North American Income

Half-Yearly Results
RNS Number : 1085N
North American Income Trust (The)
28 September 2021
 

Legal Entity Identifier (LEI): 5493007GCUW7G2BKY360

28 September 2021

 

 

THE NORTH AMERICAN INCOME TRUST PLC

 

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS TO 31 JULY 2021

 

 

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

Over the six month period ended 31 July 2021, the Company's net asset value ("NAV") per share increased by 19.8% on a total return basis in sterling terms. It outperformed the 17.6% return, in sterling terms, for the Russell 1000 Value Index, the Company's primary reference index. This was mainly attributable to the positioning in the technology sector, as well as stock selection in communication services and consumer staples. Conversely, an underweight allocation to the healthcare sector and stock selection in energy and materials held back performance. 

 

The largest individual stock contributors were Blackstone, ConocoPhillips and Cogent Communications. Blackstone had healthy growth in revenue and earnings in the second quarter, with notable strength in its private equity and real estate segments. ConocoPhillips' first-quarter 2021 results were bolstered by a significant increase in production, as well as higher commodity prices. ConocoPhillips also held an investor day at which the company announced an increase in share repurchases and provided a positive 10-year business outlook. Cogent Communications posted better-than-expected results in the first quarter, benefitting mainly from a year-over-year increase in service revenue.

 

The main stocks that detracted from performance included REIT Omega Healthcare Investors and CMS Energy, as well as the lack of exposure to Google parent Alphabet, which does not pay a dividend. Shares of Omega Healthcare Investors fell because of concerns about the continued level of governmental support and the strength of certain healthcare facility operators with higher wage pressures stemming from shortages and slow occupancy gains following the pandemic. Shares of CMS Energy moved lower as investors took an unfavourable view of the company's announcement of the sale of its Enerbank subsidiary to Regions Bank for US$960 million. Management stated that the sale would enable CMS Energy to focus strictly on its energy business.

 

Market & Economic Review

Major North American equity market indices moved sharply higher during the period to 31 July 2021, buoyed largely by investors' optimism regarding the distribution of COVID-19 vaccines and generally positive economic reports. The market rally was tempered somewhat because of investors' concerns regarding the Delta variant, which stalled the momentum of otherwise upbeat second-quarter results. The Russell 1000 Value Index return of 17.6% was led by energy, real estate and financial stocks. The utilities, consumer staples and healthcare sectors recorded more modest gains and were the most notable market laggards.

 

The US Federal Reserve ("Fed") maintained its zero interest rate policy over the six months and, in June, signaled greater expectations of an increase in its benchmark interest rate in 2023. The Fed also estimated that the core inflation rate will come in at roughly 3.0% for 2021, and will subsequently fall to 2.1% in both 2022 and 2023. In July, the Fed noted that it would continue its current level of quantitative easing until there is "substantial further progress" towards its unemployment and stable inflation targets.

 

US GDP grew at nearly 6.5% in the first half of 2021 as the economy emerged from its pandemic induced downturn. The increase was attributable mainly to upturns in consumer spending, non-residential fixed investment, and exports. The US economy added over four million jobs during the six month period, and the unemployment rate fell from 6.7% to 5.4%. There were signs of inflation as the annual rate of the Consumer Price Index (CPI) rose by 5.4% year over year in July. However, core inflation, as measured by the CPI for all items less food and energy, rose by a more modest 4.3%.

 

