Last checked at 
18 Sep 2020 07:00
Legal Entity Identifier (LEI): 5493007GCUW7G2BKY360
18 September 2020
THE NORTH AMERICAN INCOME TRUST PLC
HALF YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS TO 31 JULY 2020
The investment objective of The North American Income Trust plc is to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominantly of S&P 500 US equities.
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
Performance
The six month period to 31 July 2020 has been one of the most challenging periods in recent history with global news and stock markets being dominated by the development of the Covid-19 pandemic. Over this period, the Company's net asset value (NAV) per share declined by 11.7% on a total return basis in sterling terms. This marginally underperformed the -10.7% return in sterling terms from the Russell 1000 Value Index, the Company's reference index. The slight underperformance resulted mainly from stock selection in the materials, utilities and consumer staples sectors. Conversely, stock selection in consumer discretionary, industrials and information technology sectors benefitted the Company's performance. The longer-term performance of the Company has been relatively strong. Over the five year period to 31 July 2020, the Company's NAV total return was 64.6% compared to the 54.4% from the Russell 1000 Value Index in sterling terms.
Dividend
The revenue return per Ordinary share rose by 27.0% from 5.35p to 6.80p. The Board has declared a second quarterly dividend of 1.8p per share, giving total dividends for the first half of the year to 31 January 2021 of 3.6p (2020 - 3.4p), a 5.9% increase. The second quarterly dividend is payable on 30 October 2020 to shareholders on the register on 2 October 2020.
Portfolio
At 31 July 2020, equities represented 97% of total assets. Total revenue from these holdings was £8.3 million (2019 - £7.9m million). Most of the Company's equity holdings continued their established record of dividend growth. Over 19% of the holdings raised their dividends over the past six months, with a weighted average increase of 8.7%. The Company received premiums totalling £3.9 million (2019 - £1.9 million) in exchange for entering into stock option transactions. This option income, the generation of which remains consistent with the Manager's company-focused investment process, represented 31.6% of total income (2019 - 19.2%). The income from options premiums has benefited from the higher than usual market volatility in the spring. We do not expect that we will generate similar levels of option premium income in the second half of the year. Interest income of £300,000 from bonds was broadly similar to last year. Dividends will remain the primary source of income available for distribution. Further details of the portfolio are shown below.
Market & Economic Review
Major North American equity indices saw mixed performances in sterling terms during the half year. Large-cap value stocks recorded negative returns, significantly lagging their growth counterparts, which posted notable gains in sterling terms. In February and March, investors' fears surrounding the impact of the worldwide spread of the Covid-19 pandemic on the global economy sent a shockwave through the US and global financial markets. US stocks rallied sharply over the next three months as investors gained more comfort in an improving macroeconomic backdrop, given monetary policy support from the Fed with large injections of liquidity as well as vast fiscal stimulus packages that provided a safety net for the unemployed and forgivable loans that allowed small businesses to survive payroll and rent obligations. However, the market fell towards the end of the reporting period amid growing concerns about spikes in Covid-19 cases. The energy, financials and real estate sectors saw double-digit losses and this led the downturn in the Russell 1000 Value Index. In contrast, the materials, healthcare and consumer staples sectors produced positive returns and were the strongest performers within the index.
Regarding monetary policy, in response to the market carnage, the US Federal Reserve (Fed) reduced its benchmark interest rate by 1% to a range of 0.0% to 0.25%. In a statement issued following its meeting in late July, the Fed commented that the Covid-19 pandemic "poses considerable risks to the economic outlook over the medium term". As expected, the pandemic wreaked havoc on the economy in the first half of 2020. US GDP decreased at an annual rate of 5% in the first three months of the year, and then tumbled 32% in the second quarter - the largest decline since the US government began tracking the data on a quarterly basis in 1947. Interestingly, preliminary estimates of US GDP for Q3 have been upgraded and most recent publications are indicating quarter on quarter growth in the 25% to 30% range which would have been deemed highly unlikely just a few months ago.
Discount/ Premium
The Company's share price fell by 23.1% to 223.0p and ended the period at a 10.4% discount to the net asset value, compared with a small premium of 0.4% at the end of January 2020. The Board continues to work with the Manager in both promoting the Company's benefits to a wider audience and providing liquidity to the market through the use of share buybacks when it is considered that it is in the interest of continuing shareholders to do so. Since the end of July, 24,960 shares were bought back.
Gearing
The Board believes that sensible use of financial gearing should enhance returns to our shareholders over the longer term. The total amount available under the Company's loan facility agreement with Scotiabank (Ireland) Designated Activity Company is $75 million, of which $25 million was drawn down at the Company's financial year end. During the period under review, a further $10 million of the loan facility was used, resulting in $35 million being drawn down at the period end. This modest increase in borrowing was used as opportunities began to arise during the market sell-off as well as having cash as collateral for selling put options. Net gearing at 31 July 2020 was 2.0% (31 January 2020: nil).
