Date: 28 October 2016
From: CQS New City High Yield Fund Limited
Investment and Share Price Performance
The Company's net asset value total return was 1.0% for the year ended 30 June 2016. The share price total return for the same period was stronger at 4.7%, the premium to net asset value at which the Company's shares trade increasing to 3.5%. The average premium over the year to 30 June 2016 was 4% and over three years 5%.
Investment returns have remained muted, primarily due to fears as to the robustness of the Chinese economy alongside Eurozone and Brexit concerns. Further information is set out in the Investment Manager's Review on page 4.
Earnings and Dividends
The Company's earnings per share were 4.50 pence for the year, essentially unchanged from the 4.51 pence earned the previous year.
The Company declared three interim dividends of 0.97 pence in respect of the period, and one of 1.45 pence. The aggregate payment of 4.36 pence per share represents a 1.2% increase on the 4.31 pence paid last year. Based on an annualised rate of 4.36 pence and a share price of 59.25 pence at the time of writing, this represents a yield of 7.4%. Since inception, the level of dividends paid by the
Company has increased every year.
The Company renewed its existing £30m loan facility with Scotiabank in December 2015 at a current all-in-rate of 1.0%. The new facility is on more favourable terms than the one that it replaced. £25m was drawn down at 30 June 2016 and the Company had effective gearing of 9%.
Rating and Fund Raising
The market has continued to attach a premium rating to the shares of your Company for much of the period, although the extraordinary volatility around the turn of the year saw a discount to net asset value for short periods.
The Company raised £3.4m from new and existing shareholders in November 2015. In March 2016 the Company issued 36.2m ordinary shares and re-purchased them into treasury. This provides the Company with flexibility to raise additional capital in a cost effective manner in due course, and in order to ensure maximum flexibility a resolution will be proposed at the Annual General Meeting to renew the Directors' authority to issue shares equivalent to 10% of the Company's share capital. As well as a modest increase in net asset value from any issue of shares, existing shareholders can look to benefit from a lower ongoing charges ratio and greater liquidity in the Company's shares. In August 2016 1,750,000 shares were allotted from those in treasury.
I welcomed Duncan Baxter, who joined us on 31 July 2015, to the Board when I wrote to you at this time last year. Wendy Dorman joined us on 2 March 2016 and I am delighted to welcome her. Wendy is a Chartered Accountant and has over twenty five years' experience within the financial services industry, both in London and in Jersey, and further strengthens the Board's credentials. Her qualifications are ideally suited to her role as Audit Committee Chairman, which she assumed in June. Wendy replaced Gavin Breeze in that role, which he had fulfilled for more than nine years, and Gavin resigned from the Board on 18 July 2016. Allister Carey, another founder Director, resigned on 2 March 2016. Both were at the heart of the successful evolution of the Company and I would like to thank them on behalf of shareholders and the Board for their significant contributions.
The Board is well advanced in the process of recruiting a further new Director and expects to announce that it has done so in December this year.
The markets have had a volatile twelve months, something belied by your Company's relative stability. Our increased size and our portfolio diversity have helped, as has the stock picking of our portfolio manager, Ian Francis. The Manager continues to find value in the bond markets, but, as he explains in the Investment Manager's Review, this has not been made any easier by the market's "lower for longer" mantra as QE remains the policy of choice. A degree of caution is healthy, but, that notwithstanding, your Company, and its shareholders, remain well positioned to benefit from the prevailing market trends.
James G West
27 October 2016
Investment Manager's Review
The sentiment for the first half of the Company's financial year, if not the whole year was set very early on with the Chinese market crashing by a mind numbing 14.7%; all this despite measures employed by the Chinese government and its agencies to stem the capital outflow. Early in August the Peoples Bank of China lowered its rates for a fifth time in eight months by 25bp to 4.6% in an effort to avoid a crash in asset prices. This, however, was not enough, putting all Asian markets in a tailspin with most markets falling to a 3 1/2 year low in September.
Away from the troubles in Asia the United States economy was showing definite signs of further recovery with Q2 GDP improving over an upwardly revised Q1 figure. Adding to this comments from the Federal Reserve Bank that the economy was "expanding moderately "were seen by many commentators as a sign of an impending interest rate rise although this did not happen in September, mainly due to the aforementioned China turmoil and the knock on effect to the rest of Asia. Come October core inflation figures increased more than expected, prompting the Federal Reserve Bank to push the button for an increase at the December meeting. Rightly markets took this as a vote of confidence in the United States economy, also confirmed by the employment data showing the lowest level of unemployment in seven and a half years, at 5%, with GDP growing at a very solid 2.1%.