Portfolio activity

The Manager initiated equity positions in Hannon Armstrong Sustainable Infrastructure Capital ("Hannon Armstrong"), a provider of financing solutions for renewable energy companies; Broadcom, a supplier of semiconductor and infrastructure software; and MetLife, the insurance and financial services company. The Manager believes that Hannon Armstrong will benefit from an acceleration in climate change related projects, by leveraging its expertise and relationships within the industry. The Manager expects this to result in better than anticipated balance sheet and earnings growth. Broadcom's management has a strong history of creating value, with a strategic focus on its suite of products with well-established barriers to entry. Given a proven history of high returns on equity, strong margins and free cash flow the Manager is comfortable with the company's approach to bolt-on/ incremental/ small scale merger and acquisition activity. The Manager also appreciates that software exposure, at over 25% of sales, provides some ballast in what is a cyclical industry. MetLife's present collection of businesses (International Life, Group Insurance, and Institutional) collectively generate higher growth and superior returns relative to most US peers following the divestiture of many lower-value segments and the spin-off of Brighthouse Financial. The company also continues to wind down the legacy US retail, variable annuity, and long-term care businesses. As a result of this transformation the Manager believes that the market underappreciates the emerging growth and return profile of MetLife's current business mix. The company should trade at a premium to its peers as the Manager believes it can drive mid-to-high single digit earnings per share ("EPS") and book value growth.

 

The Manager sold the positions in UnitedHealth Group following the announcement of a change in the company's CEO as it believes that the new CEO is highly qualified; however, felt that investors may need to see a period of consistent execution before gaining confidence in the strategy of UnitedHealth Group's management. Shares in Verizon Communications were sold as the Manager believes that wireless carriers are facing increasing capital expenditure and competition as the US adopts 5G technology.

 

Further details of the portfolio are shown below.

 

In the corporate bond portfolio, the Manager bought a position in Goodyear Tire & Rubber 5% 07/2029. Given the dramatic spread-tightening that the US high-yield corporate bond market experienced in the first half of the period, the Manager sold bonds in the portfolio where valuations were above their fair values: these were Diamond 1 Fin Diamond 2 6.02% 06/26; CCO Holdings 5.5% 05/26; HCA 5.875% 02/26; NRG Energy 5.25% 06/29; Six Flags 7% 07/25; and Rattler Midstream 5.625% 07/25. The proceeds were reinvested into more attractive opportunities in the equity market.

 

Revenue Account

Total revenue from equity holdings in the portfolio over the period was £7.9 million (the same period in 2020 - £8.3 million).  Most of the Company's equity holdings continued their established record of dividend growth. Over 30% of the equity holdings raised their dividends over the past six months, with a weighted average increase of approximately 6.1%.

 

Examples of dividend increases and resulting annualised yields included L3Harris Technologies 20% and 1.8%; Procter & Gamble 10% and 2.4%; Home Depot 10% and 2.0%; REIT Gaming and Leisure Properties 8% and 5.7%; CME Group 6% and 1.8%; Railroad operator Union Pacific 10% and 1.9%; Medtronic 9% and 2.0%.

 

In addition, the Company received premiums totalling £1.5 million (same period in 2020 - £3.9 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 15.7% of total income (same period in 2020 - 31.6%). 2020 was an exceptional year for option income and the premiums received in the period are more in line with the amounts received in 2019. As the Company's exposure to corporate bonds has decreased over recent years, interest income from investments was lower and represented 0.6% of total income (2020 - 2.5%). Income from bonds and option premiums will remain secondary sources of income and dividends will continue to provide the main source of income available for distribution.

 

Dividend

During the period the Board reviewed the dividend payment policy. It concluded that, as the primary objective of the Company is to deliver income to shareholders, it should focus on matching payments to shareholders more closely with the income received by the portfolio. Consequently, the Board is moving to a payment structure whereby the first three interim dividends in the year will represent a greater proportion of the expected annual dividend than has been the case in the past.

 

In light of the above, the Board is declaring a second quarterly dividend of 1.9p per share, giving total dividends for the first half of the year to 31 January 2022 of 3.8p per share (2021 - 3.6p), a 5.6% increase. The second quarterly dividend is payable on 29 October 2021 to shareholders on the register on 8 October 2021.

 

It is expected that the third interim dividend, which will be paid in February 2022, will be 2.5p per share and the fourth interim dividend will continue to act as a balancing figure and will be determined once the income for the year has been determined.