Outlook
As many countries, including the US, began their phased-in re-openings of their economies during the second quarter, the market has been more optimistic that the economy can eventually move past the impact of the initial lockdowns. With the reporting of some of the larger retail companies a few weeks ago, the US corporate earnings season has all but come to a close. Generally, financial performance throughout the earnings season fared better than the market had initially feared and was helped by the government's stimulus package, which benefitted consumer health and provided a lifeline to many businesses.
Despite the recent performance, visibility regarding future earnings remain cloudy as a lack of systemic approach to containing the pandemic fuels concerns with regards to the likelihood of a second wave. In the US, unemployment benefits have begun to roll-off and an additional stimulus package is likely to be needed for many who have been unable to return to work. If future stimulus remains held up by political wrangling in Washington, there are greater concerns with regards to the health of the consumer in the near term, but we understand the incentive to continue some of these programs as we enter the November election season. Furthermore, while the overall goal is to build an all-weather portfolio, the election season has the potential to provide a wide range of outcomes and the Manager will look to shape the portfolio to help insulate it from these risks.
The wider-than-normal range of views in the market is producing opportunities for investment as the Manager continues to find opportunities to buy high quality, well-managed businesses at fair prices.
James Ferguson,
Chairman
17 September 2020
INTERIM BOARD REPORT - OTHER MATTERS
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has considered the principal risks and uncertainties facing the Company together with a description of the mitigating actions it has taken. They can be summarised under the following headings:
- Market Risk
- Pandemic or Systemic Shock
- Income and Dividend Risk
- Operational
- Regulatory Risk
- Gearing Risk
- Discount Volatility
- Derivatives
Details of these risks are provided in detail on pages 9 to 11 of the 2020 Annual Report.
In addition to these risks, there are also a large number of international political and economic uncertainties which could have an impact on the performance of global markets. The outbreak of the COVID-19 virus has resulted in business disruption and stockmarket volatility across the world. The extent of the effect of the virus, including its long term impact, remains uncertain. The Manager has undertaken a detailed review of the investee companies in the Company's portfolio to assess the impact of COVID-19 on their operations such as employee absence, reduced demand, reduced turnover and supply chain breakdowns and will review carefully the composition of the Company's portfolio and will be pro-active where necessary. The Manager has implemented extensive business continuity procedures and contingency arrangements to ensure that they are able to continue to service their clients, including investment trusts.
The outcome and potential impact of Brexit remains an economic risk for the Company. As an investment trust with a North American mandate, the Company's portfolio is unlikely to be adversely impacted as a direct result of Brexit although some currency volatility could arise. The uncertainty surrounding Brexit could impact investor sentiment and could lead to increased or reduced demand for the Company's shares, which would be reflected in a narrowing or widening of the discount at which the Company's shares trade relative to their net asset value. Aberdeen Standard Investments has a significant Brexit program in place aimed at ensuring that they can continue to satisfy their clients' investment needs post Brexit.
The Board will continue to monitor developments as they occur.
In all other respects, the Company's principal risks and uncertainties have not changed nor are they expected to change in the second half of the financial year ending 31 January 2021.
Going Concern
In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business, the Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and, in most circumstances, are realisable within a short timescale.
The Company has a bank credit facility in place which is available until December 2020. Initial discussions with banks have commenced with a view to renewing the facility.
The Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and the ability to meet all its liabilities and ongoing expenses from its assets. Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate.
Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Directors' Responsibility Statement
The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:
- the condensed set of Financial Statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting);
- the Half-Yearly Board Report includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and
- the Half-Yearly Board Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).
The Half-Yearly Financial Report for the six months ended 31 July 2020 comprises the Interim Board Report, the Directors' Responsibility Statement and the condensed set of Financial Statements.
