Invesco Enhanced
Income Limited
Annual Financial
Report for the Year to 30 September
2020
FINANCIAL INFORMATION AND PERFORMANCE
STATISTICS
Total Return(1) |
|
|
|
Change for the year |
2020 |
2019 |
|
Net asset value
(‘NAV’)(2)(3) |
+4.6% |
+8.9% |
|
Share price(2) |
-6.0% |
+6.7% |
|
3 month LIBOR rate |
+0.5% |
+0.8% |
|
Capital |
|
|
|
As at 30 September |
2020 |
2019 |
% Change |
Shareholders’ funds
(£’000)(4) |
125,990 |
126,157 |
–0.1 |
Net asset value(2) per
ordinary share |
72.21p |
74.18p |
–2.7 |
Share price(1)(2) |
65.70p |
75.20p |
–12.6 |
(Discount)/premium per ordinary
share(2) |
(9.0)% |
1.3% |
|
Gross borrowing(2) |
23% |
19% |
|
Net borrowing(2) |
22% |
15% |
|
Revenue |
|
|
|
Year Ended 30 September |
2020 |
2019 |
|
Gross income (£’000) |
8,876 |
8,688 |
|
Net revenue return (£’000) |
7,868 |
7,808 |
|
Revenue return per ordinary
share |
4.54p |
4.69p |
|
Dividends per ordinary share: |
|
|
|
– first
interim |
1.25p |
1.25p |
|
– second
interim |
1.25p |
1.25p |
|
– third
interim |
1.25p |
1.25p |
|
– fourth
interim |
1.25p |
1.25p |
|
Total |
5.00p |
5.00p |
|
Ongoing Charges(2) |
1.05% |
1.04% |
|
(1) Source: Refinitiv.
(2) Alternative Performance Measure (APM). See
Glossary of Terms and Alternative Performance Measures on pages 64
to 66 of the financial report for details of the explanation and
reconciliations of APMs.
(3) The increase in total return NAV includes a
0.08% enhancement to NAV generated by the issue of ordinary shares
at a premium to NAV during the year.
(4) Reflects the proceeds from 4,400,000 (2019:
5,075,000) ordinary shares issued in the year.
CHAIRMAN’S STATEMENT
I hope that during these rather turbulent and unprecedented
times that this statement finds you well.
On 21 September 2020, the Company
announced that Michael Lombardi had
resigned from the Board with immediate effect. It is with great
sadness that I report that Michael passed away on 21 October 2020. My fellow Directors and I would
like to take this opportunity to record our thanks to him for his
valuable contribution over his tenure as a Director. Our thoughts
are with his family.
Results for the Year
The Portfolio Manager’s Report which follows explains the market
background and portfolio strategy during the year which provides
context for the Company’s results.
For the year to 30 September 2020,
the Company’s share price with dividends reinvested on a total
return basis fell by 6.0%. The dividend was maintained at 5.00p per
share, whilst the share price fell from 75.20p at the start of the
year to 65.70p at the year end, a decrease of 12.6%. The NAV total
return was +4.6% for the year and the NAV per share after
distributions fell by 2.7% to 72.21p.
This has been an unprecedented period for the world's economies
and markets. Bond markets have benefited from governments’
monetary and fiscal response to the pandemic which took markets
from their lows in March through a dramatic rally to the end of
August. During that time, issuance was extensive as investors
continued to seek out yield and, in response, companies took the
opportunity to begin to repair the damage to their balance
sheets. Towards the end of the period under review that
exuberance was tempered by the rise in Covid-19 cases.
In the current economic and market environment, your Board
continues to believe that shareholders place great value on the
Company’s consistent dividend stream and has prioritised revenue
generation through investment in relatively high-yielding and
considered debt positions. Market yields remain at historically low
levels but, despite this, your portfolio managers have generated a
net revenue return of 4.54p per share. During a period when many
companies have been forced to suspend dividends, the Board has
maintained the 5.00p annual dividend for the year and a fourth
interim dividend of 1.25p per share was declared on 22 September 2020.
The shortfall of net revenue earned versus dividend paid was
0.46p which is the equivalent of £793,000 (2019: £525,000). This
has been funded from revenue reserves which the Company has
accumulated over a number of years. Our dividend policy has served
investors well, but the medium term effects of Covid-19 will likely
bring a prolonged period of very low interest rates. With that in
mind the Board will be reviewing whether the policy is sustainable,
balancing the need for current income against the requirement to
preserve investors’ capital to earn that income in coming
years.
Borrowings
The Portfolio Manager uses borrowings to gear the portfolio
during most market conditions. The Company’s upper limit for net
gearing is 50% of shareholders’ funds and the portfolio manager,
working with the Board, will vary the level from time to time
according to their view of prevailing market conditions. During the
year to 30 September 2020 the level
of gearing has averaged 18.4%, well below the permitted level. It
should be noted that preservation of the Company’s NAV remains a
key consideration. As a result, the portfolio managers are
focussing the Company’s holdings towards generally lower risk bonds
as a way to mitigate capital risk.
The Company uses repo financing, which the Board believes
remains a flexible and relatively low-cost method of providing
additional capital when appropriate. The level of gearing is
carefully monitored by the Board which is fully cognisant of the
need to carefully match risk and reward.
The repricing of high yield bonds to reflect the severe economic
shock of Covid-19 led to attractive investment opportunities for
the portfolio manager. The Company started the year with gross
borrowings of 19% and that level was increased so that at the year
end gross borrowings were 23%. Taking the Company’s cash position
into account, net borrowings were 22%, and average net borrowings
for the year were 18.4% (2019: 17.5%). As at 24 November 2020, the latest practical date
before publication, the level of borrowing is 25% (gross) and 22%
(net).
Share Discount/Premium and Share
Issuance
The Board monitors the price of the Company’s shares in relation
to their NAV and the premium/discount at which they trade. During
the year the shares traded within the range of –28.4% (discount) at
the peak of the Covid-19 pandemic on 19
March 2020 to +5.1% (premium). Over the period, the discount
averaged 2.2%. In order to satisfy market demand the Company issued
4,400,000 new shares at an average price of 74.84p (excluding
costs) during the year to 30 September
2020. This enhanced the NAV by 0.08%.
At the Company’s Annual General Meeting (AGM) your Directors
will be seeking to renew the authority granted by shareholders at
the last AGM to authorise the issue of up to 10% of the Company’s
issued share capital in order to provide additional flexibility to
increase the size of the Company when the Board considers the
circumstances to be appropriate. I would like to stress that when
considering any issue of new shares, your Board is mindful that
existing shareholders’ interests are paramount and will always
ensure that issues of new shares take place at an appropriate
premium to the cum dividend NAV. In determining the appropriate
premium, the Board will aim for a minimum premium of 3.0% before
expenses.
Board Composition and Corporate
Governance
Given the combination of Michael’s departure from the Board, the
impacts of Covid-19 and subsequent travel restrictions, the Board
have deferred the hiring of a new Director until 2021. The Board
has therefore requested that Clive
Spears remain on the Board for a further year. He will
retire at the Company’s AGM in 2022. Following Michael’s departure,
Clive Spears has been appointed
Chairman of the Nomination and Remuneration Committee.
Third Party Service Providers
The Covid-19 global pandemic has made 2020 an unprecedented
year. During this time when many organisations were required to
alter staff working arrangements and close offices, the Board has
frequently reviewed the efficiency and quality of work by its third
party service providers and would like to record their appreciation
for the seamless transitions that took place and the continued
delivery of service to a high standard. In particular, the Board
would like to thank the Portfolio Manager, Rhys Davies, for the excellent work that he has
done during market turbulence to keep shareholders and the Board up
to date with his investment approach.
AGM
This year, with many travel and meeting restrictions in place in
a response to Covid-19, the Board has taken the decision to
postpone the date of the AGM until later in 2021, as permitted by
Jersey law. Shareholders will be notified as soon as possible and
Invesco will provide details via the Company’s website at
www.invesco.co.uk/enhancedincome once the date is decided. A
separate announcement will also be made to the market and Notice of
Meeting sent to shareholders.
Outlook
In the weeks since the end of September the market’s appetite
for risk has continued to fluctuate, remaining sensitive both to
news on the virus and on monetary and fiscal measures. While the
Portfolio Manager has continued to add positions, the portfolio is
cautiously positioned for a slow recovery that will leave many
companies with weakened credit profiles. As additional lockdowns
and social restrictions are announced this winter such an approach
feels warranted. Looking ahead, the prolonged period of contraction
and the permanent changes that the crisis has brought will make
business models unsustainable and debt restructuring will be
necessary. The twin obligations of avoiding these casualties and
sustainable income generation will play a part in guiding future
strategy. We remain confident in Invesco’s ability to address these
uncertainties with their normal rigour.
Kate
Bolsover
Chairman
26 November 2020
PORTFOLIO MANAGERS’ REPORT
Market background
The twelve months to the 30 September
2020 have been an extraordinary period both for society and
financial markets. Both have been dominated by Covid-19.
High yield bond markets ended 2019 with their highest annual
return since 2012. They then sold-off significantly during February
and March 2020, as economies were
shuttered in response to Covid-19. However, from late March
financial markets have rebounded with European high yield
delivering a sterling hedged total return in Q2 2020 of 11.35% -
its best quarterly return since 2012. The catalyst for the change
in sentiment was the extraordinary monetary and fiscal policy
response to the virus from central banks and governments.
These measures included the US Federal Reserve directly
purchasing corporate bonds. Unlike other central bank asset
purchase schemes, the eligible securities for the US programme
included bonds downgraded to high yield since the onset of the
pandemic. The European Central Bank also extended its quantitative
easing programme. For the first time European governments also
agreed to a mutualisation of debt through a €750bn joint recovery
fund. The fund includes €390bn of loans and €350bn of debt.
The rally continued until the end of August 2020. Then as autumn began, a resurgence
of Covid-19 cases in Europe, as
well as rising US political uncertainty, led to some consolidation
in the high yield bond market.
Nonetheless, demand for high yield has remained very strong in
the six months since March 2020. In
response to this demand for yield, corporate bond issuance levels
have soared as issuers have sought to build up cash surpluses and
repair their balance sheets.
To put the move in credit spreads into some context, in March,
at the height of concerns over Covid-19, European currency high
yield credit spreads had widened to 854bps. This was their widest
level since the sovereign debt crisis in 2012. By 30 September 2020, credit spreads had fallen back
to a level of 485bps. It was a similar story in the US high yield
market. There, spreads widened from 360bps at the start of 2020 to
1087bps in late March. They then fell back to 541bps by
30 September 2020.
Portfolio strategy
The Company entered the Covid-19 crisis on a relatively strong
footing. The portfolio was cautiously positioned by the end of
2019, with increased levels of cash and reduced levels of leverage.
This was a natural response to yields having fallen so much and our
sober view on valuations.
The NAV of the Company ended September
2020 at 72.21p from 74.18p at 30 September 2019. In a
period in which many companies have been forced to suspend dividend
payments, the Company paid a total dividend of 5p over the
period.
In March, high yield bonds repriced to reflect the severe
economic shock that Covid-19 is inflicting. A lack of market
liquidity exacerbated price moves and created some very attractive
opportunities that we sought to exploit across both financial and
non-financial issuers. To further capitalise on the investment
opportunities available leverage was increased to 29% by the end of
April 2020.
We were able to purchase bonds from good quality companies that
had dramatically fallen in price, in some cases by over 20 or even
30 points. For example, the Company purchased bonds from Dutch
cable operator, Ziggo, that had fallen 25 points below their
February issue price.
As well as opportunities within the high yield market, we were
able to add some higher yielding investment grade names to the
portfolio as issuance re-started in that market. For example, BMW
came to the market in April with a 5-year bond offering a coupon of
3.9%. This is more than some high yield issuers were paying to
raise capital at the start of the year. Another investment grade
name we added was Dell Technologies, which was offering 10-year and
7-year bonds with coupons of 6.2% and 6.1% respectively.
In the high yield market itself, bonds were added across many
sectors and included new issues such as Ford. The US car
manufacturer was downgraded by the rating agencies as a result of
the disruption to production and sales due to Covid-19. It
subsequently came to the market to shore up its balance sheet
offering bonds with coupons of 8.5% and 9.625%, which we viewed as
compelling.