 

Management of Premium and Discount

The Company's share price rose by 15.4% to 270.0p and ended the half year at an 11.6% discount to total net asset value, compared with a 10.9% discount at the end of the 2021 financial year. Over the six month review period, the Company's shares mainly traded at discounts between -6.52% and -15.55%, on a cumulative income basis. 1,437,882 shares were bought back and cancelled at a weighted average price of 258.72p and a weighted average discount of 10.3%. The total cost was £3.74m. Since 31 July 2021, the Company has bought back a further 749,059 Ordinary shares, at a weighted average discount of 8.2%.

 

Gearing

The Board believes that sensible use of gearing should enhance returns to shareholders over the longer term. In December 2020, the Company entered into a long-term financing agreement for US$50 million with MetLife for two loans of US$25 million with terms of 10 and 15 years. As a result, net gearing at 31 July 2021 stood at 4.9% (31 January 2021: 7.4%).

 

Promotional Activity

The Board continues to promote the Company through the Manager's initiative, which provides a series of savings schemes through which savers can invest in the Company in a low-cost and convenient manner.

 

Up-to-date information about the Company, including monthly factsheets, interviews with the Manager and the latest net asset value and price of the Ordinary shares may be found on the Company's website at: northamericanincome.co.uk.

 

Board

I shall be retiring from the Board at the end of December 2021. Dame Susan Rice will succeed me as Chairman. I have been very grateful over the years for the support of my colleagues on the Board and the investment management and secretarial services provided by our Manager. A search is underway for a new independent non-executive director.

 

Outlook

The rise in COVID-19 cases and higher transmission risk among those who have been vaccinated has prompted the US Center for Disease Control to reinstate face mask guidelines. With the vaccination rate at around at 59% of the eligible population (those aged 12 or over), infection rates are rising sharply. While we have not seen any lockdown by US states, there is the potential to aggravate global supply-chain disruptions. However, the Manager does not expect these to derail US economic growth. In the short term, labour shortages continue to pose a risk of inflation, which has surged due to disrupted supply chains and reopening pressure. The Fed continues to view these pressures as transitory. The Fed has also suggested that it wants to avoid any sharp changes in policy. Therefore, while the recent data has been more volatile than expected, it is not expected that that the Fed will raise rates until 2022. 

 

Second-quarter earnings have indicated continued momentum as companies have largely delivered strong results and are raising forward guidance. While companies have noted higher input costs (especially in certain commodities), these have broadly been passed on to customers and many companies have an improved outlook for margins because of volume growth. The Manager thinks that this should provide sufficient support for earnings growth in 2021; beyond that, it is expected that the market's focus will shift towards sustainability of growth.

 

James Ferguson,

Chairman

27 September 2021

 



 

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 on pages 9 to 12 of the 2021 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 impact of the virus, including its longer term combined consequences, remains uncertain for both the underlying operating and economic environment. The Manager undertook 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 continues to carefully review the composition of the Company's portfolio. The business continuity procedures and contingency arrangements implemented by the Manager (and its third party service providers) to ensure that it is able to service its clients, including investment trusts, have proven effective.  

 

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 2022.

 

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. 

 

In December 2020, the Company entered into a long-term financing agreement for US$50 million with Metlife, comprising two loans of US$25 million with terms of 10 and 15 years.

 

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 2021 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

27 September 2021

 

 

FINANCIAL HIGHLIGHTS

 

Net asset value total return{A}


Share price total return{A}


Russell 1000 Value Index (in sterling terms) total return

Six months ended 31 July 2021


Six months ended 31 July 2021


Six months ended 31 July 2021

+19.8%


+19.1%


+17.6%

Year ended 31 January 2021: -5.7%


Year ended 31 January 2021: -16.5%


Year ended 31 January 2021: -0.1%






Earnings per Ordinary share (revenue)


Dividends


Full year dividend yield{A}

Six months ended 31 July 2021


Six months ended 31 July 2021


As at 31 July 2021

5.05p


3.80p


3.7%

Six months ended 31 July 2020: 6.80p


Six months ended 31 July 2020: 3.60p


As at 31 January 2021: 4.3%


{A}    Considered to be an Alternative Performance Measure. Further details can be found on pages below.