A very different situation this side of the Atlantic! Huge relief when the last minute deal was struck saving Greece from bankruptcy and keeping them within the Euro, evidenced by a rapid 4% rally in European equity markets, and peripheral government bond markets. The Governor of the ECB Mario Draghi has continually tried to kickstart the European inflation engine with all the effort and patience one could wish for! Including further hints at an extension of QE, in terms of size, composition and duration. There was some evidence that this was beginning to have a positive effect by November when composite PMI data was implying GDP growth of 0.4% in Q4, with German GDP growth at 0.3% the best positive figures since summer 2014.
The UK did not avoid the global fallout in August with the FTSE100 falling by 7.5% on the month having been down nearly twice that figure earlier in the month. October, commonly a twitchy month for markets, was not helped by a deflating economy in both CPI and RPI series, and a weaker than expected GDP figure, at which time we noted that this was likely to put us 12 -15 months behind the United States with any potential rate rise. The major positive for the UK as with the United States was the unemployment data hitting a seven year low of 5.4% in October: this was a theme set to continue for the rest of the Company's reporting period.
The second half of the Company's year also started with a bloodbath in China with the Shanghai Composite down 22.5% falling to levels last seen in November 2014, despite the many efforts by the Chinese government (again!) to stem the breach. The knock on effect was significant to all global markets evidenced by the 3.1% fall in FTSE 100, and, 5.1% in the Dow Jones Industrial. Credit markets too suffered a big hit, with the iTraxx European Crossover index spread widening to levels last seen in September 2013. With the arrival of February the bloodbath escalated, with the iTraxx crossover index spread widening to 496bp (100bp wider than the end of January) before rallying strongly to 408.15bp. It was against this backdrop that the then UK Prime Minister David Cameron called the date for the promised referendum on whether or not Britain was to stay in Europe. We commented at the time that this would increase volatility in the UK Currency, and equity and bond markets for the rest of the reposting period, and they duly obliged!
The situation was calmed when the Governor of the Federal Reserve Bank, Janet Yellen spoke in mid-March stating that "caution is appropriate" when it comes to raising interest rates, stating that she was unsure that underlying inflation had accelerated; US interest rates although on the upward path it became evident that the pace for increase would be gradual.
In Europe Mario Draghi the ECB President pulled out all the stops, further cutting rates, and expanding QE. Rates in Europe look set to be lower for longer.
Brexit fears were hanging over the UK economy in Q1 with GDP only growing by 0.4% against 0.6% in the last quarter of 2015, which was pretty much in line with market expectations. The main laggard was the construction sector down 0.9% with poor housing starts being the major contributor.
The United States economy also seemed to be slowing in GDP terms at 0.5% the slowest for two years, but against this the employment data continued to improve at an average of 209 jobs per month, plus household income was growing at 2.9% in Q1 against 2.3% in Q4 2015. The U.S. consumer continued to pay down debt as the consumer spend for the period was only up 1.9% another trend set to continue through the rest of the reporting period.
The real game changer came at the end of June when the UK referendum on the membership of the European Union voted to leave. David Cameron the Prime Minister resigned his leadership of the Conservative party, triggering what looked to be a summer long leadership campaign with all the headlines that media could throw at it. This subsequently turned out to be a very short and concentrated battle which was sorted by mid-July just after the reporting period finished, with Theresa May being confirmed into the post on the 11 th July. The currency markets reacted almost instantly devaluing the pound by 10% against the US$ and 8% against the Euro.
The new Prime Minister is currently getting all departments and Ministers ready for the difficult negotiations ahead before enacting Article 50 of the Lisbon treaty. These negotiations will need to be carried out with all the expertise of a chess grand master thinking many moves ahead and covering all possible options, in order to leave Britain in the strongest possible position in a couple of year's time when we actually leave the European Union.
At the time of writing the equity and bond markets have rallied strongly, back to the pre Brexit level. We believe that this is potentially dangerous as it leaves a lot of room for disappointment when negotiations do finally get under way, probably early next year. When all commentators and the media in general will focus on the detail in the long and drawn out process, we await this process with great interest.
We made a number of tactical trades during the year as there were opportunities to upgrade the portfolio both in terms of quality and revenue; examples would be selling Ecclesiastical 8 5/8% perp, Santander 10 3/8% perp well above par and re investing in bonds such as Pizza Express 8 5/8% 2022, Perform Group 8 1/2% 2024, Altice 7.25% Euro denominated bonds of 2022 and more of the Altice 7 3/4% Dollar denominated bonds of 2022. Market anomalies provided a few opportunities to invest in grossly under-priced bonds such as Tesco Property Finance 7.6227% and Scottish Widows
7% 2043 both around or just below par.
