Middlefield Canadian Income PCC - Half-Yearly Financial Results
Middlefield Canadian Income PCC (the
"Company")Including Middlefield Canadian Income –
GBP PC (the “Fund”), a cell of the CompanyRegistered
No: 93546Legal Entity Identifier: 2138007ENW3JEJXC8658
HALF-YEARLY FINANCIAL
RESULTS
The information set out in this announcement is
the Company’s full unedited half-yearly financial results
(unaudited) for the period ended 30 June 2021 (the
"HYFR").
The HYFR is expected to be printed and posted to
all shareholders within September, 2021. The Company will also make
the HYFR available in the ‘Reports and Filings’ section of the
Company’s website at http://www.middlefield.co.uk/mcit.htm in the
coming days and the Company will make a further announcement once
the HYFR has been uploaded to the Company’s website and to the
National Storage Mechanism at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Enquiries:
Hilary JonesJTC Fund Solutions (Jersey)
LimitedSecretaryTel.: 01534 700 000
Dean OrricoPresidentMiddlefield International
LimitedTel.: 01203 7094016
END OF ANNOUNCEMENT
MIDDLEFIELD CANADIAN INCOME
PCCincluding MIDDLEFIELD CANADIAN
INCOME – GBP PC a cell of the
Company
Half Yearly Report
and Interim
Condensed Financial Statements (Unaudited)
For the period 1 January
2021 to
30 June 2021
TABLE OF
CONTENTS
Responsibility Statement |
3 |
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Strategic
Report |
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Performance Record |
4 |
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Chairman’s Report |
5 |
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Investment Manager’s Interim
Report (Unaudited) |
9 |
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Middlefield ESG Policy |
12 |
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Management and
Administration |
17 |
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|
Interim Condensed
Financial Statements of the Fund (Unaudited) |
|
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Condensed Statement of Financial
Position of the Fund (Unaudited) |
19 |
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|
Condensed Statement of
Comprehensive Income/(Loss) of the Fund (Unaudited) |
20 |
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|
Condensed Statement of Changes in
Redeemable Participating Preference |
|
Shareholders’ Equity of the Fund
(Unaudited) |
21 |
|
|
Condensed Cash Flow Statement of
the Fund (Unaudited) |
22 |
|
|
Notes to the Interim Condensed
Financial Statements of the Fund (Unaudited) |
23 |
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|
Interim Financial
Statements of the Company (Unaudited) |
|
|
|
Statement of Financial Position
of the Company (Unaudited) |
37 |
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|
Notes to the Interim Financial
Statements of the Company (Unaudited) |
38 |
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Definitions |
39 |
|
|
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
- The interim report and financial
statements have been prepared in accordance with International
Accounting Standard 34 “Interim Financial Reporting” and give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company.
- The Chairman’s Report and
Investment Manager’s Interim Report include a fair review of the
development, performance and position of the Company and a
description of the risks and uncertainties as disclosed in note 16
to the interim financial statements, that it faces for the next six
months as required by DTR 4.2.7.R of the disclosure Guidance and
Transparency Rules.
- The Investment Manager’s Interim
Report and note 11 to the interim financial statements include a
fair review of related party transactions and changes therein, as
required by DTR 4.2.8.R of the Disclosure Guidance and Transparency
Rules.
By order of the Board
Michael Phair |
Richard Hughes |
Director |
Director |
Date: 16 September 2021
STRATEGIC REPORT
Historical Performance
Performance since
inception to 30 June 2021
Notes:
- Net asset value total returns (in
Sterling, net of fees and including the reinvestment of
dividends).
- The Fund’s benchmark, the
S&P/TSX High Dividend Index, has been currency adjusted to
reflect the Canadian Dollar (“CAD”) returns from
inception to October 2011 (while the Fund was CAD hedged) and
Sterling (“GBP”) returns thereafter.
Past performance is not a guide to the future. The price
of investments and the income from them may fall as well as rise
and investors may not get back the full amount invested. All price
information is indicative only.
- Total returns including the reinvestment of dividends
for all returns. Fund returns are net of fees.
- Composite of monthly total returns for the S&P/TSX
Income Trust Index from inception to 31 December 2010 and the
S&P/TSX Composite High Dividend Index (formerly named the
S&P TSX Equity Income Index) thereafter
- Currency adjusted to reflect CAD$ returns from
inception of MCT to Oct 2011 and
GBP returns thereafter since MCT
was CAD$ hedged from inception to Oct 2011
STRATEGIC REPORT
(continued)
CHAIRMAN’S
REPORT
INTRODUCTION
It is my pleasure to present the Half Yearly
Report for the period ended 30 June 2021 for Middlefield Canadian
Income PCC (“MCT” or the “Company”) and its closed-end cell,
Middlefield Canadian Income – GBP PC (the “Fund”). The Fund
invests in a broadly diversified portfolio, primarily comprised of
Canadian and U.S. equity income securities, with the objective of
providing shareholders with high dividends as well as capital
growth over the longer term.
INVESTMENT PERFORMANCE
Global equity markets performed well during the
first half of the year, supported by vaccine rollouts and the
reopening of the global economy. The Fund generated a total return
of 26.5% while its share price returned 23.3% and reached a record
high in June (all figures in Sterling with dividends reinvested).
Since inception in 2006, the Fund has generated a cumulative return
of 200%, which compares favourably to the Benchmark’s return of
158.7% and the Canadian S&P/TSX Composite Index’s return of
154.3%.
The Fund’s investment strategy is well-suited
for long-term investors seeking cash flows from a diversified
portfolio of stable, profitable businesses. The Board has regular
contact with the Investment Manager, Middlefield Limited, to
discuss broad strategy and review investment policies, gearing and
sector allocations. We remain satisfied that the Investment Manager
is applying the strategy consistently and professionally and will
continue to deliver good performance.
INVESTMENT MANAGEMENT
The portfolio is actively managed, giving the
Investment Manager the ability to tactically shift the Fund’s
composition as market dynamics change. In response to optimism
related to economic reopening, underpinned by highly effective
vaccines, portfolio changes were made in late 2020 and early 2021
to position the Fund to participate in the market’s recovery.
Specifically, the Fund increased its exposure to Financials and
Real Estate, two cyclical sectors which are highly leveraged to a
recovery in economic activity. In addition, the Fund further
increased its exposure to Canada in light of its attractive
valuations relative to U.S.-listed securities.
STRATEGIC REPORT (continued)
CHAIRMAN’S REPORT
(continued)
INVESTMENT MANAGEMENT (continued)
The Fund’s performance is explained in some
detail by Mr Dean Orrico in the Investment Manager’s accompanying
report.
SHAREHOLDER ENGAGEMENT
The Fund’s share register remained stable
throughout the year, supported by long-term institutional
shareholders and a growing base of retail investors. As mentioned
in the 2020 Annual Report, the Fund’s Senior Independent Director,
Richard Hughes and I met with several of our largest investors to
receive direct feedback on the Fund and the Investment Manager in
January of 2021. We received positive feedback in those meetings
and believe our investment focus on income generating companies
within Canada remains both relevant and attractive to U.K.
investors. We once again engaged our major shareholders at the end
of June 2021 during a webinar hosted by our corporate broker,
Investec. At that meeting, we focused on our market outlook and
corresponding portfolio positioning as well as our plan to address
our share price discount.
One of our top priorities has been to grow our
investor relations initiatives with the goal of generating more
demand for the stock, thereby narrowing our trading discount. The
Fund continues to receive positive feedback from shareholders on
these initiatives including an improved web-site, webinars, thought
leadership articles and our new CEO interview series on YouTube. We
believe these actions are enhancing MCT’s profile across the U.K.,
resulting in greater investor awareness and profile within the
retail investor community. In fact, we witnessed an uptick in
retail trading for our shares in the second quarter and continue to
add investors from new trading platforms. You can find our content
in the Media section of MCT’s website
http://www.middlefield.co.uk/mcitmedia.htm.
GEARING
The amount of gearing employed by the Fund has
been tactically managed and can be a useful tool to enhance returns
and control risk. Contrary to the first half of 2020 when gearing
was reduced to a net cash position to dampen volatility, the Fund
has utilised a fairly consistent amount of gearing throughout 2021
due to our ongoing constructive outlook on equity markets.
Year-to-date, the Fund’s net borrowings have averaged 18% of net
assets and have contributed positively to the Fund’s 26.5% total
return.
EARNINGS AND DIVIDENDS
Two quarterly interim dividends of 1.275p per
share were paid on 29 January 2021 and 30 April 2021. This is in
line with the payments made in the previous financial year. The
Company’s earnings per share totalled 2.36p for the six months
ended 30 June 2021 compared with 1.82p for the corresponding period
in 2020. As discussed in our most recent annual report, the Fund
adopted a more defensive posture in 2020, resulting in
lower-than-typical earnings generation for the year. For 2021, we
are happy to report that our revenue from dividends has recovered
and our dividend payments were 93% covered for the first half of
the year. We expect Canadian earnings levels to increase in 2022
relative to 2021. We are also confident that the dividend should be
fully covered when the economy reverts to pre-pandemic levels of
output as long as the current level of gearing is maintained. As a
result, the Board considers it appropriate to maintain the current
dividend for the new financial year and may consider future
increases in the event our revenue exceeds our payout level.
DIRECTORS’ REMUNERATION
As stated in the Remuneration Report in the
Company’s annual financial report for the year ended 31 December,
2020, the Company’s remuneration policy is designed to ensure that
the remuneration of its directors is set at a reasonable level
commensurate with the duties and responsibilities of each director
and the time commitment required to carry out their roles
effectively.
For the period under review, the directors’
remuneration was set at £28,000 per annum for the chairman of the
Board, £24,000 per annum for the chairman of the audit committee
and £22,000 for all other directors bar Mr Orrico, who has waived
his entitlement to remuneration for acting as a director. The
fees have remained at this level since 1 July, 2018. Since then the
workload of the directors has increased considerably due to both
market conditions and increased corporate governance obligations.
At the most recent meeting of the Nomination and Remuneration
Committee (the “NRC”) held in September, 2021, the NRC reviewed the
directors’ remuneration, benchmarking the fees against other listed
companies of a similar size to the Company in its peer group, and
agreed that a modest increase to the directors’ remuneration would
be appropriate. It was therefore agreed that with effect from
1 January, 2022, the directors’ fees would be increased to £31,000
per annum for the chairman of the Board, £27,000 per annum for the
chairman of the audit committee and £25,000 for all other directors
bar Mr
STRATEGIC REPORT (continued)
CHAIRMAN’S REPORT (continued)
DIRECTORS’ REMUNERATION
(continued)
Orrico. Shareholders should note that,
whilst the aggregate annual remuneration of the current directors
will increase by £12,000, the total directors’ fees payable for the
2022 financial year will be lower than those paid in previous years
due to the net reductionin the number of directors since 2020. This
is in line with the Board’s refreshment and appointments policies
executed since 2019 to ensure stability and appropriate resource
availability.
RELATED PARTY TRANSACTIONS
Related party transactions are disclosed in
greater detail in Note 11 of the Notes to the Interim Condensed
Financial Statements of the Fund (unaudited).
There have been no material changes in the
related party transactions from those described in the 2020 Annual
Financial Report.
MATERIAL EVENTS
The Board is not aware of any significant event
or transaction which has occurred between 1 July 2021 and the date
of publication of this statement which could have a material impact
on the financial position of the Fund.
COMPANY AND FUND ANNUAL GENERAL
MEETINGS
At each of the Company and Fund Annual General
Meetings held on 17 June 2021, all resolutions, relating to both
ordinary business and special business, were duly passed on a
poll.
In relation to the Company and Fund AGM, the
Board notes the votes which were cast against the re-election of Mr
Philip Bisson as a director of the Company and of the Fund
(resolution 3). Of the total votes cast (which represented voting
rights over 47.42% of the Fund’s issued share capital), 22.47% of
such votes were cast against Mr Bisson’s re-election. The Board
understands that the votes received against Mr Bisson’s re-election
resulted, in large part, from a recommendation set out in a report
from one proxy voting agency which highlighted that Mr Bisson’s
shareholding and those of his connected persons (1.72% in
aggregate) could compromise Mr Bisson’s independence as a director
and, as such, that he should not form part of the Audit Committee
of the Company. In addition, Mr Bisson, a Jersey resident
non-executive director, has been on the board of the Company and of
the Fund since launch. The Jersey Financial Services Commission
requires any Jersey-incorporated company to have a minimum of two
Jersey resident directors on the board at all times, and Mr Bisson
has served as one of the two Jersey resident directors of the
Company and Fund for 15 years. This tenure exceeds the nine year
term stipulated by the FRC’s UK Corporate Governance Code and the
AIC’s Code of Corporate Governance following which a non-executive
director’s independence may be deemed to be impaired.
