding) and BHP (twelfth largest). While demand for many commodities is linked to the growth of the Chinese economy, Rio Tinto and BHP own some of the best assets in the global mining sector.
Diageo, the international alcoholic beverages company with Johnnie Walker whisky and Guinness beer among its brands, moved up over the year from fifth largest to third as a result of strong share price performance. Diageo with Unilever (fifth largest holding) are well placed to continue to produce consistent growth from their consumer goods which are sold globally.
Prudential (sixth largest holding) is expected to split into two companies over the next year which should liberate shareholder value. The international part of the company, which consists of its Asia Pacific and US operations, could attract significant investor interest. RELX (eighth largest holding) should continue to produce consistent profits growth from providing information and analytics for business and professional customers. British American Tobacco (nineth largest holding) offers an attractive dividend well covered by free cash flow.
While the portfolio is predominantly invested in large, international companies, there are some domestic sectors that are also favoured. In particular, UK housebuilding would appear to have good prospects given the latent demand for home ownership, fairly full employment and low interest rates. Taylor Wimpey is the fifteenth largest holding and also held are Persimmon and Berkeley. The portfolio is diversified across a range of industries. In our view, it is well balanced with quality companies that can deliver City of London's income and growth objective.
Job Curtis
Fund Manager
FORTY LARGEST INVESTMENTS as at 30 June 2019
Market
Value Portfolio
Position Company Sector GBP'000 %
--------- ------------------------- ------------------------------------ ---------- ----------
1 Royal Dutch Shell Oil & Gas Producers 123,080 7.15
2 HSBC Banks 76,857 4.47
3 Diageo Beverages 66,997 3.89
4 BP Oil & Gas Producers 66,929 3.89
5 Unilever Personal Goods 56,887 3.30
6 Prudential Life Insurance 51,547 2.99
7 Lloyds Banking Banks 50,931 2.96
8 RELX Media 48,554 2.82
British American
9 Tobacco Tobacco 46,183 2.68
10 Rio Tinto Mining 41,484 2.41
--------- ------------------------- ------------------------------------ ---------- ----------
Top 10 629,449 36.56
-------------------------------------- ------------------------------------ ---------- ----------
11 GlaxoSmithKline Pharmaceuticals & Biotechnology 38,233 2.22
12 BHP Mining 33,907 1.97 13 Verison Communications Fixed Line Telecommunications 31,417 1.83 14 Phoenix Life Insurance 30,767 1.79 15 Taylor Wimpey Household Goods & Home Construction 30,003 1.74 16 BAE Systems Aerospace & Defence 29,724 1.73 17 St. James's Place Life Insurance 28,877 1.68 18 Reckitt Benckiser Household Goods & Home Construction 27,963 1.62 19 AstraZeneca Pharmaceuticals & Biotechnology 26,369 1.53 20 Land Securities Real Estate Investment Trusts 24,996 1.45 --------- ------------------------- ------------------------------------ ---------- ---------- Top 20 931,732 54.12 -------------------------------------- ------------------------------------ ---------- ---------- 21 Schroders Financial Services 24,550 1.43 22 Croda International Chemicals 22,973 1.33 23 National Grid Gas Water & Multiutilities 22,567 1.32 24 Nestlé Food Producers 22,090 1.28 25 Compass Travel & Leisure 21,741 1.26 26 Hiscox Non-life Insurance 19,145 1.11 27 Carnival Travel and Leisure 19,135 1.11 28 Vodafone Mobile Telecommunications 19,075 1.11 29 Anglo American Mining 18,868 1.10 30 Barclays Banks 17,976 1.04 --------- ------------------------- ------------------------------------ ---------- ---------- Top 30 1,139,852 66.21 -------------------------------------- ------------------------------------ ---------- ---------- 31 Merck Pharmaceuticals & Biotechnology 17,314 1.01 32 Novartis Pharmaceuticals & Biotechnology 17,104 0.99 33 Persimmon Household Goods & Home Construction 16,150 0.94 34 Coca-Cola Beverages 15,212 0.88 35 Spirax-Sarco Engineering Industrial Engineering 15,155 0.88 36 Greene King Travel & Leisure 14,847 0.86 37 British Land Real Estate Investment Trusts 14,806 0.86 38 Direct Line Insurance Non-life Insurance 14,084 0.82 39 Imperial Brands Tobacco 13,891 0.81 40 Ibstock Contruction & Materials 13,494 0.78 --------- ------------------------- ------------------------------------ ---------- ---------- Top 40 1,291,909 75.04 -------------------------------------- ------------------------------------ ---------- ---------- All classes of equity in any one company are treated as one investment
PRINCIPAL RISKS
The Board, with the assistance of Janus Henderson, has carried out a robust assessment of the principal risks and uncertainties facing the Company that would threaten the business model, future performance, solvency and liquidity. This included consideration of the market uncertainty arising from the United Kingdom's negotiations to leave the European Union ("Brexit").