In addition Europcar 9.375% 2018, House of Fraser 8 7/8% 2018 and AA 9.5% 2019 were redeemed early and we replaced those position with Iceland 6 3/4% 2024 and IDH Finance 8 1/2% 2024.
In these very low interest rate and QE fuelled times the quest for income by all investment managers is making the scope for new opportunities more limited than, for example, 2009, but they are out there, not every day or every week but often enough.
New City Investment Managers
27 October 2016
This review is part of a Strategic Report being presented by the Company under guidelines for UK-listed companies' Annual Reports in accordance with the Companies Act 2006, and is designed to provide information primarily about the Company's business and results for the year ended 30 June 2016. It should be read in conjunction with the Chairman's statement and the Investment Manager's Review, which give a detailed review of the investment activities for the year and look to the future.
The business model of the Company is described below.
The Company invests predominantly in fixed income securities, including, but not limited to, preference shares, loan stocks, corporate bonds (convertible and/or redeemable) and government stocks. The Company also invests in equities and other income yielding securities.
Exposure to higher yielding securities may also be obtained by investing in other closed-end investment companies and open ended collective investment schemes.
There are no defined limits on securities and accordingly the Company may invest up to 100 per cent of total assets in any particular type of security.
There are no defined limits on countries, size or sectors, therefore the Company may invest in companies regardless of country, size or sector and, accordingly, the Company's portfolio is constructed without reference to the composition of any Stock Market index or benchmark.
The Company may, but is not obliged to, invest in derivatives, financial instruments, money market instruments and currencies for the purpose of efficient portfolio management.
The Company may acquire securities that are unlisted or unquoted at the time of investment but which are about to be convertible, at the option of the Company, into securities which are listed or traded on a stock exchange. The Company may continue to hold securities that cease to be listed or traded if the Investment Manager considers this appropriate. The Board has established a maximum investment limit in this regard of 10 per cent (calculated at the time of any relevant investment) of the Company's total assets. In addition, the Company may invest up to 10 per cent (calculated at the time of any relevant investment) of its total assets in other securities that are neither listed or traded at the time of investment.
The Company will not invest more than 10 per cent (calculated at the time of any relevant investment) of its total assets in other collective investment undertakings (open-ended or closed-end).
The Board has established a maximum investment limit whereby, at the time of investment, the Company may not invest more than 5 per cent of its total investments in the same investee company.
The Company uses gearing and the Board has set a current limit that gearing will not exceed 25 per cent of shareholders' funds at the time of borrowing. This limit is reviewed from time to time by the Board.
The Investment Manager expects that the Company's assets will normally be fully invested. However, during periods in which changes in economic circumstances, market conditions or other factors so warrant, the Company may reduce its exposure to securities and increase its positions in cash, money market instruments and derivative instruments in order to seek protection from Stock Market falls or volatility.
Investments are typically made in securities which the Investment Manager has identified as undervalued by the market and which it believes will generate above average income returns relative to their risk, thereby also generating the scope for capital appreciation. In particular, the Investment Manager seeks to generate capital growth by exploiting the opportunities presented by the fluctuating yield base of the market and from redemptions, conversions, reconstructions and take-overs.
Principal Risks and Uncertainties and Risk Mitigation
Risks are inherent in the investment process, but it is important that their nature and magnitude are understood so that risks, particularly those which the Company does not wish to take, can be identified and either avoided or controlled. The Board has established a detailed framework of the key risks that the business is exposed to, with associated policies and processes devised to mitigate or manage those risks. The principal risks and mitigating factors faced by Company are set out below.
Investment and strategy risk
The Board is responsible for deciding the investment strategy to fulfil the Company's objectives and monitoring the performance of the Investment Manager.
Inappropriate strategy, including country and sector allocation, stock selection and the use of gearing could all lead to poor returns for shareholders. To manage this risk the Board requires the Investment Manager to provide an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio at each Board meeting, when gearing levels are also reviewed. The Board monitors the spread of investments to ensure that it is adequate to minimise the risk associated with particular countries or factors specific to particular sectors. The Investment Manager also provides the Board and shareholders with monthly factsheets which include an investment commentary.