Following purchases made during this period of market weakness,
at a sector level the portfolio’s largest exposure remains
financials (both subordinated bank and subordinated insurance
bonds). As at 30 September 2020, 29%
of the portfolio is invested in this area of the market. Elsewhere,
the portfolio’s largest allocations are to telecoms, autos and food
companies. We hope that shareholders are pleased with the Company’s
NAV performance through such turbulent markets.
Outlook
Markets have rallied significantly from the lows of March 2020. Whilst this year's volatility
provided a fantastic opportunity to add future income to the
portfolio, yields in the high yield market are once again heading
lower, driven by the prospect of a prolonged period of low interest
rates. Although we will continue to seek out attractive income
opportunities, such an environment does create challenges for
future income. Furthermore, there are undoubtedly difficult times
ahead for many high yield companies and default rates are likely to
increase. As we seek out appropriately priced income opportunities,
we will continue to apply a thorough and comprehensive analysis of
each issuer and we will maintain a diversified portfolio. We
believe this approach has served shareholders well during 2020.
Rhys Davies
Edward Craven
26 November 2020
Portfolio Managers
Rhys
Davies
Rhys Davies was named as the lead
portfolio manager for the Company on 22 July 2020. He joined
Invesco in 2002 and has 18 years’ experience in fixed income
markets.
He has been associated with the Company’s portfolio for many
years and was appointed portfolio co-manager in May 2016.
Edward
Craven
Edward Craven is a senior credit
analyst having been part of the Fixed Interest team for more than
nine years. He has more than 17 years’ financial services
experience.
Investment Team update
On 31 August 2020 Senior Credit
Analyst Edward Craven expanded his
responsibilities to become Deputy Fund Manager of the Company.
Although Paul Read and Paul Causer are no longer named managers of the
Company, they remain Co-Heads of the Henley fixed interest team and
continue to play an important part of the wider strategies adopted
by the team, they also continue to manage a number of other funds
directly.
Top Ten Investments
|
2020 |
2019 |
|
|
At |
|
At |
|
|
|
Fair |
|
Fair |
|
|
|
Value |
% of |
Value |
% of |
Issuer |
Issue |
£’000 |
Portfolio |
£’000 |
Portfolio |
Telecom Italia |
5.25% 17 Mar 2055 |
2,112 |
2.2 |
1,999 |
2.3 |
|
5.303% 30 May 2024 |
1,255 |
|
1,313 |
|
Volkswagen Financial
Services |
4.25% 09 Oct 2025 (SNR) |
1,244 |
|
– |
|
|
3.875% FRN Perpetual |
1,093 |
2.1 |
— |
— |
|
3.5% FRN Perpetual |
826 |
|
— |
|
Barclays |
7.875% FRN Perpetual |
1,734 |
|
1,806 |
|
|
6.375% FRN Perpetual |
795 |
|
573 |
|
|
8% FRN Perpetual |
408 |
2.0 |
555 |
2.5 |
|
2.75% FRN Perpetual |
135 |
|
122 |
|
|
7.125% FRN Perpetual |
— |
|
487 |
|
Vodafone Group |
6.25% 03 Oct 2078 |
1,167 |
|
1,228 |
|
|
4.875% 03 Oct 2078 |
1,056 |
2.0 |
1,059 |
2.2 |
|
7% FRN 04 Apr 2079 |
667 |
|
681 |
|
|
1.5% Cnv 12 Mar 2022 |
167 |
|
251 |
|
Teva Pharmaceutical
Finance |
6.75% 01 Mar 2028 (SNR) |
1,584 |
|
1,306 |
|
|
7.125% 31 Jan 2025 (SNR) |
1,028 |
2.0 |
— |
0.9 |
|
6% 31 Jan 2025 (SNR) |
427 |
|
— |
|
Altice |
SFR 7.375% 01 May 2026 |
2,511 |
|
2,702 |
|
|
7.5% 15 May 2026 |
515 |
2.0 |
543 |
2.9 |
|
6.625% 15 Feb 2023 |
— |
|
1,000 |
|
Lloyds Banking Group |
7.5% FRN Perpetual |
1,907 |
|
902 |
|
|
7.875% FRN Perpetual |
458 |
1.9 |
— |
0.7 |
|
7.625% FRN Perpetual |
414 |
|
— |
|
|
6.375% FRN Perpetual |
144 |
|
147 |
|
NatWest |
2.62788% FRN Perpetual |
1,472 |
|
— |
|
|
8.625% FRN Perpetual |
823 |
|
383 |
|
|
8% Cnv FRN Perpetual |
427 |
1.8 |
448 |
1.8 |
|
7.64% FRN Perpetual |
— |
|
1,533 |
|
|
7.5% Cnv FRN Perpetual |
— |
|
174 |
|
AT&T |
4.65% 01 Jun 2044 (SNR) |
2,645 |
1.7 |
2,626 |
1.8 |
Dell Technologies |
6.1% 15 Jul 2027 (SNR) |
1,829 |
1.7 |
— |
— |
|
6.2% 15 Jul 2030 (SNR) |
811 |
|
— |
|
|
|
29,654 |
19.4 |
21,838 |
15.1 |
Business Review
Purpose, Business Model and
Strategy
?The Company is a Jersey based, London listed investment company which at the
year end had a portfolio of investments with a fair value in
excess of £151 million. The Company’s investment objective is shown
alongside. The strategy the Board follows to achieve that objective
is to set investment policy and risk guidelines, together with
investment limits, and to monitor how they are applied. These are
set out below and have been approved by shareholders.
The Company’s purpose is to provide shareholders with a high
level of income whilst seeking to maximise total return by
investing in a diversified portfolio of high yielding corporate and
government bonds. The business model the Company has adopted to
achieve its objective has been to contract the services of:
– Invesco
Fund Managers Limited (the ‘Manager’) to manage the portfolio in
accordance with the Board’s strategy;
and
– JTC Fund
Solutions (Jersey) Limited (‘JTC’) to provide company secretarial
and general administration services.
All administrative support is provided by third parties. In
addition to the management and administrative functions of the
Manager and JTC, the Company has contractual arrangements with Link
Market Services (Jersey) Limited to act as Registrar and The Bank
of New York Mellon (International) Limited (BNYMIL) as Depositary
and Custodian.
The Board maintains oversight of the Company’s service
providers, and monitors them on a formal and regular basis. On
22 July 2020, Rhys Davies was named as lead portfolio manager
and Edward Craven appointed as deputy portfolio manager.
Paul Read and Paul Causer have stepped back as co-fund
managers but continue to provide support along with the wider fixed
interest team.
For the purposes of the Alternative Investment Fund Managers
Directive, the Company is an alternative investment fund.
Investment Policy
The Company’s Investment Policy comprises its investment
objective, investment policy and risk and investment limits and is
designed so as to provide shareholders with information on the
policies that the Company will follow relating to asset allocation,
risk diversification and gearing, including maximum exposures.
The Manager monitors the investment portfolio on an ongoing
basis to ensure adherence to the Company’s Investment Policy.
Investment Objective
The Company’s principal objective is to provide shareholders
with a high level of income whilst seeking to maximise total return
through investing in a diversified portfolio of high yielding
corporate and government bonds. The Company may also invest in
equities and other instruments that the Manager considers
appropriate.
The Company seeks to balance the attraction of high yield
securities with the need for protection of capital and to manage
volatility. The Company generally employs gearing in its Investment
Policy.
Investment Policy and Risk
The investment portfolio is constructed in order to gain
exposure to attractive ideas within the investment parameters of
the investment portfolio and to express the Company’s views on
fixed interest markets. The investment process comprises three key
elements which drive portfolio construction – macroeconomic
analysis, credit analysis and value assessment. The Manager aims to
control stock-specific risk by ensuring that the investment
portfolio is appropriately diversified. In-depth, continual
analysis of the fundamentals of all holdings gives the Manager an
understanding of the financial risks associated with any particular
stock.
The Company may enter into derivative transactions (including,
but not limited to, options, futures, and contracts for difference,
credit derivatives and interest rate swaps) periodically for the
purposes of efficient portfolio management. Derivative transactions
may only be entered into if they are compatible with the Company’s
Investment Policy and fall within the limits determined by the
Board from time to time. The Company will not enter into derivative
transactions for speculative purposes.
Efficient portfolio management may include the reduction of
risk, reduction of cost and the enhancement of capital or income,
including transactions designed to hedge all or part of the
investment portfolio, to replicate or gain synthetic exposure to a
particular investment position where this can be done more
effectively or efficiently through the use of derivatives than
through investment in physical securities, or to transfer risk or
obtain protection from a particular type of risk which might attach
to portfolio investments.
The Company may enter into a derivative transaction provided the
maximum exposure (including any initial outlay in respect of the
transaction) to which the Company is committed by virtue of the
transaction, when aggregated with all other outstanding derivative
positions, is covered by the Company’s net assets.
The Manager may invest in money market instruments and
currencies.
The Company may borrow for investment purposes and principally
does so using repo agreements. Under the repo financing, the
Company sells fixed interest securities held by it to a
counterparty for consideration that is less than such assets’
market value and agrees to repurchase on a fixed date the same
assets for a fixed price above the consideration received by it on
the sale. The difference in these two amounts equates to the cost
(effectively interest) of the repo financing.
Investment Limits
The Board has prescribed limits on the Investment Policy, among
which are the following:
– investments in equities are restricted
to no more than 20% of the Company’s investment portfolio;
– no single investment (bond or equity)
may exceed 10% of gross assets;
– no more than 5% of gross assets may be
exposed to unquoted investments;
– no more than 15% of the Company’s
gross assets will be invested in other investment companies
(including investment trusts); and
– repo financing and other borrowings
may be used to raise the exposure to bonds and equities. Net
borrowings (comprising aggregate borrowings less cash) may not, at
the time of drawdown, exceed 50% of shareholders’ funds (as
determined under the Company’s normal accounting policies).
For the purpose of the investment limits, excluding the
borrowing limit, gross assets is defined as the investment
portfolio plus cash and the limits are measured at the time of
investment.
Gearing Policy
Under the Company’s Investment Policy, borrowings may be used to
raise exposure to bonds and equities and net borrowings may not
exceed 50% of shareholders’ funds. Gearing levels will change from
time-to-time in accordance with the Board and the Manager’s
assessment of risk and reward.
From time-to-time, the Company arranges facilities for repo
financing with counterparties. The Company manages counterparty
exposure to ensure that under normal circumstances its exposure to
the creditworthiness or solvency of any one counterparty does not
exceed 20% of its gross assets. The Company’s exposure to any one
counterparty is calculated for these purposes as the difference
between the aggregate amount owed by that counterparty to the
Company less the aggregate amount owed by the Company to that
counterparty.
The effective cost of the repo financing is allocated over the
period to repurchase at a constant rate and is charged 50% to
revenue and 50% to capital. Each repo financing arrangement
typically has a fixed life of between one and six months. The
short-term nature of the repo financing means that the effective
cost of the Company’s borrowings will fluctuate from time to time
in accordance with the market rates of repo financing (which are
closely related to interest rates).
Performance and Key Performance
Indicators
The Board reviews performance by reference to a number of Key
Performance Indicators which include the following:
• portfolio performance;
• net asset value (NAV);
• share price;
• premium/discount;
• dividends; and
• ongoing charges.
The Company’s focus has been on absolute returns. The portfolio
performance of the Company is commented on in both the Chairman’s
Statement on pages 7 and 8 and, in more detail, in the Portfolio
Managers’ Report on page 9. These also set out the NAV per share
and share price total return performance for the year, with the NAV
per share increasing 4.6% (2019: 8.9%) and the share price
decreasing 6.0% (2019: increasing 6.7%). For a longer term view,
the graph on the bottom of page 5 shows the movements in these for
the ten years ended 30 September
2020.
The Board monitors the price of the Company’s shares in relation
to their NAV and the share price premium/discount to NAV at which
they trade. Over the year the shares have traded at a
discount/premium within the range, discount 28.4% to premium 5.1%,
and ended the year at a discount of 9.0%. The graph below shows the
premium/discount throughout the year.
The Board and Manager closely monitor movements in the Company’s
ordinary share price and dealings in the Company’s ordinary shares.
