Annual Results & Quarterly Dividend announcement

BMO CAPITAL AND INCOME INVESTMENT TRUST PLC

Audited Statement of Results for the year ended 30 September 2020

 

LEI: 21380052ETTRKV2A6Y19

 

26 November 2020

 

 

BMO Capital and Income Investment Trust PLC ("BCI" / "the Company") today announces its results for the year ended 30 September 2020.

 

·      BCI will pay a fourth interim dividend of 3.75 pence per share to bring the total for the year to 11.50 pence per share, an increase of 0.9%.  This is ahead of CPI inflation of 0.5% and will be the 27th consecutive year of increased payments.

 

·      BCI's Net Asset Value ("NAV") total return for the year was -21.0%. This compares to the FTSE All-Share Index (the "Benchmark") which returned -16.6% for the same period.  Over five years BCI's NAV total return was 19.8% in comparison to 18.6% from the Benchmark.

 

·      BCI's NAV total return from the financial year end to 23 November 2020 (the latest practicable date) was 16.4%, compared to 9.6% return from the FTSE All-Share Index.

 

·      The Ongoing Charges figure was 0.58%, the same as 2018 and 2019 representing a fall of nearly a third since 2010.

 

 

The Chairman, Jonathan Cartwright, said:

 

            "Events over the last several months have been truly tumultuous.  The impact of COVID-19 has been substantial on both absolute and relative performance.  The Company's longer term NAV returns measured over five years remain positive in both absolute and relative terms.

 

            Notwithstanding the challenges, there are opportunities for many companies to restructure and grow, and the Company will seek to identify and invest in those businesses. The Company's strong performance since the year end indicates that the portfolio is well placed to exploit these opportunities and achieve its objective of securing long-term capital and income growth for Shareholders.

 

            With these results the Board announces the payment of a fourth interim dividend of 3.75 pence per share.  This takes the total dividend for the year to 11.50 pence per share an increase of 0.9% from last year.  We are proud to be an AIC Dividend Hero, having increased our dividend every year since launch in 1992 and this is a record we will strive to maintain."

 

 

Chairman's Statement

 

As we all know, events over the last several months have been truly tumultuous. This is my first annual statement to you since my appointment as Chairman in succession to Steve Bates, but there has been no honeymoon period. The Fund Manager's Review in the Annual Report and Accounts gives details about the performance of the stock market and the Company's own performance over the financial year and unsurprisingly, the impact of the COVID-19 pandemic has been substantial both on absolute performance and performance relative to our benchmark, the FTSE All-Share Index ("the Index").   

 

Over the year to 30 September 2020, the total returns (including dividends) for the Company's Net Asset Value ("NAV") and share price were -21.0% and -20.3% respectively and these compare directly to the total return of -16.6% for the Index. The period between 21 February when the stock market started to fall sharply in response to the developing crisis and 23 March at the trough was when the performance of your Company was hit hardest. Indeed, up to that point we had been making good progress and, since the nadir in March, performance has been ahead of the Index.

 

Longer term performance has been impacted by the turmoil of this year, but nevertheless NAV total returns measured over the last five years remain positive in both absolute and relative terms. Over five years to 30 September 2020, the Company's NAV and share price total returns were +19.8% and +16.8% while the comparable figure for the Index was +18.6%.

 

Revenue and Dividends

The lockdowns mandated by most governments worldwide to halt the spread of the virus clearly affected many businesses severely as did the general uncertainty as to how the situation would develop. This fed through immediately into lower or no dividend payments from companies to their shareholders, thus reducing our income.

 

One of the objectives of this Company is to pay a rising dividend to Shareholders. Even though our own income has been significantly reduced this year because of the crisis, the Company has a very significant Revenue Reserve, which was accumulated in previous years. A key purpose of the Revenue Reserve is to be able to support dividend payments when conditions are more challenging, such as during this crisis, and therefore the Board is willing to use the Reserve to support the payment of an increased dividend this year.