For and on behalf of the Board of The North American Income Trust plc
James Ferguson,
Chairman
17 September 2020
FINANCIAL HIGHLIGHTS
Net asset value total return{A} |
| Russell 1000 Value Index |
| Share price total return{A} |
Six months ended 31 July 2020: |
| Six months ended 31 July 2020: |
| Six months ended 31 July 2020: |
-11.7% |
| -10.7% |
| -21.1% |
Year ended 31 January 2020: +6.2% |
| Year ended 31 January 2020: +14.6% |
| Year ended 31 January 2020: +11.5% |
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|
|
|
|
Earnings per Ordinary share (revenue) |
| (Discount)/premium to net asset value{A} |
| Net gearing /(cash){A} |
Six months ended 31 July 2020: |
| As at 31 July 2020: |
| As at 31 July 2020: |
6.80p
|
| -10.4% |
| 2.0% |
Six months ended 31 July 2020: 5.35p |
| As at 31 January 2020: 0.4% |
| As at 31 January 2020: (0.9%) |
{A} Considered to be an Alternative Performance Measure. Further details can be found below. |
| As at | As at |
|
| 31 July 2020 | 31 January 2020 | % Capital return |
Net asset value per Ordinary share | 249.0p | 288.9p | -13.8 |
Share price per Ordinary share (mid) | 223.0p | 290.0p | -23.1 |
(Discount)/premium to net asset value{A} | -10.4% | 0.4% |
|
Net gearing/(cash){A} | 2.0% | (0.9%) |
|
Ongoing charges ratio{A} | 0.94% | 0.91% |
|
| |||
{A} Considered to be an Alternative Performance Measure. Further details can be found below. | |||
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|
|
|
| Six months to | Six months to |
|
| 31 July 2020 | 31 July 2019 | % change |
Revenue return per Ordinary share | 6.80p | 5.35p | +27.0 |
Interim dividends | 3.60p{A} | 3.40p{B} | +6.0 |
| |||
{A} Includes a first interim dividend of 1.80p paid on 7 August 2020 and a second interim dividend of 1.80p payable on 30 October 2020. | |||
{B} Includes a first interim dividend of 1.70p paid on 2 August 2019 and a second interim dividend of 1.70p paid on 25 October 2019. | |||
PERFORMANCE (TOTAL RETURN){A}
| 6 months ended | Year ended | 3 Years ended | 5 years ended |
| 31 July 2020 | 31 July 2020 | 31 July 2020 | 31 July 2020 |
| % | % | % | % |
Net asset value per Ordinary share{A} | -11.7 | -16.9 | 4.6 | 64.6 |
Share price per Ordinary share{A} | -21.1 | -25.9 | 4.3 | 64.3 |
Russell 1000 Value Index | -10.7 | -12.3 | 8.8 | 54.4 |
S&P 500 Index (in sterling terms) | 2.9 | 4.5 | 41.2 | 104.8 |
| ||||
{A} Total return represents capital return plus dividends reinvested. Considered to be an Alternative Performance Measure. Further details can be found below. | ||||
INVESTMENT PORTFOLIO
TEN LARGEST INVESTMENTS
As at 31 July 2020
Abbvie |
| Verizon Communications |
AbbVie Inc. researches and develops pharmaceutical products. The Company produces pharmaceutical drugs for specialty therapeutic areas such as immunology, chronic kidney disease, hepatitis C, women's health, oncology, and neuroscience. |
| Verizon Communications Inc., through its subsidiaries, provides communications information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. |
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|
Philip Morris |
| Bristol-Myers Squib |
Philip Morris International Inc., through its subsidiaries, manufactures and sells cigarettes and other tobacco products. |
| Bristol-Myers Squibb Company is a global biopharmaceutical company. The Company develops, licenses, manufactures, markets, and sells pharmaceutical and nutritional products. |
|
|
|
Citigroup |
| Lockheed Martin |
Citigroup Inc. is a diversified financial services holding company that provides a broad range of financial services to consumer and corporate customers. |
| Lockheed Martin Corp. is a global security company that primarily researches, designs, manufactures and integrates advanced technology and defense products and services. |
|
|
|
TC Energy |
| Gilead Sciences |
TC Energy Corp is the parent company of TransCanada PipeLines Limited. The Company is focused on natural gas transmission and power services. |
| Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops, and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. |
|
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Restaurant Brands International |
| Cisco Systems |
Restaurant Brands International Inc. operates fast food restaurants. The Company offers owns and manages quick service restaurants. Restaurant Brands International serves customers worldwide. |
| Cisco Systems Inc. designs, manufactures, and sells Internet Protocol (IP)- based networking and other products related to the communications and information technology industry and provides services associated with these products and their use. |
INVESTMENT PORTFOLIO - FIXED INTEREST
As at 31 July 2020
|
| Valuation | Valuation |
Company | Industry classification | £'000 | % |
Abbvie | Biotechnology | 21,694 | 5.9 |
Verizon Communications | Diversified Telecommunication Services | 19,707 | 5.4 |