The Board regularly reviews the Board’s
composition and the independence of all directors and is satisfied
that, notwithstanding the shareholding and tenure described above,
Mr Bisson is independently minded in his approach in his role as a
director of the Company and of the Fund. His shareholding and those
of his connected persons (to the extent actually controlled by Mr
Bisson) demonstrate a significant personal financial commitment by
Mr Bisson, and also serve to directly align his interests with
those of other shareholders. In terms of Mr Bisson’s tenure and
justification for his ongoing role as a non-executive director of
the Company and the Fund, Mr Bisson provides invaluable experience
as a Jersey non-executive director and Jersey investment
professional, and adds significant value in his non-executive
role.
The Board frequently reviews its plans for
future succession and has taken a number of steps over recent years
to refresh its composition in order to continue to ensure the
highest standards of good corporate governance. These steps have
included the retirement of three long-standing non-executive
directors, Mr Nicholas Villiers (on 30 September 2020) and Mr Ray
Apsey and Mr Thomas Grose (on 17 June 2021), and the appointment of
three new non-executive directors, Mr Richard Hughes (on 1 July
2018), Mr Michael Phair (on 13 June 2019) and Ms Kate Anderson (on
12 April 2021). In addition, a new board apprentice, Mrs Janine
Fraser, a Jersey resident, was appointed on 25 March 2021.
Following the three planned retirements
explained above, at the present time the Board does not intend to
further refresh its composition with the retirement of Mr Bisson.
The Board remains mindful, however, of the requirement to identify
a suitable Jersey-resident replacement for Mr Bisson at such time
as he does retire from the Board in a phased manner, and has taken
steps to ensure an orderly succession in due course. In addition,
in order to command continued shareholder support, Mr Bisson
retired from the Audit Committee of the Board with effect from the
commencement of the Audit Committee meeting on 16 September 2021.
Details of any further changes which may be implemented will be
included in the Company’s Annual Financial Report for the year
ending 31 December 2021.
STRATEGIC REPORT (continued)
CHAIRMAN’S REPORT (continued)
CONTACT
Shareholders can write to the Company at its registered office
or by email to the Secretary at middlefield.cosec@jtcgroup.com.
PRINCIPAL RISKS AND
UNCERTAINTIES
There are a number of potential risks and
uncertainties, which could have a material impact on the Fund’s
performance over the remaining six months of the year and could
cause actual results to differ materially from expected and
historical results. Further information on the principal risks and
uncertainties are included on pages 28 to 30 of the 2020 Annual
Report and in Note 16 of the Notes to the Interim Condensed
Financial Statements of the Fund (unaudited).
The Directors consider that the principal risks
and uncertainties facing the Company, including the uncertainty
relating to the impact of the pandemic and Brexit, remain
substantially unchanged since the publication of the Company’s 2020
annual report and financial statements and are expected to remain
relevant to the Company for the next six months of its financial
year.
OUTLOOK
We remain positive on the outlook for the global
economy in the second half of 2021. Vaccination rates continue to
climb, which should support an ongoing recovery in economic
activity and consumer spending. While we are cognizant of the
ongoing risks presented by COVID-19, including the delta variant
and future potential strains, we believe the likelihood of
widespread lockdowns is low and that economies will continue to
gradually reopen.
The Fund is primarily focused on Canadian
dividend-paying and dividend-growing equities, an attractive asset
class for U.K. investors seeking stable income and diversification.
The Canadian Prime Minister, Justin Trudeau, has called a snap
election that will take place on 20 September, 2021. As investors,
we recognize that market reactions to elections tend to be modest
and temporary and thus should not have a dramatic or lasting effect
on the high-quality businesses included in this portfolio.
We are confident in the Investment Manager’s
ability to continue delivering attractive risk-adjusted returns
within this asset class and to build upon its established track
record. In light of our positive outlook on the investment
landscape, together with the Fund’s increased marketing efforts,
shareholder engagement and board composition initiatives, we
believe the Fund’s current trading price represents a compelling
value for current and prospective shareholders.
The Board joins me in thanking you for your
continued support.
Michael PhairChairmanDate: 16 September 2021
STRATEGIC REPORT
(continued)
INVESTMENT
MANAGER’S INTERIM REPORTSix
months to 30 June 2021
(Unaudited)
Global equities performed very well during the
first half of 2021, with most major indices closing at all-time
highs. The S&P 500, TSX Composite and Euro Stoxx 50 generated
total returns of 15.2%, 17.3% and 16.6%, respectively. Inflows into
global equity funds during the first half of the year totalled $580
billion, the largest on record by a significant margin. If the
current pace of inflows continues throughout the second half of the
year, equity funds will take in more money in 2021 than in the
previous twenty years combined.
Markets have been supported by the economic
reopening, led by cyclical and value sectors. This began in
November 2020 when initial positive vaccine data from Pfizer,
Moderna and AstraZeneca provided a pathway to resolving the
pandemic. Vaccine rollouts progressed swiftly once they were
approved, allowing restrictions to be lifted at a gradual pace
throughout the world. As of August 2021, over 82% of Canadians aged
12 years or older had received at least one dose and 73% were fully
vaccinated – among the highest vaccine adoption rates in the
world.
Economic reopening has contributed to rising
inflation, with Core CPI, PPI and PCE inflation statistics spiking
during the second quarter of 2021. As a result, global central
banks, including the Bank of Canada and the Federal Reserve, are
now adopting a more hawkish tone when guiding on future monetary
policy. A certain amount of tightening is now being priced in but
this should not have a major impact on markets as long as it
happens gradually and is appropriately signalled. This is reflected
in markets reaching new highs notwithstanding U.S. 10-Year Treasury
yields and Canadian Government 10-Year Bond yields increasing by 55
bps and 71 bps during the first half, respectively.
Commodity prices increased significantly during
the first half. WTI crude oil prices have risen more than 50% this
year while North American natural gas prices are at their highest
levels in seven years. Against this backdrop, we anticipate
significant free cash flow generation from the Canadian energy
sector which can be used for strategic investments in renewables,
carbon capture and storage, hydrogen infrastructure and other
initiatives aligned with ESG principles. Enbridge, a top 10 holding
in the Fund, continues to stand out as an ESG leader among its
peers, with the company providing another comprehensive
Sustainability Report as well as a framework for issuing
sustainability-linked bonds that link interest rates to ESG
performance, further aligning the interests of shareholders and
company management. In addition, the Fund recently initiated
positions in other ESG-focused energy companies including Topaz
Energy, a midstream and royalty company levered to natural gas
which will play an instrumental role in the global energy
transition for decades.
The real estate sector has performed well this
year in Canada, generating a total return of 21.7%. Cyclical asset
classes that are positively correlated with the economic reopening,
such as retail and seniors housing, were the biggest contributors
to Fund performance. Looking ahead to the second half of 2021, we
are bullish on industrial REITs, which have lagged the sector by
more than 4% in Canada. E-Commerce activity increased as a result
of the pandemic and continues to drive demand for industrial
properties. Availability rates in Vancouver, Toronto and Montreal
are at 1.1%, 1.2% and 1.4%, respectively as new supply is unable to
keep pace with the rate of absorption, thereby leading to rapid
growth in rents. In 2021 to date, more than 26 million square feet
of industrial space has been absorbed in Canada relative to a more
modest 8.8 million square feet of completions. The Fund has been
invested in several high-quality Canadian industrial REITs
including Granite REIT, Dream Industrial REIT and WPT Industrial
REIT.
As at 30 June 2021, Financials accounted for
over 30% of the Fund’s investment portfolio and were its top sector
weighting. Canadian-listed issuers account for almost 90% of this
exposure and have been positive contributors to performance
year-to-date. Canadian banks are consistent dividend growers and
possess high capital levels and low dividend payout ratios. They
also continue to trade at attractive valuations relative to their
U.S. peers. These qualities give them a lower relative risk profile
than other cyclical sectors, making them a compelling investment
for exposure to a pick-up in economic activity. Canada’s banks have
been able to generate rapid earnings growth this year, mostly
driven by reduced provisions on credit losses and elevated activity
in capital markets transactions. Looking forward, we remain
positive on the sector given the outlook for consumer spending,
commercial lending and continued fiscal support from the Canadian
federal government.
The backdrop for sustainable infrastructure,
specifically renewables, strengthened during the first half of the
year. We are witnessing a seismic shift in the way society consumes
and produces energy. In April 2021, the U.S. pledged to slash its
greenhouse gas emissions by at least 50% by 2030 and to achieve
net-zero emissions by 2050, joining the world’s largest economies
in setting aggressive long-term climate targets. The private sector
generally, and the world’s largest companies in particular, are
also providing major support for net zero investments. For example,
Apple has committed to being 100% carbon neutral from its supply
chain to its products by 2030 and Microsoft has pledged by 2050 to
remove all the carbon it has emitted since it was founded in 1975.
A first half sell-off driven by an increase in longer term interest
rates has led to attractive valuations and compelling entry points
for many renewable-focused companies. We believe the market is
ascribing little value for future growth to several of our key
portfolio positions including Capital Power, Brookfield Renewables
and Northland Power.
STRATEGIC REPORT (continued)
INVESTMENT MANAGER’S INTERIM REPORT
(continued)Six months to 30 June 2021
(Unaudited)
The Fund’s core allocations to Financials, Real
Estate and Utilities are complemented by high-conviction positions
in sectors that are not well-represented in the benchmark. For
example, the Fund has a 2.9% weight in Information Technology and a
1.5% weight in Healthcare. Tech demonstrated market leadership
throughout most of 2020 but lagged during the majority of the first
half of 2021 as the reopening trade drove market performance. Even
so, we maintain a very optimistic long-term outlook on the
technology sector as the pandemic has accelerated certain secular
trends including 5G, datacentres, E-commerce, work from home and
cloud storage. Healthcare also lagged the broader market by over 3%
during the first half and we see potential for a catch-up given its
combination of high quality companies and attractive valuations.
The Fund has exposure to these sectors through positions in
Broadcom and AbbVie.
Top Holdings
The table below shows the largest ten positions
held within the Fund’s portfolio as at 30 June 2021:
Company |
Sector |
% of NAV |
Canadian Imperial Bank of CommerceCIBC is one of
Canada’s largest banks, offering asset management, retail brokerage
and private wealth management services across Canada and the United
States. CIBC is trading at a valuation discount relative to its
Canadian Bank peers which we believe could narrow as the firm
approaches its goal of generating 25% of earnings from the United
States, up from 17% in 2020. |
Financials |
4.9% |
Bank of MontrealBMO is the fourth-biggest bank in
Canada by assets and the eighth largest in North America. It is
pursuing commercial banking growth in the US, mostly in the
Midwest, which could drive an expansion in earnings as the economy
recovers. It has the lowest relative exposure to Canadian mortgages
and is uniquely focused on the mid-cap market niche, supporting
faster growth than its peers. |
Financials |
4.9% |
TD Bank TD’s retail operations are larger relative
to its peers at about 90% of total income. The company has more
than 2,300 branches throughout Canada and the Eastern US. As a
result, it is the most sensitive to shifts in interest rates among
the big Canadian banks and is expected to outperform during periods
of a steepening yield curve. |
Financials |
4.5% |
Bank of Nova ScotiaScotia provides retail,
corporate and investment banking services primarily in Canada and
Latin America. Its main operating arm, Scotiabank, has nearly 1,000
Canadian branches and over 1,800 additional offices throughout the
world. We believe Scotiabank has the best operating leverage in its
peer group due to its focus on strict cost controls. |
Financials |
4.5% |
RioCan REITRioCan owns and
operates premier retail real estate properties throughout Canada.