 

 


As at

As at

Capital


31 July
2021

31 January 2021

return
%

Net asset value per Ordinary share

305.6p

262.5p

+16.4

Share price per Ordinary share (mid)

270.0p

234.0p

+15.4

Discount to net asset value{A}

11.6%

10.9%


Net gearing {A}

4.9%

7.4%


Ongoing charges ratio{A}

0.97%

1.01%


{A}    Considered to be an Alternative Performance Measure. Further details can be found on below.






Six months to

Six months to


Change


31 July 2021

31 July 2020

%

Revenue return per Ordinary share

5.05p

6.80p

-25.7

Interim dividends

3.80p{A}

3.60p{B}

+5.6


{A}    Includes a first interim dividend of 1.90p paid on 6 August 2021 and a second interim dividend of 1.90p payable on 29 October 2021.

{B}    Includes a first interim dividend of 1.80p paid on 7 August 2020 and a second interim dividend of 1.80p paid on 30 October 2020.

 

 

PERFORMANCE (TOTAL RETURN) {A}

 


6 months ended

1 year ended

3 years ended

5 years ended


31 July 2021

31 July 2021

31 July 2021

31 July 2021


%

%

%

%

Net asset value per Ordinary share{A}

19.8

28.0

17.3

53.3

Share price per Ordinary share{A}

19.1

26.0

11.5

49.5

Russell 1000 Value Index (in sterling terms)

17.6

31.5

30.0

63.9

S&P 500 Index (in sterling terms)

17.7

28.8

55.6

112.5

{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 2021

 

AbbVie


CMS Energy

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.


CMS Energy Corporation is an energy company. The company, through its subsidiaries, provides electricity and natural gas to its customers. CMS energy also invests in and operates non-utility power generation plants in the United States and abroad




Cisco Systems


Bristol-Myers Squib

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.


Bristol-Myers Squibb Company is a global biopharmaceutical company. The company develops, licences, manufactures, markets, and sells pharmaceutical and nutritional products.




Citigroup


Comcast

Citigroup Inc. is a diversified financial services holding company that provides a broad range of financial services to consumer and corporate customers.


Comcast Corporation provides media and television broadcasting services. The company offers video streaming, television programming, high-speed Internet, cable television and communication services. Comcast serves customers worldwide.




Philip Morris


Medtronic

Philip Morris International Inc., through its subsidiaries, manufactures and sells cigarettes and other tobacco products.


Medtronic plc develops therapeutic and diagnostic medical products for a wide range of conditions, diseases and disorders.





Gilead Sciences

JPMorgan Chase & Co. provides global financial services and retail banking. The company provides services such as investment banking, treasury and securities services, asset management, private banking, card member services, commercial banking and home finance.


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.

 

 

 

INVESTMENT PORTFOLIO - EQUITIES

As at 31 July 2021

 



Valuation

Valuation

Company

Industry classification

£'000

%

AbbVie

Biotechnology

23,003

5.1

CMS Energy

Multi-Utilities

22,221

4.9

Cisco Systems

Communications Equipment

19,912

4.4

Bristol-Myers Squib

Pharmaceuticals

19,526

4.3

Citigroup

Banks

19,454

4.3

Comcast

Media

19,041

4.2

Philip Morris

Tobacco

17,997

3.9

Medtronic

Health Care Equipment & Supplies

15,583

3.4

JPMorgan Chase & Co.

Banks

15,284

3.4

Gilead Sciences

Biotechnology

14,735

3.2

Ten largest investments


186,756

41.1

Gaming & Leisure Properties

Equity Real Estate Investment Trusts (REITs)

14,471

3.2

TC Energy

Oil, Gas & Consumable Fuels

14,017

3.1

Omega Healthcare Investors

Equity Real Estate Investment Trusts (REITs)

