TCL – Half-year Report

THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half-Year Ended 31 December 2016 This announcement contains regulated information INVESTMENT OBJECTIVE The Company's objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. The Board continues to recognise the importance of dividend income to shareholders. PERFORMANCE HIGHLIGHTS As at 31 December 2016 As at 30 June 2016 Net asset value per ordinary share 405.2p 382.2p Premium/(discount) 0.2% (1.1%) Net asset value per ordinary share (debt at fair value) 399.7p 378.6p Premium/(discount) (debt at fair value) 1.6% (0.1%) Ordinary share price 406.0p 378.1p Gearing (at par value) 6.7% 8.0% Dividend yields As at 31 December 2016 As at 30 June 2016 The City of London Investment Trust plc 4.0% 4.2% AIC UK Equity Income Sector (Benchmark) 3.6% 3.9% FTSE All-Share Index 3.8% 3.7% UK Equity Income OEIC Sector 4.3% 4.8% Sources: Morningstar for the AIC, Bloomberg Total return performance (including dividends reinvested and excluding transaction costs) 6 months % 1 year % 3 years % 5 years % 10 years % Net asset value per ordinary share1 7.8 9.5 21.7 78.4 89.2 AIC UK Equity Income sector average - net asset value2 9.2 10.0 21.8 82.2 86.7 Ordinary share price 9.6 9.4 21.1 75.4 107.5 FTSE All-Share Index 12.0 16.8 19.3 61.8 71.8 UK Equity Income OEIC sector average3 11.7 8.9 19.2 70.5 63.0 Sources: Morningstar for the AIC, Henderson, Datastream 1. Using cum income fair value NAV for six months, one, three and five years and capital NAV plus income reinvested for ten years 2. AIC UK Equity Income sector size weighted average NAV total return (shareholders' funds) 3. The IA peer group average is based on mid-day NAV whereas the returns of the investment trust are calculated using close of business NAV INTERIM MANAGEMENT REPORT CHAIRMAN'S STATEMENT Net Asset Value Total Return During the six months to 31 December 2016, the UK economy grew stronger than many had expected following the referendum result. Consumer spending was the most important factor with the Bank of England cutting interest rates in August 2016 to 0.25%. Global growth was also robust and reflected in rising commodity prices. In particular, the oil price was helped by demand from China and a renewed commitment to restrict production from OPEC, the oil producing countries' cartel. Against this economic background, the UK equity market was led by cyclical and commodity related sectors. City of London's net asset total return over the six months was 7.8% which was behind the average for the UK Equity Income Investment Trust sector of 9.2% and the FTSE All-Share Index of 12.0%. The two most important sector detractors from performance were below average exposure to mining and banks. Our overweight position in defensive sectors, such as utilities, also had an adverse effect during this period. Finally, the move to fair value our 4.53% secured notes 2029 reduced our return by 0.6%. On the other hand, the underweight position in the pharmaceutical sector and the holdings in Ibstock (brick manufacturer), TUI (travel company) and Provident Financial (non-standard lender) were all notably positive contributors. Earnings and Dividends City of London's revenue earnings per share rose by 0.6% to 6.76p. So far this financial year, City of London has declared two interim dividends of 4.05p each. City of London's diverse portfolio, strong cash flow and revenue reserves give the Board confidence that they will be able to increase the dividend for a fifty-first consecutive year. The quarterly rate will be reviewed by the Board before the third interim is declared in April 2017. Expenses The ongoing charge which represents the investment management fee and other non-interest bearing expenses as a percentage of shareholders' funds remains low compared with most other equity products. The ongoing charge for the six months indicates a full year rate of 0.42% of net assets. Material events and transactions during the period A total of 11.325 million new shares were issued in the six months to 31 December 2016 at a premium to net asset value. The proceeds were invested in a mixture of additions to existing investments as well as three new holdings. A notable addition was made to Lloyds Banking which moved over the six months from twentieth to ninth largest holding partly through share price appreciation. New holdings were purchased in Civitas (real estate investment trust specialising in social housing), Innogy (utility) and Smith & Nephew (developer and marketer of advanced medical devices). There were outright sales of Greencore (food manufacturer) after a strong share price performance while Rolls-Royce and Laird were sold after profit warnings. No shares have been issued since the period end. Overall, gearing was reduced over the six months