More than 90% of its assets are located in Canada’s six largest
markets, making for one of the highest-quality portfolios of urban
real estate in the country. The company has a robust mixed-use
development program which is supported by its formidable balance
sheet. |
Real Estate |
3.8% |
AltaGasAltaGas is an energy infrastructure company
with a focus on regulated Utilities and Midstream operations,
including a focus on clean energy. We believe AltaGas’ WGL utility
business is under-appreciated in light of its 8% expected rate base
growth per annum through 2025 and the discount at which the company
trades relative to its regulated utility peers. |
Utilities |
3.8% |
Capital PowerCapital Power is an independent power
producer with approximately 6,400 MW of power generation capacity
across North America. The company is on a path to net carbon
neutrality by 2050, highlighted by the recent closing of its $1
billion sustainability-linked credit facility which is tied to a
65% reduction in GHC intensity by 2030. |
Utilities |
3.7% |
STRATEGIC REPORT (continued)
INVESTMENT MANAGER’S INTERIM REPORT
(continued)Six months to 30 June
2021 (Unaudited)
Top 10 Holdings (continued)
Company |
Sector |
% of NAV |
SmartCentres REITSmartCentres
owns open-air shopping centres throughout Canada totalling more
than 34 million square feet of leasable space with an additional 28
million square feet in various stages of development. Approximately
70% of its centres are anchored by Walmart, which drives foot
traffic and supports neighbouring businesses. |
Real Estate |
3.6% |
KeyeraKeyera provides natural gas and natural gas
liquids midstream services in Western Canada. Operations include
gathering, processing, fractionation, storage, transportation and
marketing. Keyera is well positioned to self-fund growth given its
strong balance sheet and increasingly ability to process gas more
efficiently. |
Pipelines |
3.5% |
EnbridgeEnbridge operates an extensive network of
oil, liquids and natural gas pipelines, gas distribution utilities
and renewable power generation facilities. The company pays a safe
and robust quarterly dividend which has grown at a compound annual
growth rate of 14% since 2012, including a 10% hike in 2020. |
Pipelines |
3.5% |
Outlook
The outlook for North American equity income
remains very attractive. Interest rates are near historical lows
and support current market multiples, particularly for Canadian
issuers which trade at a discount to their U.S. counterparts.
Corporate earnings are expected to continue to recover from
depressed levels over the next several quarters and into 2022 as
consumer demand and supply chain challenges recover from the
pandemic.
Canada is well-positioned to navigate the delta
variant in the autumn months as children return to school due to
its high level of vaccination and unique rollout strategy. Millions
of Canadians received mixed doses of approved vaccines at delayed
intervals which studies show could provide greater longevity of the
immune response and provide better overall protection. The upcoming
Canadian federal election, which will take place on 20 September,
2021, does not in any way impact our views on the outlook for our
Canadian portfolio companies. Barring any new setbacks, Canada’s
economy will revert to pre-pandemic activity levels in 2022. As a
result, our chosen geographic allocation still favours Canadian
equities over U.S. stocks and emphasizes cyclical and value
sectors. Canada is better positioned to benefit from a rebound in
global growth and there is still an unprecedented valuation gap
between equities in the two countries.
Our diversified portfolio of dividend-paying and
dividend-growing equities should generate attractive risk-adjusted
returns relative to other asset classes in the current investment
environment. Our focus on companies with predictable cash flows and
sustainable business models will help mitigate future
volatility.
Middlefield
LimitedDate: 16 September 2021
Past performance is not a guide to future
performance.This half-yearly financial report is available at:
www.middlefield.co.uk.
STRATEGIC REPORT (continued)
INVESTMENT MANAGER’S INTERIM REPORT
(continued)
Environmental, Social and Governance
(“ESG”)
Considerations
Middlefield ESG Policy
It is Middlefield’s responsibility to employ a
disciplined investment process that seeks to identify attractive
investment opportunities and evaluate material risks that could
impact portfolio returns. Consistent with these objectives,
Middlefield integrates ESG considerations into its investment
process because Middlefield believes that ESG factors have become
an important component of a thorough investment analysis and that
the integration of ESG factors will result in a more fulsome
understanding of a company’s strategy, culture and
sustainability.
In addition to Middlefield's integration of ESG
considerations into its investment process, its affiliate
Middlefield Limited (a registered Canadian investment fund manager)
has adopted Stewardship Principles in order to effectively steward
the assets it manages for its clients. The Stewardship Principles
below and its stewardship activities carried out pursuant to the
principles are complementary to its ESG integration process.
ESG considerations are integral to Middlefield’s
investment decision-making, as well as its ongoing portfolio
monitoring process. Its current ESG integration process includes
the following:
1. Middlefield incorporates ESG scores and other
ESG data in its multi-disciplined investment process to evaluate
investments. Its methodology includes a qualitative review and
assignment of ESG scores to individual holdings. Each company is
analysed on an absolute basis and measured relative to its peers.
The ESG scores and other ESG data are not the sole factors that
govern its investment decisions, however, but rather constitute
part of the information it reviews and consider alongside its
fundamental, quantitative and qualitative research.
2. Its ESG scoring framework considers the
average ESG scores from several reputable third-party data
providers. In addition, it cross-references potential investments
with the constituents of relevant ESG indexes to assess their
eligibility in ESG-focused mandates. The data providers it has
chosen to incorporate into its ESG analysis currently are
Sustainalytics, S&P, Bloomberg and Refinitiv.
3. Negative screening is implemented in
ESG-focused mandates to exclude companies that operate in
ethically-contentious industries (e.g. tobacco products and
military weapons) as well as those involved in severe business
controversies.
4. Positive screening is used to select
companies that possess positive ESG characteristics. This process
involves analysing sustainability data provided by reputable
third-parties to determine how companies are ESG-rated and ranked
relative to peers.
5. ESG considerations also are integrated into
its investment process by, among other things:
-
reviewing companies’ public disclosure, including annual reports,
proxy circulars, and, if available, sustainability or ESG
reports
-
conducting research and analysis on companies’ ESG policies and
practices
-
obtaining third party research on companies
-
engaging with companies, including from time to time having
discussions with management teams (both before purchasing shares
for the portfolios and while its portfolios own such shares) on
topics such as what initiatives and strategies have been put in
place by the companies to deal with ESG considerations material to
such companies
-
monitoring shareholder meetings and voting proxies
Many countries have established or are in the
process of establishing standardized ESG disclosure requirements
for corporate issuers. When enacted, these are expected to enhance
the efficiency of its ongoing review and monitoring of a company’s
ESG practices.
Middlefield’s approach to ESG integration may
evolve over time as more ESG and sustainability research and data
become available.
STRATEGIC REPORT (continued)
INVESTMENT MANAGER’S INTERIM REPORT
(continued)
Middlefield’s Stewardship
Principles
Middlefield Limited (“Middlefield”), as a
Canadian asset manager, understands it has the responsibility to be
an effective steward of the assets it manages for its clients in
order to enhance the value of those assets for the benefit of its
clients. The Canadian Coalition for Good Governance (“CCGG”) has
published a set of seven stewardship principles which have become
recognized as Canada’s stewardship code for institutional asset
owners and asset managers. Middlefield believes that CCGG’s
stewardship principles should be tailored for asset managers
depending on various factors, such as the size of the asset manager
and the type of assets managed. Set out below are CCGG’s
seven stewardship principles and a description of how Middlefield,
as an independent Canadian asset manager whose predominant
assets are public and private investment funds that invest in
Canadian and international equities, carries out or intends to
carry out such principles.
Principle 1. Develop an approach to stewardship:
Institutional investors should develop, implement and disclose
their approach to stewardship and how they meet their stewardship
responsibilities.
Middlefield integrates stewardship into its
investment process. Such integration includes:
-
a procedure for voting proxies (see Principle 3 below)
-
monitoring companies (see Principle 2 below)
-
engaging with companies (see Principle 4 below)
-
outsourcing stewardship activities (by among other things utilizing
a proxy advisory firm to assist in monitoring companies and voting
proxies)
-
reporting to its clients (as required by law)
-
managing potential conflicts of interest (via Middlefield’s
Independent Review Committee mandated by National Instrument 81-107
as well as Middlefield’s Code of Conduct)
Principle 2. Monitor companies: Institutional
Investors should monitor the companies in which they invest.
Middlefield monitors the companies in which it
invests, including as follows:
-
it reviews companies’ public disclosures, including annual reports
and proxy circulars
-
it conducts research and analysis on companies
-
it obtains third party research on companies
-
it engages with companies (see Principle 4 below)
-
it monitors formal shareholder meetings and, if there is a
particularly important matter and it believes it is practical and
appropriate to do so, it attends formal shareholder
meetings
Principle 3. Report on voting activities:
Institutional investors should adopt and publicly disclose their
proxy voting guidelines and how they exercise voting rights.
STRATEGIC REPORT
(continued)
INVESTMENT MANAGER’S INTERIM REPORT
(continued)
Middlefield’s Stewardship
Principles (continued)
Middlefield exercises voting rights attached to
the securities held by the funds it manages as follows:
-
Middlefield uses the following proxy voting guidelines:
-
proxies will be voted in a manner that seeks to enhance the
long-term sustainable value of the funds it manages
-
proxies will be voted in a manner consistent with leading Canadian
and international corporate governance practices
-
on routine matters, Middlefield generally supports management and
the board unless there are unusual circumstances
-
Middlefield uses the services of a proxy advisory firm to assist in
voting proxies. Middlefield assesses the voting recommendations of
the proxy advisory firm but Middlefield also monitors leading
Canadian and international corporate governance practices.
Middlefield does not automatically follow the recommendations of
the proxy advisory firm, but in most cases it votes as recommended.
Middlefield retains ultimate responsibility for all proxy voting
decisions.
In addition, the public funds managed by
Middlefield follow the proxy voting requirements of Part 10 of
National Instrument 81-106 in regard to establishing policies and
procedures for proxy voting and in regard to preparing and
disclosing their proxy voting records.
Principle 4. Engage with companies:
Institutional investors should engage with portfolio companies.
Middlefield engages with portfolio companies as
follows:
-
Middlefield engages with management of portfolio companies
regularly, both before shares are purchased for the funds it
manages and also while its funds own shares of the portfolio
companies
-
when Middlefield believes it is warranted, it may escalate
engagement activities by engaging with directors, by voting against
or withholding votes from directors or by voting against companies’
say on pay resolutions
Principle 5. Collaborate with other
institutional investors: Institutional investors should collaborate
with other institutional investors where appropriate.
-
Middlefield collaborates with other institutional investors through
investor associations to which Middlefield belongs such as the
Responsible Investment Association (RIA)
Principle 6. Work with policy makers:
Institutional investors should engage with regulators and other
policy makers where appropriate.
-
Middlefield’s professional advisors, such as the law firms and
accounting firms it retains, assist to keep us up to date on
developments that are material to us as an asset manager. It
utilizes its professional advisors, and it also relies on the
organizations to which it belongs, to engage on its behalf
with regulators and policy makers where appropriate.
Principle 7. Focus on long-term sustainable
value: Institutional investors should focus on promoting the
creation of long-term sustainable value.
-
Middlefield focuses on a portfolio company’s long-term success and
sustainable value creation, including as follows:
-
Middlefield focuses on a company’s management and strategy, as well
as its risks (both company specific and systemic)
-
Middlefield considers environmental, social and governance factors
that are relevant to a company and integrates such factors into its
investment activities
STRATEGIC REPORT (continued)
INVESTMENT MANAGER’S INTERIM REPORT
(continued)
ESG Case Studies
Scotiabank (Top 3% ESG ranking and 4.5%
of the portfolio as at 30 June
2021)
Summary: One of Canada's Big
Five banks, it is the third largest Canadian bank by deposits and
market capitalization and serves over 25 million customers.
Scotiabank’s approach to Environmental, Social, and Governance
(ESG) focuses on four pillars: Environmental Action, Economic
Resilience, Inclusive Society and Leadership & Governance.
Scotiabank achieves top scores in Corporate Governance among
financial institutions globally and commits large donations and
sponsorships to its local communities. Their business model
possesses low ESG risk.