13,047

2.9

Honeywell

Industrial Conglomerates

12,612

2.8

Huntington Bancshares

Banks

12,152

2.7

Hanesbrands

Textiles, Apparel & Luxury Goods

11,820

2.6

L3 Harris Technologies

Aerospace & Defence

10,600

2.3

Phillips 66

Oil, Gas & Consumable Fuels

10,563

2.3

Air Products & Chemicals

Chemicals

10,466

2.3

American International

Insurance

10,217

2.3

Twenty largest investments


306,721

67.6

Cogent Communications

Diversified Telecommunication

10,048

2.2

Restaurant Brands International

Hotels, Restaurants & Leisure

9,809

2.2

Blackstone

Capital Markets

8,664

1.9

MetLife

Insurance

8,300

1.8

Home Depot

Specialty Retail

8,262

1.8

Hannon Armstrong Sustainable

Mortgage Real Estate Investment Trusts (REITS)

8,170

1.8

ConocoPhillips

Oil, Gas & Consumable Fuels

8,064

1.8

FMC

Chemicals

7,692

1.7

Coca-Cola

Beverages

7,383

1.6

Royal Bank of Canada

Banks

7,270

1.6

Thirty largest investments


390,383

86.0

Procter & Gamble

Household Products

7,161

1.6

Union Pacific

Road and Rail

7,080

1.6

Broadcom

Semiconductors & Semiconductor Equipment

6,982

1.5

Regions Financial

Banks

6,923

1.5

Lockheed Martin

Aerospace & Defence

6,683

1.5

Digital Realty

Equity Real Estate Investment Trusts (REITs)

6,653

1.5

Nutrien

Chemicals

6,409

1.4

Texas Instruments

Semiconductors & Semiconductor Equipment

4,799

1.0

CME Group

Capital Markets

4,577

1.0

Genuine Parts

Distributors

4,564

1.0

Forty largest investments


452,214

99.6

Qwest Cap Funding 7.75% 15/02/31

Telecommunications

888

0.2

Goodyear Tire & Rubber 5% 15/07/29

Consumer Durables

756

0.2

Total investments


453,858

100.0

 

 

GEOGRAPHICAL ANALYSIS



Equity

Fixed interest

Total

Country

%

%

%

Canada

8.3

-

8.3

USA

91.3

0.4

91.7


_________

_________

_________


99.6

0.4

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 2021 and total return for the period.






Dividend


Share

Six months ended 31 July 2021

rate

NAV

price

31 January 2021

N/A

262.48p

234.00p

4 February 2021

1.90p

268.61p

236.50p

6 May 2021

4.50p

301.55p

269.00p

22 July 2021

1.90p

299.74p

273.50p

31 July 2021

N/A

305.57p

270.00p


_________

_________

Total return


+19.8%

+19.1%



_________

_________





Discount to net asset value. The discount is the amount by which the share price is lower than the net asset value per share with debt at fair value, expressed as a percentage of the net asset value with debt at fair value.







31 July
2021

31 January 2021

NAV per Ordinary share (p)

a

305.57p

262.48p

Share price (p)

b

270.00p

234.00p

Discount

(a-b)/a

11.6%

10.9%





Dividend yield. Dividend yield is calculated using the Company's historic annual dividend of 10.00p per Ordinary share divided by the share price at 31 July 2021 of 270.00p (31 January 2021 - 234.00p) expressed as a percentage.







31 July
2021

31 January 2021

Annual dividend per Ordinary share (p)

a

10.00p

10.00p

Share price (p)

b

270.00p

234.00p

Dividend yield

a/b

3.7%

4.3%





Net gearing: Net gearing measures total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the period end as well as cash and short term deposits.







31 July
2021

31 January 2021

Borrowings (£'000)

a

35,890

36,336

Cash (£'000)

b

13,074

9,239

Amounts due to brokers (£'000)

c

2,221

2,308

Amounts due from brokers (£'000)

d

3,838

1,562

Shareholders' funds (£'000)

e

432,667

375,416



_________

_________

Net gearing

(a-b+c-d)/e

4.9%

7.4%



_________

_________





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 2021 is based on forecast ongoing charges for the year ending 31 January 2022.