We regularly consider the principal risks facing the Company and have drawn up a matrix of risks facing the Company. The Board has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate these risks as far as practicable. The principal risks which have been identified and the steps taken by the Board to mitigate these are set out in the table below. The Board does not consider these to have changed during the course of the reporting period and up to the date of this report.
Principal risks Mitigation measure
Portfolio and market price The Board reviews the portfolio
Although the Company invests almost at the seven Board meetings held
entirely in securities that are each year and receives regular reports
listed on recognised markets, share from the Company's brokers. A detailed
prices may move rapidly. The companies liquidity report is considered on
in which investments are made may a regular basis.
operate unsuccessfully, or fail
entirely. A fall in the market value The Fund Manager closely monitors
of the Company's portfolio would the portfolio between meetings and
have an adverse effect on equity mitigates this risk through diversification
shareholders' funds. of investments. The Fund Manager
periodically presents the Company's
investment strategy in respect of
current market conditions. Performance
relative to other UK equity income
trusts, the FTSE All-Share Index
and UK Equity Income OEICs is also
monitored.
---------------------------------------------
Investment activity, gearing and The Board has an annual meeting
performance focussed on strategy at which investment
An inappropriate investment strategy performance, the level of gearing
(for example, in terms of asset and the level of premium/discount
allocation or the level of gearing) is reviewed. The Board also reviews
may result in underperformance against a schedule of expenses and revenue
the Company's benchmark. forecasts at each meeting.
---------------------------------------------
Tax and regulatory The Manager provides investment,
A breach of s.1158/9 could lead company secretarial, administration
to a loss of investment trust status, and accounting services through
resulting in capital gains realised qualified professionals. The Board
within the portfolio being subject receives internal control reports
to corporation tax. A breach of produced by the Manager on a quarterly
the Listing Rules could result in basis, which confirm legal and regulatory
suspension of the Company's shares, compliance.
while a breach of the Companies
Act 2006 could lead to criminal
proceedings, or financial or reputational
damage. The Company must also ensure
compliance with the Listing Rules
of the New Zealand Stock Exchange.
---------------------------------------------
Operational The Board monitors the services
Disruption to, or failure of, the provided by the Manager and its
Manager's or its administrator's other suppliers and receives reports
(BNP Paribas Securities Services) on the key elements in place to
accounting, dealing or payment systems provide effective internal control.
or the epositary's records could During the year the Board reviewed
prevent the accurate reporting and the Manager's approach to cyber
monitoring of the Company's financial risk.
position. The Company is also exposed
to the operational risk that one The Board considers the loss of
or more of its suppliers may not the Fund Manager as a risk but this
provide the required level of service. is mitigated by the experience of
the team at Janus Henderson as detailed
in the Annual Report.
---------------------------------------------
BORROWINGS
The Company has a borrowing facility of GBP120.0m (2018: GBP120.0m) with HSBC Bank plc, of which GBP8.2 was drawn at the year end (2018: nil). The Company also has two debentures totalling GBP40.0m (2018: GBP40.0m) and GBP84.4m (2018: GBP84.3m) of secured notes. The level of gearing at 30 June 2019 was 7.9% of net asset value (2018: 7.7%).