Highlights:
- Has deployed over $28 billion of
the $100 billion committed to reduce the impacts of climate change
by 2025 through lending, financing and investing toward climate
reduction initiatives
- Surpassed a 30% target of women on
its Board of Directors with 42% of its nominated directors as
women
Top ESG Issues:
- Increasing support for small and
medium-sized enterprises, women entrepreneurs and other
underrepresented sectors of the economy
- ESG disclosure score is in line
with peers
ESG Rank Relative to the Fund’s
Benchmark (TSX High Dividend Index)
Sources: S&P, Sustainalytics, Bloomberg.
ESG materials:
https://www.scotiabank.com/ca/en/about/responsibility-impact/esg-strategy.html
and
https://www.scotiabank.com/content/dam/scotiabank/canada/en/documents/about/Scotiabank_2020_ESG_Report_Final.pdf
STRATEGIC REPORT (continued)
INVESTMENT MANAGER’S INTERIM REPORT
(continued)
ESG Case Studies (continued)
Enbridge (Top 12% ESG ranking and 3.5%
of equities as at 30 June 2021)
Summary: Enbridge is a leading
North American energy infrastructure company that is making
significant strides implementing its sustainability goals while
investing in clean technologies as the company adapts to the energy
transition that will occur for decades to come. ENB is
competitively ranked for its ESG performance and is progressing
well towards its goal of being net zero of greenhouse gases (GHG)
by 2050. The company recently closed its inaugural
Sustainability-Linked Bond issuance for $1 billion USD,
incorporating emissions and inclusion goals into the financing
terms. Their business model possesses medium ESG risk but
management’s understanding of key ESG issues is robust. Enbridge
leads their peers for ESG programs, practices and policies.
Highlights:
- Currently using hydrogen technology
to reduce natural gas emissions and they have achieved a 25%
reduction in GHG emissions since 2018
- Current targets of 40% women and
20% of all board members having an ethnic racial background have
been set for 2025
Top ESG Issues:
- Enbridge is exposed to high ESG
controversy due to its industry group and own emissions
- Inclusion, diversity, equity, and
accessibility are still below targets but are progressing
ESG Rank Relative to the Fund’s
Benchmark (TSX High Dividend Index)
Sources: S&P, Sustainalytics, Bloomberg.
ESG materials:
https://www.enbridge.com/about-us/our-values/sustainability and
https://www.enbridge.com/~/media/Enb/Documents/Reports/Sustainability%20Report%202020/Enbridge_SR_2020.pdf
CORPORATE INFORMATION
Registered Office
28 EsplanadeSt HelierJersey JE2 3QA
MANAGEMENT AND ADMINISTRATION
Directors |
Michael Phair (Chairman) |
|
Philip Bisson |
|
Thomas Grose (resigned 17 June
2021) |
|
Dean Orrico |
|
Richard Hughes |
|
Raymond Apsey (resigned 17 June
2021) |
|
Kate Anderson (appointed 12 April
2021) |
|
|
Administrator and Secretary |
JTC Fund Solutions (Jersey)
Limited |
|
28 Esplanade |
|
St. Helier |
|
Jersey, JE2 3QA |
|
|
Assistant Secretary |
JTC Fund Solutions (Guernsey)
Limited (ceased to act 30 June 2021) |
|
Ground Floor, Dorey Court |
|
Admiral Park |
|
St. Peter Port |
|
Guernsey, GY1 2HT |
|
|
Investment Advisor |
Middlefield International
Limited |
|
288 Bishopsgate |
|
London, EC2M 4QP |
|
|
Investment Manager |
Middlefield Limited |
|
Suite 5855 |
|
100 King St W |
|
Toronto ON |
|
Canada, M5X 1A6 |
|
|
Legal Advisers: |
In England |
|
Ashurst LLP |
|
London Fruit & Wool Exchange1
Duval SquareLondon, E1 6PW |
|
|
|
In Jersey |
|
Carey Olsen Jersey LLP |
|
47 Esplanade |
|
St. Helier |
|
Jersey, JE1 0BD |
|
|
|
In Canada |
|
Fasken Martineau DuMoulin
LLP |
|
Bay Adelaide Centre |
|
Box 20, Suite 2400 |
|
333 Bay Street |
|
Toronto, Ontario |
|
Canada, M5H 2T6 |
|
|
|
|
CORPORATE INFORMATION
(continued) |
|
|
|
MANAGEMENT
AND ADMINISTRATION (continued) |
|
|
Broker and Corporate Advisor |
Investec Bank plc |
|
30 Gresham Street |
|
London |
|
EC2V 7QP |
|
|
Custodian |
RBC Investor Services Trust |
|
335 – 8th Avenue SW |
|
23rd Floor |
|
Calgary, Alberta |
|
Canada, T2P 1C9 |
|
|
Registrar |
Link Market Services (Jersey)
Limited |
|
12 Castle Street |
|
St. Helier |
|
Jersey, JE2 3RT |
|
|
CREST Agent, UK Paying Agent and
Transfer Agent |
Link Market Services
Limited |
|
The Registry |
|
34 Beckenham Road |
|
Beckenham |
|
Kent, BR3 4TU |
|
|
Independent Auditor |
RSM Channel Islands (Audit)
Limited |
|
40 Esplanade |
|
St Helier |
|
Jersey |
|
JE4 9RJ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Calendar |
|
Annual Results |
Announced 16 April 2021 |
Dividend Payment Dates |
Last Business Day of January,
April, July and October |
Annual General Meetings |
17 June 2021 |
Half-Yearly Results |
Announced September 2021 |
Information Sources
For more information about the Company and Fund, visit the
website www.middlefield.co.uk/mcit.htm.
CONDENSED STATEMENT OF
FINANCIAL POSITION OF THE FUND
(Unaudited)
As at 30 June
2021with unaudited
comparatives as at 30 June
2020and audited
comparatives as at 31 December
2020
|
Notes |
|
30.06.2021 |
|
30.06.2020 |
|
31.12.2020 |
|
|
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
Securities (at fair value through profit or loss) |
3 & 18 |
|
167,714,894 |
|
109,221,611 |
|
129,564,819 |
Accrued bond interest |
|
|
- |
|
17,402 |
|
- |
Accrued bank interest |
|
|
- |
|
- |
|
- |
Accrued dividend income |
|
|
519,594 |
|
434,555 |
|
419,004 |
Other receivables |
|
|
2 |
|
2 |
|
2,125 |
Prepayments |
|
|
11,486 |
|
2,323 |
|
20,124 |
Cash and cash equivalents |
4 |
|
1,994,433 |
|
7,429,262 |
|
5,621,538 |
|
|
|
170,240,409 |
|
117,105,155 |
|
135,627,610 |
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Other payables and accruals |
5 |
|
(424,194) |
|
(359,305) |
|
(318,742) |
Interest payable |
|
|
(35,064) |
|
(7,081) |
|
(21,776) |
Loan payable |
14 |
|
(34,316,372) |
|
(14,812,456) |
|
(25,775,293) |
|
|
|
(34,775,630) |
|
(15,178,842) |
|
(26,115,811) |
|
|
|
|
|
|
|
|
Net assets |
|
|
135,464,779 |
|
101,926,313 |
|
109,511,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to
equity holders |
|
|
|
|
|
|
|
Stated capital |
6 |
|
49,704,414 |
|
49,704,414 |
|
49,704,414 |
Retained earnings |
|
|
85,760,365 |
|
52,221,899 |
|
59,807,385 |
Total Shareholders’
equity |
|
|
135,464,779 |
|
101,926,313 |
|
109,511,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per
redeemable participating preference share (pence) |
7 |
|
127.21 |
|
95.72 |
|
102.84 |
The interim financial statements and notes on
pages 19 to 36 were approved by the Directors on 16 September 2021
and signed on behalf of the Board by:
Michael Phair |
Richard Hughes |
Director |
Director |
The accompanying notes on pages 23 to 36 form an
integral part of these interim financial
statements.
CONDENSED STATEMENT OF
COMPREHENSIVE
INCOME/(LOSS) OF THE
FUND
(Unaudited)For the period
1 January 2021 to 30
June 2021 with unaudited
comparatives for the period 1 January
2020 to 30 June
2020 and audited comparatives for the year
ended 31 December
2020
|
|
|
Six months ended 30 June
2021 |
|
Six months ended |
|
Year ended |
|
|
|
|
30 June 2020 |
|
31 December
2020 |
|
Notes |
|
Revenue |
Capital |
Total |
|
Total |
|
Total |
|
|
|
GBP |
GBP |
GBP |
|
GBP |
|
GBP |
Revenue |
|
|
|
|
|
|
|
|
|
Dividend and interest income |
8 |
|
3,631,288 |
- |
3,631,288 |
|
2,850,304 |
|
5,684,265 |
Net movement in the fair value of securities (at fair value through
profit or loss) |
9 |
|
- |
26,944,501 |
26,944,501 |
|
(21,950,317) |
|
(13,554,835) |
Net movement on foreign exchange |
|
|
- |
(437,422) |
(437,422) |
|
639,869 |
|
917,328 |
Total
revenue/(loss) |
|
|
3,631,288 |
26,507,079 |
30,138,367 |
|
(18,460,144) |
|
(6,953,242) |
|
|
|
|
|
|
|
|
|
|
Expenditure |
|
|
|
|
|
|
|
|
|
Investment management fees |
|
|
171,556 |
257,333 |
428,889 |
|
377,880 |
|
744,032 |
Custodian fees |
|
|
6,752 |
- |
6,752 |
|
6,025 |
|
11,381 |
Sponsor’s fees |
|
|
30,636 |
- |
30,636 |
|
26,993 |
|
53,146 |
Other expenses |
|
|
309,567 |
- |
309,567 |
|
273,575 |
|
582,497 |
Operating
expenses |
|
|
518,511 |
257,333 |
775,844 |
|
684,473 |
|
1,391,056 |
|
|
|
|
|
|
|
|
|
|
Net operating
profit/(loss) before finance
costs |
|
|
3,112,777 |
26,249,746 |
29,362,523 |
|
(19,144,617) |
|
(8,344,298) |
Finance cost |
|
|
(61,052) |
(91,580) |
(152,632) |
|
(222,468) |
|
(319,565) |
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
|
3,051,725 |
26,158,166 |
29,209,891 |
|
(19,367,085) |
|
(8,663,863) |
Withholding tax expense |
|
|
(541,486) |
- |
(541,486) |
|
(367,127) |
|
(769,438) |
Net
profit/(loss) |
|
|
2,510,239 |
26,158,166 |
28,668,405 |
|
(19,734,212) |
|
(9,433,301) |
|
|
|
|
|
|
|
|
|
|
Profit/(loss) per redeemable participating
preference share - basic and diluted (pence) |
10 |
|
2.36 |
24.56 |
26.92 |
|
(18.53) |
|
(8.86) |
|
|
|
|
|
|
|
|
|
|
The Company including the Fund has no other
items of income or expense for the current and prior periods and
accordingly the net profit/(loss) for the current and prior periods
represent total comprehensive income/(loss).
There are zero earnings attributable to the
management shares. All activities derive from continuing
operations.
The accompanying notes on pages 23 to 36 form an
integral part of these unaudited interim condensed financial
statements.
CONDENSED STATEMENT OF CHANGES IN
REDEEMABLE PARTICIPATING PREFERENCE SHAREHOLDERS’ EQUITY
OF THE FUND
(Unaudited)For the period
1 January 2021 to 30
June 2021 with unaudited
comparatives for the period 1 January
2020 to 30 June
2020and audited comparatives for the year
ended 31 December
2020
|
Notes |
Stated capital accountGBP |
Retained incomeGBP |
TotalGBP |
|
|
|
|
|
At 1
January 2020 |
|
49,704,414 |
74,671,536 |
124,375,950 |
Loss for the
period |
|
- |
(19,734,212) |
(19,734,212) |
Dividends
paid |
12 |
- |
(2,715,425) |
(2,715,425) |
At 30 June 2020 |
|
49,704,414 |
52,221,899 |
101,926,313 |
|
|
|
|
|
|
|
|
|
|
Profit for the
period |
|
- |
10,300,911 |
10,300,911 |
Dividends
paid |
|
- |
(2,715,425) |
(2,715,425) |
At 31 December 2020 |
|
49,704,414 |
59,807,385 |
109,511,799 |
|
|
|
|
|
|
|
|
|
|
Profit for the
period |
|
- |
28,668,405 |
28,668,405 |
Dividends
paid |
12 |
- |
(2,715,425) |
(2,715,425) |
At 30 June 2021 |
|
49,704,414 |
85,760,365 |
135,464,779 |
|
|
|
|
|
The accompanying
notes on pages 23 to 36 form an integral part of these unaudited
interim condensed financial statements.