31 July
2021

31 January 2021

Investment management fees (£'000)

3,007

2,681

Administrative expenses (£'000)

735

753

Less: non-recurring expenses (£'000)

(19)

-


_________

_________

Ongoing charges (£'000)

3,723

3,434


_________

_________

Average net assets{A} (£'000)

424,278

371,338


_________

_________

Ongoing charges ratio (excluding look-through costs)

0.88%

0.92%


_________

_________

Look-through costs{B}

0.09%

0.09%


_________

_________

Ongoing charges ratio (including look-through costs)

0.97%

1.01%


_________

_________


{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.

{B}      Costs associated with holdings in collective investment schemes as defined by the Committee of European Securities Regulators' guidelines on the methodology for the calculation of the ongoing charges figure, issued on 1 July 2010.

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 2021



Revenue

Capital

Total


Notes

£'000

£'000

£'000

Net gains/(losses) on investments


-

63,725

63,725

Net currency gains/(losses)


-

301

301

Income

2

9,379

221

9,600

Investment management fee


(452)

(1,056)

(1,508)

Administrative expenses

3

(376)

-

(376)



_________

_________

_________

Net return before finance costs and taxation


8,551

63,191

71,742






Finance costs


(153)

(357)

(510)



_________

_________

_________

Return before taxation


8,398

62,834

71,232






Taxation

4

(1,204)

92

(1,112)



_________

_________

_________

Return after taxation


7,194

62,926

70,120



_________

_________

_________

Return per share (pence)

6

5.05

44.21

49.26



_________

_________

_________






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 2020



Revenue

Capital

Total


Notes

£'000

£'000

£'000

Net gains/(losses) on investments


-

(57,265)

(57,265)

Net currency gains/(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)






Finance costs


(65)

(152)

(217)



_________

_________

_________

Return before taxation


11,402

(58,375)

(46,973)






Taxation

4

(1,663)

180

(1,483)



_________

_________

_________

Return after taxation


9,739

(58,195)

(48,456)



_________

_________

_________

Return per share (pence)

6

6.80

(40.62)

(33.82)



_________

_________

_________

 

 



CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

 



As at

As at



31 July
2021

31 January 2021


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss


453,858

404,261



_________

_________

Current assets




Debtors and prepayments


5,024

2,575

Cash and short-term deposits


13,074

9,239



_________

_________



18,098

11,814



_________

_________

Creditors: amounts falling due within one year




Traded options


(102)

(144)

Other creditors


(3,297)

(4,179)



_________

_________



(3,399)

(4,323)



_________

_________

Net current assets


14,699

7,491



_________

_________

Total assets less current liabilities


468,557

411,752





Creditors: amounts falling due after more than one year



Senior Loan Notes


(35,890)

(36,336)



_________

_________

Net assets


432,667

375,416



_________

_________

Capital and reserves




Called-up share capital


7,079

7,151

Share premium account


51,806

51,806

Capital redemption reserve


15,537

15,465

Capital reserve

8

336,586

277,403

Revenue reserve


21,659

23,591



_________

_________

Total shareholders' funds


432,667

375,416



_________

_________

Net asset value per share (pence)

9

305.57

262.48



_________

_________



The accompanying notes are an integral part of the financial statements.


 

 



 

 

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

Six months ended 31 July 2021









Share

Capital





Share

premium

redemption

Capital

Revenue



capital

account

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 January 2021

7,151

51,806

15,465

277,403

23,591

375,416

Buyback of Ordinary shares

(72)

-

72

(3,743)

-

(3,743)

Return after taxation

-

-

-

62,926

7,194

70,120

Dividends paid (note 5)

-

-

-

-

(9,126)

(9,126)


______

______

______

______

______

______

Balance at 31 July 2021

7,079

51,806

15,537

336,586

21,659

432,667


______

______

______

______

______

______








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


______

______

______

______

______

______








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 2021

31 July 2020


£'000

£'000

Operating activities



Net return before taxation

71,232

(46,973)

Adjustments for:



Net (gains)/losses on investments

(63,685)

57,667

Realised (gains)/losses on foreign exchange transactions

(301)