The Board seeks approvals from shareholders every year to allow for
the issue of new ordinary shares and the buy back of ordinary
shares (for cancellation or to be held as treasury shares). This
may assist in the management of any premium or discount at which
the Company’s shares may trade, although the primary reason for
buying back ordinary shares is to enhance investor value.
Any issues of new ordinary shares will be at a price above NAV
per share so the interests of existing shareholders are not diluted
and where the Board considers it is in shareholders’ interests to
do so.
Any buy back of shares will be made within guidelines
established from time to time by the Board and the making and
timing of any buy backs will be at the absolute discretion of the
Board. Buy backs will only be made where the Directors consider it
to be in the interests of shareholders as a whole, taking into
consideration the working capital and cashflow requirements of the
Company.
Dividends are a key component of the total return to
shareholders, and the level of potential dividend payable and
income from the portfolio is reviewed at every board meeting. The
Company has paid 5p each year in respect of the ten financial years
to 30 September 2020. The Company
will only pay dividends in respect of a year to the extent that it
has accumulated revenue reserves available for that purpose.
The expenses of managing the Company are carefully monitored by
the Board at every meeting. It is the intention of the Board to
minimise the ongoing charges which provide a guide to the effect on
performance of all annual operating costs of the Company. The
ongoing charges figure for the past year was 1.05% which compares
with 1.04% for the previous year, excluding borrowing costs.
Financial Position
As at 30 September 2020, the
Company’s net assets were £126 million (2019: £126 million).
These comprised a portfolio of predominantly corporate bonds. Due
to the realisable nature of the majority of the Company’s assets,
cash flow does not have the same significance as for an industrial
or commercial company. The Company’s principal cash flows arise
from the purchases and sales of investments, repo financing,
proceeds from the issue of shares and the income from investments
against which must be set the costs of borrowing and management
expenses.
As explained previously, the ordinary shares are geared by
borrowings, principally in the form of repo financing. As at
30 September 2020, net borrowing was 22% (2019: 15%).
Future Trends
Details of the main trends and factors likely to affect the
future development, performance and position of the Company’s
business can be found in the Portfolio Managers’ Report on page 9.
Further details as to the risks affecting the Company are set out
in the next section.
Principal Risks and Uncertainties
The Audit Committee regularly undertakes a robust assessment of
the principal risks facing the Company, on the Board’s behalf. As
part of this process, new and emerging risks are considered. These
are not currently principal risks for the Company, but may have the
potential to be in the future.
Investment Policy (incorporating the Investment Objective)
Risk: There is no guarantee that the Company’s investment
objective will be achieved or provide the returns sought by
shareholders.
Mitigation: The Board monitors the performance of
the Company and has established guidelines to ensure that the
investment policy that has been approved is pursued by the
Manager.
Market Risk: The majority of the Company’s investments
are traded on the major securities markets. The principal risk for
investors in the Company is of a significant fall in the markets
and/or a prolonged period of decline in the markets relative to
other forms of investment. The value of investments held within the
investment portfolio is influenced by many factors including the
general health of the world economy, interest rates, inflation,
government policies, industry conditions, political and diplomatic
events, tax laws, competition, environmental laws and by changing
investor demand. The extreme volatility experienced in March 2020 from the market reaction to the
Covid-19 global pandemic has had an effect on the Company’s
portfolio and the discount to net asset value at which the shares
trade.
Mitigation: The Portfolio Managers’ Report
summarises particular macro economic factors affecting performance
during the year and the portfolio managers’ views on those most
relevant to the outlook for the portfolio. The Manager strives to
maximise the total return within certain risk parameters from the
investments held, but these investments are influenced by market
conditions and the Board acknowledges the external influences on
investment portfolio performance.
Investment Risk: The investment process employed by the
Manager is set out in the first paragraph under Investment Policy
and Risk on page 11. Investment portfolio performance is
dependent on the performance of high yield corporate bonds. These
stocks are particularly influenced by prevailing interest rates,
government monetary policy and by demand for income.
The Company is likely, from time-to-time, to maintain a more
concentrated investment portfolio (both in terms of individual
holdings and in terms of its exposure to particular industries)
than those of many other investment funds. Accordingly,
shareholders should be aware that the investment portfolio
potentially carries a higher level of risk than a more diversified
investment portfolio.
The Company is permitted from time-to-time to invest in other
listed investment companies (including investment trusts) subject
to a limit on such investment of 15% of its gross assets. As a
consequence of these investments, the Company may itself be
indirectly exposed to gearing through the borrowings of these other
investment companies. The Company is not currently invested in any
listed investment companies (including investment trusts).
Mitigation: The Manager strives to maximise within
its mandate both capital growth and high income from the investment
portfolio. The inherent risk of investment is that the stocks
selected for the portfolio do not perform.
The Board also considers reports from the Manager which includes
VaR, portfolio contribution and performance attribution reports, at
each Board meeting.
The Portfolio Manager’s Report sets out the portfolio’s strategy
and results for the year, as well as their outlook. The performance
of the Manager is carefully monitored both during the year and post
year end by the Board. The continuation of the Manager’s mandate is
reviewed each year and investment performance is a principal
consideration in this review.
The Manager is expected to operate within the investment limits
as set out on page 12.
Past performance of the Company is not necessarily indicative of
future performance.
Foreign Exchange Risk: The movement of exchange rates may
have an unfavourable or favourable impact on returns as the Company
holds non-sterling denominated investments and cash.
Mitigation: This risk is partially mitigated by
the use of non-sterling denominated repo financing and the use of
forward currency contracts. The foreign currency exposure of the
Company is monitored by the Manager on a daily basis and formally
at Board meetings.
Shares Price and Dividends Risk: The market value of the
ordinary shares of the Company will be affected by a number of
factors, including the dividend yield from time-to-time of the
ordinary shares, prevailing interest rates and supply and demand
for those ordinary shares, along with wider economic factors. The
market value of, and the income derived from, the Company’s
ordinary shares can fluctuate and may go down as well as up.
While it is the intention of Directors to pay dividends to
shareholders on a quarterly basis, the ability to do so will
largely depend on the amount of income the Company receives on its
investments, the timing of such receipts and its costs including
the repo financing. Any reduction in income receivable by the
Company, or increase in the costs, will lead to a reduction in
earnings per share and therefore in the Company’s ability to pay
dividends. Accordingly, the amount of dividends payable by the
Company may fluctuate.
The market value of the ordinary shares may not always reflect
the NAV per ordinary share.
Mitigation: The Directors seek powers to issue and
buy back the Company’s shares each year, which can be used to help
manage the level of discount or premium. Both the Board and the
Manager monitor the share price and level of discount/premium on a
regular basis, as well as formally at Board meetings.
The Board monitors the level of net revenue available for
distribution at each Board meeting and prior to the declaration of
each dividend. The Company will only pay dividends in respect of a
year to the extent that it has accumulated revenue reserves
available for that purpose.
Gearing Returns Using Borrowings Risk: Borrowing levels
may change from time to time in accordance with the Manager’s
assessment of risk and reward. As a consequence, any reduction in
the value of the Company’s investments may lead to a
correspondingly greater percentage reduction in its NAV (which is
likely to adversely affect the Company’s share price). Any
reduction in the number of ordinary shares in issue (for example,
as a result of buy backs) will, in the absence of a corresponding
reduction in borrowings, result in an increase in the Company’s
gearing.
There is no guarantee that it will be possible to re-finance the
repo financing arrangements or any other borrowings on their
maturity either at all or on terms that are acceptable to the
Company. If it were not possible to roll over any repo financing,
the amounts then owing by the Company under the repo financing
arrangement would become payable to the counterparty. Also,
although the repo financing requires the counterparties to sell the
assets to the Company on the repurchase date at a fixed price, if a
counterparty failed to do so the Company would be left with a
contractual claim against the defaulting counterparty and there is
no guarantee the Company would be able to recover all or any of the
value of the assets from that counterparty. In adverse market
conditions, the risks of counterparty default may be greater than
at other times.
If one or more of the counterparties with which the Company
enters into repo financing decided to stop accepting non-investment
grade bonds as collateral for repo financing or decided otherwise
to restrict the repo financing currently provided to the Company
then the Company may be unable, or it may be impracticable, to
continue utilising repo financing and/or to replace its current
repo financing as it expires. In certain circumstances, such as a
material increase in the margins payable on repo financing, it may
be uneconomical for the Company to continue utilising repo
financing. The counterparties may force closure of the repo
financing positions in which case the Company may be forced to
repay the repo financing at short notice and the Company may be
forced to sell assets at short notice to repay that debt and may
not be able to realise the expected market value of those
assets.
A lack of liquidity in corporate bonds may make it difficult for
the Company to sell those bonds at or near their purported value.
This may particularly be the case if the Company is forced to sell
assets quickly, for example, to repay any repo financing that
becomes unexpectedly repayable or which it is not possible to
rollover or in the event of a liquidation of the Company. A lack of
liquidity in corporate bonds may also make it difficult or
impossible to rebalance the Company’s investment portfolio as and
when it believes it would be advantageous to do so.
Mitigation: Net borrowing may not exceed 50% of
shareholders’ funds and this is monitored on a daily basis by the
Manager. The Company currently has arranged facilities for repo
financing with four counterparties. All borrowings, including repo
financing, are actively managed by the Manager and monitored by the
Board.
The portfolio managers monitor daily both the ratings and
liquidity of the bond portfolio in relation to the Company’s known
repo financing requirements, and the Board receives regular reports
which it reviews throughout the year.
High Yield Corporate Bonds Risk: Corporate bonds are
subject to credit, liquidity, duration and interest rate risks.
Adverse changes in the financial position of an issuer of corporate
bonds or in general economic conditions may impair the ability of
the issuer to make payments of principal and interest or may cause
the liquidation or insolvency of an issuer.
The majority of the Company’s investment portfolio at the year
end consists of non-investment grade securities. To the extent that
the Company invests in non-investment grade securities, the Company
may realise a higher current yield than the yield offered by
investment grade securities, but investment in such
securities involves a greater volatility of price and a greater
risk of default by the issuers of such securities with consequent
loss of interest payment and principal. Non-investment grade
securities are likely to have greater uncertainties of risk
exposure to adverse conditions and will be speculative with respect
to an issuer’s capacity to meet interest payments and repay
principal in accordance with its obligations.
A lack of liquidity in corporate bonds may make it difficult for
the Company to sell those bonds at or near their purported value.
This may particularly be the case if the Company is forced to sell
assets quickly, for example, to repay any repo financing that
becomes unexpectedly repayable or which it is not possible to
rollover or in the event of a liquidation of the Company. A lack of
liquidity in corporate bonds may also make it difficult or
impossible to rebalance the Company’s investment portfolio as and
when it believes it would be advantageous to do so.
Mitigation: To mitigate these risks, the portfolio
managers monitor daily both the ratings and liquidity of the bond
portfolio in relation to the Company’s known repo financing
requirements, and the Board regularly receives reports which it
reviews throughout the year.
Derivatives Risk: The Company may enter into derivative
transactions for the purposes of efficient portfolio management
(‘EPM’), as set out in the investment policy. The Company may also
hedge against exposure to changes in currency rates to the extent
that repo financing has not offset such exposure.
Derivative instruments can be highly volatile and expose
investors to a higher risk of loss. Derivatives enable a higher
degree of leverage than might be acquired in respect of a direct
investment in the underlying asset. As a result, relatively small
fluctuations in the value of the underlying asset or the subject of
the derivative may result in a substantial fluctuation in the value
of the derivative, either up or down. Daily limits on price
fluctuations and position limits on exchanges may prevent prompt
liquidation of positions resulting in potentially greater
losses.
Where derivatives are used for hedging, there is a risk that the
returns on the derivative do not exactly correlate to the returns
on the underlying investment, obligation or market sector being
hedged against. If there is an imperfect correlation, the Company
may be exposed to greater loss than if the derivative had not been
entered into.
Trading in derivatives markets may be unregulated or subject to
less regulation than other markets.
Mitigation: The Manager has systems in place to
monitor derivative levels on a daily basis. These also ensure
exposure levels are in accordance with EPM and investment
limits.
Reliance on External Service Providers Risk: The Company
has no employees and the Directors have all been appointed on a
non-executive basis. The Company is reliant upon the performance of
third party service providers (TPPs) for its executive function.
Operational capability relies upon the ability of its TPPs to
continue working throughout the disruption caused by a major event
such as the Covid-19 global pandemic.