CONDENSED CASH FLOW STATEMENT OF THE
FUND
(Unaudited)For the period
1 January 2021 to 30
June 2021 with unaudited
comparatives for the period 1 January
2020 to 30 June
2020and audited comparatives for the year
ended 31 December
2020
|
Notes |
Six monthsended 30 June |
|
Year
ended31
December |
|
|
2021 |
|
2020 |
|
2020 |
|
|
GBP |
|
GBP |
|
GBP |
Cash flows
from/(used in) operating
activities |
|
|
|
|
|
|
Net profit / (loss) |
|
28,668,405 |
|
(19,734,212) |
|
(9,433,301) |
Adjustments for: |
|
|
|
|
|
|
Net movement in the fair value of securities (at fair value through
profit or loss) |
9 |
(26,944,501) |
|
21,950,317 |
|
13,554,835 |
Realised gain on foreign exchange |
|
(51,206) |
|
(391,175) |
|
(863,673) |
Unrealised loss/(gain) on foreign exchange |
|
488,628 |
|
(248,694) |
|
(53,655) |
Payment for purchases of
securities |
|
(31,635,051) |
|
(69,425,325) |
|
(157,086,351) |
Proceeds from sale of
securities |
|
20,429,479 |
|
82,329,326 |
|
158,042,626 |
Operating cash flows
before movements in working capital |
|
(9,044,246) |
|
14,480,237 |
|
4,160,481 |
|
|
|
|
|
|
|
(Increase)/decrease in receivables |
|
(89,829) |
|
111,632 |
|
124,661 |
Increase/(decrease) in payables and accruals |
|
118,740 |
|
(71,704) |
|
(97,572) |
Net cash
from/(used in)
operating activities |
|
(9,015,335) |
|
14,520,165 |
|
4,187,570 |
|
|
|
|
|
|
|
Cash flows (used in)/from
financing activities |
|
|
|
|
|
|
Repayment of borrowings |
|
(54,359,536) |
|
(40,624,864) |
|
(69,877,236) |
New bank loans raised |
|
62,900,613 |
|
29,410,518 |
|
69,625,727 |
Dividends paid |
12 |
(2,715,425) |
|
(2,715,425) |
|
(5,430,850) |
Net cash
(used in)/from financing
activities |
|
5,825,652 |
|
(13,929,771) |
|
(5,682,359) |
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(3,189,683) |
|
590,394 |
|
(1,494,789) |
Cash and cash equivalents at the beginning of period |
|
5,621,538 |
|
6,198,999 |
|
6,198,999 |
Effect of foreign exchange rate changes |
|
(437,422) |
|
639,869 |
|
917,328 |
|
|
|
|
|
|
|
Cash and cash equivalents
at the end of period |
4 |
1,994,433 |
|
7,429,262 |
|
5,621,538 |
|
|
|
|
|
|
|
Cash and cash equivalents
made up of: |
4 |
|
|
|
|
|
Cash at bank |
|
1,994,433 |
|
7,429,262 |
|
5,621,538 |
|
|
|
|
|
|
|
The accompanying notes on pages 23 to 36 form an
integral part of these unaudited interim condensed financial
statements.
NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS OF THE
FUND
(Unaudited)For the period
1 January 2021 to 30
June 2021 with unaudited
comparatives for the period 1 January
2020 to 30 June
2020and audited comparatives for the year
ended 31 December
2020 1. General
Information
The Company is a closed-ended investment company
incorporated in Jersey on 24 May 2006. The Company has one
closed-ended cell: Middlefield Canadian Income - GBP PC, also
referred to as the “Fund”. The Fund seeks to provide shareholders
with a high level of dividends as well as capital growth over the
longer term. The Fund intends to pay dividends on a quarterly basis
each year. The Fund seeks to achieve its investment objective by
investing predominantly in the securities of companies and REITs
domiciled in Canada and the United States that the Investment
Manager believes will provide an attractive level of distributions,
together with the prospect for capital growth. In 2015,
shareholders also approved an amendment to the investment policy to
increase the percentage of the value of portfolio assets which may
be invested in securities listed on a recognized stock exchange
outside Canada to up to 40 per cent.
The address of the Company’s registered office
is 28 Esplanade, St Helier, Jersey JE2 3QA, Channel Islands.
The Fund’s shares have been admitted to the
Official List of the FCA and to trading on the London Stock
Exchange’s Main Market for listed securities.
The functional and presentational currency of
the Company and the Fund is Pound Sterling (“GBP”).
The Company and the Fund have no employees.
The half-yearly report and interim condensed
financial statements have not been audited or reviewed by the
auditor, RSM Channel Islands (Audit) Limited, pursuant to the
Auditing Practices Board guidance on ‘Review of Interim Financial
Information’.
The information presented for the year ended 31
December 2020 does not constitute the statutory financial
statements of the Company. Copies of the statutory financial
statements for that year have been delivered to the Registrar of
Companies in Jersey and to the UK Financial Conduct Authority’s
National Storage Mechanism. Copies are also available from the
Company’s website www.middlefield.co.uk. The Auditor’s report on
those financial statements was unqualified.
2. Accounting
Policies
a. Basis
of preparation
The interim condensed financial information for
the period ended 30 June 2021 has been prepared in accordance with
IAS 34 ‘Interim Financial Reporting’ as adopted by the European
Union. The interim condensed financial information should be read
in conjunction with the annual financial statements for the year
ended 31 December 2020, which have been prepared in accordance with
International Financial Reporting Standards (IFRS).
The interim condensed financial statements have
been prepared on the historical cost basis, except for the
revaluation of fair value through profit or loss investments, and
in accordance with IFRS. The condensed statement of comprehensive
income is presented in accordance with the Statement of Recommended
Practice (SORP) ‘Financial Statements of Investment Trust Companies
and Venture Capital Trusts’ issued in January 2009 by the
Association of Investment Companies (“AIC”), to the extent that it
does not conflict with IFRS.
The condensed statement of financial position,
condensed statement of comprehensive income, condensed statement of
changes in redeemable participating preference shareholders’ equity
and condensed cash flow statement refer solely to the Fund. The
non-cellular assets comprise two Management Shares. However, there
has been no trading activity with regards to the non-cellular
assets.
NOTES TO THE
INTERIM CONDENSED FINANCIAL STATEMENTS OF
THE FUND (Unaudited) (Continued)For the
period 1 January 2021 to 30 June 2021
with unaudited comparatives for the period
1 January 2020 to 30 June 2020and audited
comparatives for the year ended 31 December
2020
2. Accounting
Policies (continued)
b. Going
concern
In the opinion of the Directors, there is a
reasonable expectation that the Company and the Fund have adequate
resources to continue in operational existence for the foreseeable
future. For this reason, the interim financial statements have been
prepared on the going concern basis.
The Directors have arrived at this opinion by
considering, inter alia, the following factors:
- the Fund has sufficient liquidity
to meet all on-going expenses and repayment of external borrowings;
and
- the portfolio of investments held
by the Fund materially consists of listed investments which are
readily realisable and therefore the Fund will have sufficient
resources to meet its liquidity requirements.
c. Standards
and Interpretations
The accounting policies applied are consistent
with those of the annual financial statements for the year ended 31
December 2020, as described in those financial statements.
Adoption of new and revised StandardsAt the date
of authorisation of these interim financial statements, there were
no standards and interpretations in issue which became
effective.
New standards and interpretations not yet
effective and have not been adopted early by the Company • IAS 1,
‘Presentation of financial statements on classification of
liabilities’ (effective periods commencing on or after 1 January
2022).• IFRS 17, ‘Insurance contracts’ (effective periods
commencing on or after 1 January 2023).
d. Business
and geographical segments
The Directors are of the opinion that the Fund
is engaged in a single segment of business investing predominantly
in securities and REITs domiciled in Canada and the U.S. to which
the Fund is solely exposed and therefore no segment reporting is
provided.
3. Securities
(at fair value through profit or loss)
|
30.06.2021 |
|
30.06.2020 |
|
31.12.2020 |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
Quoted/listed Equities |
167,714,894 |
|
108,041,302 |
|
129,564,819 |
Quoted/listed Bonds |
- |
|
1,180,309 |
|
- |
|
167,714,894 |
|
109,221,611 |
|
129,564,819 |
|
|
|
|
|
|
Please refer to Note
18 for the Schedule of Investments. |
|
|
|
|
NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited)
(Continued)For the period 1 January
2021 to 30 June
2021 with unaudited
comparatives for the period 1 January 2020 to 30
June 2020and audited comparatives for the year
ended 31 December
2020
4. Cash
and cash equivalents
|
30.06.2021 |
|
30.06.2020 |
|
31.12.2020 |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
Cash at bank |
1,994,433 |
|
7,429,262 |
|
5,621,538 |
Cash and cash equivalents comprise cash held by
the Fund and bank balances with an original maturity of three
months or less. The carrying value of these assets approximates to
their fair value.
5. Other
payables and accruals
|
30.06.2021 |
|
30.06.2020 |
|
31.12.2020 |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
Investment management fees (Note
11) |
227,197 |
|
172,696 |
|
187,303 |
Sponsor’s fees |
16,228 |
|
12,336 |
|
13,379 |
Audit fees |
12,397 |
|
14,918 |
|
25,000 |
Administration fees |
32,457 |
|
24,671 |
|
26,758 |
General expenses |
10,363 |
|
2,052 |
|
16,049 |
Directors’ fees |
63,679 |
|
87,739 |
|
1,500 |
Registrar’s fees |
7,821 |
|
7,429 |
|
7,257 |
Custodian fees |
2,302 |
|
5,398 |
|
4,500 |
Tax service fees |
- |
|
- |
|
2,676 |
Marketing fees |
3,906 |
|
- |
|
- |
Investor relations fee (Note
11) |
42,127 |
|
32,066 |
|
34,320 |
National Insurance |
5,717 |
|
- |
|
- |
|
424,194 |
|
359,305 |
|
318,742 |
6. Stated
capital account
The authorised share capital of the Fund is
split into two management shares of no par value and an unlimited
number of redeemable participating preference shares of no par
value, the latter of which are attributable solely to the Fund.
|
No. of shares |
GBP |
Management shares
issued |
|
|
At 31
December 2020 |
2 |
2 |
At 30 June
2021 |
2 |
2 |
Redeemable participating
preference shares issued |
|
|
At 31 December
2020 |
106,487,250 |
49,704,412 |
|
|
|
Movement for the period |
- |
- |
|
|
|
At 30
June 2021 |
106,487,250 |
49,704,412 |
|
|
|
|
|
|
Total
stated capital at 30 June 2021 |
|
49,704,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited)
(Continued)For the period 1 January
2021 to 30 June
2021 with unaudited comparatives
for the period 1 January 2020 to
30 June 2020and audited
comparatives for the year ended 31 December
2020
6. Stated capital account
(continued)
The holders of redeemable participating
preference shares are entitled to receive in proportion to their
holdings, all of the revenue profits of the Fund (including
accumulated revenue reserves).
Each redeemable participating preference
shareholder is entitled to one vote for each share held, provided
all amounts payable in respect of that share have been paid.
Management shares are non-redeemable, have no
right in respect of the accrued entitlement, and have no right to
participate in the assets of the Fund on a winding-up. In all other
respects, the management shares have the same rights and
restrictions as redeemable participating preference shares. Each
management share entitles the holder to one vote for each share
held.
Redeemable participating preference shares are
redeemed at the absolute discretion of the directors. Since
redemption is at the discretion of the directors, in accordance
with the provisions of IAS 32, the redeemable participating
preference shares are classified as equity. The Fund will not give
effect to redemption requests in respect of more than 25 per cent.
of the shares then in issue, or such lesser percentage as the
directors may decide.
At the period end, there were 18,195,000 (30
June 2020: 18,195,000, 31 December 2020: 18,195,000) treasury
shares in issue. Treasury shares have no value and no voting
rights.