 

With these results, the Board announces the payment of a fourth quarterly dividend of 3.75 pence per share. Together with the three dividends already paid, this takes the total dividend for the year to 11.5 pence per share, an increase of 0.9% compared to last year. By comparison, the Consumer Prices Index rate of inflation for the year to September was 0.5%.

 

We are proud to be an AIC Dividend Hero, having increased our dividend every year since launch in 1992 and this is a record we will strive to maintain.

 

Share Rating

For the majority of last year, our shares traded at a premium to the underlying NAV. This reflects good demand from Shareholders old and new and relatively few sales in the market as most Shareholders have a long-term view.

 

In response to the demand for our shares and as the share price stood at a premium to the NAV, we have again issued new shares; 3,925,000 in total. This increased our share count by 3.8% compared to the start of the financial year. There are a number of benefits to issuing new shares at a premium to NAV. First, by increasing the size of the Company it provides a larger capital base over which to allocate costs, secondly it ensures anyone buying shares only pays, at most, a relatively small premium to NAV, thirdly existing Shareholders are not diluted and finally it helps to reduce some volatility in the share price by linking the share price more closely to the NAV.

 

The incidence of the Company's shares trading at a premium or discount to NAV is dependent upon supply and demand for the shares, and most of our peer group of companies trade at a discount. If a persistent discount were to emerge, the Board has the flexibility to buy back shares in accordance with the authority given by Shareholders. Through our policy of issuing shares at a small premium to NAV and offering to buy back at a discount, the Company in effect becomes a market maker if required and it is able to provide greater liquidity to Shareholders than may be available from traditional sources. We do not think it is in Shareholders' interest that the share price of this Company should become too detached from the underlying NAV.

 

It is worth noting a number of our shares are held in Child Trust Funds; these will increasingly mature as the children for whom they were initially established turn 18 years of age and your Manager is working actively to encourage these young investors to remain as long-term Shareholders.

 

Operations

I am glad to report that at an operational level, the Board and your Manager have been able to continue to work without any disruption from the crisis. The Manager moved to most staff working from home early in March and as a result of good information technology, planning and infrastructure this has been successfully achieved. Our Board meetings have necessarily been held remotely, but these too have been without disruption and have been as thorough and diligent as ever. In recognition of the COVID crisis, we have held two additional meetings in order to keep in closer contact with the Investment Manager and the fast-moving events.

 

The Manager has also increased its efforts to communicate in greater detail with Shareholders and potential investors and we hope the written articles, videos and podcasts have helped to explain the Fund Manager's thoughts and responses to the events of the year.

 

Costs

Your Company's most significant cost is the fee paid to the Manager for its services. This is linked directly to the size of the assets of your Company and so has reduced as markets and performance have fallen. However, I am pleased to report that despite many other costs being fixed and not flexed in response to the crisis, the cost of running the Company as a percentage of average net assets has remained at 0.58% in line with 2018 and 2019 and represents a fall of over a third since 2010. Your Board looks to manage the affairs of the Company as efficiently as possible and believes the overall cost level is competitive with alternative actively managed products. It is also worth repeating all our performance figures are quoted after these costs.

 

Responsible Investment

The Board and the Manager have long recognised and been committed to the importance of high standards of Environmental, Social and Governance (ESG) practice in assessing investments for inclusion in our portfolio. These standards also establish a framework for dialogue with those companies. We believe higher standards can help to deliver better and more sustainable long-term growth in capital and income, in addition to their own intrinsic merits. The Manager has one of the largest and longest established teams in the City dedicated to ESG and pages 24 to 27 of the Annual Report and Accounts explain in detail its ESG policies and the engagement the Manager has had with companies in our portfolio. The Board fully supports the Manager's engagement in this increasingly important area.