Market risk The Company's assets consist principally of listed fixed interest securities and its greatest risks are in consequence market related, with exposure to ordinary movements in the prices of the Company's investments and the loss that the Company might suffer through holding investments in the face of negative market movements. The Board seeks to mitigate this risk through the processes described in the paragraph above, monitoring the implementation and results of the Investment process with the Investment Manager.
The Company's investment activities expose it to a variety of financial risks that include market price risk, foreign currency risk, interest rate risk, liquidity risk and credit risk.
Earnings and dividend risk The earnings that underpin the amount of dividends declared and future dividend growth are generated by the Company's underlying portfolio. Fluctuations in earnings resulting from changes to the underlying portfolio or changes in the tax treatment of the dividends or interest received by the Company could reduce the level of dividends received by shareholders. The Board monitors and manages this risk by considering detailed income forecasts prepared by the Investment Manager and Company Secretary at each Board meeting and when the quarterly dividends are declared.
Operational risk The Company relies upon the services provided by third parties and is reliant on the control systems of the Investment Manager and the Company's other service providers. The security and/or maintenance of, inter alia, the Company's assets, dealing and settlement procedures, and accounting records depend on the effective operation of these systems. These are regularly tested and monitored and are reported on at each Board meeting. An internal control report, which includes an assessment of risks, together with the procedures to mitigate such risks, is prepared by the Investment Manager and the UK Administrator and reviewed by the Audit Committee once a year. The Depository and Custodian, HSBC Bank plc, produces an internal control report each year which is reviewed by its auditors and gives assurance regarding the effective operation of controls. This is reviewed by the Audit Committee.
Gearing risk A fall in the value of the Company's investment portfolio could be adversely affected by the impact of gearing. It could also result in a breach of loan covenants. The Board sets the gearing limits. Gearing levels and compliance with loan covenants are monitored monthly by the Investment Manager and by the Board at regular Board meetings. Gearing will not exceed 25 per cent of shareholders' funds at the time of borrowing.
Key man dependency Performance of the Company may be negatively affected by a change in fund management team within the Investment Manager. The Company delegates the management of the fund management team to New City Investment Managers. Whilst the lead fund manager is responsible for day to day portfolio management, an Investment Committee within New City Investment Managers also decides key stock selection. The Management Engagement Committee of the Company reviews the performance of the Investment Manager annually.
Regulatory risk The breach of regulatory rules could lead to a suspension of the Company's stock exchange listing or financial penalties. The Company Secretary and UK Administrator monitor the Company's compliance with the Listing Rules of the UK Listing Authority. Compliance with the principal rules is reviewed by the Directors at each Board meeting.
In accordance with the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the viability of the Company over a period longer than the 12 months required by the 'Going Concern' provision (this provision is detailed below). The Board conducted this viability review for a period of three years. The Board considers the Company, with no fixed life, to be a long term investment vehicle but decided this is an appropriate time period over which to report, reflecting the long term objectives of the Company whilst taking into account the impact of uncertainties in the markets.
In making this statement the Board carried out a robust assessment of the principal risks facing the Company. The principal risks identified as most relevant to the assessment of the viability of the Company were those relating to potential under-performance of the portfolio and its effect on the ability to pay dividends.
When considering the risk of under-performance, the Board carried out a series of stress tests including the effects of any substantial future falls in investment value on the ability to re-pay and re negotiate borrowings, potential breaches of loan covenants and the maintenance of dividend payments over the next three years.
The results of the stress tests have given the Board comfort over the viability of the Company and its ability to maintain dividend levels.
The Board also considered the impact of potential regulatory change and the controls in place surrounding significant third party providers, including the investment manager.
The Board also noted the low liquidity risk in the portfolio where the percentage of easily realisable listed investments held at the year end was 98.3%.
The Scotiabank loan facility is due to expire on 22 December 2016. It is anticipated a new facility on comparable terms will be negotiated prior to this date.
Based on the Company's processes for monitoring revenue and costs and the Manager's compliance with the investment objective and policies, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meets its liabilities as they fall due for a period of three years from the date of approval of this Report.
The Company does not have a fixed winding-up date and, therefore, unless shareholders vote to wind-up the Company, shareholders will only be able to realise their investment through the market.
At each Annual General Meeting of the Company, shareholders are given the opportunity to vote on an ordinary resolution to continue the Company as an investment company. If any such resolution is not passed, the Board will put forward proposals at an extraordinary general meeting to liquidate or otherwise reconstruct or reorganise the Company.