Philip Morris | Tobacco | 17,557 | 4.8 |
Bristol-Myers Squib | Pharmaceuticals | 16,983 | 4.7 |
Citigroup | Banks | 15,241 | 4.2 |
Lockheed Martin | Aerospace & Defense | 14,437 | 4.0 |
TC Energy | Oil, Gas & Consumable Fuels | 13,890 | 3.8 |
Gilead Sciences | Biotechnology | 13,244 | 3.6 |
Restaurant Brands International | Hotels, Restaurants & Leisure | 10,766 | 3.0 |
Cisco Systems | Communications Equipment | 10,766 | 3.0 |
Ten largest investments |
| 154,285 | 42.4 |
CME Group | Capital Markets | 10,762 | 3.0 |
UnitedHealth | Health Care Providers & Services | 10,381 | 2.9 |
PNC Financial Services | Banks | 10,159 | 2.8 |
Chevron | Oil, Gas & Consumable Fuels | 9,593 | 2.6 |
Regions Financial | Banks | 8,274 | 2.3 |
Home Depot | Specialty Retail | 8,091 | 2.2 |
Medtronic | Health Care Equipment & Supplies | 8,086 | 2.2 |
Hanesbrands | Textiles, Apparel & Luxury Goods | 8,074 | 2.2 |
Omega Healthcare Investors | Equity Real Estate Investment Trusts (REITs) | 8,018 | 2.2 |
FirstEnergy | Electric Utilities | 7,734 | 2.1 |
Twenty largest investments |
| 243,457 | 66.9 |
Nutrien | Chemicals | 7,449 | 2.0 |
Royal Bank of Canada | Banks | 7,358 | 2.0 |
American International | Insurance | 7,346 | 2.0 |
Coca-Cola | Beverages | 7,199 | 2.0 |
Phillips 66 | Oil, Gas & Consumable Fuels | 7,088 | 1.9 |
Gaming & Leisure Properties | Equity Real Estate Investment Trusts (REITs) | 6,982 | 1.9 |
Digital Realty | Equity Real Estate Investment Trusts (REITs) | 6,116 | 1.7 |
Union Pacific | Road and Rail | 5,943 | 1.6 |
Nucor | Metals and Mining | 5,753 | 1.6 |
Honeywell | Industrial Conglomerates | 5,690 | 1.6 |
Thirty largest investments |
| 310,381 | 85.2 |
Huntington Bancshares | Banks | 5,650 | 1.6 |
Dow | Chemicals | 5,631 | 1.6 |
Blackstone | Capital Markets | 5,074 | 1.4 |
Procter & Gamble | Household Products | 4,995 | 1.4 |
Texas Instruments | Semiconductors & Semiconductor Equipment | 4,859 | 1.3 |
Tiffany & Co | Speciality Retail | 4,776 | 1.3 |
Genuine Parts | Distributors | 4,465 | 1.2 |
United Parcel Service | Air Freight & Logistics | 3,807 | 1.1 |
Maxim Integrated Products | Semiconductors & Semiconductor Equipment | 3,372 | 0.9 |
HCA 5.875% 15/02/26 | Healthcare Services | 1,638 | 0.4 |
Forty largest investments |
| 354,648 | 97.4 |
CCO Holdings Capital 5.5% 01/05/26 | Media | 1,606 | 0.4 |
Cheniere Corpus Christi 5.875% 31/03/25 | Oil, Gas & Consumable Fuels | 1,291 | 0.4 |
CSC Holdings 10.875% 15/10/25 | Media | 1,243 | 0.4 |
Parsley Energy Finance 5.375% 15/01/25 | Exploration & Production | 1,180 | 0.3 |
Lennar 4.5% 30/04/24 | Construction | 1,075 | 0.3 |
Valeant Pharmaceutic 8.5% 31/01/27 | Biotechnology | 1,031 | 0.3 |
Qwest Cap Funding 7.75% 15/02/31 | Telecommunications | 877 | 0.2 |
Diamond 1 Fin Diamond 2 6.02% 15/06/26 | Technology | 684 | 0.2 |
NRG Energy 5.25% 15/06/29 | Electric | 396 | 0.1 |
Six Flags Theme Park 7% 01/07/25 | Recreation Facilities and Services | 54 | - |
Total investments |
| 364,085 | 100.0 |
GEOGRAPHICAL ANALYSIS | |||
| Equity | Fixed interest | Total |
Country | % | % | % |
Canada | 10.8 | - | 10.8 |
USA | 86.2 | 3.0 | 89.2 |
| ______ | ______ | ______ |
| 97.0 | 3.0 | 100.0 |
| ______ | ______ | ______ |
ALTERNATIVE PERFORMANCE MEASURES | |||
Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. | |||
Total return. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend. | |||
The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 31 July 2020 and the year ended 31 July 2020 and total return for the periods. | |||
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|
|
| Dividend |
| Share |
Six months ended 31 July 2020 | rate | NAV | price |
31 January 2020 | N/A | 288.91p | 290.00p |
7 May 2020 | 4.30p | 246.89p | 233.00p |
16 July 2020 | 1.80p | 259.66p | 224.50p |
31 July 2020 | N/A | 248.99p | 223.00p |
|
| ______ | ______ |
Total return |
| -11.7% | -21.1% |
|
| ______ | ______ |
|
|
|
|
| Dividend |
| Share |
Year ended 31 July 2020 | rate | NAV | price |
31 July 2019 | N/A | 310.44p | 312.50p |
3 October 2019 | 1.70p | 292.11p | 294.50p |
24 January 2020 | 1.80p | 294.08p | 290.00p |
7 May 2020 | 4.30p | 246.89p | 233.00p |
16 July 2020 | 1.80p | 259.66p | 224.50p |
31 July 2020 | N/A | 248.99p | 223.00p |
|
| ______ | ______ |
Total return |
| -16.9% | -25.9% |
|
| ______ | ______ |
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Net gearing/cash. Net gearing/(cash) measures cash and cash equivalents of £19,473,000 (31 January 2020 - £22,724,000) less total borrowings of £26,667,000 (31 January 2020 - £18,965,000) divided by shareholders' funds of £356,752,000 (31 January 2020 - £413,948,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due from brokers at the year end of £262,000 (31 January 2020 - due from brokers of £826,000) as well as cash and short term deposits of £19,735,000 (31 January 2020 - £21,898,000). | |||