The Company’s most significant contract is with the Manager, to
whom the responsibility for the Company’s portfolio is delegated.
The Company has other contractual arrangements with third parties
to act as Company Secretary, Registrar, Depositary and Broker.
Failure by any service provider to carry out its obligations to
the Company in accordance with the terms of its appointment could
have a materially detrimental impact on the operation of the
Company and could affect the ability of the Company to pursue
successfully its investment policy and expose the Company to
reputational risk.
The Manager may be exposed to the risk that litigation,
misconduct, operational failures, negative publicity and press
speculation, whether or not it is valid, will harm its reputation.
Any damage to the reputation of the Manager could result in
counterparties and third parties being unwilling to deal with the
Manager and by extension the Company. This could have an adverse
impact on the ability of the Company to pursue its investment
policy.
Mitigation: The Manager's business continuity
plans are reviewed on an ongoing basis and the Directors are
satisfied that the Manager has in place robust plans and
infrastructure to minimise the impact on its operations.
As the Covid-19 global pandemic continues, the Manager has
mandated work from home arrangements and implemented split team
working for those whose work is deemed necessary to be carried out
on business premises. Any meetings are held virtually or via
conference calls. Other similar working arrangements are in place
for the Company's TPPs.
The Board receives regular updates from the Board and TPPs on
business continuity processes. The Company has limited exposure to
cyber risk. However, the Company’s operations or reputation could
be affected if any of its service providers suffered a major cyber
security breach. The Board monitors the preparedness of its service
providers in this regard and is satisfied that the risk is given
due priority.
The Board seeks to manage these risks, and others, in a number
of ways:
• The Manager monitors the performance of all
third party providers in relation to agreed service standards on a
regular basis, and any issues and concerns would be dealt with
promptly and reported to the Board. The Manager formally reviews
the performance of all third party providers and reports to the
Board on an annual basis.
• The Board monitors the performance of the
Manager at every board meeting and otherwise as appropriate. The
Board has the power to replace the Manager and reviews the
management contract formally once a year
• The day-to-day management of the portfolio
is the responsibility of Rhys
Davies. On 22 July 2020,
Rhys Davies was named as lead
portfolio manager and Edward Craven
appointed as deputy portfolio manager. Mr Davies joined Invesco in
2002 and has 18? years’ experience in fixed income markets. He
has been associated with the Company's portfolio for many years.
Edward Craven is a senior credit
analyst having been part of the Fixed Interest team for more than
nine years. He has more than 17 years’ financial services
experience. Paul Read and
Paul Causer have stepped back as
co-fund managers but continue to provide support along with the
wider fixed interest team. The Board has adopted guidelines within
which the portfolio managers are permitted wide discretion. Any
proposed variation outside these guidelines is referred to the
Board and the guidelines themselves are reviewed at every board
meeting.
• The risk that any one of the portfolio
managers might be incapacitated or otherwise unavailable is
mitigated by the fact that they work closely with each other and
they also work within the wider Invesco Fixed Interest team.
Regulatory Risk: The Company is subject to various laws
and regulations by virtue of its status as a Company registered
under the Companies (Jersey) Law 1991, under Alternative Investment
Fund Regulations and Collective Investment Funds (Jersey) Law 1998,
and as an investment company and its listing on the London Stock
Exchange.
A serious breach of regulatory rules may lead to suspension from
the London Stock Exchange or a qualified Audit Report. Other
control failures, either by the Manager or any other of the
Company’s service providers, may result in operational or
reputational problems, erroneous disclosures or loss of assets
through fraud, as well as breaches of regulations.
Any changes in the Company’s tax status or in taxation
legislation or accounting practice could affect the value of
investments held by the Company, affect the Company’s ability to
provide returns to shareholders or alter the post-tax returns to
shareholders.
Mitigation: The Manager reviews compliance with
regulatory requirements on a regular basis. All transactions,
income and expenditure are reported to the Board. The Board
regularly considers all risks, the measures in place to control
them and the possibility of any other risks that could arise. The
Board ensures that satisfactory assurances are received from
service providers. The Manager’s compliance and internal audit
officers produce regular reports for review by the Company’s Audit
Committee.
Additionally, the Depositary monitors stock, cash, borrowings
and investment restrictions throughout the year. The Depositary
reports formally once a year and also has access to the Company
Chairman and the Audit Committee Chairman if needed during the
year.
Viability Statement
An investment company, such as this Company, is a collective
investment vehicle rather than a commercial business venture and is
designed and managed for long term investment. Long term for this
purpose is considered to be at least three years and so the
Directors have assessed the Company’s viability over that period.
However, the life of the Company is not intended to be limited to
that or any other period.
The main risk to the Company’s continuation is shareholder
dissatisfaction through failure to meet the Company’s investment
objective, through poor investment performance or the investment
policy not being appropriate in prevailing market conditions. The
Board actively reviews the Company’s performance against its
investment objective and policy as well as reviewing the Company’s
objective to ensure that this continues to meet shareholder
requirements especially during the Covid-19 global pandemic this
year. Performance has been strong for many years and through
different, and difficult, market cycles as shown by the ten year
total return performance graph on page 5, and the stable level of
dividend paid by the Company over the last ten years, also as set
out on page 5. Throughout these times there has been no change in
Manager and the five-yearly continuation vote in 2019 was passed
with 99.9% of voting shareholders in favour. The next continuation
vote is due in 2024.
Other principal risks arise from the make-up of the portfolio,
especially as it contains a high level of non-investment grade (or
so-called ‘junk’) bonds which may have a higher risk of default,
and the use of gearing to enhance returns. The Portfolio Managers
constantly monitor the portfolio and its ratings, a bond rating
analysis of which is shown on pages 6 and 22. Even though a
majority of the portfolio is formally ranked as non-investment
grade, the portfolio remains defensively positioned. The Portfolio
Manager’s Report on page 9 sets out the current portfolio strategy,
with exposure positioned towards higher quality issuers where risk
of default is considered low, and who have high levels of
liquidity. The Company’s investment limits permit borrowings of up
to 50% of shareholders’ funds. At this level, borrowings are twice
covered. At the year end, net gearing as a result of borrowings was
22% and thus four and half times covered.
Based on the above analysis of the Company’s current position
and prospects, the Directors confirm that they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year
period of their assessment.
Board’s Duty to Promote the Success of
the Company
The Directors have a duty to promote the success of the Company.
The AIC Code of Corporate Governance, codifies this duty and also
widens the responsibility to incorporate the consideration of wider
relationships that are necessary for the Company’s sustainability.
As a UK listed Company it is necessary for the Company to report
against this UK statutory duty (Section 172). This is not an
obligation under Jersey Law.
In fulfilling these duties, and in accordance with the Company’s
nature as an investment company with no employees and no customers
in the traditional sense, the Board’s principal concern has been,
and continues to be, the interests of the Company’s shareholders
taken as a whole. Notwithstanding this, the Board has a responsible
governance culture and also has due regard for broader matters so
far as they apply. In particular, the Board engages with the
Manager at every Board meeting, reviews the Company’s relationships
with the other service providers, such as the Registrar, Depositary
and Custodian, at least annually. At every Board meeting the
Directors receive an investor relations update from the Manager,
which details any significant changes in the Company’s shareholder
register, shareholder feedback, as well as notifications of any
publications or press articles.
Environment, Social and Governance considerations are dealt with
in a separate section below.
Shareholder relations are given a high priority by the Board.
The prime medium by which the Company communicates with
shareholders is through the annual and half-yearly financial
reports, which aim to provide shareholders with a full
understanding of the Company’s activities and its results. This
information is supplemented by the publication of monthly
factsheets and the NAV of the Company’s ordinary shares, which is
published daily via the London Stock Exchange and on the Company’s
section of the current Manager’s website at
www.invesco.co.uk/enhancedincome.
Shareholders normally have the opportunity to communicate
directly with the Directors at the AGM. The forthcoming AGM has
been postponed and will be held at a later date in 2021. The
details will be communicated to shareholders. Shareholders wishing
to lodge questions in advance of the AGM are invited to do so,
either on the reverse of the proxy card, via the current Manager’s
website (www.invesco.co.uk/enhancedincome) or in writing to the
Company Secretary at the address given on page 63, stating name and
postal address. At other times the Company responds to queries from
shareholders on a range of issues.
There is a clear channel of communication between the Board and
the Company’s shareholders via the Company Secretary. The Company
Secretary has no express authority to respond to enquiries
addressed to the Board and all such communication, other than junk
mail, is redirected to the Chairman as appropriate.
There is a regular dialogue with individual major shareholders
to discuss aspects of investment performance, governance and
strategy and to listen to shareholder views in order to develop a
balanced understanding of their issues and concerns.
Shareholders can visit the Company’s section of the current
Manager’s website (www.invesco.co.uk/enhancedincome) in order to
access copies of annual and half-yearly financial reports,
pre-investment information, key information document (KID),
shareholder circulars, factsheets, Stock Exchange announcements,
schedule of matters reserved for the Board, terms of reference of
Board Committees, Directors’ letters of appointment, the Company’s
share price and proxy voting results.
Environment, Social and Governance
(ESG) Matters
As an investment company with no employees, property or
activities outside investment, environmental policy has limited
direct application. A greenhouse gas emissions statement is
included in the Directors’ Report on page 30. In relation to the
portfolio, the Company has, for the time being, delegated the
management of the Company’s investments to the current Manager, who
has an ESG Guiding Framework which sets out a number of
principles that are intended to be considered in the context of its
responsibility to manage investments in the financial interests of
shareholders.
The Manager is committed to being a responsible investor and
applies, and is a signatory to, the United Nations Principles for
Responsible Investment, which demonstrates its extensive efforts in
terms of ESG integration, active ownership, investor collaboration
and transparency. The Manager is also a signatory to the
FRC Stewardship Code 2020, which seeks to improve the quality
of engagement between institutional investors and companies to help
improve long-term returns to shareholders and the efficient
exercise of governance responsibilities.
The Manager’s investment team incorporates ESG considerations in
its investment process as part of the evaluation of new
opportunities, with identified ESG concerns feeding into the final
investment decision and assessment of relative value. The Portfolio
Managers make their own conclusions about the ESG characteristics
of each investment held and about the overall ESG characteristics
of the portfolio, although third party ESG ratings may inform their
view. Additionally, the Manager’s ESG team provides ESG
monitoring.
Regarding stewardship, the Board considers that the Company has
a responsibility as an investor towards ensuring that high
standards of corporate governance are maintained in the companies
in which it invests. To achieve this, the Board does not seek to
intervene in daily management decisions, but aims to support high
standards of governance and, where necessary, will take the
initiative to ensure those standards are met.
The Company’s stewardship functions have been delegated to the
Manager. The current Manager has adopted a clear and considered
policy towards its responsibility as an investor on behalf of the
Company. As part of this policy, the Manager takes steps to satisfy
itself about the extent to which the companies in which it invests
look after shareholders’ value and comply with local
recommendations and practices, such as the UK Corporate Governance
Code. A copy of the current Manager’s Stewardship Policy, which is
updated annually, can be found at www.invesco.co.uk.
Board Diversity
The Board takes into account many factors, including the balance
of skills, knowledge, diversity (including gender) and experience,
amongst other factors when reviewing its composition and appointing
new directors. The Board has considered the recommendations of the
Davies and Hampton-Alexander review as well as the Parker review,
but does not consider it appropriate to establish targets or quotas
in this regard. The Board comprises four non-executive directors,
two male and two female, thereby constituting 50% female
representation. There are no set targets in respect of diversity,
including gender. However, diversity forms part of both the
Nominations and Remuneration Committee and main Board’s
deliberations when considering new appointments. The Company’s
success depends on suitably qualified candidates who are willing,
and have the time, to be a director of the Company. Summary
biographical details of the Directors are set out on page 25. The
Company has no employees.
Modern Slavery Act 2015
The Company is an investment vehicle and does not provide goods
or services in the normal course of business, or have customers.
Accordingly, the Directors consider that the Company is not
required to make any slavery or human trafficking statement under
the Modern Slavery Act 2015.
Approved by the Board of Directors on 26
November 2020.
JTC Fund Solutions (Jersey)
Limited
Company Secretary
INVESTMENT PORTFOLIO
AT 30 SEPTEMBER 2020
All investments are fixed interest
bonds unless otherwise stated; floating rates notes are depicted by
FRN.