After making enquiries, and having considered the Company's investment objective, nature of the investment portfolio, loan facility and expenditure projections, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, and in light of the Company's strong investment record, the Directors continue to adopt the going concern basis in preparing the accounts, notwithstanding that the Company is subject to an annual continuation vote as described above.
Performance Measurement and Key Performance Indicators
The Board uses a number of performance measures to assess the Company's success in meeting its objectives. The key performance indicators are as follows:
The ongoing charges are a measure of the total expenses incurred by the Company expressed as a percentage of the average shareholders' funds over the year. The Board regularly reviews the ongoing charges and monitors all Company expenses.
Social, Community, Employee Responsibilities and Environmental Policy
The Directors recognise that their first duty is to act in the best financial interests of the Company's shareholders and to achieve good financial returns against acceptable levels of risk, in accordance with the objectives of the Company.
In asking the Company's Investment Manager to deliver against these objectives, they have also requested that the Investment Manager take into account the broader social, ethical and environmental issues of companies within the Company's portfolio, acknowledging that companies failing to manage these issues adequately run a long term risk to the sustainability of their businesses.
More specifically, they expect companies to demonstrate ethical conduct, effective management of their stakeholder relationships, responsible management and mitigation of social and environmental impacts, as well as due regard for wider societal issues.
As an investment company with its current structure the Company has no direct social, community, employee or environmental responsibilities of its own.
The Company has no greenhouse gas emissions to report from its operations for the year ended 30 June 2016 and prior year, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 (including those within the underlying investment portfolio).
At 30 June 2016 there were four male and one female Director. The Company has no employees so does not require to report further on gender diversity.
By Order of the Board
J G West
27 October 2016
Audited Income Statement
For the year ended 30 June 2016
|Capital losses on investments|
|Losses on investments||-||(14,281)||(14,281)|
|Investment management fee||(1,328)||(443)||(1,771)|
|Profit before finance costs and taxation||16,711||(14,710)||2,001|
|Interest payable and similar charges||(295)||(98)||(393)|
|Profit before taxation||16,417||(14,808)||1,609|
|Irrecoverable withholding tax||(261)||-||(261)|
|Profit after taxation||16,156||(14,808)||1,348|
|Earnings per ordinary share (pence)||1||4.50||(4.12)||0.38|
The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.
There is no other comprehensive income as all income is recorded in the Income Statement above.
All revenue and capital items in the above statement are derived from continuing operations.
No operations were acquired or discontinued in the year.
Audited Income Statement
For the year ended 30 June 2015
|Capital losses on investments|
|Losses on investments||-||(12,898)||(12,898)|
|Investment management fee||(1,241)||(414)||(1,655)|
|Profit before finance costs and taxation||14,612||(13,276)||1,336|
|Interest payable and similar charges||(208)||(69)||(277)|
|Profit before taxation||14,411||(13,345)||1,066|
|Irrecoverable withholding tax||(264)||-||(264)|
|Profit after taxation||14,147||(13,345)||802|
|Earnings per ordinary share (pence)||1|
Audited Balance Sheet
|As at||As at|
|Investments held at fair value||211,882||223,365|
|Cash and cash equivalents||8,201||6,220|
|Bank loan facility||(25,000)||(23,000)|
|Stated capital and reserves|
|Stated capital account||154,397||150,963|
|Special distributable reserve||50,385||50,385|
|Equity shareholders' funds||197,827||208,676|
|Net asset value per ordinary share (pence)||2||54.68||58.63|
Audited Statement of Changes in Equity
For the year ended 30 June 2016
|At 1 July 2015||150,963||50,385||(7,775)||15,103||208,676|
|Total comprehensive income for the year:|
|Profit for the year||-||-||(14,808)||16,156||1,348|
|Transactions with owners recognised directly in equity:|
|Issue of shares||22,825||-||-||-||22,825|
|Buyback of ordinary shares for Treasury||(19,391)||-||-||-||(19,391)|
|At 30 June 2016||154,397||50,385||(22,325)||15,370||197,827|
Audited Statement of Changes in Equity
For the year ended 30 June 2015
|At 1 July 2014||111,638||50,385||5,570||14,268||181,861|
|Total comprehensive income for the year:|
|Profit for the year||-||-||(13,345)||14,147||802|
|Transactions with owners recognised directly in equity:|
|Issue of shares||39,325||-||-||-||39,325|
|At 30 June 2015||150,963||50,385||(7,775)||15,103||208,676|
* Following a change in Jersey Company Law effective 27 June 2008 dividends can be paid out of any capital account of the Company subject to certain solvency restrictions. It is the Company's policy however to account for revenue items and pay dividends through a separate revenue reserve.