VIABILITY STATEMENT
The 2014 UK Corporate Governance Code introduced a requirement for the Board to assess the future prospects for the Company, and report on the assessment within the Annual Report.
The Board considered that certain characteristics of the Company's business model and strategy were relevant to this assessment:
-- The Board looks to ensure the Company seeks to deliver long-term performance.
-- The Company's investment objective, strategy and policy, which are subject to regular Board monitoring, mean that the Company is invested mainly in readily realisable, UK listed securities and that the level of borrowings is restricted.
-- The Company is a closed end investment company and therefore does not suffer from the liquidity issues arising from unexpected redemptions.
-- The Company has an ongoing charge of 0.39% which is lower than other comparable investment trusts.
Also relevant were a number of aspects of the Company's operational agreements:
-- The Company retains title to all assets held by the custodian under the terms of formal agreements with the custodian and depositary.
-- Long-term borrowing is in place being the 10 1/4 % debenture stock 2020, 8 1/2 % debenture stock 2021, 4.53% secured notes 2029 and 2.94% secured notes 2049 which are also subject to formal agreements, including financial covenants with which the Company complied in full during the year. The value of long-term borrowing is relatively small in comparison to the value of net assets, being 7.9%.
-- Revenue and expenditure forecasts are reviewed by the Directors at each Board meeting. -- Cash is held with approved banks.
In addition, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's business model, including future performance, liquidity and solvency.
The principal risks identified as relevant to the viability assessment were those relating to investment portfolio performance and its effect on the net asset value, share price and dividends, and threats to security over the Company's assets. The Board took into account the liquidity of the Company's portfolio, the existence of the long-term fixed rate borrowings, the effects of any significant future falls in investment values and income receipts on the ability to repay and re-negotiate borrowings, grow dividend payments and retain investors and the potential need for share buybacks to maintain a narrow share price discount. The Directors assess viability over five year rolling periods, taking account of foreseeeable severe but plausible scenarios. The Directors believe that a rolling five year period best balances the Company's long-term objective, its financial flexibility and scope with the difficulty in forecasting 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 June 2024.
RELATED PARTY TRANSACTIONS
The Company's transactions with related parties in the year were with the Directors and the Manager. There have been no material transactions between the Company and its Directors during the year and the only amounts paid to them were in respect of expenses and remuneration for which there were no outstanding amounts payable at the year end. Directors' shareholdings are disclosed in the Annual Report.
In relation to the provision of services by the Manager, other than fees payable by the Company in the ordinary course of business and the provision of marketing services, there have been no material transactions with the Manager affecting the financial position of the Company during the year under review. More details on transactions with the Manager, including amounts outstanding at the year end, are given in the Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Each of the Directors confirms that, to the best of his or her knowledge,:
-- the Company's financial statements, which have been prepared in accordance with UK Accounting Standards on a going concern basis, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
-- the Strategic Report and financial statements 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 it faces.
For and on behalf of the Board
Philip Remnant CBE
Chairman
INCOME STATEMENT
Year ended 30 June 2019 Year ended 30 June 2018
Notes Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----- ------------------------- --------- ----------- ---------- --------- ---------- -----------
(Losses)/gains on
investments held
at fair value through
profit or loss - (21,023) (21,023) - 31,889 31,889
Income from investments
held at fair value
through profit or
2 loss 77,438 - 77,438 69,976 - 69,976
Other interest receivable
3 and similar income 288 - 288 254 - 254
--------- --------- --------- --------- ---------- -----------
Gross revenue and
capital (losses)/gains 77,726 (21,023) 56,703 70,230 31,889 102,119
Management fee (1,519) (3,545) (5,064) (1,570) (3,664) (5,234)
Other administrative
expenses (726) - (726) (708) - (708)
--------- --------- --------- --------- ---------- -----------
Net return before
finance costs and
taxation 75,481 (24,568) 50,913 67,952 28,225 96,177
Finance costs (2,277) (4,946) (7,223) (2,037) (4,385) (6,422)
--------- ----------- ---------- --------- ---------- -----------
Net return before
taxation 73,204 (29,514) 43,690 65,915 23,840 89,755
Taxation (1,181) - (1,181) (1,236) - (1,236)
--------- --------- --------- --------- ---------- -----------
Net return after
taxation 72,023 (29,514) 42,509 64,679 23,840 88,519
====== ====== ====== ====== ====== ======
Return per ordinary
4 share basic and diluted 19.76p (8.10p) 11.66p 18.69p 6.89p 25.58p
====== ====== ====== ====== ====== ======
The total columns of this statement represent the Income Statement of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. The Company has no recognised gains or losses other than those recognised in the Income Statement. There is no material difference between the net return before taxation and the net return after taxation stated above and their historical cost equivalents.