 

Board

As part of an orderly succession plan, Clare Dobie will retire from the Board during 2021. Clare, who is the Company's Senior Independent Director has served on the Board for more than eight years. With a background in financial journalism and investment marketing her insight into improving communication with the Company's Shareholders has been invaluable. Following Clare's retirement I am very pleased to report Tim Scholefield will become Senior Independent Director. On behalf of the Board and Shareholders of the Company I thank Clare for her commitment and wise counsel throughout her period of appointment.

 

As a further part of this plan a search company was commissioned to find a new Director for the Board. Following a thorough selection process, the Company is pleased to announce that Nicky McCabe will be appointed to the Board with effect from 1 January 2021.

 

Nicky McCabe was formerly Head of Product and Investment Trusts at Fidelity International, as well as a director and Chief Operating Officer of a number of Fidelity companies. Nicky is currently a non-executive director of Aberdeen Asian Income Fund Ltd, Artemis Investment Management Limited, Vitality Life Insurance and the charity, Tomorrow's People.

 

The Board looks forward to working with Nicky and to the valuable insights she will bring to the Board's deliberations.

 

Annual General Meeting

 

The Annual General Meeting ("AGM") of the Company will be held at 11.30am on 16 February 2021 at Quartermile 4, 7a Nightingale Way, Edinburgh EH3 9EG. Mindful of the potential for travel and gathering restrictions arising from the COVID-19 pandemic the Board has taken the difficult decision to amend the format of this year's AGM.

 

Shareholders will not be permitted to attend this year's AGM physically but will be able to view proceedings at the meeting electronically. Voting will occur in advance with Shareholders encouraged to utilise their Form of Proxy or Form of Direction, appointing the Chairman of the AGM as your proxy. The formal meeting will then be followed by a presentation by the Company's Fund Manager. Shareholders are requested to direct any questions they may have with regard to the resolutions proposed at the AGM or the performance of the Company, in advance of the meeting to [email protected].

 

The Fund Manager's presentation will also be available on the Company's website www.bmocapitalandincome.com accompanied with a regularly updated Questions and Answers Schedule. Access details for the AGM will be included on the Form of Proxy or Form of Direction.

 

The Board has always valued the opportunity that the AGM provided to meet the Company's Shareholders. The Board looks forward to a resumption of our normal practices in 2022 and if possible, with the additional facility of online attendance for those Shareholders unable to travel.

 

Outlook

 

Earlier this year, there was some hope that the impact of the COVID-19 pandemic would lessen by now and that everyone's way of life could revert closer to pre-COVID-19 conditions with full social interactions, businesses reopened and economies showing sustained recovery. In Europe, including the UK, recovery has proved patchy and the new lockdown decreed for England, and the ongoing restrictions elsewhere, demonstrate that the extent and direction of the pandemic still cannot be predicted accurately. Even economies such as that of China, where very stringent measures were taken to control the virus, cannot yet fully relax their vigilance. The effect on all our lives has been substantial, and the UK Government's economic response to defend jobs and livelihoods, whilst welcome, will result in a level of Government borrowing which will need to be brought down in future to rebalance the country's books.  

 

Notwithstanding the challenges, many companies have been able to respond vigorously to the necessary changes in their structures and operations. Those able to exploit and develop new techniques have proven resilient and many have actually prospered as more traditionally structured companies, particularly in the "bricks and mortar" retail space have suffered. There are opportunities for many companies to restructure and grow, and the Company will seek to identify and invest in those businesses. The Company's strong performance since the year end indicates that the portfolio is well placed to exploit these opportunities and achieve its objective of securing long-term capital and income growth for Shareholders.

 

Finally, I would like to thank you for your continuing support. Stay safe, and I wish you all well as together we meet the challenges and opportunities ahead.

 

Jonathan Cartwright

Chairman

25 November 2020

 

 

Principal Risks and Future Prospects

The principal risks together with their mitigations are set out below. The Board's processes for monitoring them and identifying emerging risks are set out on pages 28 to 29 and in note 21 of the Report & Accounts.