(Discount)/premium. The difference between the share price of 223.00p (31 January 2020 - 290.00p) and the net asset value per Ordinary share of 248.99p (31 January 2020 - 288.91p) expressed as a percentage of the net asset value per Ordinary share. | |||
Ongoing charges ratio. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC which is defined as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. The ratio for 31 July 2020 is based on forecast ongoing charges for the year ending 31 January 2021. | |||
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| |
| 31 July | 31 January | |
| 2020 | 2020 | |
Investment management fees (£'000) | 2,670 | 3,060 | |
Administrative expenses (£'000) | 732 | 757 | |
| ______ | ______ | |
Ongoing charges (£'000) | 3,402 | 3,817 | |
| ______ | ______ | |
Average net assets{A} (£'000) | 361,817 | 420,761 | |
| ______ | ______ | |
Ongoing charges ratio | 0.94% | 0.91% | |
| ______ | ______ | |
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| |
{A} During both years net asset values with debt at fair value equated to net asset value with debt at amortised cost due to the short-term nature of the bank loans. | |||
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which includes finance costs and transaction charges. | |||
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
|
| Six months ended | ||
|
| 31 July 2020 | ||
|
| Revenue | Capital | Total |
| Notes | £'000 | £'000 | £'000 |
(Losses)/gains on investments |
| - | (57,265) | (57,265) |
Exchange losses |
| - | (250) | (250) |
Income | 2 | 12,245 | 223 | 12,468 |
Investment management fee |
| (399) | (931) | (1,330) |
Administrative expenses | 3 | (379) | - | (379) |
|
| ______ | ______ | ______ |
Net return before finance costs and taxation |
| 11,467 | (58,223) | (46,756) |
|
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|
|
|
Finance costs |
| (65) | (152) | (217) |
|
| ______ | ______ | ______ |
Return before taxation |
| 11,402 | (58,375) | (46,973) |
|
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|
|
|
Taxation | 4 | (1,663) | 180 | (1,483) |
|
| ______ | ______ | ______ |
Return after taxation |
| 9,739 | (58,195) | (48,456) |
|
| ______ | ______ | ______ |
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Return per share (pence) | 6 | 6.80 | (40.62) | (33.82) |
|
| ______ | ______ | ______ |
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The total column of the Condensed Statement of Comprehensive Income is the profit and loss account of the Company. | ||||
All revenue and capital items in the above statement derive from continuing operations. | ||||
The accompanying notes are an integral part of the financial statements. | ||||
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(Cont'd)
|
| Six months ended | ||
|
| 31 July 2019 | ||
|
| Revenue | Capital | Total |
| Notes | £'000 | £'000 | £'000 |
(Losses)/gains on investments |
| - | 44,847 | 44,847 |
Exchange losses |
| - | (1,101) | (1,101) |
Income | 2 | 9,923 | - | 9,923 |
Investment management fee |
| (463) | (1,081) | (1,544) |
Administrative expenses | 3 | (374) | - | (374) |
|
| ______ | ______ | ______ |
Net return before finance costs and taxation |
| 9,086 | 42,665 | 51,751 |
|
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|
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|
Finance costs |
| (181) | (421) | (602) |
|
| ______ | ______ | ______ |
Return before taxation |
| 8,905 | 42,244 | 51,149 |
|
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Taxation | 4 | (1,297) | 325 | (972) |
|
| ______ | ______ | ______ |
Return after taxation |
| 7,608 | 42,569 | 50,177 |
|
| ______ | ______ | ______ |
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Return per share (pence) | 6 | 5.35 | 29.95 | 35.30 |
|
| ______ | ______ | ______ |
CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
|
| As at | As at |
|
| 31 July2020 | 31 January 2020 |
| Notes | £'000 | £'000 |
Non-current assets |
|
|
|
Investments at fair value through profit or loss |
| 364,085 | 410,800 |
|
| ______ | ______ |
Current assets |
|
|
|
Debtors and prepayments |
| 2,363 | 1,804 |
Cash and short-term deposits |
| 19,735 | 21,898 |
|
| ______ | ______ |
|
| 22,098 | 23,702 |
|
| ______ | ______ |
Creditors: amounts falling due within one year |
|
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Traded options |
| (127) | (668) |
Other creditors |
| (2,637) | (921) |
Bank loan |
| (26,667) | (18,965) |
|
| ______ | ______ |
|
| (29,431) | (20,554) |
|
| ______ | ______ |
Net current (liabilities)/assets |
| (7,333) | 3,148 |
|
| ______ | ______ |
Net assets |
| 356,752 | 413,948 |
|
| ______ | ______ |
Capital and reserves |
|
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|
Called-up share capital |
| 7,164 | 7,164 |
Share premium account |
| 51,806 | 51,806 |
Capital redemption reserve |
| 15,452 | 15,452 |
Capital reserve | 8 | 260,728 | 318,923 |