STATEMENT OF CHANGES IN EQUITY
Called Share Capital Other
up share premium redemption capital Revenue
Year ended capital account reserve reserves reserve Total
Notes 30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2018 88,603 520,701 2,707 855,851 53,135 1,520,997
Net return
after taxation - - - (29,514) 72,023 42,509
Issue of 24,425,000
new ordinary
7 shares 6,106 93,010 - - - 99,116
6 Dividends paid - - - - (66,899) (66,899)
---------- ----------- --------- ----------- ---------- ----------
At 30 June
2019 94,709 613,711 2,707 826,337 58,259 1,595,723
====== ====== ===== ====== ===== ======
Called Share Capital Other
up share premium redemption capital Revenue
Year ended capital account reserve reserves reserve Total
30 June 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2017 84,853 461,753 2,707 832,011 48,598 1,429,922
Net return
after taxation - - - 23,840 64,679 88,519
Issue of 15,000,000
new ordinary
7 shares 3,750 58,948 - - - 62,698
6 Dividends paid - - - - (60,142) (60,142)
---------- ----------- --------- ----------- ----------- -------------
At 30 June
2018 88,603 520,701 2,707 855,851 53,135 1,520,997
====== ====== ===== ====== ====== ========
STATEMENT OF FINANCIAL POSITION
Notes 30 June 2019 30 June 2018
GBP'000 GBP'000
-------- --------------------------------------- --------------- ---------------
Fixed assets
Investments held at fair value through
profit or loss
Listed at market value in the United
Kingdom 1,556,025 1,454,876
Listed at market value overseas 165,525 183,031
Investment in subsidiary undertakings 347 347
------------- -------------
1,721,897 1,638,254
------------- -------------
Current assets
Debtors 14,932 14,493
Cash at bank - 68
----------- -----------
14,932 14,561
---------- ----------
Creditors: amounts falling due within
one year (25,350) (6,105)
---------- ----------
Net current (liabilities)/assets (10,418) 8,456
---------- ----------
Total assets less current liabilities 1,711,479 1,646,710
Creditors: amounts falling due after
more than one year (115,756) (125,713)
------------ ------------
Net assets 1,595,723 1,520,997
======= =======
Capital and reserves
7 Called up share capital 94,709 88,603
Share premium account 613,711 520,701
Capital redemption reserve 2,707 2,707
Other capital reserves 826,337 855,851
Revenue reserve 58,259 53,135
------------ ------------
5 Total shareholders' funds 1,595,723 1,520,997
======= =======
Net asset value per ordinary share
4 - basic and diluted 421.22p 429.16p
======= =======
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
Basis of accounting
The Company is a registered investment company as defined in section
833 of the Companies Act 2006 and is incorporated in the United
Kingdom. It operates in the United Kingdom and is registered at
the address in the Annual Report.
The financial statements have been prepared in accordance with the
Companies Act 2006, FRS 102, the Financial Reporting Standard applicable
in the UK and Republic of Ireland and with the Statement of Recommended
Practice: Financial Statements of Investment Trust Companies and
Venture Capital Trusts ("the SORP") issued in November 2014 and
updated in February 2018.
The principal accounting policies applied in the presentation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented.