The definitions of the Moody/Standard
& Poor’s ratings below are set out on page 66.
Bonds and Equity Investments
|
|
|
Fair Value |
% of |
Issuer |
Issue |
Rating(1) |
£’000 |
Portfolio |
Euro |
|
|
|
|
Banco BPM |
5% FRN 14 Sep 2030 |
B1/NR/B |
1,368 |
1.5 |
|
8.75% FRN Perpetual |
B3/NR/B |
875 |
|
Telecom Italia |
5.25% 17 Mar 2055 |
Ba1/BB+/BB |
2,112 |
1.4 |
Achmea |
6% 04 Apr 2043 |
NR/BBB–/BBB |
2,010 |
1.3 |
Banco Santander |
6.25% FRN Perpetual |
Ba1/NR/BB |
1,809 |
1.3 |
|
4.375% FRN Perpetual |
Ba1/NR/BB |
164 |
|
Volkswagen Financial Services |
3.875% FRN Perpetual |
Baa2/BBB–/BBB |
1,093 |
1.2 |
|
3.5% FRN Perpetual |
Baa2/BBB–/BBB |
826 |
|
Codere Finance |
6.75% 01 Nov 2021 (SNR) |
Caa3/CC/CCC |
786 |
0.9 |
|
12.75% 30 Sep 2023 (SNR) |
B3/CCC–/CCC |
670 |
|
Burger King France |
8% 15 Dec 2022 (SNR) |
NR/CCC/CCC |
722 |
|
|
FRN 01 May 2023 |
B3/B–/B |
459 |
0.9 |
|
6% 01 May 2024 (SNR) |
B3/B–/B |
213 |
|
Banco BVA |
6% FRN Perpetual |
Ba2/NR/BB |
1,280 |
0.8 |
Permanent TSB |
8.625% FRN Perpetual |
NR/NR/NR |
1,197 |
0.8 |
La Financière ATALIAN |
4% 15 May 2024 (SNR) |
Caa2/B/CCC |
1,147 |
0.8 |
Commerzbank |
6.125% FRN Perpetual |
Ba2/BB–/BB |
884 |
0.7 |
|
4% FRN 05 Dec 2030 |
Baa3/BB+/BB |
186 |
|
IM Group |
6.625% 01 Mar 2025 |
B3/B–/B |
1,030 |
0.7 |
Frigoglass Finance |
6.875% 12 Feb 2025 |
B3/B–/B |
1,026 |
0.7 |
Loxam SAS |
5.75% 15 Jul 2027 |
NR/CCC+/CCC |
523 |
0.6 |
|
3.75% 15 Jul 2026 (SNR) |
NR/B/B |
484 |
|
Picard |
FRN 30 Nov 2023 |
B3/B/B |
880 |
0.6 |
Tereos Finance |
4.125% 16 Jun 2023 (SNR) |
NR/B+/B |
837 |
0.6 |
Intesa Sanpaolo |
7% Perpetual |
Ba3/BB–/BB |
825 |
0.5 |
Banca Monte Dei Paschi – Siena |
8% FRN 22 Jan 2030 |
Caa1/NR/CCC |
455 |
0.5 |
|
10.5% 23 Jul 2029 (SUB) |
Caa1/NR/CCC |
368 |
|
Banco Sabadell |
6.5% FRN Perpetual |
B2/NR/B |
810 |
0.5 |
HEMA |
6.25% FRN 15 Jul 2022 (SNR) |
Caa3/CC/CC |
805 |
0.5 |
Banco Comercial Portugues |
9.25% 30 Apr 2067 |
B2/CCC+/B |
797 |
0.5 |
Deutsche Bank |
5.625% FRN 19 May 2031 |
Ba2/BB+/BB |
777 |
0.5 |
DKT Finance |
7% 17 Jun 2023 (SNR) |
Caa1/CCC+/CCC |
766 |
0.5 |
Ziggo Bond Finance |
3.375% 28 Feb 2030 (SNR) |
B3/B–/B |
733 |
0.5 |
IQVIA |
3.25% 15 Mar 2025 (SNR) |
Ba3/BB/BB |
730 |
0.5 |
Bank Of Ireland |
7.5% FRN Perpetual |
Ba2/B/B |
729 |
0.5 |
El Corte Inglés |
3.625% 15 Mar 2024 (SNR) |
NR/NR/NR |
689 |
0.5 |
INEOS Group |
5.375% 01 Aug 2024 (SNR) |
B2/B+/B |
497 |
0.4 |
|
2.875% 01 May 2026 (SNR) |
Ba2/BB+/BB |
174 |
|
CNP Assurances |
FRN Perpetual |
NR/NR/NR |
644 |
0.4 |
Virgin Money |
2.875% FRN Perpetual |
Baa3/BBB–/BBB |
629 |
0.4 |
Gamma |
6.25 % 15 Jul 2025 |
B1/B/B |
603 |
0.4 |
Aegon |
5.625% FRN Perpetual |
Baa3/BBB–/BBB |
590 |
0.4 |
PrestigeBidCo |
6.25% 15 Dec 2023 (SNR) |
B2/B/B |
552 |
0.4 |
National Bank Of Greece |
8.25% FRN 18 Jul 2029 |
Caa2/CCC/CCC |
549 |
0.4 |
Crystal Almond |
4.25% 15 Oct 2024 (SNR) |
NR/B/B |
543 |
0.4 |
Yew Grove REIT |
Common stock |
NR/NR/NR |
534 |
0.4 |
Platin |
5.375% 15 Jun 2023 (SNR) |
B3/B/B |
512 |
0.3 |
Crown European Holdings |
2.875% 01 Feb 2026 (SNR) |
Ba2/BB+/BB |
488 |
0.3 |
VMED O2 |
3.25% 31 Jan 2031 (SNR) |
Ba3/BB–/BB |
484 |
0.3 |
Motion Finco |
7% 15 May 2025 (SNR) |
B1/CCC+/CCC |
434 |
0.3 |
UniCredit International Bank |
3.875% FRN Perpetual |
Ba3/NR/B |
430 |
0.3 |
Faurecia |
3.75% 15 Jun 2028 (SNR) |
Ba2/BB/BB |
429 |
0.3 |
Teva Pharmaceutical Finance |
6% 31 Jan 2025 (SNR) |
NR/BB–/BB |
427 |
0.3 |
EDP – Energias de Portugal |
4.496% 30 Apr 2079 |
Ba2/BB/BB |
392 |
0.3 |
Plantronics |
4.625% 05 Jan 2026 (SNR) |
B2/B/B |
377 |
0.3 |
IHO Verwaltungs |
3.625% 15 May 2025 (SNR) |
Ba2/BB–/BB |
363 |
0.2 |
Trafigura |
7.5% FRN Perpetual (SUB) |
NR/NR/NR |
362 |
0.2 |
Ford Motor Credit |
FRN 14 May 2021 |
Ba2/BB+/BB |
355 |
0.2 |
BNP Paribas |
Cnv FRN Perpetual |
Baa3/BB+/BBB |
324 |
0.2 |
Motion Bondco |
4.5% 15 Nov 2027 (SNR) |
Caa1/CCC–/CCC |
308 |
0.2 |
Volvo |
2.5% 07 Oct 2027 (SNR) |
NR/NR/NR |
275 |
0.2 |
Bayer AG |
3.125% FRN 12 Nov 2079 (SUB) |
Baa3/BB+/BBB |
274 |
0.2 |
Parts Europe |
6.5% 16 Jul 2025 |
Caa1/B–/CCC |
271 |
0.2 |
Aviva |
6.125% FRN 05 Jul 2043 |
A3/BBB+/BBB |
246 |
0.2 |
Odyssey Europe |
8% 15 May 2023 (SNR) |
Caa1/CCC+/CCC |
241 |
0.2 |
Synthomer |
3.875% 01 Jul 2025 (SNR) |
Ba2/BB/BB |
233 |
0.2 |
ASR Nederland |
4.625% Cnv FRN Perpetual |
NR/BB+/BB |
186 |
0.1 |
Lloyds Banking Group |
6.375% FRN Perpetual |
Baa3/BB–/BBB |
144 |
0.0 |
|
|
|
43,935 |
28.9 |
Sterling |
|
|
|
|
Barclays |
7.875% FRN Perpetual |
Ba2/B+/BB |
1,734 |
1.6 |
|
6.375% FRN Perpetual |
Ba2/B+/BB |
795 |
|
NGG Finance |
5.625% FRN 18 Jun 2073 |
Baa3/BBB/BBB |
2,478 |
1.6 |
NWEN Finance |
5.875% 21 Jun 2021 (SNR) |
NR/BB+/BB |
2,400 |
1.6 |
Arqiva Broadcast Finance |
6.75% 30 Sep 2023 |
B1/NR/B |
2,163 |
1.4 |
Premier Foods Finance |
6.25% 15 Oct 2023 |
B1/B/B |
1,750 |
1.4 |
|
FRN 15 Jul 2022 (SNR) |
B1/B/B |
365 |
|
Eléctricité De France |
6% Perpetual |
Baa3/BB–/BBB |
1,399 |
1.4 |
|
5.875% Perpetual |
Baa3/BB–/BBB |
643 |
|
Virgin Money |
8.75% FRN Perpetual |
Ba2/B/BB |
1,881 |
1.2 |
Co-Operative Bank |
9.5% FRN 25 Apr 2029 |
NR/NR/NR |
1,373 |
1.2 |
|
5.125% 17 May 2024 (SNR) |
NR/BB/BB |
481 |
|
Aviva |
6.125% Perpetual |
A3/BBB+/BBB |
1,612 |
1.1 |
Pension Insurance |
7.375% FRN Perpetual |
NR/NR/BBB |
1,584 |
1.0 |
VMED O2 |
4% 31 Jan 2029 (SNR) |
Ba3/BB–/BB |
1,507 |
1.0 |
Wagamama Finance |
4.125% 01 Jul 2022 (SNR) |
B2/B–/B |
1,382 |
0.9 |
Matalan Finance |
6.75% 31 Jan 2023 (SNR) |
B3/CCC–/CCC |
800 |
|
|
9.5% 31 Jan 2024 (SNR) |
Caa3/CC/CC |
313 |
0.9 |
|
16.5% 25 Jul 2022 (SNR) |
NR/CCC+/CCC |
229 |
|
SSE |
3.74% FRN Perpetual (SUB) |
Baa3/BBB–/BBB |
1,290 |
0.9 |
Time Warner Cable |
5.25% 15 Jul 2042 |
Ba1/BBB–/BBB |
1,282 |
0.9 |
Volkswagen Financial Services |
4.25% 09 Oct 2025 (SNR) |
A3/BBB+/BBB |
1,244 |
0.9 |
Vodafone Group |
4.875% 03 Oct 2078 |
Ba1/BB+/BB |
1,056 |
0.8 |
|
1.5% Cnv 12 Mar 2022 |
NR/NR/NR |
167 |
|
Orange |
5.875% Perpetual |
Baa3/BBB–/BBB |
1,175 |
0.8 |
Nationwide |
5.75% FRN Perpetual |
Ba1/BB+/BB |
796 |
0.7 |
|
5.875% FRN Perpetual |
Ba1/BB+/BB |
369 |
|
William Hill |
4.75% 01 May 2026 |
Ba3/BB–/BB |
1,085 |
0.7 |
BP Capital |
4.25% FRN Perpetual |
A3/BBB/BBB |
1,024 |
0.7 |
Drax Finco |
4.25% 01 May 2022 (SNR) |
NR/BB+/BB |
934 |
0.6 |
Legal & General |
5.625% FRN Perpetual |
Baa3/BBB/BBB |
349 |
|
|
4.5% FRN Perpetual |
A3/BBB+/BBB |
308 |
0.6 |
|
5.5% 27 Jun 2064 FRN (SUB) |
A3/BBB+/BBB |
235 |
|
Scottish Widows |
5.5% 16 Jun 2023 |
Baa1/BBB+/BBB |
880 |
0.6 |
Lloyds Banking Group |
7.875% FRN Perpetual |
Baa3/BB–/BBB |
458 |
0.6 |
|
7.625% FRN Perpetual |
Baa3/BB–/BBB |
414 |
|
CPUK FINANCE |
4.25% 28 Feb 2047 (SNR) |
NR/B–/B |
514 |
0.5 |
|
6.5% 28 Aug 2050 (SNR) |
NR/B–/B |
330 |
|
Miller Homes |
5.5% 15 Oct 2023 (SNR) |
NR/BB–/BB |
644 |
0.5 |
|
FRN 15 Oct 2023 (SNR) |