by 1.3 percentage points to 6.7%. Outlook for the six months to June 2017 The effect of the fall in sterling on the cost of imports and the rise in commodity prices is likely to lead to an increase in UK inflation. On the other hand, uncertainty ahead of the UK's exit from the European Union could lead to reduced corporate investment which would have a negative effect on UK economic growth. In the US, President Trump may stimulate growth through tax cuts and infrastructure spending. However, the Federal Reserve is likely to continue to increase interest rates given the length of the current economic upswing. City of London is predominantly invested in large capitalisation, UK listed companies with global operations. Given the uncertainties, the diversified nature of the portfolio should be an advantage. The dividend yield being generated and quality of these businesses gives us confidence for the future. Philip Remnant CBE Chairman 16 February 2017 PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties associated with the Company's business can be divided into the following main areas: o Portfolio and market price o Investment activity, gearing and performance o Tax and regulatory o Operational Information on these risks and how they are managed are given in the Annual Report for the year ended 30 June 2016. In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review. DIRECTORS' RESPONSIBILITY STATEMENT The Directors confirm that, to the best of their knowledge: o the condensed set of financial statements has been prepared in accordance with FRS 104 "Interim Financial Reporting"; o the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year); and o the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein). For and on behalf of the Board Philip Remnant CBE Chairman 16 February 2017 INCOME STATEMENT (Unaudited) Half-year ended 31 December 2016 (Unaudited) Half-year ended 31 December 2015 (Audited) Year ended 30 June 2016 Revenue return ?'000 Capital return ?'000 Total ?'000 Revenue return ?'000 Capital return ?'000 Total ?'000 Revenue return ?'000 Capital return ?'000 Total ?'000 Gains/(losses) on investments held at fair value through profit or loss - 83,984 83,984 - 485 485 - (10,641) (10,641) Income from investments held at fair value through profit or loss 24,411 - 24,411 23,269 - 23,269 60,219 - 60,219 Other interest receivable and similar income 165 - 165 91 - 91 216 - 216 -------- -------- -------- -------- -------- -------- -------- -------- -------- Gross revenue and capital gains 24,576 83,984 108,560 23,360 485 23,845 60,435 (10,641) 49,794 Management fees (725) (1,692) (2,417) (656) (1,530) (2,186) (1,326) (3,093) (4,419) Other administrative expenses (400) - (400) (371) - (371) (672) - (672) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return before finance costs and taxation 23,451 82,292 105,743 22,333 (1,045) 21,288 58,437 (13,734) 44,703 Finance costs (920) (1,961) (2,881) (957) (2,048) (3,005) (1,916) (4,103) (6,019) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return on ordinary activities before taxation 22,531 80,331 102,862 21,376 (3,093) 18,283 56,521 (17,837) 38,684 Taxation on net return on ordinary activities (245) - (245) (169) - (169) (845) - (845) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return on ordinary activities after taxation 22,286 80,331 102,617 21,207 (3,093) 18,114 55,676 (17,837) 37,839 ===== ===== ===== ===== ===== ===== ===== ===== ===== Return per ordinary share (note 2) 6.76p 24.38p 31.14p 6.72p (0.98p) 5.74p 17.42p (5.58p) 11.84p ===== ===== ===== ===== ===== ===== ===== ===== ===== The columns of this statement headed "Total" represent the Company's Income Statement, prepared in accordance with FRS 104. The revenue and capital columns are supplementary to this and are published under guidance from the Association of Investment Companies. The Company has no recognised gains or losses other than those disclosed in the Income Statement and Statement of Changes in Equity. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. The accompanying notes are an integral part of these financial statements. STATEMENT OF CHANGES IN EQUITY Half-year ended 31 December 2016 (Unaudited) Called-up share capital ?'000 Share premium account ?'000 Capital redemption reserve ?'000 Other capital reserves ?'000 Revenue reserve ?'000 Total ?'000 At 1 July 2016 81,290 408,191 2,707 706,542 43,856 1,242,586 Net return on ordinary activities after taxation - - - 80,331 22,286 102,617 Issue of 11,325,000 new ordinary shares 2,831 41,805 - - - 44,636 Fourth interim dividend (4.05p per share) for year ended 30 June 2016 paid 31 August 2016 - - - - (13,177) (13,177) First interim dividend (4.05p per share) for year ended 30 June 2017 paid 30 November 2016 - - - - (13,354) (13,354) ----------- ------------ ----------- ------------ ----------- ------------- At 31 December 2016 84,121 449,996 2,707 786,873 39,611 1,363,308 ====== ======= ====== ======= ====== ======== Half-year ended 31 December 2015 (Unaudited) Called-up share capital ?'000 Share premium account ?'000 Capital redemption reserve ?'000 Other capital reserves ?'000 Revenue reserve ?'000 Total ?'000 At 1 July 2015 76,921 346,149 2,707 724,379 38,356 1,188,512 Net return on ordinary activities after taxation - - - (3,093) 21,207 18,114 Issue of 13,075,000 new ordinary shares 3,269 46,936 - - - 50,205 Fourth interim dividend (3.90p per share) for year ended 30 June 2015 paid 28 August 2015 - - - - (12,119) (12,119) First interim dividend (3.90p per share) for year ended 30 June 2016 paid 30 November 2015 - - - - (12,376) (12,376) Reclaimed dividends from previous years - - - - (12) (12) ----------- ------------ ----------- ------------ ----------- ------------- At 31 December 2015 80,190 393,085 2,707 721,286 35,056 1,232,324 ====== ======= ====== ======= ====== ======== Year ended 30 June 2016 (Audited) Called-up share capital ?'000 Share premium account ?'000 Capital redemption reserve ?'000 Other capital reserves ?'000 Revenue reserve ?'000 Total ?'000 At 1 July 2015 76,921 346,149 2,707 724,379 38,356 1,188,512 Net return on ordinary activities after taxation - - - (17,837) 55,676 37,839 Issue of 17,475,000 new ordinary shares 4,369 62,042 - - - 66,411 Fourth interim dividend (3.90p per share) for year ended 30 June 2015 paid 28 August 2015 - - - - (12,119) (12,119) First interim dividend (3.90p per share) for year ended 30 June 2016 paid 30 November 2015 - - - - (12,376) (12,376) Second interim dividend (3.90p per share) for year ended 30 June 2016 paid 29 February 2016 - - - - (12,560) (12,560) Third interim dividend (4.05p per share) for year ended 30 June 2016 paid 31 May 2016 - - - - (13,109) (13,109) Reclaimed dividends from previous years - - - - (12) (12) ----------- ------------ ----------- ------------ ----------- ------------- At 30 June 2016 81,290 408,191 2,707 706,542 43,856 1,242,586 ====== ======= ====== ======= ====== ======== The accompanying notes are an integral part of these financial statements. STATEMENT OF FINANCIAL POSITION (Unaudited) 31 December 2016 ?'000 (Unaudited) 31 December 2015 ?'000 (Audited) 30 June 2016 ?'000 Investments held at fair value through profit or loss (note 5) Listed at market value in the United Kingdom 1,273,736 1,212,546 1,172,910 Listed at market value overseas 181,096 140,633 168,509 Investment in subsidiary undertakings 347 347 347 ------------- ------------- ------------- 1,455,179 1,353,526 1,341,766 ------------- ------------- ------------- Current assets Debtors 4,483 4,165 9,429 --------- --------- --------- 4,483 4,165 9,429 --------- --------- --------- Creditors: amounts falling due within one year (20,338) (49,383) (32,610) ------------ ------------ ------------ Net current liabilities (15,855) (45,218) (23,181) ------------ ------------ ------------ Total assets less current liabilities 1,439,324 1,308,308 1,318,585 Creditors: amounts falling due after more than one year (76,016) (75,984) (75,999) ------------ ------------ ------------ Net assets 1,363,308 1,232,324 1,242,586 ======= ======= ======= Capital and reserves Called-up share capital (note 3) 84,121 80,190 81,290 Share premium account 449,996 393,085 408,191 Capital redemption reserve 2,707 2,707 2,707 Other capital reserves 786,873 721,286 706,542 Revenue reserve 39,611 35,056 43,856 ------------- ------------- ------------- Equity shareholders' funds 1,363,308 1,232,324 1,242,586 ======= ======= ======= Net asset value per ordinary share - basic and diluted (note 4) 405.2p 384.2p 382.2p ====== ====== ====== The accompanying notes are an integral part of these financial statements. NOTES 1. Accounting Policy - Basis of Preparation The condensed set of financial statements has been prepared in accordance with FRS 104, Interim Financial Reporting, issued in March 2015, the reporting standard for half-year reporting that accompanies FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland, which is effective for periods commencing on or after 1 January 2015, and the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ('the SORP') issued by the Association of Investment Companies November 2014. The Company has early adopted the amendments to FRS 102 in respect of fair value hierarchy disclosures as published in March 2016. The condensed set of financial statements has been neither audited nor reviewed by the Company's auditors. As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all of the entity's investments are highly liquid and are carried at market value; and where a statement of changes in equity is provided. 