 

Since the beginning of 2020 the global economy has suffered considerable disruption due to the effects of the COVID-19 pandemic. The Directors have reviewed the key risk register for the Company which identifies the risks that the Company is exposed to, the controls in place and the actions being taken to mitigate them.

 

The principal risks identified as most relevant to the assessment of the Company's future prospects and viability are detailed below. The Board considers that with the spread of the pandemic the threat from some principal risks has increased and have considered this in relation to going concern.

 

·      Risk description: Unfavourable markets or asset allocation, sector and stock selection and use of gearing and derivatives are inappropriate giving rise to investment underperformance as well as impacting capacity to pay dividends.

Increase in overall risk due to COVID-19. 

 

Mitigation: The portfolio of quoted securities is diversified and the Company's structure enables it to take a long-term view. Investment policy, performance, revenue and gearing are reviewed at each Board meeting. The Manager's Performance and Risk Oversight team provides independent oversight on investment risk management. The Board regularly considers operating costs along with underlying dividend income and the implications for the dividend payment capacity of the Company taking into account revenue reserves.

 

·      Risk description: Errors, fraud or control failures at service providers or loss of data through increasing cyber threats or business continuity failure could damage reputation or investors' interests or result in losses. Increase in overall risk due to COVID-19.

 

Mitigation: The Board receives regular control reports from the Manager covering risk and compliance including oversight of third party service providers. The Board has access to the Manager's Head of Business Risk and requires any significant issues directly relevant to the Company to be reported immediately. The Depositary is specifically liable for loss of any of the Company's securities and cash held in custody.

 

·      Risk description:  Inappropriate business or marketing strategy particularly in relation to investor needs or sentiment giving rise to a share price discount to NAV per share.

Unchanged throughout the year under review.

 

Mitigation:  At each regular Board meeting the Directors receive an update on marketing activities and from the broker. To gauge investor sentiment, the Board holds a Shareholder satisfaction survey which is conducted every five years ahead of a vote on whether the Company should continue. The Board holds a separate meeting to consider strategy and associated opportunities and threats and the performance. The appointment of the Manager is also reviewed annually in terms of its delivery of sustainable long-term growth in capital and income. This includes the growing recognition of the importance of further development and application of high standards of ESG practice by the Manager. Share buybacks can be employed to help moderate extensive discount volatility, while share issues can be made when the shares are trading at a premium.

 

 

 

 

 

 

 Five Year Horizon

 

Through a series of connected stress tests ranging from moderate to extreme scenarios and based on historical  information, but forward looking over the five years commencing 1 October 2020, the Board assessed the risks of:

·      potential illiquidity of the Company's portfolio;

·      the effects of any substantial future falls in investment values and income receipts on the ability to repay and re-negotiate borrowings;

·      potential breaches of loan covenants, the maintenance of dividend payments and retention of investors; and

·      the potential need for extensive share buybacks in the event of share price volatility and a move to a wide discount.

 

In accordance with the UK Code, the Directors have assessed the future prospects of the Company over the coming five years. Based on this assessment, and in the context of the Company's business model, strategy and operational arrangements, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period ending November 2025. For this reason, the Board also considers it appropriate to continue adopting the going concern basis in preparing these financial statements.