7. Net
asset value per redeemable participating preference
share
The net asset value per share of 127.21p (30
June 2020: 95.72p, 31 December 2020: 102.84p) is based on the net
assets at the period end of £135,464,779 (30 June 2020:
£101,926,313, 31 December 2020: £109,511,799) and on 106,487,250
redeemable participating preference shares, being the number of
redeemable participating preference shares in issue (excluding
shares held in treasury) at the period end (30 June 2020:
106,487,250 shares, 31 December 2020: 106,487,250 shares).
8. Dividend
and interest income
|
Period ended
30.06.2021 |
|
|
|
|
|
Revenue |
Capital |
Total |
|
30.06.2020 |
|
31.12.2020 |
|
GBP |
GBP |
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
Bond and debenture interest |
- |
- |
- |
|
66,165 |
|
89,388 |
Bank and loan interest |
1,734 |
- |
1,734 |
|
89,212 |
|
96,562 |
Dividend income |
3,629,554 |
- |
3,629,554 |
|
2,694,927 |
|
5,498,315 |
|
3,631,288 |
- |
3,631,288 |
|
2,850,304 |
|
5,684,265 |
9. Net
movement in the fair value of
securities
|
Period ended
30.06.2021 |
|
|
|
|
|
Revenue |
Capital |
Total |
|
30.06.2020 |
|
31.12.2020 |
|
GBP |
GBP |
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
Net movement in the fair value of
securities(at fair value through profit or loss) |
- |
26,944,501 |
26,944,501 |
|
(21,950,317) |
|
(13,554,835) |
NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited)
(Continued)For the period 1 January
2021 to 30 June
2021 with unaudited
comparatives for the period 1 January 2020 to 30
June 2020
and audited comparatives for the year
ended 31 December
2020
10. Profit
per redeemable participating preference share
– basic and diluted
The revenue gain per share is based on
£2,510,239 (30 June 2020: £1,936,445, December 2020: £3,842,364)
net revenue gain on ordinary activities and a weighted average of
106,487,250 (30 June 2020: 106,487,250, 31 December 2020:
106,487,250) shares in issue. The capital gain per share is based
on £26,158,166 (30 June 2020: £21,670,657 net capital loss, 31
December 2020: £13,275,665 net capital loss) net capital gain for
the period and a weighted average of 106,487,250 shares in issue
(30 June 2020: 106,487,250, 31 December 2020: 106,487,250).
11. Related
party transactions
The directors are regarded as related parties.
Total directors’ fees earned during the period amounted to £62,179,
of which £62,179 remained outstanding at the period end. In
addition, the balance of directors’ fees owed on account of the
year ended 31 December, 2020 was £1,500, so a total of £63,679 was
due to the directors at the period end (30 June 2020: £69,239 of
which 58,239 remained outstanding at the period end including
£29,500 due from 31 December 2019 for a total of £87,739 due at the
period end).
The Investment Manager is also regarded as a
related party due to common ownership. Total management fees paid
during the period amounted to £428,889 (30 June 2020: £377,880, 31
December 2020: £744,032).
The Investment Advisor and Investment Manager
are also paid an additional fee for investor relations services.
The fee for the period amounted to £79,192 (30 June 2020: £70,364,
31 December 2020: £137,757).
These fees for the above are all arms’ length
transactions.
12. Dividends
Dividends of 1.275 pence per share were paid on
a quarterly basis during the period in the months of January and
April totalling £2,715,425 (30 June 2020: £2,715,425). On 30 July
2021, a dividend of £1,357,712 was paid. In accordance with the
requirements of IFRS, as this was approved on 1 July 2021, being
after the Statement of Financial Position date, no accrual was
reflected in the 2021 interim financial statements for this amount
of £1,357,712 (2 July 2020: £1,357,712).
13. Taxation
The Company adopted UK tax residency on 11
October, 2011. Since that date, the Company has been managed in
such a way as to be able to meet the conditions for approval as an
investment trust under Section 1158 of the Corporation Tax Act
2010. As an investment trust, all capital gains are exempt from UK
corporate tax. Accordingly, no UK tax has been provided for. On 7
December 2012, the Company received approval from HM Revenue &
Customs to be treated as an investment trust in accordance with
Section 1158 of the Corporation Tax Act 2010 and will seek to
remain so approved.
14. Loan
payable
The Fund has a credit facility agreement with
Royal Bank of Canada (“RBC”) whereby RBC provides a credit
facility, with a maximum principal amount of the lesser of CAD
65,000,000 and 25 per cent. of the total assets.
As at 30 June 2021, the bankers’ acceptance
drawn under the credit facility totalled CAD 59,000,000 (GBP
equivalent of £34,316,372) (period ended 30 June 2020: CAD
25,000,000 (GBP equivalent of £14,812,456), year ended 31 December
2020: CAD 45,000,000 (GBP equivalent £25,775,293)). The loan value
of CAD 59,000,000 was made up of six loans of CAD 10,000,000 issued
on 12 April 2021 maturing on 12 July 2021, CAD 5,000,000 issued on
6 May 2021 maturing on 4 August 2021, CAD 3,000,000 issued on 13
May 2021 maturing on 11 August 2021, CAD 10,000,000 issued on 25
May 2021 maturing on 23 August 2021, CAD 6,000,000 issued 4 June
2021 maturing on 3 August 2021, and CAD 25,000,000 issued 14 June
2021, maturing on 13 September 2021.
NOTES TO THE INTERIM CONDENSED FINANCIAL
STATEMENTS OF THE FUND (Unaudited) (Continued)For
the period 1 January 2021 to 30 June 2021
with unaudited comparatives for the period
1 January 2020 to 30 June
2020and audited comparatives for the year
ended 31 December 2020
14. Loan
payable (continued)
As at 30 June 2021, pre-paid interest and
stamping fees of £50,161 (period ended 30 June 2020: £35,878, year
ended 31 December 2020: £42,821) were paid on the bankers’
acceptance of which £1,981 is amortised over a period of 91 days,
£2,890 is amortised over a period of 90 days, £2,081 is amortised
over a period of 90 days, £8,919 is amortised over a period of 90
days, £3,343 is amortised over a period of 60 days and £30,947 is
amortised over a period of 91 days. Interest paid on the bankers’
acceptance totalled £67,643 (period ended 30 June 2020: £72,049,
year ended 31 December 2020: £116,710).
Interest is calculated at an annual percentage
equal to, in the case of prime loans, the Prime Rate minus 0.35%.
In the case of a bankers’ acceptance, a stamping fee of 0.60 per
cent. per annum is payable.
15. Security
agreement In
conjunction with entering into the Credit Facility, the Fund has
entered into a general security agreement with RBC, pursuant to
which, the Fund has granted RBC interests in respect of collateral,
being all present and future personal property, including the
securities portfolio, as security for the Fund’s obligations under
the Credit Facility Agreement.
16. Financial
instruments
Fair valuesThe carrying amounts of the
investments, accrued income, other receivables, cash and cash
equivalents and other payables approximate their fair values. In
2015, the percentage of the value of portfolio assets which may be
invested in securities listed on a recognized stock exchange
outside Canada was increased to up to 40 percent.
Management of CapitalThe Investment Manager
manages the capital of the Fund in accordance with the Fund’s
Investment Objectives and Policy.
The capital structure of the Fund consists of
proceeds from the issue of preference shares, loans and reserve
accounts. The Investment Manager manages and adjusts its capital in
response to general economic conditions, the risk characteristics
of the underlying assets and working capital requirements.
Generally speaking, the Fund will reduce leverage when investments
are likely to decrease in value and will increase leverage when
investment appreciation is anticipated. In order to maintain or
adjust its capital structure, the Fund may borrow or repay debt
under its Credit Facility or undertake other activities deemed
appropriate under the specific circumstances. The Fund and the
Company do not have any externally imposed capital requirements.
However, the Fund is subject to bank covenants in respect of
leverage and complied with those covenants in the 6 months to 30
June 2021 and in 2020.
Investment and trading activitiesIt is intended
that the Fund will continue throughout its life to be primarily
invested in a Canadian and U.S. equities portfolio.
The Fund’s investing activities expose it to
various types of risk that are associated with the financial
instruments and markets in which it invests. The most important
types of financial risk to which the Fund is exposed are market
price risk, interest rate risk and currency risk.
Credit risk Credit risk is the risk that an
issuer or counterparty may be unable or unwilling to meet a
commitment that it has entered into with the Fund.
The Fund’s principal financial assets are bank
balances and cash, other receivables and investments as set out in
the Statement of Financial Position which represents the Fund’s
maximum exposure to credit risk in relation to the financial
assets. The credit risk on bank balances is limited because the
counterparties are banks with high credit ratings of A- and AA-
assigned by Standard and Poor’s rating agency. All transactions in
listed securities are settled upon delivery using approved
brokers.
NOTES TO THE INTERIM CONDENSED FINANCIAL
STATEMENTS OF THE FUND (Unaudited) (Continued)For
the period 1 January 2021 to 30 June 2021 with
unaudited comparatives for the period 1 January
2020 to 30 June
2020and audited comparatives for the year
ended 31 December 2020
16. Financial
instruments (continued)
Credit risk (continued)The risk of default is
considered minimal as delivery of securities sold is only made once
the broker has received payment. Payment is made on a purchase once
the securities have been received by the broker. The trade will
fail if either party fails to meet its obligations. Where the
Investment Manager makes an investment in debt or corporate
securities, the credit rating of the issuer is taken into account
to manage the Company’s exposure to risk of default.
Investments in debt or corporate securities are
across a variety of sectors and geographical markets, to avoid
concentration of credit risk. The Fund’s maximum exposure to credit
risk is the carry value of the assets on the Statement of Financial
Position.
Market price risk Market price risk is the risk
that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market prices (other than
those arising from interest rate risk or currency risk), whether
those changes are caused by factors specific to the individual
financial instrument or its issuer, or factors affecting similar
financial instruments traded in the market. The Fund’s exposure to
market price risk is comprised mainly of movements in the value of
the Fund’s investments.
It is the business of the Investment Manager to
manage the portfolio and borrowings to achieve the best returns.
The Directors manage the risk inherent in the portfolio by
monitoring, on a formal basis, the Investment Manager’s compliance
with the Company’s stated investment policy and reviewing
investment performance.
Country riskOn 17 January 2012, the FRC released
“Responding to the increased country and currency risk in financial
reports”. This update from the FRC included guidance on responding
to the increased country and currency risk as a result of funding
pressures on certain European countries, the curtailment of capital
spending programmes (austerity measures) and regime changes in the
Middle East, and the ongoing uncertainty relating from Brexit.
The Fund invests primarily in Canadian and U.S.
securities. The Investment Manager monitors the Company’s exposure
to foreign currencies on a daily basis. The Board has reviewed the
disclosures and believes that no additional disclosures are
required because the Canadian and U.S. economies are stable.
The directors believe that the Fund has
sufficient reserves and business controls to address any financial
impact of Brexit, and have decided not to make a specific provision
in the accounts.
Fair value measurementsIFRS 13 establishes a
fair value hierarchy that prioritises the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under IFRS 13 are as
follows:
- Level 1 fair value measurements are
those derived from quoted prices (unadjusted) in active markets for
identical assets or liabilities
- Level 2 fair value measurements are
those derived from inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices)
- Level 3 fair value measurements are
those derived from valuation techniques that include inputs for the
asset or liability that are not based on observable market data
(that is, unobservable inputs)
The level in the fair value hierarchy within
which the fair value measurement is categorised in its entirety is
determined on the basis of the lowest level input that is
significant to the fair value measurement in its entirety. For this
purpose, the significance of an input is assessed against the fair
value measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgment, considering factors
specific to the asset or liability.
NOTES TO THE INTERIM CONDENSED FINANCIAL
STATEMENTS OF THE FUND (Unaudited) (Continued)For
the period 1 January 2021 to 30 June 2021 with
unaudited comparatives for the period 1 January
2020 to 30 June 2020and audited comparatives
for the year ended 31 December 2020
16. Financial
instruments (continued)
Fair value measurements (continued)The
determination of what constitutes ‘observable’ requires significant
judgment by the Fund. The Fund considers observable data to be that
market data that is readily available, regularly distributed or
updated, reliable and verifiable, not proprietary, and provided by
independent sources that are actively involved in the relevant
market.