2. Return per Ordinary Share (Unaudited) Half-year ended 31 December 2016 ?'000 (Unaudited) Half-year ended 31 December 2015 ?'000 (Audited) Year ended 30 June 2016 ?'000 The return per ordinary share is based on the following figures: Revenue return 22,286 21,207 55,676 Capital return 80,331 (3,093) (17,837) ---------- ---------- ---------- Total 102,617 18,114 37,839 ====== ====== ====== Weighted average number of ordinary shares in issue for each period 329,532,287 315,548,864 319,488,967 Revenue return per ordinary share 6.76p 6.72p 17.42p Capital return per ordinary share 24.38p (0.98p) (5.58p) ---------- ---------- ---------- Total return per ordinary share 31.14p 5.74p 11.84p ====== ====== ====== The Company does not have any dilutive securities, therefore, the basic and diluted returns per share are the same. 3. Share Capital During the half-year ended 31 December 2016, 11,325,000 ordinary shares were issued for total proceeds of ?44,636,000 (31 December 2015: 13,075,000 ordinary shares issued for total proceeds of ?50,205,000; 30 June 2016: 17,475,000 ordinary shares issued for total proceeds of ?66,411,000). The number of ordinary shares in issue at 31 December 2016 was 336,484,868. 4. Net Asset Value per Ordinary Share The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of ?1,363,308,000 (31 December 2015: ?1,232,324,000; 30 June 2016: ?1,242,586,000) and on 336,484,868 ordinary shares (31 December 2015: 320,759,868; 30 June 2016: 325,159,868) being the number of ordinary shares at period end. 5. Financial instruments The financial assets and financial liabilities are either carried in the statement of financial position at their fair value or the statement of financial position amount is a reasonable approximation of fair value (debtors and creditors falling due within one year). The debenture stock, secured notes, preference stock and preferred ordinary stock are carried in the statement of financial position at par. At 31 December 2016, the fair value of the debenture stocks was ?91,910,000 (31 December 2015: ?84,490,000; 30 June 2016: ?84,870,000) and the aggregate fair value of the preferred and preference stock was ?2,615,000 (31 December 2015: ?2,813,000; 30 June 2016: ?2,725,000). The valuations of the debenture stocks are obtained from brokers based on market prices. The valuations of the preferred and preference stock are from the Daily Official List quotations. Since 30 September 2016, the 4.53% secured notes have been valued at fair value for the purpose of daily net asset value reporting. At 31 December 2016, the fair value of the secured notes was estimated to be ?42,721,000. Under the previous valuation policy, the fair value of the secured notes as at 31 December 2015 and 30 June 2016 was deemed to be the par value of ?35,000,000. The debenture stock, preference stock and preferred ordinary stock are categorised as level 1 in the fair value hierarchy. The secured notes are categorised as level 3 in the fair value hierarchy. The table below sets out fair value measurements of the investments using the FRS 102 fair value hierarchy. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1: valued using quoted prices in active markets for identical assets; Level 2: valued by reference to valuation techniques using observable inputs other than quoted prices included in Level 1; and Level 3: valued by reference to valuation techniques using inputs that are not based on observable market data. Financial assets at fair value through profit or loss at 31 December 2016 Level 1 Level 2 Level 3 Total ?'000 ?'000 ?'000 ?'000 Equity investments 1,454,832 - 347 1,455,179 Total financial assets carried at fair value 1,454,832 - 347 1,455,179 Financial assets at fair value through profit or loss at 31 December 2015 Level 1 Level 2 Level 3 Total ?'000 ?'000 ?'000 ?'000 Equity investments 1,353,179 - 347 1,353,526 Total financial assets carried at fair value 1,353,179 - 347 1,353,526 Financial assets at fair value through profit or loss at 30 June 2016 Level 1 Level 2 Level 3 Total ?'000 ?'000 ?'000 ?'000 Equity investments 1,341,419 - 347 1,341,766 Total financial assets carried at fair value 1,341,419 - 347 1,341,766 The investments that were previously reported as Level A and Level C in 2015 under the initial FRS 102 fair value hierarchy have been categorised as Level 1 and Level 3 respectively under the amendments to FRS 102 issued in March 2016 that were applied for the 30 June 2016 year end. The valuation techniques used by the Company are explained in the accounting policies note 1 in the Company's Annual Report for the year ended 30 June 2016. 6. Transaction Costs Purchase transaction costs for the half-year ended 31 December 2016 were ?319,000 (31 December 2015: ?608,000; 30 June 2016: ?873,000). These comprise mainly stamp duty and commissions. Sale transaction costs for the half-year ended 31 December 2016 were ?34,000 (31 December 2015: ?38,000; 30 June 2016: ?84,000). 