 

Statement of Directors' Responsibilities  
 

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules the Directors confirm, that to the best of their knowledge:

 

·      the financial statements, prepared in accordance with applicable accounting standards give a true and fair view of the assets, liabilities, financial position and profit of the Company;

·      the Strategic report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face; and

·      the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

 

 

On behalf of the Board

Jonathan Cartwright

Chairman

25 November 2020

 

 

Income Statement

                                                                                                                             

 

for the year ended 30 September	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
(Losses)/gains on investments	-	(79,247)	(79,247)	-	3,878	3,878
Foreign exchange gains/(losses)	2	(25)	(23)	1	5	6
Income	10,097	938	11,035	14,810	459	15,269
Management fee	(609)	(609)	(1,218)	(667)	(667)	(1,334)
Other expenses	(583)	(2)	(585)	(547)	(3)	(550)
Net return before finance costs and taxation	8,907	(78,945)	(70,038)	13,597	3,672	17,269
Finance costs	(141)	(141)	(282)	(164)	(164)	(328)
Net return before taxation	8,766	(79,086)	(70,320)	13,433	3,508	16,941
Taxation	(8)	-	(8)	(7)	-	(7)
Net return attributable to Shareholders	8,758	(79,086)	(70,328)	13,426	3,508	16,934
Return per share - basic and diluted	8.34p	(75.33p)	(66.99p)	13.12p	3.43p	16.55p

 

The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

A statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

 

 

Statement of Changes in Equity

 

for the year ended 30 September 2020
		Share	Capital				Total
	Share	premium	redemption	Special	Capital	Revenue	Shareholders'
	capital	account	reserve	reserve	reserve	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2019	25,696	130,197	4,146	4,434	158,561	15,115	338,149
Movements during the year      ended 30 September 2020
Dividends paid	-	-	-	-	-	(12,024)	(12,024)
Ordinary shares issued	981	9,617	-	-	-	-	10,598
Net return attributable to     Shareholders	-	-	-	-	(79,086)	8,758	(70,328)
Balance at 30 September 2020	26,677	139,814	4,146	4,434	79,475	11,849	266,395

 

 

for the year ended 30 September 2019
		Share	Capital				Total
	Share	premium	redemption	Special	Capital	Revenue	Shareholders'
	capital	account	reserve	reserve	reserve	reserve	Funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2018	25,265	125,380	4,146	4,434	155,053	13,194	327,472
Movements during the year      ended 30 September 2019
Dividends paid	-	-	-	-	-	(11,505)	(11,505)
Ordinary shares issued	431	4,817	-	-	-	-	5,248
Net return attributable to     Shareholders	-	-	-	-	3,508	13,426	16,934
Balance at 30 September 2019	25,696	130,197	4,146	4,434	158,561	15,115	338,149

 

 

 

 

Balance Sheet

 

 

at 30 September	2020	2019
	£'000s	£'000s
Fixed assets
Investments	284,843	343,066
Current assets
Debtors	731	1,275
Cash and cash equivalents	1,183	4,229
Total current assets	1,914	5,504
Current liabilities
Creditors: amounts falling due within one year	(362)	(421)
Loans	(20,000)	(10,000)
Total current liabilities	(20,362)	(10,421)
Net current liabilities	(18,448)	(4,917)
Net assets	266,395	338,149
Capital and reserves
Share capital	26,677	25,696
Share premium account	139,814	130,197
Capital redemption reserve	4,146	4,146
Special reserve	4,434	4,434
Capital reserve	79,475	158,561
Revenue reserve	11,849	15,115
Total Shareholders' funds	266,395	338,149
Net asset value per ordinary share - pence	249.65	328.99

 

 

 

Statement of Cash Flows

 

for the year ended 30 September	2020	2019
	£'000s	£'000s
Cash flows from operating activities before dividends received and interest	(1,111)	(1,569)
Dividends received	10,649	15,125
Interest received	11	38
Interest paid	(282)	(332)
Cash flows from operating activities	9,267	13,262
Investing activities
Purchase of investments	(48,257)	(34,874)
Sale of investments	27,395	36,849
Other capital charges	(2)	(3)
Cash flows from investing activities	(20,864)	1,972
Cash flows before financing activities	(11,597)	15,234
Financing activities
Equity dividends paid	(12,024)	(11,505)
Net proceeds from issuance of new shares	10,598	5,248
Drawdown/(repayment) of loan	10,000	(10,000)
Cash flows from financing activities	8,574	(16,257)
Net movement in cash and cash equivalents	(3,023)	(1,023)
Cash and cash equivalents at the beginning of the year	4,229	5,246
Effect of movement in foreign exchange	(23)	6
Cash and cash equivalents at the end of the year	1,183	4,229
Represented by:
Cash at bank	43	399
Short term deposits	1,140	3,830
	1,183	4,229