250

Increase in dividend income receivable

(248)

(326)

Decrease/(increase) in fixed interest income receivable

62

(7)

Decrease in derivatives

(42)

(542)

Decrease/(increase) in other debtors

33

(19)

Decrease in other creditors

(809)

(11)

Tax on overseas income

(1,112)

(1,048)

Amortisation of fixed income book cost

-

4

Stock dividends included in investment income

-

(95)


_________

_________

Net cash flow from operating activities

5,130

8,900




Investing activities



Purchases of investments

(72,308)

(107,744)

Sales of investments

84,170

97,969


_________

_________

Net cash flow from investing activities

11,862

(9,775)




Financing activities



Equity dividends paid

(9,126)

(8,740)

Buyback of Ordinary shares

(3,879)

-

Drawdown of loans

-

8,030


_________

_________

Net cash used in financing activities

(13,005)

(710)


_________

_________

Increase/(decrease) in cash

3,987

(1,585)


_________

_________

Analysis of changes in cash during the period



Opening balance

9,239

21,898

Effect of exchange rate fluctuations on cash held

(152)

(578)

Increase/(decrease) in cash as above

3,987

(1,585)


_________

_________

Closing balance

13,074

19,735


_________

_________




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 2021

31 July 2020



£'000

£'000


Income from overseas listed investments




Dividend income

6,790

7,454


REIT income

1,059

494


Interest income from investments

59

306


Stock dividends

-

95



_________

_________



7,908

8,349



_________

_________


Other income from investment activity




Traded option premiums

1,471

3,871


Deposit interest

-

25



_________

_________



1,471

3,896



_________

_________


Total income

9,379

12,245



_________

_________

 

3.

Administrative expenses





 Six months ended

 Six months ended



 31 July 2021

 31 July 2020



£'000

£'000


Directors' fees

66

62


Secretarial and administration fees

60

59


Promotional activities

86

108


Auditor's remuneration:




- Fees payable to the Company's auditor for the audit of the annual accounts

15

15


Custody and bank charges

10

8


Registrar's fees

17

18


Professional fees

28

24


Depositary charges

21

23


Other

73

62



_________

_________



376

379



_________

_________

 

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 2022 is 19% (2021 - 19%).


Detailed below is an analysis of the tax charge for each period.





Six months ended
31 July 2021

Six months ended
31 July 2020



Revenue

Capital

Total

Revenue

Capital

Total


Taxation

£'000

£'000

£'000

£'000

£'000

£'000


UK corporation tax

-

-

-

670

(205)

465


Double tax relief

-

-

-

(33)

-

(33)


Overseas tax suffered

1,079

33

1,112

1,023

25

1,048


Tax relief to capital

125

(125)

-

-

-

-


Deferred tax

18

-

18

5

-

5


Double tax relief on deferred tax items

(18)

-

(18)

(2)

-

(2)



______

______

_____

______

______

_____


Total tax charge for the period

1,204

(92)

1,112

1,663

(180)

1,483



______

______

_____

______

______

_____

 

5.

Dividends





Six months ended

Six months ended



31 July 2021

31 July 2020



£'000

£'000


3rd interim dividend for 2021 - 1.9p (2020 - 1.8p)

2,718

2,579


Final dividend for 2021 - 4.5p (2020 - 4.3p)

6,408

6,161



_________

_________



9,126

8,740



_________

_________






The Company pays four dividends per year. The first interim dividend of 1.90p (2021 - 1.80p) for the year ending 31 January 2022 was paid on 6 August 2021 to shareholders on the register at 23 July 2021, with an ex-dividend date of 22 July 2021. A second interim dividend of 1.90p (2021 - 1.80p) for the year ending 31 January 2022, will be paid on 29 October 2021 to shareholders on the register at 8 October 2021. The ex-dividend date is 7 October 2021.

 

6.