Revenue reserve |
| 21,602 | 20,603 |
|
| ______ | ______ |
Equity shareholders' funds |
| 356,752 | 413,948 |
|
| ______ | ______ |
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|
|
Net asset value per share (pence) | 9 | 248.99 | 288.91 |
|
| ______ | ______ |
|
|
|
|
The accompanying notes are an integral part of the financial statements. |
| ||
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended 31 July 2020 |
|
|
|
|
|
|
|
| Share | Capital |
|
|
|
| Share | premium | redemption | Capital | Revenue |
|
| capital | account | reserve | reserve | reserve | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Balance at 31 January 2020 | 7,164 | 51,806 | 15,452 | 318,923 | 20,603 | 413,948 |
Return after taxation | - | - | - | (58,195) | 9,739 | (48,456) |
Dividends paid (note 5) | - | - | - | - | (8,740) | (8,740) |
| ______ | ______ | ______ | ______ | ______ | ______ |
Balance at 31 July 2020 | 7,164 | 51,806 | 15,452 | 260,728 | 21,602 | 356,752 |
| ______ | ______ | ______ | ______ | ______ | ______ |
|
|
|
|
|
|
|
Six months ended 31 July 2019 |
|
|
|
|
|
|
|
| Share | Capital |
|
|
|
| Share | premium | redemption | Capital | Revenue |
|
| capital | account | reserve | reserve | reserve | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Balance at 31 January 2019 | 7,108 | 48,467 | 15,452 | 310,920 | 16,710 | 398,657 |
Return after taxation | - | - | - | 42,569 | 7,608 | 50,177 |
Dividends paid (note 5) | - | - | - | - | (7,534) | (7,534) |
| ______ | ______ | ______ | ______ | ______ | ______ |
Balance at 31 July 2019 | 7,108 | 48,467 | 15,452 | 353,489 | 16,784 | 441,300 |
| ______ | ______ | ______ | ______ | ______ | ______ |
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements. | ||||||
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
| Six months ended | Six months ended |
| 31 July 2020 | 31 July 2019 |
| £'000 | £'000 |
Operating activities |
|
|
Net return before taxation | (46,973) | 51,149 |
Adjustments for: |
|
|
Net losses/(gains) on investments | 57,667 | (44,847) |
Realised losses on foreign exchange transactions | 250 | 1,101 |
(Increase)/decrease in dividend income receivable | (326) | 156 |
(Increase)/decrease in fixed interest income receivable | (7) | 20 |
Increase in derivatives | (542) | (136) |
(Increase)/decrease in other debtors | (19) | 18 |
(Decrease)/increase in other creditors | (11) | 378 |
Tax on overseas income | (1,048) | (875) |
Amortisation of fixed income book cost | 4 | 8 |
Stock dividends included in investment income | (95) | - |
| ______ | ______ |
Net cash flow from operating activities | 8,900 | 6,972 |
|
|
|
Investing activities |
|
|
Purchases of investments | (107,744) | (79,212) |
Sales of investments | 97,969 | 99,636 |
| ______ | ______ |
Net cash flow from investing activities | (9,775) | 20,424 |
|
|
|
Financing activities |
|
|
Equity dividends paid | (8,740) | (7,534) |
Drawdown/(repayment) of loans | 8,030 | (7,729) |
| ______ | ______ |
Net cash used in financing activities | (710) | (15,263) |
| ______ | ______ |
(Decrease)/increase in cash | (1,585) | 12,133 |
| ______ | ______ |
Analysis of changes in cash during the period |
|
|
Opening balance | 21,898 | 18,593 |
Effect of exchange rate fluctuations on cash held | (578) | 1,286 |
(Decrease)/increase in cash as above | (1,585) | 12,133 |
| ______ | ______ |
Closing balance | 19,735 | 32,012 |
| ______ | ______ |
|
|
|
The accompanying notes are an integral part of the financial statements. |
| |
NOTES:
1. | Accounting policies |
| Basis of preparation. The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. Annual financial statements are prepared under Financial Reporting Standard 102. |
| The condensed interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements. |
2. | Income |
|
|
|
| Six months ended | Six months ended |
|
| 31 July 2020 | 31 July 2019 |
|
| £'000 | £'000 |
| Income from overseas listed investments |
|
|
| Dividend income | 7,454 | 7,136 |
| REIT income | 494 | 411 |
| Interest income from investments | 306 | 322 |
| Stock dividends | 95 | - |
|
| ______ | ______ |
|
| 8,349 | 7,869 |
|
| ______ | ______ |
| Other income from investment activity |
|
|
| Traded option premiums | 3,871 | 1,903 |
| Deposit interest | 25 | 151 |
|
| ______ | ______ |
|
| 3,896 | 2,054 |
|
| ______ | ______ |
| Total income | 12,245 | 9,923 |
|
| ______ | ______ |
3. | Administrative expenses |
|
|
|
| Six months ended | Six months ended |
|
| 31 July 2020 | 31 July 2019 |
|
| £'000 | £'000 |
| Directors' fees | 62 | 62 |
| Secretarial and administration fees | 59 | 58 |
| Promotional activities | 108 | 104 |
| Auditor's remuneration: |
|
|
| Fees payable to the Company's auditor for the audit of the annual accounts | 15 | 9 |
| Custodian charges | 8 | 10 |
| Registrar's fees | 18 | 34 |
| Professional fees | 24 | 17 |
| Depositary charges | 23 | 26 |
| Other | 62 | 54 |
|