As an investment fund the Company has the option, which it has taken,
not to present a cash flow statement. A cash flow statement is not
required when an investment fund meets all the following conditions:
substantially all of the entity's investments are highly liquid,
substantially all of the entity's investments are carried at market
value, and the entity provides a Statement of Changes in Equity.
The Directors have assessed that the Company meets all of these
conditions.
The financial statements have been prepared under the historical
cost basis except for the measurement at fair value of investments.
In applying FRS 102, financial instruments have been accounted for
in accordance with section 11 and 12 of the standard. All of the
Company's operations are of a continuing nature.
The financial statements of the Company's three subsidiaries have
not been consolidated on the basis of immateriality and dormancy.
Consequently, the financial statements present information about
the Company as an individual entity. The Directors consider that
the value of the subsidiary undertakings are not less than the amounts
at which they are included in the financial statements.
The preparation of the Company's financial statements on occasion
requires the Directors to make judgements, estimates and assumptions
that affect the reported amounts in the primary financial statements
and the accompanying disclosures. These assumptions and estimates
could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in the current
and future periods, depending on circumstance.
The Directors do not believe that any accounting judgements or estimates
have been applied to this set of financial statements that have
a significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year.
Going Concern
The assets of the Company consist of securities that are readily
realisable and, accordingly, the Directors believe that the Company
has adequate resources to continue in operational existence for
at least twelve months from the date of approval of the financial
statements. Having assessed these factors, the principal risks and
other matters discussed in connection with the viability statement,
the Board has determined that it is appropriate for the financial
statements to be prepared on a going concern basis.
2. Income from investments held at fair value through profit or loss
2019 2018
GBP'000 GBP'000
--------------------------------------------------------------- --------------- ------------------------
UK dividends:
Listed - ordinary dividends 59,566 53,311
Listed - special dividends 3,702 2,559
--------- ---------
63,268 55,870
--------- ---------
Other dividends:
Dividend income - overseas investments 11,575 11,670
Dividend income - UK REIT 2,595 2,436
--------- ---------
14,170 14,106
--------- ---------
77,438 69,976
===== =====
3. Other interest receivable and similar income
2019 2018
GBP'000 GBP'000
--------------------------------------------------------------- --------------- ------------------------
Bank interest - 3
Underwriting commission (allocated to
revenue)(1) 14 41
Stock lending revenue 274 210
------- -------
288 254
===== ====
(1) During the year the Company was not required to take up shares
in respect of its underwriting commitments (2018: none).
At 30 June 2019, the total value of securities on loan by the Company
for stock lending purposes was GBP192,872,000 (2018: GBP101,360,000).
The maximum aggregate value of securities on loan at any one time
during the year ended 30 June 2019 was GBP279,272,000 (2018: GBP209,315,000).
The Company's agent holds collateral at 30 June 2019, with a value
of GBP208,546,000 (2018: GBP110,896,000) in respect of securities
on loan, the value of which is reviewed on a daily basis and comprises
CREST Delivery By Value ("DBVs") and Government Bonds with a market
value of 108% (2018: 109%) of the market value of any securities
on loan.
4. Return per ordinary share - basic and diluted
The return per ordinary share is based on the net return attributable
to the ordinary shares of GBP42,509,000 (2018: GBP88,519,000) and
on 364,414,801 ordinary shares (2018: 346,003,431), being the weighted
average number of ordinary shares in issue during the year.
The return per ordinary share is analysed between revenue and capital
below:
2019 2018
GBP'000 GBP'000
------------------------------------------- ------------------ -----------------------------------------
Net revenue return 72,023 64,679
Net capital return (29,514) 23,840
---------- ----------
Net total return 42,509 88,519
====== ======
Weighted average number of
ordinary shares in issue during
the year 364,414,801 346,003,431
2019 2018
Pence Pence
------------------------------------------- ------------------ -----------------------------------------
Revenue return per ordinary
share 19.76 18.69
Capital return per ordinary
share (8.10) 6.89
---------- ----------
Total return per ordinary
share 11.66 25.58
====== ======
The Company does not have any dilutive securities, therefore the
basic and diluted returns per share are the same.