7. Dividends A first interim dividend of 4.05p was paid on 30 November 2016. The second interim dividend of 4.05p (declared on 14 December 2016) will be paid on 28 February 2017 to shareholders on the register on 27 January 2017. The Company's shares went ex-dividend on 26 January 2017. 8. Related Party Transactions Other than the relationship between the Company and its Directors, the provision of services by Henderson is the only related party arrangement currently in place. Other than fees payable by the Company in the ordinary course of business and the provision of marketing services, there have been no material transactions with this related party affecting the financial position of the Company during the period under review. 9. Going Concern The assets of the Company consist of securities that are readily realisable and, accordingly, the Directors believe that the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of the financial statements. Having assessed these factors and the principal risks, the Board has determined that it is appropriate for the financial statements to be prepared on a going concern basis. 10. Comparative information The financial information contained in this half-year report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The figures and financial information for the year ended 30 June 2016 are extracted from the latest published accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditors, which was unqualified and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006. 11. General Information Company Status The City of London Investment Trust plc is a UK domiciled investment trust company. The SEDOL/ISIN number is GB0001990497. The London Stock Exchange (TIDM) Code is CTY. Global Intermediary Identification Number (GIIN) is S55HF7.99999.SL.826. Legal Entity Identifier number (LEI) is 213800F3NOTF47H6AO55. Company Registration Number UK: 00034871 New Zealand: 1215729 Registered Office UK: 201 Bishopsgate, London EC2M 3AE Directors and Secretary The Directors of the Company are Philip Remnant CBE (Chairman), Samantha Wren (Audit Committee Chair), Simon Barratt (Senior Independent Director), David Brief and Martin Morgan. The Corporate Secretary is Henderson Secretarial Services Limited, represented by Rachel Peat FCIS. Website Details of the Company's share price and net asset value, together with general information about the Company, monthly fact sheets and data, copies of announcements, reports and details of general meetings can be found at www.cityinvestmenttrust.com 12 Half-Year Report An update, extracted from the Company's report for the half-year ended 31 December 2016, will be posted to shareholders in February 2017. Copies of the half-year announcement and the half-year update will be available on the website www.cityinvestmenttrust.com. Copies can also be requested thereafter from the Corporate Secretary at the Registered Office, 201 Bishopsgate, London EC2M 3AE. Forty Largest Investments Company Market value 31 December 2016 ?'000 Company Market value 31 December 2016 ?'000 Royal Dutch Shell 73,517 Land Securities 19,430 British American Tobacco 65,867 Phoenix 19,286 HSBC 63,142 Rio Tinto 18,551 BP 43,464 Persimmon 17,532 Diageo 41,334 Schroders 17,069 Vodafone 38,506 Compass 16,907 Prudential 37,435 Sky 15,457 Unilever 31,186 Provident Financial 15,316 Lloyds Banking 31,157 Nestle 14,751 GlaxoSmithKline 30,696 Croda International 14,535 RELX 29,911 Barclays 14,056 National Grid 29,232 British Land 13,690 SSE 26,845 Centrica 13,555 Verizon Communications 26,546 Segro 13,512 Imperial Brands 26,364 TUI 13,512 BAE Systems 23,114 Berkeley 13,387 BT 20,723 United Utilities 12,794 Taylor Wimpey 20,208 Standard Life 12,276 Reckitt Benckiser 20,195 Greene King 12,150 AstraZeneca 20,163 Pearson 12,111 These investments total ?999,482,000 or 68.7% of the portfolio Convertibles and all classes of equity in any one company are treated as one investment Sector exposure As a percentage of the investment portfolio excluding cash % Financials 25.2 Consumer Goods 19.0 Consumer Services 13.6 Industrials 9.0 Oil & Gas 8.1 Utilities 7.3 Telecommunications 6.9 Health Care 6.1 Basic Materials 3.8 Technology 1.0 -------- Total 100.0 ===== For further information please contact: Job Curtis Fund Manager The City of London Investment Trust plc Telephone: 020 7818 4367 James de Sausmarez Director and Head of Investment Trusts Henderson Investment Funds Limited Telephone: 020 7818 3349 Sarah Gibbons-Cook Investor Relations and PR Manager Henderson Investment Funds Limited Telephone: 020 7818 3198 Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement. End CA:00296903 For:TCL Type:HALFYR Time:2017-02-17 08:30:39