| ______ | ______ |
|
| 379 | 374 |
|
| ______ | ______ |
4. | Taxation. The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on the estimated annual tax rate expected for the full financial year. The estimated annual corporation tax rate used for the year to 31 January 2021 is 19% (2020 - 19%). | ||||||
| Detailed below is an analysis of the tax charge for each period. | ||||||
|
| ||||||
|
| Six months ended 31 July 2020 | Six months ended 31 July 2019 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
| Taxation | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| UK corporation tax | 670 | (205) | 465 | 325 | (325) | - |
| Double tax relief | (33) | - | (33) | - | - | - |
| Overseas tax suffered | 1,023 | 25 | 1,048 | 972 | - | 972 |
| Deferred tax | 5 | - | 5 | - | - | - |
| Double tax relief on deferred tax items | (2) | - | (2) | - | - | - |
|
| _____ | _____ | _____ | _____ | _____ | _____ |
| Total tax charge for the period | 1,663 | (180) | 1,483 | 1,297 | (325) | 972 |
|
| _____ | _____ | _____ | _____ | _____ | _____ |
5. | Dividends |
|
|
|
| Six months ended | Six months ended |
|
| 31 July 2020 | 31 July 2019 |
|
| £'000 | £'000 |
| 3rd interim dividend for 2020 - 1.8p (2019 - 1.7p) | 2,579 | 2,417 |
| Final dividend for 2020 - 4.3p (2019 - 3.6p) | 6,161 | 5,117 |
|
| ______ | ______ |
|
| 8,740 | 7,534 |
|
| ______ | ______ |
|
|
|
|
| The Company pays four dividends per year. The first interim dividend of 1.80p (2020 - 1.70p) for the year ending 31 January 2021 was paid on 7 August 2020 to shareholders on the register at 17 July 2020, with an ex-dividend date of 16 July 2020. A second interim dividend of 1.80p (2020 - 1.70p) for the year ending 31 January 2021, will be paid on 30 October 2020 to shareholders on the register at 2 October 2020. The ex-dividend date is 1 October 2020. | ||
6. | Return per Ordinary share |
|
|
|
| Six months ended | Six months ended |
|
| 31 July 2020 | 31 July 2019 |
|
| £'000 | £'000 |
| Based on the following figures: |
|
|
| Revenue return | 9,739 | 7,608 |
| Capital return | (58,195) | 42,569 |
|
| ______ | ______ |
| Total return | (48,456) | 50,177 |
|
| ______ | ______ |
| Weighted average number of shares in issue | 143,277,520 | 142,152,520 |
|
| __________ | __________ |
|
| p | p |
| Revenue return per Ordinary share | 6.80 | 5.35 |
| Capital return per Ordinary share | (40.62) | 29.95 |
|
| ______ | ______ |
| Total return per Ordinary share | (33.82) | 30.30 |
|
| ______ | ______ |
7. | Transaction costs. During the six months ended 31 July 2020 expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within (losses)/gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows: | ||
|
|
|
|
|
| Six months ended | Six months ended |
|
| 31 July 2020 | 31 July 2019 |
|
| £'000 | £'000 |
| Purchases | 45 | 31 |
| Sales | 117 | 73 |
|
| ______ | ______ |
|
| 162 | 104 |
|
| ______ | ______ |
8. | Capital reserve. The capital reserve reflected in the Condensed Statement of Financial Position at 31 July 2020 includes losses of £29,000 (31 January 2020 - gains £21,899,000) which relate to the revaluation of investments held at the reporting date. |
9. | Net asset value per Ordinary share |
|
|
|
| As at | As at |
|
| 31 July 2020 | 31 January 2020 |
| Net assets attributable (£'000) | 356,752 | 413,948 |
| Number of Ordinary shares in issue | 143,277,520 | 143,277,520 |
| Net asset value per Ordinary share (p) | 248.99 | 288.91 |
10. | Analysis of changes in net debt |
|
|
|
|
|
| At |
|
| At |
|
| 31 January | Currency | Cash | 31 July |
|
| 2020 | differences | flows | 2020 |
|
| £'000 | £'000 | £'000 | £'000 |
| Cash and short term deposits | 21,898 | (578) | (1,585) | 19,735 |
| Debt due within one year | (18,965) | 328 | (8,030) | (26,667) |
|
| ______ | ______ | ______ | ______ |
|
| 2,933 | (250) | (9,615) | (6,932) |
|
| ______ | ______ | ______ | ______ |
|
|
|
|
|
|
|
| At |
|
| At |
|
| 31 January | Currency | Cash | 31 July |
|
| 2019 | differences | flows | 2019 |
|
| £'000 | £'000 | £'000 | £'000 |
| Cash and short term deposits | 18,593 | 1,286 | 12,133 | 32,012 |
| Debt due within one year | (38,010) | (2,387) | 7,729 | (32,668) |
|
| ______ | ______ | ______ | ______ |
|
| (19,417) | (1,101) | 19,862 | (656) |
|
| ______ | ______ | ______ | ______ |
|
| ||||
| A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis. | ||||
11. | Fair value hierarchy. FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications: | ||||||
| Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. | ||||||
| Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. | ||||||
| Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. | ||||||
| The financial assets and liabilities measured at fair value in the Condensed Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows: | ||||||
|
| ||||||
|
|
| Level 1 | Level 2 | Level 3 | Total | |
| As at 31 July 2020 | Note | £'000 | £'000 | £'000 | £'000 | |