NR/BB–/BB |
170 |
|
Sainsbury's |
6% FRN 23 Nov 2027 |
NR/NR/NR |
809 |
0.5 |
Bupa Finance |
5% 08 Dec 2026 |
Baa1/NR/BBB |
808 |
0.5 |
Enel |
6.625% FRN 15 Sep 2076 |
Ba1/BBB–/BBB |
795 |
0.5 |
OneSavings Bank |
9.125% FRN Perpetual |
NR/NR/NR |
652 |
0.4 |
Deutsche Bank |
7.125% Perpetual |
B1/B+/B |
640 |
0.4 |
Iron Mountain |
3.875% 15 Nov 2025 |
Ba3/BB–/BB |
605 |
0.4 |
Pinewood |
3.25% 30 Sep 2025 (SNR) |
NR/BB/BB |
597 |
0.4 |
AXA |
5.453% FRN Perpetual |
Baa1/BBB+/BBB |
567 |
0.4 |
Petroleos Mexicanos |
8.25% 02 Jun 2022 (SNR) |
Ba2/BBB/BB |
551 |
0.4 |
Jaguar Land Rover |
2.75% 24 Jan 2021 (SNR) |
B1/B/B |
490 |
0.3 |
La Financière ATALIAN |
6.625% 15 May 2025 (SNR) |
Caa2/B/CCC |
423 |
0.3 |
Hurricane Finance |
8% 15 Oct 2025 (SNR) |
B3/NR/B |
416 |
0.3 |
B&M |
3.625% 15 Jul 2025 (SNR) |
Ba3/BB–/BB |
400 |
0.3 |
Intesa |
5.148% 10 Jun 30 |
Ba1/BB+/BB |
330 |
0.2 |
Rothesay Life |
8% 30 Oct 2025 |
NR/NR/BBB |
310 |
0.2 |
Jupiter Fund Management |
8.875% 27 Jul 2030 |
NR/NR/BBB |
302 |
0.2 |
CYBG |
9.25% Perpetual |
Ba2u/B/BB |
279 |
0.2 |
Direct Line Insurance |
4% 05 Jun 2032 |
Baa1/NR/BBB |
220 |
0.2 |
John Lewis |
4.25% 18 Dec 2034 (SNR) |
NR/NR/NR |
176 |
0.1 |
Aroundtown |
4.75% FRN Perpetual (SUB) |
NR/BBB–/BBB |
170 |
0.1 |
|
|
|
49,153 |
32.4 |
US Dollar |
|
|
|
|
Altice |
SFR 7.375% 01 May 2026 |
B2/B/B |
2,511 |
2.0 |
|
7.5% 15 May 2026 |
B2/B/B |
515 |
|
NatWest |
2.62788% FRN Perpetual |
Ba2/BB–/BB |
1,472 |
|
|
8.625% FRN Perpetual |
Ba2u/B+/BB |
823 |
1.8 |
|
8% Cnv FRN Perpetual |
Ba2u/B+/BB |
427 |
|
AT&T |
4.65% 01 Jun 2044 (SNR) |
Baa2/BBB/BBB |
2,645 |
1.7 |
Dell Technologies |
6.1% 15 Jul 2027 (SNR) |
Baa3/BBB–/BBB |
1,829 |
1.7 |
|
6.2% 15 Jul 2030 (SNR) |
Baa3/BBB–/BBB |
811 |
|
Teva Pharmaceutical Finance |
6.75% 01 Mar 2028 (SNR) |
Ba2/BB–/BB |
1,584 |
1.7 |
|
7.125% 31 Jan 2025 (SNR) |
Ba2/BB–/BB |
1,028 |
|
Stora Enso |
7.25% 15 Apr 2036 |
Baa3/NR/BBB |
1,910 |
1.3 |
Lloyds Banking Group |
7.5% FRN Perpetual |
Baa3/BB–/BBB |
1,907 |
1.3 |
Ziggo Bond Finance |
6% 15 Jan 2027 (SNR) |
B3/B–/B |
1,590 |
1.2 |
|
4.875% 15 Jan 2030 (SNR) |
B1/B+/B |
263 |
|
Vodafone Group |
6.25% 03 Oct 2078 |
Ba1/BB+/BB |
1,167 |
1.2 |
|
7% FRN 04 Apr 2079 |
Ba1/BB+/BB |
667 |
|
Aker BP |
5.875% 31 Mar 2025 (SNR) |
Ba1/BBB–/BB |
1,610 |
1.1 |
Panther BF Aggregator |
8.5% 15 May 2027 (SNR) |
Caa1/CCC+/CCC |
1,527 |
1.0 |
Adient |
7% 15 May 2026 (SNR) |
Ba3/B+/B |
1,321 |
0.9 |
|
9% 15 Apr 2025 (SNR) |
Ba3/B+/B |
46 |
|
DKT Finance |
9.375% 17 Jun 2023 (SNR) |
Caa1/CCC+/CCC |
1,348 |
0.9 |
Neptune Energy |
6.625% 15 May 2025 (SNR) |
B1/BB–/BB |
1,313 |
0.9 |
BMW US Capital |
3.9% 09 Apr 2025 (SNR) |
A2/A/A |
1,298 |
0.9 |
Telecom Italia |
5.303% 30 May 2024 |
Ba1/BB+/BB |
1,255 |
0.8 |
Beazley |
5.875% 04 Nov 2026 |
NR/NR/BBB |
1,186 |
0.8 |
XPO Logistics |
6.5% 15 Jun 2022 (SNR) |
Ba3/BB–/BB |
621 |
0.8 |
|
6.25% 01 May 2025 (SNR) |
Ba3/BB–/BB |
564 |
|
Algeco Scotsman |
8% 15 Feb 2023 (SNR) |
B2/B–/B |
1,019 |
0.7 |
Marfrig Global Foods |
7% 15 Mar 2024 |
NR/BB–/BB |
976 |
0.6 |
Petra Diamonds |
7.25% 01 May 2022 (SNR) |
Ca/D/D |
647 |
0.6 |
|
7.25% 01 May 2022 (SNR) |
Ca/D/D |
272 |
|
Trinseo |
5.375% 01 Sep 2025 (SNR) |
B2/B/B |
904 |
0.6 |
Ford |
8.5% 21 Apr 2023 (SNR) |
Ba2/BB+/BB |
488 |
0.6 |
|
9% 22 Apr 2025 (SNR) |
Ba2/BB+/BB |
382 |
|
Goodyear Tire & Rubber |
9.5% 31 May 2025 (SNR) |
B2/B+/B |
840 |
0.6 |
IHO Verwaltungs |
6% 15 May 2027 (SNR) |
Ba2/BB–/BB |
807 |
0.5 |
Lamb Weston |
4.625% 01 Nov 2024 |
Ba2/BB+/BB |
801 |
0.5 |
Verizon Communications |
4.272% 15 Jan 2036 |
Baa1/BBB+/BBB |
800 |
0.5 |
Société Genérale |
7.375% 31 Dec 2065 |
Ba2/BB/BB |
792 |
0.5 |
Sigma Holdco |
7.875% 15 May 2026 (SNR) |
B3/B–/B |
789 |
0.5 |
VIVAT |
6.25% Perpetual |
NR/NR/BB |
779 |
0.5 |
Brink's |
4.625% 15 Oct 2027 |
Ba3/BB–/BB |
495 |
0.5 |
|
5.5% 15 Jul 2025 (SNR) |
Ba3/BB–/BB |
249 |
|
FAGE International |
5.625% 15 Aug 2026 (SNR) |
B2/B+/B |
741 |
0.5 |
General Motors |
6.8% 01 Oct 2027 (SNR) |
Baa3/BBB/BBB |
342 |
|
|
5.2% 20 Mar 2023 (SNR) |
Baa3/BBB/BBB |
219 |
0.5 |
|
5.4% 02 Oct 2023 (SNR) |
Baa3/BBB/BBB |
171 |
|
DNO ASA |
8.375% 29 May 2024 |
NR/NR/NR |
427 |
0.5 |
|
8.75% 31 May 2023 |
NR/NR/NR |
291 |
|
UBS |
7% FRN Perpetual |
NR/BB+/BB |
386 |
0.4 |
|
5% Perpetual |
Ba1u/BB/BB |
295 |
|
Ithaca Energy |
9.375% 15 Jul 2024 (SNR) |
B3/CCC/B |
655 |
0.4 |
Codere Finance |
7.625% 01 Nov 2021 (SNR) |
Caa3/CC/CCC |
649 |
0.4 |
Walnut Bidco |
9.125% 01 AUG 2024 (SNR) |
B1/B/B |
617 |
0.4 |
MHP |
6.95% 03 Apr 2026 (SNR) |
NR/B/B |
584 |
0.4 |
Barclays |
8% FRN Perpetual |
Ba2/B+/BB |
408 |
0.4 |
|
2.75% FRN Perpetual |
Ba1/BB+/BB |
135 |
|
Rothschilds Continuation
Finance |
FRN Perpetual |
NR/NR/NR |
540 |
0.4 |
Avis Budget Car Rental |
10.5% 15 May 2025 (SNR) |
Ba2/BB–/BB |
533 |
0.4 |
Stena |
7% 01 Feb 2024 (SNR) |
Caa1/B+/CCC |
526 |
0.3 |
Marb Bondco |
6.875% 19 Jan 2025 (SNR) |
NR/BB–/BB |
520 |
0.3 |
Motion Bondco |
6.625% 15 Nov 2027 (SNR) |
Caa1/CCC–/CCC |
482 |
0.3 |
CIRSA Finance |
7.875% 20 Dec 2023 |
B3/B–/B |
442 |
0.3 |
Diamond 1 |
5.45% 15 Jun 2023 |
Baa3/BBB–/BBB |
424 |
0.3 |
Petroleos Mexicanos |
6.95% 28 Jan 2060 (SNR) |
Ba2/BBB/BB |
212 |
0.2 |
|
6.75% 21 Sep 2047 (SNR) |
Ba2/BBB/BB |
206 |
|
Puma International |
5% 24 Jan 2026 |
B1/NR/B |
377 |
0.2 |
VTR Finance |
5.125% 15 Jan 2028 (SNR) |
Ba3/B+/BB |
178 |
0.2 |
|
6.375% 15 Jul 2028 (SNR) |
B1/B/B |
162 |
|
UniCredit International Bank |
8% FRN Perpetual |
NR/NR/B |
328 |
0.2 |
Owens-Brockway |
6.625% 13 May 2027 (SNR) |
B1/B/B |
308 |
0.2 |
Hertz |
7.625% 01 Jun 2022 |
NR/NR/NR |
307 |
0.2 |
Avantor Funding |
4.625% 15 Jul 2028 (SNR) |
B3/B/B |
306 |
0.2 |
Metinvest |
7.65% 01 Oct 2027 (SNR) |
NR/B/B |
302 |
0.2 |
Expedia |
6.25% 01 May 2025 (SNR) |
Baa3/BBB–/BBB |
177 |
0.2 |
|
7% 01 May 2025 (SNR) |
Baa3/BBB–/BBB |
93 |
|
CEMEX |
7.375% 05 Jun 2027 (SNR) |
NR/BB/BB |
235 |
0.2 |
PGH Capital |
5.375% 06 Jul 2027 |
NR/NR/BBB |
234 |
0.2 |
Millicom International Cellular |
5.125% 15 Jan 2028 |
Ba2/NR/BB |
233 |
0.2 |
Tesco |
6.15% 15 Nov 2037 (SNR) |
Baa3/BBB–/BBB |
233 |
0.2 |
Nyrstar |
0% 31 Jul 2026 (SNR) |
NR/NR/NR |
195 |
0.1 |
EG Global Finance |
8.5% 30 Oct 2025 (SNR) |
B2/B–/B |
161 |
0.1 |
Hanesbrands |
5.375% 15 May 2025 (SNR) |
Ba3/BB/BB |
161 |
0.1 |
Credit Suisse |
7.125% FRN Perpetual |
Ba2u/BB–/BB |
161 |
0.1 |
Turk Telekomunikas |
6.875% 28 Feb 2025 (SNR) |
NR/BB–/BB |
158 |
0.1 |
Marriott International |
5.75% 01 May 2025 (SNR) |
Baa3/BBB–/BBB |
126 |
0.1 |
Trafigura |
5.25% 19 Mar 2023 (SNR) |
NR/NR/NR |
105 |
0.1 |
Clarios |
6.75% 15 May 2025 (SNR) |
B1/B/B |
63 |
0.0 |
Yum Brands |
7.75% 01 Apr 2025 (SNR) |
B1/B+/B |
33 |
0.0 |
|
|
|
58,719 |
38.7 |
Total investments |
|
|
151,807 |
100.0 |
(1) Moody/Standard & Poor’s (S&P)/Equivalent
average rating.