The following table presents the Fund’s
financial instruments by level within the valuation hierarchy as of
30 June 2021.
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
GBP |
GBP |
GBP |
GBP |
Financial assets |
|
|
|
|
Securities (at fair value through profit or loss) |
167,714,894 |
- |
- |
167,714,894 |
The following table presents the Fund’s
financial instruments by level within the valuation hierarchy as of
31 December 2020.
|
Level 1 |
Level 2 |
Level 3 |
Total |
Financial assets |
GBP |
GBP |
GBP |
GBP |
Securities (at fair value through profit or loss) |
129,564,819 |
- |
- |
129,564,819 |
The Fund holds securities that are traded in
active markets. Such financial instruments are classified as Level
1 of the IFRS 13 fair value hierarchy. There were no transfers
between Level 1 and 2 during the period.
Price sensitivityAt 30 June 2021, if the market
prices of the securities had been 30% higher with all other
variables held constant, the increase in net assets attributable to
holders of redeemable participating preference shares would have
been £50,314,468 (30 June 2020: £32,766,483, December 2020:
£38,869,446), arising due to the increase in the fair value of
financial assets at fair value through profit or loss by
£50,314,468 (30 June 2020: 32,766,483, December 2020:
£38,869,446).
At 30 June 2021, if the market prices of the
securities had been 30% lower with all other variables held
constant, the decrease in net assets attributable to holders of
redeemable participating preference shares would have been equal,
but opposite, to the figures stated above.
Interest rate riskInterest rate risk is the risk
that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rates.
The Fund’s interest rate sensitive assets and
liabilities mainly comprise cash and cash equivalents, debt
securities and loan payable. The cash and cash equivalents are
subject to floating rates and are considered to be part of the
investment strategy of the Fund. No other hedging is undertaken in
respect of this interest rate risk.
NOTES TO THE INTERIM CONDENSED FINANCIAL
STATEMENTS OF THE FUND (Unaudited) (Continued)For
the period 1 January 2021 to 30 June 2021 with
unaudited comparatives for the period 1 January
2020 to 30 June 2020and audited comparatives
for the year ended 31 December 2020
16. Financial
instruments (continued)
Interest rate risk (continued)The following
table details the Fund’s exposure to interest rate risk at 30 June
2021, 30 June 2020 and 31 December
2020:
|
|
Floating rate assets |
|
Weighted average interest at
period end |
30.06.2021 |
Weighted average interest
at period end |
30.06.2020 |
Weighted Average
interest at year end |
31.12.2020 |
|
|
|
|
GBP |
|
GBP |
|
GBP |
Assets |
|
|
|
|
|
|
|
Debt securities |
|
|
- |
5.75% |
1,180,309 |
|
- |
Cash and cash
equivalents |
|
* |
1,994,433 |
* |
7,429,262 |
* |
5,621,538 |
|
|
|
|
1,994,433 |
|
8,609,571 |
|
5,621,538 |
Liabilities |
|
|
|
|
|
|
|
|
Loan payable (note
14) |
|
|
|
34,316,372 |
|
14,812,456 |
|
25,775,293 |
|
|
|
|
34,316,372 |
|
14,812,456 |
|
25,775,293 |
* Interest on bank balances are not material to the
financial statements and are based on prevailing bank base
rates.
The above analysis excludes short term debtors
and creditors as all material amounts are non interest-bearing.
Interest rate sensitivity analysis
At 30 June 2021, had interest rates been 50
basis points higher and all other variables were held constant, the
Company’s net assets attributable to the redeemable participating
preference shares would have decreased by £161,610 (30 June 2020:
£46,590, 31 December 2020: £100,769) due to the decrease in market
value of listed debt securities, an increase in interest payable on
the loan and to a lesser extent an increase in interest earnings on
cash and cash equivalents.
Liquidity risk Liquidity risk is the risk that
the Fund cannot meet its liabilities as they fall due. The Fund’s
primary source of liquidity consists of cash and cash equivalents,
securities at fair value through profit or loss and the Credit
Facility.
The Fund’s investments are considered to be
readily realisable, predominantly issued by Canadian and U.S.
companies and REITs listed on Canadian Stock Exchanges and are
actively traded.
As at 30 June 2021, the Fund’s ability to manage liquidity risk
was as follows:
|
|
Less than 1 month |
1 to 3 months |
3 months to 1 year |
More than 1 year |
Total |
|
|
GBP |
GBP |
GBP |
GBP |
GBP |
Assets |
|
|
|
|
|
|
Securities (at fair value through profit or loss) |
|
167,714,894 |
- |
- |
- |
167,714,894 |
Accrued dividend income |
|
484,405 |
35,189 |
- |
- |
519,594 |
Other receivables |
|
2 |
- |
- |
- |
2 |
Prepayments |
|
11,486 |
- |
- |
- |
11,486 |
Cash and cash equivalents |
|
1,994,433 |
- |
- |
- |
1,994,433 |
|
|
170,205,220 |
35,189 |
- |
- |
170,240,409 |
Liabilities |
|
|
|
|
|
|
Loan payable |
|
(5,815,760) |
(28,500,612) |
- |
- |
(34,316,372) |
Other payables and accruals |
|
(424,194) |
- |
- |
- |
(424,194) |
Interest payable |
|
(13,038) |
(22,026) |
- |
- |
(35,064) |
|
|
(6,252,992) |
(28,522,638) |
- |
- |
(34,775,630) |
|
|
|
|
|
|
|
|
|
163,952,228 |
(28,487,449) |
- |
- |
135,464,779 |
NOTES TO THE INTERIM CONDENSED FINANCIAL
STATEMENTS OF THE FUND (Unaudited)
(Continued)For the period 1
January 2021 to 30 June 2021 with unaudited
comparatives for the period 1 January 2020 to 30
June 2020and audited comparatives for
the year ended 31 December 2020
16. Financial
instruments (continued)
Liquidity risk (continued)
As at 30 June 2020, the Fund’s ability to manage liquidity risk
was as follows:
|
|
Less than 1 month |
1 to 3 months |
3 months to 1 year |
More than 1 year |
Total |
|
|
GBP |
GBP |
GBP |
GBP |
GBP |
Assets |
|
|
|
|
|
|
Securities (at fair value through profit or loss) |
|
109,221,611 |
- |
- |
- |
109,221,611 |
Accrued bond interest |
|
- |
17,402 |
- |
- |
17,402 |
Accrued dividend income |
|
405,866 |
28,689 |
- |
- |
434,555 |
Accrued bank interest |
|
- |
- |
- |
- |
- |
Other receivables |
|
2 |
- |
- |
- |
2 |
Prepayments |
|
2,323 |
- |
- |
- |
2,323 |
Cash and cash equivalents |
|
7,429,262 |
- |
- |
- |
7,429,262 |
|
|
117,059,064 |
46,091 |
- |
- |
117,105,155 |
Liabilities |
|
|
|
|
|
|
Loan payable |
|
- |
(14,812,456) |
- |
- |
(14,812,456) |
Other payables and accruals |
|
(359,305) |
- |
- |
- |
(359,305) |
Interest payable |
|
- |
(7,081) |
- |
- |
(7,081) |
|
|
(359,305) |
(14,819,537) |
- |
- |
(15,178,842) |
|
|
|
|
|
|
|
|
|
116,699,759 |
(14,773,446) |
- |
- |
101,926,313 |
As at 31 December 2020, the Fund’s ability to manage liquidity
risk was as follows:
|
|
Less than 1 month |
1 to 3 months |
3 months to 1 year |
More than 1
year |
Total |
|
|
GBP |
GBP |
GBP |
GBP |
GBP |
Assets |
|
|
|
|
|
|
Securities (at fair value through profit or loss) |
|
129,564,819 |
- |
- |
- |
129,564,819 |
Accrued dividend income |
|
419,004 |
- |
- |
- |
419,004 |
Other receivables |
|
2,125 |
- |
- |
- |
2,125 |
Prepayments |
|
20,124 |
- |
- |
- |
20,124 |
Cash and cash equivalents |
|
5,621,538 |
- |
- |
- |
5,621,538 |
|
|
135,627,610 |
- |
- |
- |
135,627,610 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Other payables and accruals |
|
(318,742) |
- |
- |
- |
(318,742) |
Interest payable |
|
(21,776) |
- |
- |
- |
(21,776) |
Loan payable |
|
(5,732,010) |
(20,043,283) |
- |
- |
(25,775,293) |
|
|
(6,072,528) |
(20,043,283) |
- |
- |
(26,115,811) |
|
|
|
|
|
|
|
|
|
129,555,082 |
(20,043,283) |
- |
- |
109,511,799 |
Currency riskThe Fund is denominated in GBP,
whereas the Fund’s principal investments are denominated in CAD and
USD. Consequently, the Fund is exposed to currency risk. The Fund’s
policy is therefore to actively monitor exposure to currency risk.
The Board reserves the right to employ currency hedging but, other
than in exceptional circumstances, does not intend to hedge. The
Board considers that exposure was significant at the period
end.
NOTES TO THE INTERIM CONDENSED FINANCIAL
STATEMENTS OF THE FUND (Unaudited) (Continued)For
the period 1 January 2021 to 30 June 2021 with
unaudited comparatives for the period 1 January
2020 to 30 June 2020and audited comparatives for
the year ended 31 December 2020
16. Financial
instruments (continued)
Currency risk (continued)
The Fund’s net exposure to CAD currency at the
period end was as follows:
|
|
|
|
|
|
|
30 June2021 |
|
30 June 2020 |
|
31 December 2020 |
|
GBP |
|
GBP |
|
GBP |
Assets |
|
|
|
|
|
Cash and cash equivalents |
1,751,640 |
|
6,536,665 |
|
1,218,141 |
Canadian equities |
147,313,615 |
|
74,145,544 |
|
106,962,043 |
Accrued income |
491,792 |
|
387,860 |
|
407,659 |
|
149,557,047 |
|
81,070,069 |
|
108,587,843 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Loan payable |
(34,316,372) |
|
(14,812,456) |
|
25,775,293 |
Interest payable |
(14,696) |
|
(7,081) |
|
21,776 |
General Expenses |
|
|
|
|
31 |
|
(34,331,068) |
|
(14,819,537) |
|
25,797,100 |
The Fund’s net exposure to USD currency at the
period end was as follows:
|
30 June2021 |
|
30 June 2020 |
|
31 December 2020 |
|
GBP |
|
GBP |
|
GBP |
Assets |
|
|
|
|
|
Cash and cash equivalents |
64,681 |
|
698,859 |
|
4,228,455 |
United States equities |
20,401,279 |
|
33,895,758 |
|
22,602,776 |
United States debt |
- |
|
1,180,309 |
|
- |
Accrued income |
27,802 |
|
64,098 |
|
11,345 |
|
20,493,762 |
|
35,839,024 |
|
26,842,576 |
Sensitivity analysisAs at 30 June 2021, had GBP
strengthened against the CAD by 5%, with all other variables held
constant, the decrease in net assets attributable to shareholders
would amount to approximately £5,761,299 (30 June 2020: £3,312,527,
31 December 2020: £4,139,537). Had GBP weakened against the CAD by
5%, this would amount to an increase in net assets attributable to
shareholders of approximately £5,761,299 (30 June 2020: £3,312,527,
31 December 2020: £4,139,537).
As at 30 June 2021, had GBP strengthened against
the USD by 5%, with all other variables held constant, the decrease
in net assets attributable to shareholders would amount to
approximately £1,024,688 (30 June 2020: £1,791,951, 31 December
2020: £1,342,129). Had GBP weakened against the USD by 5%, this
would amount to an increase in net assets attributable to
shareholders of approximately £1,024,688 (30 June 2020: £1,791,951,
31 December 2020: £1,342,129).
NOTES TO THE INTERIM CONDENSED FINANCIAL
STATEMENTS OF THE FUND (Unaudited) (Continued)For
the period 1 January 2021 to 30 June 2021 with
unaudited comparatives for the period 1 January
2020 to 30 June 2020and audited comparatives for
the year ended 31 December 2020
17. Cash
Flow statement reconciliation of financing activities
The following table discloses the effects of the
amendments to IAS 7 Statement of Cash Flows that require additional
disclosures about changes in an entity’s financing liabilities
arising from both cash flow and noncash flow items.