Return per Ordinary share





Six months ended

Six months ended



31 July 2021

31 July 2020



£'000

£'000


Based on the following figures:




Revenue return

7,194

9,739


Capital return

62,926

(58,195)



_________

_________


Total return

70,120

(48,456)



_________

_________


Weighted average number of shares in issue

142,338,417

143,277,520



_________

_________



p

p


Revenue return per Ordinary share

5.05

6.80


Capital return per Ordinary share

44.21

(40.62)



_________

_________


Total return per Ordinary share

49.26

(33.82)



_________

_________

 

7.

Transaction costs: During the six months ended 31 July 2021 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 net gains/(losses) on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:







Six months ended

Six months ended



31 July 2021

31 July 2020



£'000

£'000


Purchases

36

45


Sales

57

117



_________

_________



93

162



_________

_________

 

8.

Capital reserve: The capital reserve reflected in the Condensed Statement of Financial Position at 31 July 2021 includes gains of £57,224,000 (31 January 2021 - gains £8,938,000) 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
2021

31 January 2021


Net assets attributable (£'000)

432,667

375,416


Number of Ordinary shares in issue

141,591,264

143,029,146


Net asset value per Ordinary share (p)

305.57

262.48

 

10.

Analysis of changes in net debt








At




At



31 January

Currency

Cash

Non-cash

31 July



2021

differences

flows

movement

2021



£'000

£'000

£'000

£'000

£'000


Cash and short-term deposits

9,239

(152)

3,987

-

13,074


Debt due after more than one year

(36,336)

453

-

(7)

(35,890)



______

______

______

______

______



(27,097)

301

3,987

(7)

(22,816)



______

______

______

______

______










At




At



31 January

Currency

Cash

Non-cash

31 July



2020

differences

flows

movement

2020



£'000

£'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)



______

______

______

______

______









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 2021

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

452,214

-

-

452,214


Quoted bonds

b)

-

1,644

-

1,644




______

______

______

______


Total


452,214

1,644

-

453,858




______

______

______

______


Financial liabilities at fair value through profit or loss







Derivatives

c)

-

(102)

-

(102)




______

______

______

______


Net fair value


452,214

1,542

-

453,756




______

______

______

______











Level 1

Level 2

Level 3

Total


As at 31 January 2021

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

397,594

-

-

397,594


Quoted bonds

b)

-

6,667

-

6,667




______

______

______

______


Total


397,594

6,667

-

404,261




______

______

______

______


Financial liabilities at fair value through profit or loss







Derivatives

c)

-

(144)

-

(144)




______

______

______

______


Net fair value


397,594

6,523

-

404,117




______

______

______

______




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. Up to 30 April 2021 the annual management fee was charged at 0.75% of net assets up to £350 million, 0.6% between £350 million and £500 million, and 0.5% above £500 million, payable quarterly. From 1 May 2021 the annual management fee is charged at 0.75% of net assets up to £250 million, 0.6% between £250 million and £500 million, and 0.5% above £500 million, payable quarterly. The management fee is chargeable 30% to revenue and 70% to capital. During the period £1,508,000 (31 July 2020 - £1,330,000) of investment management fees were payable to the Manager, with a balance of £749,000 (31 July 2020 - £670,000) being due to ASFML at the period end.


The secretarial fee of £120,000 per annum is chargeable 100% to revenue and is payable monthly in arrears. During the period £60,000 (31 July 2020 - £59,000) of secretarial fees were payable to the Manager, with a balance of £10,000 (31 July 2020 - £20,000) being due to ASFML at the period end.


The promotional activities fee is based on a current annual amount of £172,000, payable quarterly in arrears. During the period £86,000 (31 July 2020 - £108,000) of fees were payable, with a balance of £100,000 (31 July 2020 - £126,000) 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 749,059 of its own Ordinary shares for cancellation at a cost of £2.1 million, leaving 140,842,205 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 2021 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 2021 and 31 July 2020 have not been audited or reviewed by the Company's auditor.

 

16.

This Half-Yearly Financial Report was approved by the Board on 27 September 2021.

 

17.     The Half-Yearly Financial Report is available on the Company's website, www.northamericanincome.co.ukThe Half-Yearly Report will be posted to shareholders in October 2021 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

 

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