BOND RATING ANALYSIS
AT 30 SEPTEMBER
Standard & Poor’s (S&P) ratings. Where a S&P rating
is not available, an equivalent average rating has been used.
Investment grade is BBB– and above.
For the definitions of these ratings see the Glossary of Terms
and Alternative Performance Measures on page 66.
|
2020 |
2019 |
|
% of |
Cumulative |
% of |
Cumulative |
RATING |
Portfolio |
Total % |
Portfolio |
Total % |
Investment Grade: |
|
|
|
|
A |
0.9 |
0.9 |
– |
– |
A– |
– |
0.9 |
1.8 |
1.8 |
BBB+ |
4.1 |
5.0 |
3.0 |
4.8 |
BBB |
9.7 |
14.7 |
9.8 |
14.6 |
BBB– |
10.1 |
24.8 |
6.5 |
21.1 |
Non-investment Grade: |
|
|
|
|
BB+ |
10.3 |
35.1 |
13.8 |
34.9 |
BB |
5.8 |
40.9 |
6.2 |
41.1 |
BB- |
15.0 |
55.9 |
13.0 |
54.1 |
B+ |
6.6 |
62.5 |
8.5 |
62.6 |
B |
15.9 |
78.4 |
16.9 |
79.5 |
B– |
6.5 |
84.9 |
8.5 |
88.0 |
CCC+ |
3.9 |
88.8 |
1.8 |
89.8 |
CCC |
1.8 |
90.6 |
1.4 |
91.2 |
CCC– |
1.4 |
92.0 |
0.5 |
91.7 |
CC |
1.6 |
93.6 |
– |
91.7 |
D |
0.6 |
94.2 |
0.1 |
91.8 |
NR (including equities) |
5.8 |
100.0 |
8.2 |
100.0 |
|
100.0 |
|
100.0 |
|
Summary of Analysis |
|
|
|
|
Investment Grade |
24.8 |
|
21.1 |
|
Non-investment Grade |
69.4 |
|
70.7 |
|
NR (including equities) |
5.8 |
|
8.2 |
|
|
100.0 |
|
100.0 |
|
DIRECTORS’ RESPONSIBILITIES
STATEMENT
in respect of the preparation of the annual financial report
The Directors are responsible for ensuring that the annual
financial report is prepared in accordance with applicable laws and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union (‘IFRSs’). The financial statements are required by
law to give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
International Accounting Standard 1 requires that financial
statements present fairly for each financial year the Company’s
financial position, financial performance and cash flows. This
requires the faithful representation of the effects of
transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting
Standards Board’s ‘Framework for the preparation and presentation
of financial statements’. In virtually all circumstances, a fair
presentation will be achieved by compliance with all applicable
IFRSs.
In preparing these financial statements, the Directors are
required to:
• properly select and apply accounting
policies and then apply them consistently;
• present information, including accounting
policies, in a manner that provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures when
compliance with specific requirements in IFRSs are insufficient to
enable users to understand the impact of particular transactions,
other events and conditions on the entity’s financial position and
financial performance; and
• make an assessment of the Company’s ability
to continue as a going concern.
The Directors confirm that they have complied with the above
requirements in preparing these financial statements.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and which enable them to ensure
that the financial statements comply with the Companies (Jersey)
Law 1991. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Corporate
Governance Statement and a Directors’ Report that comply with that
law and those regulations.
The Directors of the Company, each confirm to the best of their
knowledge that:
• the financial statements, which have been
prepared in accordance with applicable accounting standards, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company;
• this annual financial 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 it faces; and
• the annual report and accounts, 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.
Peter
Yates
Director
Signed on behalf of the Board of Directors
26 November 2020
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 SEPTEMBER
|
2020 |
2019 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
(Loss)/profit on investments held
at |
|
|
|
|
|
|
|
fair value |
11 |
– |
(3,894) |
(3,894) |
– |
5,548 |
5,548 |
Profit/(loss) on derivative |
|
|
|
|
|
|
|
instruments – currency
hedges |
|
– |
2,136 |
2,136 |
– |
(2,416) |
(2,416) |
Exchange differences |
|
– |
(684) |
(684) |
– |
(391) |
(391) |
Income |
4 |
8,876 |
– |
8,876 |
8,688 |
– |
8,688 |
Investment management and |
|
|
|
|
|
|
|
performance fees |
5 |
(466) |
(160) |
(626) |
(463) |
(463) |
(926) |
Other expenses |
6 |
(445) |
(5) |
(450) |
(320) |
(1) |
(321) |
Profit before finance costs and
taxation |
|
7,965 |
(2,607) |
5,358 |
7,905 |
2,277 |
10,182 |
Finance costs |
7 |
(81) |
(81) |
(162) |
(97) |
(97) |
(194) |
Profit before taxation |
|
7,884 |
(2,688) |
5,196 |
7,808 |
2,180 |
9,988 |
Tax on ordinary activities |
8 |
(16) |
– |
(16) |
– |
– |
– |
Profit after taxation |
|
7,868 |
(2,688) |
5,180 |
7,808 |
2,180 |
9,988 |
Return per ordinary
share |
9 |
4.54p |
(1.55)p |
2.99p |
4.69p |
1.31p |
6.00p |
The total column of this statement represents the Company’s
statement of comprehensive income, prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union. The profit after taxation is the total
comprehensive income. The supplementary revenue and capital columns
are both prepared in accordance with the Statement of Recommended
Practice issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations of
the Company. No operations were acquired or discontinued in the
year.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER
|
|
Share |
Share |
Capital |
Revenue |
|
|
|
Capital |
Premium |
Reserve |
Reserve |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
At 30 September 2018 |
|
8,250 |
151,560 |
(50,484) |
11,351 |
120,677 |
Total comprehensive income for the
year |
|
– |
– |
2,180 |
7,808 |
9,988 |
Dividends paid |
10 |
– |
(30) |
– |
(8,269) |
(8,299) |
Net proceeds from issue of new
shares |
|
253 |
3,538 |
– |
– |
3,791 |
At 30 September 2019 |
|
8,503 |
155,068 |
(48,304) |
10,890 |
126,157 |
Total comprehensive income for the
year |
|
– |
– |
(2,688) |
7,868 |
5,180 |
Dividends paid |
10 |
– |
(21) |
– |
(8,606) |
(8,627) |
Net proceeds from issue of new
shares |
|
220 |
3,060 |
– |
– |
3,280 |
At 30 September
2020 |
|
8,723 |
158,107 |
(50,992) |
10,152 |
125,990 |
BALANCE SHEET
AS AT 30 SEPTEMBER
|
|
2020 |
2019 |
|
Notes |
£’000 |
£’000 |
Non-current assets |
|
|
|
Investments held at fair
value through profit or loss |
11 |
151,807 |
144,528 |
Current assets |
|
|
|
Other receivables |
12 |
3,349 |
2,718 |
Derivative financial
instruments – unrealised net profit |
13 |
74 |
– |
Cash and cash
equivalents |
|
1,546 |
4,623 |
|
|
4,969 |
7,341 |
Total assets |
|
156,776 |
151,869 |
Current liabilities |
|
|
|
Other payables |
14 |
(1,616) |
(305) |
Derivative financial
instruments – unrealised net loss |
13 |
– |
(940) |
Securities sold under
agreements to repurchase |
|
(29,170) |
(24,161) |
|
|
(30,786) |
(25,406) |
Total assets less current
liabilities |
|
125,990 |
126,463 |
Provision |
15 |
– |
(306) |
Net assets |
|
125,990 |
126,157 |
Capital and reserves |
|
|
|
Share capital |
16 |
8,723 |
8,503 |
Share premium |
17 |
158,107 |
155,068 |
Capital reserve |
17 |
(50,992) |
(48,304) |
Revenue reserve |
17 |
10,152 |
10,890 |
Total shareholders’
funds |
|
125,990 |
126,157 |
Net asset value per ordinary
share |
18 |
72.21p |
74.18p |
The financial statements were approved and authorised for issue
by the Board of Directors on 26 November
2020.
Signed on behalf of the Board of Directors
Peter
Yates
Director
CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER
|
|
2020 |
2019 |
|
Notes |
£’000 |
£’000 |
Cash flow from
operating activities |
|
|
|
Profit before finance
costs and taxation |
|
5,358 |
10,182 |
Tax on overseas
income |
|
(16) |
– |
Adjustments for: |
|
|
|
Purchase of
investments |
|
(72,572) |
(44,749) |
Sale of
investments |
|
62,662 |
43,721 |
|
|
|
|
|
|
(9,910) |
(1,028) |
Increase from securities
sold under agreements to repurchase |
|
5,009 |
2,052 |
Loss/(profit) on
investments held at fair value |
|
3,894 |
(5,548) |
Net movement from
derivative instruments – currency hedges |
|
(1,014) |
1,233 |
Increase in
receivables |
|
(631) |
(328) |
Decrease in
payables |
|
(268) |
(13) |
Net cash inflow from
operating activities |
|
2,422 |
6,550 |
Cash flow from
financing activities |
|
|
|
Finance cost paid |
|
(152) |
(194) |
Net proceeds from issue
of new shares |
|
3,280 |
3,791 |
Dividends paid |
10 |
(8,627) |
(8,299) |
Net cash outflow from
financing activities |
|
(5,499) |
(4,702) |
Net
(decrease)/increase in cash and cash equivalents |
|
(3,077) |
1,848 |
Cash and cash
equivalents at start of the year |
|
4,623 |
2,775 |
Cash and cash
equivalents at the end of the year |
|
1,546 |
4,623 |
Reconciliation of
cash and cash equivalents to the Balance Sheet is as
follows: |
|
|
|
Cash held at
Custodian |
|
1,476 |
1,473 |
Invesco Liquidity Funds
plc – Sterling (formerly Short Term Investment Companies |
|
|
|
(Global
Series) plc) |
|
70 |
3,150 |
Cash and cash
equivalents |
|
1,546 |
4,623 |
Cash flow from
operating activities includes: |
|
|
|
Dividends received |
|
199 |
185 |
Interest received |
|
8,643 |
8,290 |
|
At |
|
At |
|
1
October 2019 |
Cash
Flows |
30
September 2020 |
|
£’000 |
£’000 |
£’000 |
Analysis of changes in net
debt: |
|
|
|
Cash and cash equivalents |
4,623 |
(3,077) |
1,546 |
Securities sold under agreements to
repurchase |
(24,161) |
(5,009) |
(29,170) |
Total |
(19,538) |
(8,086) |
(27,624) |
|
|
|
|
|
|
|
NOTES TO THE FINANCIAL STATEMENTS
1. Principal Activity
The Company is a closed-end investment company incorporated in
Jersey and it operates under the Companies (Jersey) Law 1991.
The Company was incorporated on 10
September 1999. The principal activity of the Company is
investment in a diversified portfolio of high yielding corporate
and government bonds and, to a lesser extent, equities and other
instruments as appropriate to its Investment Policy.
2. Principal
Accounting Policies
The principal accounting policies describe the Company’s
approach to recognising and measuring transactions during the year
and the position of the Company at the year end.
The principal accounting policies adopted in the preparation of
these financial statements are set out below. These policies have
been consistently applied during the current year and the preceding
year, unless otherwise stated. The financial statements have been
prepared on a going concern basis as noted below.