|
1 January 2021 |
Cash flows |
Noncash changes |
30 June
2021 |
|
|
|
Acquisition |
Foreign exchange movements |
Fair value changes |
|
|
GBP |
GBP |
GBP |
GBP |
GBP |
GBP |
|
|
|
|
|
|
|
Financial liabilities held at
amortised cost |
25,775,293 |
8,097,475 |
- |
443,604 |
- |
34,316,372 |
|
|
|
|
|
|
|
Total |
25,775,293 |
8,097,475 |
- |
443,604 |
- |
34,316,372 |
NOTES TO THE
INTERIM CONDENSED FINANCIAL STATEMENTS OF
THE FUND (Unaudited)
(Continued)For the period 1
January 2021 to 30 June
2021with unaudited comparatives for the
period 1 January 2020 to 30
June 2020and audited comparatives
for the year ended 31 December 2020
18. Schedule
of Investments – Securities (at fair value through profit or
loss)As at 30 June 2021
(comparatives for the year ended 31
December 2020)
Description |
Shares or Par Value |
Book Cost |
Bid-Market Value |
% of Net Assets |
% of Portfolio |
|
|
GBP |
GBP |
|
|
Equities: |
|
|
|
|
|
Bermuda - Quoted
Investments 2.99% (2020:
8.91%) |
|
|
|
|
|
Energy |
|
|
|
|
|
Brookfield Renewable Partners
L.P. |
180,000 |
4,584,605 |
5,007,357 |
3.70% |
2.99% |
|
|
|
|
|
|
Canada - Quoted
Investments 84.83% (2020: 73.68%) |
|
|
|
|
|
Energy |
|
|
|
|
|
Canadian Natural Resources
Limited |
125,000 |
2,378,765 |
3,274,711 |
2.42% |
1.95% |
Keyera Corp. |
300,000 |
3,961,661 |
5,817,951 |
4.29% |
3.47% |
Topaz Energy Corp. |
330,000 |
3,022,523 |
3,319,171 |
2.45% |
1.98% |
Financials |
|
|
|
|
|
Bank of Montreal |
110,000 |
5,868,002 |
8,145,598 |
6.01% |
4.86% |
The Bank of Nova Scotia |
160,000 |
6,382,100 |
7,520,306 |
5.55% |
4.48% |
Canadian Imperial Bank of
Commerce |
100,000 |
5,929,237 |
8,215,568 |
6.06% |
4.90% |
Manulife Financial Corp |
280,000 |
3,347,848 |
3,983,588 |
2.94% |
2.38% |
The National Bank of
Canada |
100,000 |
3,836,290 |
5,409,214 |
3.99% |
3.23% |
Sun Life Financial Inc. |
100,000 |
2,659,550 |
3,718,288 |
2.74% |
2.22% |
The Toronto-Dominion Bank |
150,000 |
5,728,145 |
7,589,925 |
5.60% |
4.53% |
Materials |
|
|
|
|
|
Nutrien Ltd. |
65,000 |
1,794,094 |
2,843,642 |
2.10% |
1.70% |
Pipelines |
|
|
|
|
|
Enbridge Inc. |
200,000 |
4,813,499 |
5,793,462 |
4.28% |
3.45% |
Pembina Pipeline
Corporation |
220,000 |
4,677,505 |
5,045,140 |
3.72% |
3.01% |
Power and
Utilities |
|
|
|
|
|
AltaGas Ltd. |
420,000 |
4,322,249 |
6,347,619 |
4.69% |
3.78% |
Capital Power Corporation |
260,000 |
4,574,204 |
6,191,355 |
4.57% |
3.69% |
Northland Power Inc. |
190,000 |
2,046,557 |
4,669,579 |
3.45% |
2.78% |
TransAlta Corporation |
225,000 |
2,465,064 |
2,723,557 |
2.01% |
1.62% |
Real
Estate |
|
|
|
|
|
Allied Properties Real Estate
Investment Trust |
80,000 |
1,853,274 |
2,099,080 |
1.55% |
1.25% |
Canadian Apartment Properties
Real Estate Investment Trust |
125,000 |
3,705,774 |
4,225,857 |
3.12% |
2.52% |
Chartwell Retirement
Residences |
500,000 |
3,123,843 |
3,848,314 |
2.84% |
2.29% |
Choice Properties Real Estate
Investment Trust |
400,000 |
2,935,065 |
3,328,209 |
2.46% |
1.98% |
Crombie Real Estate Investment
Trust |
525,000 |
4,601,393 |
5,421,313 |
4.00% |
3.23% |
CT Real Estate Investment
Trust |
300,000 |
2,551,179 |
2,858,248 |
2.11% |
1.70% |
Dream Industrial Real Estate
Investment Trust |
375,000 |
2,474,015 |
3,341,036 |
2.47% |
1.99% |
Granite Real Estate Investment
Trust |
100,000 |
3,283,283 |
4,795,233 |
3.54% |
2.86% |
Northwest Healthcare
Properties Real Estate Investment Trust |
400,000 |
2,693,412 |
2,966,700 |
2.19% |
1.77% |
RioCan Real Estate Investment
Trust |
500,000 |
4,572,502 |
6,413,857 |
4.73% |
3.82% |
SmartCentres Real Estate
Investment Trust |
350,000 |
4,578,115 |
5,989,668 |
4.42% |
3.57% |
|
|
|
|
|
|
NOTES TO THE
INTERIM CONDENSED FINANCIAL STATEMENTS OF
THE FUND (Unaudited)
(Continued)For the period 1
January 2021 to
30 June 2021with
unaudited comparatives for the period 1 January
2020 to 30 June
2020and audited
comparatives for the year ended 31 December
2020
18. Schedule
of Investments – Securities (at fair value through profit or
loss) (continued)As at 30 June
2021 (comparatives for the year ended 31
December 2020)
Description |
Shares or Par Value |
Book Cost |
Bid-Market Value |
% of Net Assets |
% of Portfolio |
|
|
GBP |
GBP |
|
|
|
|
|
|
|
|
Telecommunications
Services |
|
|
|
|
|
Shaw Communications Inc., Class B
Non-voting Shares |
75,000 |
1,470,338 |
1,561,191 |
1.15% |
0.93% |
Telus Corporation |
300,000 |
4,626,983 |
4,848,876 |
3.58% |
2.89% |
|
|
|
|
|
|
United States - Quoted
Investments 12.18%
(2020: 17.41%) |
|
|
|
|
|
Financials |
|
|
|
|
|
JP Morgan Chase & Co |
35,000 |
1,804,302 |
3,933,371 |
2.90% |
2.35% |
Fifth Third Bancorp |
100,000 |
2,855,069 |
2,763,647 |
2.04% |
1.65% |
Healthcare |
|
|
|
|
|
AbbVie Inc. |
30,000 |
2,303,134 |
2,441,956 |
1.80% |
1.46% |
Information
Technology |
|
|
|
|
|
Broadcom Inc. |
14,000 |
3,883,845 |
4,823,579 |
3.56% |
2.88% |
Real
Estate: |
|
|
|
|
|
WPT Industrial Real Estate
Investment Trust |
350,000 |
3,616,048 |
4,566,922 |
3.37% |
2.72% |
Telecommunication
Services: |
|
|
|
|
|
AT&T Inc. |
90,000 |
2,081,917 |
1,871,806 |
1.38% |
1.12% |
Total
equities: |
|
131,405,389 |
167,714,894 |
123.78% |
100.00% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments |
|
131,405,389 |
167,714,894 |
123.78% |
100.00% |
|
|
|
|
|
|
Total investments
(2020) |
|
117,705,313 |
129,564,819 |
118.29% |
100.00% |
|
|
|
|
|
|
STATEMENT OF FINANCIAL POSITION OF THE COMPANY
(Unaudited)
As at 30 June
2021with unaudited comparatives as at 30
June 2020and audited comparatives
as at 31 December 2020
|
Notes |
30.06.2021 |
|
30.06.2020 |
|
31.12.2020 |
|
|
GBP |
|
GBP |
|
GBP |
Current
assets |
|
|
|
|
|
|
Other receivables |
|
2 |
|
2 |
|
2 |
|
|
|
|
|
|
|
Net
assets |
|
2 |
|
2 |
|
2 |
|
|
|
|
|
|
|
Equity attributable to
equity holders |
|
|
|
|
|
|
Stated capital |
2 |
2 |
|
2 |
|
2 |
|
|
|
|
|
|
|
Total Shareholders’
equity |
|
2 |
|
2 |
|
2 |
|
|
|
|
|
|
|
The interim financial statements and notes on
pages 37 to 38 were approved by the directors on 16 September 2021
and signed on behalf of the Board by:
Michael Phair |
Richard Hughes |
Director |
Director |
NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS OF THE
COMPANY (Unaudited) For
the period 1 January 2021 to 30
June 2021with unaudited
comparatives for the period 1 January
2020 to 30 June
2020
and audited comparatives for the year
ended 31 December
2020
1. Basis of
accounting
The separate
interim financial statements of the Company have been prepared
showing results of the Company only. They have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union in accordance with the
accounting policies set out in note 1 to the interim financial
statements of the Fund.
A separate
Statement of Comprehensive Income, Statement of Changes in Equity
and Cash Flow Statement have not been prepared as there have been
no results or cash flows for the Company for this period or the
preceding period.
There are no standards and interpretations in
issue but not effective that the Directors believe would or might
have a material impact on the interim financial statements of the
Company.
Judgments and estimates used by the DirectorsThe
preparation of interim financial statements in compliance with IFRS
requires the Directors to make judgments, estimates and assumptions
that affect the application of policies and reported amount of
assets and liabilities, income and expenses. The estimates and
associated liabilities are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgments about carrying values of assets and liabilities that are
not readily apparent. For the purposes of these interim financial
statements, there were no specific areas in which judgment was
exercised and no estimation was required by the directors.
2. The Company’s stated
capital
The authorised share capital of the Company is
split into two management shares of no par value.
|
No. of shares |
GBP |
Management shares issued |
|
|
At 30 June
2021, 31 December
2020 and 30 June
2020 |
2 |
2 |
3. Taxation
The Company adopted UK tax residency on 11
October, 2011. Since that date, the Company has been managed in
such a way as to be able to meet the conditions for approval as an
investment trust under Section 1158 of the Corporation Tax Act
2010. Accordingly, no UK tax has been provided for. On 7 December
2012, the Company received approval from HM Revenue & Customs
to be treated as an investment trust in accordance with Section
1158 of the Corporation Tax Act 2010 and will seek to remain so
approved.
4. Ultimate holding
company
The ultimate holding company is Middlefield
Limited.
DEFINITIONS
Benchmark |
S&P/TSX Composite High
Dividend Index |
BOC |
The Bank of Canada |
CAD |
Canadian Dollar |
Credit Facility |
The on-demand credit facility
with the Company's Bankers |
FCA |
The Financial Conduct
Authority |
GBP |
GB Pound or Pound
Sterling |
Half Yearly Report |
The half yearly report and
interim condensed financial statements (unaudited) |
IAS |
International Accounting
Standards |
IFRS |
International Financial
Reporting Standards |
Investec |
Investec Bank PLC |
Investment Manager |
Middlefield Limited |
Company |
Middlefield Canadian Income
PCC |
Net Asset Value |
Net Asset Value of the Company
in GBP |
RBC |
The Royal Bank of Canada |
REIT |
Real Estate Investment
Trust |
the Fund |
Middlefield Canadian Income -
GBP PC |
TSX |
S&P/TSX Composite
Index |
Investment Objective: To
provide Shareholders with a high level of dividends as well as
capital growth over the longer term. The Fund intends to pay
dividends on a quarterly basis each year.
Investment Policy: The Fund
will seek to achieve its investment objective by investing
predominantly in the securities of companies and REITs domiciled in
Canada and listed on a Canadian Stock Exchange, and which the
Investment Manager believes will provide an attractive level of
distributions together with the prospect for capital growth. It is
expected that the Fund’s portfolio will generally comprise between
40 and 70 investments. The Fund may also hold cash or cash
equivalents. The Fund may utilise derivative instruments, including
index-linked notes, contracts for differences, covered options and
other equity-related derivative instruments, for the purposes of
efficient portfolio management. The Fund will at all times invest
and manage its assets in a manner which is consistent with the
objective of spreading investment risk.