| Financial assets at fair value through profit or loss |
|
|
|
|
| |
| Quoted equities | a) | 353,010 | - | - | 353,010 | |
| Quoted bonds | b) | - | 11,075 | - | 11,075 | |
|
|
| ______ | ______ | ______ | ______ | |
| Total |
| 353,010 | 11,075 | - | 364,085 | |
|
|
| ______ | ______ | ______ | ______ | |
| Financial liabilities at fair value through profit or loss |
|
|
|
|
| |
| Derivatives | c) | - | (127) | - | (127) | |
|
|
| ______ | ______ | ______ | ______ | |
| Net fair value |
| 353,010 | 10,948 | - | 363,958 | |
|
|
| ______ | ______ | ______ | ______ | |
|
|
|
|
|
|
| |
|
|
| Level 1 | Level 2 | Level 3 | Total | |
| As at 31 January 2020 | Note | £'000 | £'000 | £'000 | £'000 | |
| Financial assets at fair value through profit or loss |
|
|
|
|
| |
| Quoted equities | a) | 402,149 | - | - | 402,149 | |
| Quoted bonds | b) | - | 8,651 | - | 8,651 | |
|
|
| ______ | ______ | ______ | ______ | |
| Total |
| 402,149 | 8,651 | - | 410,800 | |
|
|
| ______ | ______ | ______ | ______ | |
| Financial liabilities at fair value through profit or loss |
|
|
|
|
| |
| Derivatives | c) | - | (668) | - | (668) | |
|
|
| ______ | ______ | ______ | ______ | |
| Net fair value |
| 402,149 | 7,983 | - | 410,132 | |
|
|
| ______ | ______ | ______ | ______ | |
|
|
|
|
|
|
| |
| a) | Quoted equities. The fair value of the Company's investments in quoted equities has been determined by reference to their quoted prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. | |||||
| b) | Quoted bonds. The fair value of the Company's investments in quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets | |||||
| c) | Derivatives. The Company's investment in exchange traded options have been fair valued using quoted prices and have been classified as Level 2 as they are not considered to trade in active markets. | |||||
12. | Transactions with the Manager. The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML" or the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional activity services. |
| The annual management fee is charged on gross assets after deducting current liabilities and borrowings and excluding commonly managed funds (Net Assets), on a tiered basis. The annual management fee is charged at 0.75% of Net Assets up to £350 million, 0.6% of Net Assets between £350 million and £500 million, and 0.5% of Net Assets above £500 million. The management fee is chargeable 30% to revenue and 70% to capital. During the period £1,330,000 (31 July 2019 - £1,544,000) of investment management fees were payable to the Manager, with a balance of £670,000 (31 July 2019 - £800,000) being due to ASFML at the period end. |
| The secretarial fee of £118,000 per annum is chargeable 100% to revenue and is payable monthly in arrears. During the period £59,000 (31 July 2019 - £58,000) of secretarial fees were payable to the Manager, with a balance of £20,000 (31 July 2019 - £19,000) being due to ASFML at the period end. |
| The promotional activities fee is based on a current annual amount of £216,000, payable quarterly in arrears. During the period £108,000 (31 July 2019 - £104,000) of fees were payable, with a balance of £126,000 (31 July 2019 - £70,000) being due to ASFML at the period end. |
13. | Segmental information. The Company is engaged in a single segment of business, which is to invest in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.
|
14. | Subsequent events. Subsequent to the period end, the Company purchased 24,960 of its own Ordinary shares for cancellation at a cost of £57,000 leaving 143,252,560 Ordinary shares in issue. |
15. | Half-Yearly Financial Report. The financial information in this Report does not comprise statutory accounts within the meaning of Section 434 - 436 of the Companies Act 2006. The financial information for the year ended 31 January 2020 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the Company's auditor was unqualified and contained no statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The condensed interim financial statements have been prepared using the same accounting policies as contained within the preceding annual financial statements. |
| The financial information for the six months ended 31 July 2020 and 31 July 2019 have not been audited or reviewed by the Company's auditor. |
16. | This Half-Yearly Financial Report was approved by the Board on 17 September 2020. |
17. The Half-Yearly Financial Report is available on the Company's website, www.northamericanincome.co.uk. The Half-Yearly Report will be posted to shareholders in October 2020 and copies will be available from the Company Secretary.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
For The North American Income Trust plc
Aberdeen Asset Management PLC, Secretary
For further information, please contact:-
Company Secretary
Aberdeen Standard Investments
Tel: 0131 372 2200