+ The balance on the special distributable reserve of £50,385,000 (2015: £50,385,000) is treated as distributable profits available to be used for all purposes permitted by Jersey Company Law including the buying back of ordinary shares, the payment of dividends and the payment of preliminary expenses.
# The balance on the revenue reserve of £15,370,000 (2015: £15,103,000) is available for paying dividends.
Audited Cash Flow Statement
|30 June 2016||30 June 2015|
|Profit before finance costs and taxation||2,001||1,336|
|Losses on investments||14,281||12,898|
|(Increase)/decrease in other receivables||(409)||77|
|Increase in other payables||31||35|
|Net cash inflow from operating activities before interest and taxation||
|Irrecoverable withholding tax paid||(261)||(264)|
|Net cash inflow from operating activities||14,567||12,859|
|Purchases of investments||(65,791)||(87,832)|
|Sales of investments||62,410||47,588|
|Net cash outflow from investing activities||(3,381)||(40,244)|
|Equity dividends paid||(15,631)||(13,312)|
|Drawdown of bank loan facility||2,000||7,640|
|Issue of ordinary shares||3,434||39,325|
|Net cash (outflow)/inflow from financing||(10,197)||33,653|
|Increase in cash and cash equivalents||989||6,268|
|Cash and cash equivalents at the start of the year||6,220||(212)|
|Cash and cash equivalents at the end of the year||8,201||6,220|
Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable Jersey law and International Financial Reporting Standards ("IFRS") as adopted by the International Accounting Standards Board ("IASB").
Jersey law requires the Directors to prepare, in accordance with generally accepted accounting principles, financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit and loss of the Company for that year. Under Jersey law they have elected to prepare the financial statements in accordance with IFRS as adopted by the IASB.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies (Jersey) Law 1991. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The financial statements are published on the www.ncim.co.uk website, which is a website maintained by the Company's Investment Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
· the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
· that in the opinion of the Directors, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and
· 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 the Company faces.
On behalf of the Board
J G West
27 October 2016
1. Earnings per ordinary share
The revenue earnings per ordinary share is based on the net profit after taxation of £16,156,000 (2015: £14,147,000) and on 359,441,578 (2015: 313,955,040) ordinary shares, being the weighted average number of ordinary shares in issue during the year.
The capital earnings per ordinary share is based on a net capital loss of £14,808,000 (2015: net capital loss of £13,345,000) and on 359,441,578 (2015: 313,955,040) ordinary shares, being the weighted average number of ordinary shares in issue during the year.
2. Net asset value per ordinary share
The net asset value per ordinary share is based on net assets of £197,827,000 (2015: £208,676,000) and on 361,774,417 (2015: 355,903,477) ordinary shares, being the number of ordinary shares in issue at the year end.
A fourth interim dividend in respect of the year ended 30 June 2016 of 1.45p per ordinary share was paid on 31 August 2016 to shareholders on the register on 29 July 2016. In accordance with IFRS this dividend has not been included as a liability in these accounts and will be recognised in the period in which it is paid.
The following are considered related parties: the Board of Directors ("the Board") and CQS/New City Investment Managers ("the Investment Manager").
Mr G Ross, who was a director of the Company during the year, is also a director of the Company Secretary and Administrators, R&H Fund Services (Jersey) Limited and also the UK Administrator, R&H Fund Services Limited, which receive fees from the Company.
All transactions with related parties are carried out at an arms length basis.
There are no other transactions with the Board other than aggregated remuneration for services as Directors and there are no outstanding balances to the Board at the year end.
The Company has a short term loan facility with Scotiabank. The facility is due to expire on 22 December 2016 after which it is anticipated the Company will take out a new facility on comparable terms.
As at the year end the unsecured loan facility had a limit of £30 million of which £25 million was drawn down at the year end.
These are not full statutory accounts for the year ended 30 June 2016. The full audited annual report and accounts for the year ended 30 June 2016 will be sent to shareholders in November 2016 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The full audited accounts for the year ended 30 June 2015, which were unqualified, have been lodged with the Registrar of Companies.
7. The report and accounts for the year ended 30 June 2016 will be made available on the website www.ncim.co.uk . Copies may also be obtained from the Company's registered office, Ordnance House, 31 Pier Road, St. Helier, Jersey, JE4 8PW, Channel Islands
Ian Francis, New City Investment Managers: 020 7201 5366
Martin Cassels, UK Administrator 0131 550 3760