 

 

 

Notes

 

1   Return per ordinary share

Revenue return

The revenue return per share of 8.34p (2019: 13.12p) is based on the revenue return attributable to Shareholders of £8,758,000 profit (2019: £13,426,000 profit).

 

Capital return

The capital return per share of -75.33p (2019: 3.43p) is based on the capital return attributable to Shareholders of £79,086,000 loss (2019: £3,508,000 profit).

 

Total return

The total return per share of -66.99p (2019: 16.55p) is based on the total return attributable to Shareholders of £70,328,000 loss (2019: £16,934,000 profit).

 

Weighted average ordinary shares in issue

The returns per share are based on a weighted average of 104,977,759 (2019: 102,301,049) ordinary shares in issue during the year.

 

2   Dividends

The Directors have declared a fourth interim dividend in respect of the year ended 30 September 2020 of 3.75 pence per share, payable on 17 December 2020 to all Shareholders on the register at close of business on 4 December 2020, ex-dividend 3 December 2020.

 

3   Financial risk management

The Company is an investment company, listed on the London Stock Exchange, and conducts its affairs so as to qualify in the United Kingdom ("UK") as an investment trust under the provisions of section 1158 of the CTA. In so qualifying, the Company is exempted in the UK from corporation tax on capital gains on its portfolio of investments.

 

The Company's investment objective is to secure long-term capital and income growth from a portfolio consisting mainly of FTSE All-Share companies. The Company can also have exposure to leading overseas companies, with the value of the non-UK portfolio not exceeding 10% of the Company's gross assets. In pursuing this objective, the Company is exposed to financial risks which could result in a reduction of either or both of the value of the net assets and the profits available for distribution by way of dividend. These financial risks are principally related to the market (currency movements, interest rate changes and security price movements), liquidity and credit. The Board, together with the Manager, is responsible for the Company's risk management.

 

The full details of financial risks are contained in note 21 of the Report and Accounts.

 

4    Annual general meeting

The Annual General Meeting ("AGM") of the Company will be held at 11.30am on 16 February 2021 at Quartermile 4, 7a Nightingale Way, Edinburgh EH3 9EG. Mindful of the potential for travel and gathering restrictions arising from the COVID-19 pandemic the Board has taken the difficult decision to amend the format of this year's AGM.

 

Shareholders will not be permitted to attend this year's AGM physically but will be able to view proceedings at the meeting electronically. Voting will occur in advance with Shareholders encouraged to utilise their Form of Proxy or Form of Direction, appointing the Chairman of the AGM as your proxy. The formal meeting will then be followed by a presentation by the Company's Fund Manager. Shareholders are requested to direct any questions they may have with regard to the resolutions proposed at the AGM or the performance of the Company, in advance of the meeting to [email protected].  

 

The Fund Manager's presentation will also be available on the Company's website www.bmocapitalandincome.com accompanied with a regularly updated Questions and Answers Schedule. Access details for the AGM will be included on the Form of Proxy or Form of Direction.

 

The Board has always valued the opportunity that the AGM provided to meet the Company's Shareholders. The Board looks forward to a resumption of our normal practices in 2022 and if possible, with the additional facility of online attendance for those Shareholders unable to travel.

 

5    Report and accounts

The report and accounts for the year ended 30 September 2020 will be posted to Shareholders and made available on the website www.bmocapitalandincome.com shortly. Copies may also be obtained by mailing the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

 

 

By order of the Board

BMO Investment Business Limited, Secretary

25 November 2020