5. Net asset value per ordinary share
The net asset value per ordinary share is based on the net assets
attributable to the ordinary shares of GBP1,595,723,000 (2018: GBP1,520,997,000)
and on 378,834,868 (2018: 354,409,868) shares in issue on 30 June
2019.
6. Dividends paid on ordinary shares
2019 2018
Record date Payment date GBP'000 GBP'000
------------------------------------------- ------------------ --------------- ----------- -----------
Fourth interim dividend (4.30p)
for the year ended 30 June
2017 28 July 2017 31 August 2017 - 14,648
First interim dividend (4.30p)
for the year ended 30 June 20 October 30 November
2018 2017 2017 - 14,796
Second interim dividend (4.30p)
for the year ended 30 June 26 January 28 February
2018 2018 2018 - 14,826
Third interim dividend (4.55p)
for the year ended 30 June
2018 27 April 2018 31 May 2018 - 16,016
Fourth interim dividend (4.55p)
for the year ended 30 June
2018 27 July 2018 31 August 2018 16,174
First interim dividend (4.55p)
for the year ended 30 June 19 October 30 November
2019 2018 2018 16,319
Second interim dividend (4.55p)
for the year ended 30 June 25 January 28 February
2019 2019 2019 16,633
Third interim dividend (4.75p)
for the year ended 30 June
2019 26 April 2019 31 May 2019 17,773
Unclaimed dividends over 12
years old - (144)
-------- --------
66,899 60,142
===== =====
In accordance with FRS 102, interim dividends payable to equity
shareholders are recognised in the Statement of Changes in Equity
when they have been paid to shareholders.
All dividends have been paid or will be paid out of revenue profits.
A fourth interim dividend of 4.75p (2018: 4.55p) per ordinary share
in respect of the year ended 30 June 2019 was paid on 30 August
2019 to shareholders for a total consideration of GBP18,012,000.
7. Called up share capital
Nominal value
of total shares
Shares in issue in issue GBP'000
------------------------------------- ----------------- ------------------
Allotted and issued ordinary shares
of 25p each
At 1 July 2018 354,409,868 88,603
Issue of new ordinary shares 24,425,000 6,106
---------------- -----------
At 30 June 2019 378,834,868 94,709
========= ======
Allotted and issued ordinary shares
of 25p each
At 1 July 2017 339,409,868 84,853
Issue of new ordinary shares 15,000,000 3,750
---------------- -----------
At 30 June 2018 354,409,868 88,603
========= ======
During the year the Company issued 24,425,000 (2018: 15,000,000) ordinary shares with total proceeds of GBP99,116,000 (2018: GBP62,698,000) after deduction of issue costs of GBP151,000 (2018: GBP143,000). The average price of the ordinary shares that were issued was 405.8p (2018: 418.0p).
8. 2019 Financial information
The figures and financial information for the year ended 30 June 2019 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts. The Company's annual financial statements for the year to 30 June 2019 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2019 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.
9. 2018 Financial information
The figures and financial information for the year ended 30 June 2018 are compiled from an extract of the published financial statements for that year and do not constitute statutory accounts. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.
10. Annual Report and Annual General Meeting
The Annual Report will be posted to shareholders in late September 2019 and will be available on the Company's website www.cityinvestmenttrust.com or in hard copy format from the Company's registered office, 201 Bishopsgate, London, EC2M 3AE thereafter.
The Annual General Meeting will be held at the offices of Janus Henderson Investors, 201 Bishopsgate, London EC2M 3AE on Thursday 24 October 2019 at 2.30pm. The Notice of Meeting will be sent to shareholders with the Annual Report.
For further information please contact:
Job Curtis
Fund Manager
The City of London Investment Trust plc
Telephone: 020 7818 4367
James de Sausmarez
Director and Head of Investment Trusts
Janus Henderson Investors
Telephone: 020 7818 3349
Laura Thomas
Investment Trust PR Manager
Janus Henderson Investors
Tel: 020 7818 2636
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
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.
END
FR UKAWRKAAKAAR
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