(a) Basis of
Preparation
(i) Accounting Standards
Applied
The financial statements have been prepared on an historical
cost basis, except for the measurement at fair value of investments
and derivatives, and in accordance with the applicable
International Financial Reporting Standards (IFRS) as adopted by
the European Union and interpretations issued by the International
Financial Reporting Interpretations Committee. The standards are
those endorsed by the European Union and effective at the date the
financial statements were approved by the Board.
Where presentational guidance set out in the Statement of
Recommended Practice (SORP) ‘Financial Statements of Investment
Trust Companies and Venture Capital Trusts’, issued by the
Association of Investment Companies in October 2019, is consistent with the requirements
of IFRS, the Directors have prepared the financial statements on a
basis compliant with the recommendations of the SORP. The
supplementary information which analyses the statement of
comprehensive income between items of a revenue and a capital
nature is presented in accordance with the SORP.
(ii)
Going Concern
The Directors have determined that the financial statements
should be prepared on a going concern basis as reported on
page 29. In reaching this conclusion, the Directors considered
the level of borrowings; cash balances; portfolio risk and
liquidity; and income forecasts. Accordingly, the financial
statements have been prepared on a going concern basis and the
Directors are satisfied that the Company has adequate resources to
continue in operational existence for at least twelve months after
signing the balance sheet.
(iii)
Adoption of New and Revised Standards
New and revised standards and interpretations that became
effective during the year had no significant impact on the amounts
reported in these financial statements but may impact accounting
for future transactions and arrangements.
At the date of authorising these financial statements, the
following standards and interpretations which have not been applied
in these financial statements were in issue but not yet effective
(and in some cases had not yet been adopted by the EU).
The following standards and amendments to existing standards
became effective during the year:
• IAS 1 and IAS 8 Amendments (effective
1 January 2020) – definition of
Material. The amendments to IAS 1, ’Presentation of Financial
Statements’, and IAS 8, ’Accounting Policies, Changes in Accounting
Estimates and Errors’, and consequential amendments to other IFRSs
require companies to:
(i) use a consistent
definition of materiality throughout IFRSs and the Conceptual
Framework for Financial Reporting;
(ii) clarify the explanation of
the definition of material; and
(iii) incorporate some of the guidance
of IAS 1 about immaterial information.
• IFRS 3 Amendment (effective 1 January 2020) – definition of a Business. This
amendment revises the definition of a business. To be considered a
business, an acquisition would have to include an input and a
substantive process that together significantly contribute to the
ability to create outputs.
• IFRS 9 and IFRS 7 Amendments (effective
1 January 2020) – Interest Rate
Benchmark Reform. These amendments provide certain reliefs in
connection with the interest rate benchmark reform.
• IAS 1, 8, 34, 37, 38 and IFRS 2, 3, 6, 14,
IFRIC 12, 19, 20, 22 and SIC 32 (effective 1
January 2020) – amendment to References to the Conceptual
Framework.
The Directors do not expect the adoption of above standards and
interpretations (or any other standards and interpretations which
are in issue but not effective) will have a material impact on the
financial statements of the Company in future periods.
(iv) Critical
Accounting Estimates and Judgements
The preparation of the financial statements may require the
Directors to make estimations where uncertainty exists. It also
requires the Directors to make judgements, estimates and
assumptions, in the process of applying the accounting policies.
There have been no significant judgements, estimates or assumptions
for the current or preceding year, except for the allocation of
management fee and finance costs (see note 2(h)).
(b) Foreign Currency
(i) Functional and Presentation
Currency
The financial statements are presented in sterling, which is the
Company’s functional and presentation currency and is the currency
in which the Company’s share capital and the predominant currency
in which the Company’s shares are traded.
(ii)
Transactions and Balances
Transactions in foreign currency, whether of a revenue or
capital nature, are translated to sterling at the rate of exchange
ruling on the date of such transactions. Foreign currency assets
and liabilities are translated to sterling at the rates of exchange
ruling at the balance sheet date. Any profits or losses, whether
realised or unrealised, are taken to the capital reserve or to the
revenue reserve, depending on whether the gain or loss is of a
capital or revenue nature. All profits and losses are recognised in
the statement of comprehensive income.
(c) Financial
Instruments
(i) Recognition of Financial
Assets and Financial Liabilities
The Company recognises financial assets and financial
liabilities when the Company becomes a party to the contractual
provisions of the instrument. The Company will offset financial
assets and financial liabilities if the Company has a legally
enforceable right to set off the recognised amounts and interests
and intends to settle on a net basis.
(ii)
Derecognition of Financial Assets
The Company derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
right to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards
of ownership of the financial asset are transferred. Any interest
in the transferred financial asset that is created or retained by
the Company is recognised as an asset.
(iii)
Derecognition of Financial Liabilities
The Company derecognises financial liabilities when its
obligations are discharged, cancelled or expired.
(iv) Trade
Date Accounting
Purchases and sales of financial assets are recognised on trade
date, being the date on which the Company commits to purchase or
sell the assets.
(v)
Classification of financial assets and financial liabilities
Financial
assets
The Company’s investments are classified as held at fair value
through profit or loss.
Financial assets held at fair value through profit or loss are
initially recognised at fair value, which is taken to be their
cost, with transaction costs expensed in the statement of
comprehensive income, and are subsequently valued at fair
value.
Fair value for investments that are actively traded in organised
financial markets is determined by reference to stock exchange
quoted bid prices at the balance sheet date. For investments that
are not actively traded or where active stock exchange quoted bid
prices are not available, fair value is determined by reference to
a variety of valuation techniques including broker quotes and price
modelling.
Other receivables that have fixed or determinable payments that
are not quoted in an active market are classified as ‘loans and
receivables’. Loans and receivables are measured at amortised cost
using effective interest method less any impairment/expected credit
losses.
Financial
liabilities
Financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective
interest method.
The effective interest method is a method of calculating the
amortised cost of a financial asset or financial liability and of
allocating interest income or expense over the relevant period.
(d) Derivatives
Changes in the fair value of derivative financial instruments
are recognised in the Statement of Comprehensive Income as they
arise. If capital in nature, the associated change in value is
presented as a capital item in the Statement of Comprehensive
Income.
Derivative instruments are valued at fair value in the balance
sheet.
Forward currency contracts are valued at the appropriate forward
exchange rate ruling at the balance sheet date. Profits or losses
on the closure or revaluation of positions are recognised as
capital in the statement of comprehensive income.
(e) Cash and Cash
Equivalents
Cash and cash equivalents comprise cash at bank, short-term
deposits and investment in Invesco Liquidity Funds plc – Sterling
(formerly Short-Term Investments Company (Global Series) plc), all
with an original maturity date of three months or less.
(f) Securities Sold
Under Agreements to Repurchase (‘repo financing’)
The Company participates in repo financing arrangements in
connection with its investment portfolio. Under these arrangements,
the Company sells fixed interest securities but is contractually
obliged to repurchase them at a fixed price on a fixed date.
Securities which are the subject of repo financing
arrangements are included in investments in the balance sheet at
their fair value and the associated liability is recognised at
amortised cost, being the capital amounts owing under the repo
financing arrangements. The difference between sale and repurchase
prices for such transactions is reflected in the statement of
comprehensive income over the lives of the transactions, within
finance costs which is allocated equally between capital and
revenue. This accounting has been adopted because the repurchase
price results in a lender‘s return for the transferee as the
Company has retained substantially all the risks and rewards of
ownership of the asset.
(g) Revenue Recognition
Interest income arises from cash and cash equivalents and fixed
income securities and is recognised in the statement of
comprehensive income using the effective interest method. Dividend
income arises from equity investments held and is recognised on the
date investments are marked ‘ex-dividend’. Where the Company elects
to receive dividends in the form of additional shares rather than
cash, the equivalent to the cash dividend is recognised as income
in revenue and any excess in value of the shares received over this
is recognised in capital.
(h) Expenses and Finance
Costs
All expenses and finance costs are accounted for on an accruals
basis and are recognised in the statement of comprehensive income.
The base investment management fee and finance costs are allocated
equally to capital and revenue. This is in accordance with the
Board’s expected long-term split of returns, in the form of capital
gains and income respectively, from the investment portfolio. All
other expenses, except for Custodian dealing costs, are charged
through revenue in the statement of comprehensive income.
(i) Taxation
Overseas interest and dividends are shown gross of withholding
tax and the corresponding irrecoverable tax is shown as a charge in
the statement of comprehensive income.
3. Segmental
Reporting
No segmental reporting is provided as the Directors are of the
opinion that the Company is engaged in a single segment of business
of investing in debt, and, to a significantly lesser extent equity
securities.
4. Income
This note shows the income generated from the portfolio
(investment assets) of the Company and income received from any
other source.
|
2020 |
2019 |
|
£’000 |
£’000 |
Income from investments: |
|
|
UK bond interest |
3,402 |
3,540 |
UK dividends |
170 |
170 |
Overseas bond interest |
5,263 |
4,954 |
Overseas dividends |
35 |
15 |
|
8,870 |
8,679 |
Other income: |
|
|
Deposit interest |
6 |
8 |
Other |
– |
1 |
|
6 |
9 |
Total income |
8,876 |
8,688 |
5. Investment
Management Fee
This note shows the fees paid to the Manager. This is made up of
the base management fee payable per annum.
|
2020 |
2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Investment management fee |
466 |
466 |
932 |
463 |
463 |
926 |
Performance fee |
– |
(306) |
(306) |
– |
– |
– |
|
466 |
160 |
626 |
463 |
463 |
926 |
Details of the investment management agreement are given on page
31 in the Directors’ Report.
At 30 September 2020, £240,000
(2019: £241,000) was accrued in respect of the investment
management fee.
The deferred performance fee of £306,000 earned for the year to
30 September 2017, was written-back
in the current year, details are given in note 15.
6. Other
Expenses
The other expenses of the Company are presented below; those
paid to the Directors and the Auditor are separately
identified.
|
2020 |
2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Directors’ remuneration(i) |
137 |
– |
137 |
119 |
– |
119 |
Auditors’ fees(ii): |
|
|
|
|
|
|
- for audit of the Company's
annual |
|
|
|
|
|
|
financial
statements |
34 |
– |
34 |
30 |
– |
30 |
General expenses(iii) |
274 |
5 |
279 |
171 |
1 |
172 |
|
445 |
5 |
450 |
320 |
1 |
321 |
(i) The Director’s Remuneration Report
provides further information on Directors’ fees.
(ii) Auditor’s fees include out of pocket
expenses.
(iii) General expenses include:
• Custodian transaction charges of £5,400
(2019: £1,000). These are charged to capital.
• amounts due to JTC Fund Solutions (Jersey)
Limited (previously: R&H Fund Services (Jersey) Limited) who
acted as Administrator and Company Secretary to the Company under
an agreement starting from 10 December
2019. The fee is calculated at the rate of £70,000 per annum
for company secretarial and Administration Services.
• £73,000 (2019: £nil) premium payable on
Credit Default Swaps.
7. Finance Costs
Finance costs arise on any borrowing
that the Company has, with the main borrowing being in the form of
repo financing (see note 2(f)).
|
2020 |
2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Interest due under repo
financing |
75 |
75 |
150 |
96 |
96 |
192 |
Overdraft interest |
6 |
6 |
12 |
1 |
1 |
2 |
|
81 |
81 |
162 |
97 |
97 |
194 |
8. Taxation
As a Jersey investment company no tax is payable on capital
gains and, as the Company principally invests in assets which do
not result in a revenue tax, the only overseas tax arises on assets
domiciled in countries with which Jersey has no double-taxation
treaty.
|
2020 |
2019 |
|
£’000 |
£’000 |
Overseas taxation |
16 |
– |
The Company is subject to Jersey income tax at the rate of 0%
(2019: 0%). The overseas tax charge consists of irrecoverable
withholding tax suffered.
9. Return per
Ordinary Share
Return per share is the amount of profit (or loss) generated for
the financial year divided by the weighted average number of
ordinary shares in issue.
The basic revenue, capital and total return per ordinary share
is based on each of the returns on ordinary activities after
taxation and on 173,132,358 (2019: 166,398,417) ordinary shares,
being the weighted average number of ordinary shares in issue
throughout the year.
10. Dividends on Ordinary
Shares
Dividends represent the return of income less expenses to
shareholders. Dividends are paid as an amount per ordinary share
held.
|
2020 |
2019 |
|
Pence |
£’000 |
Pence |
£’000 |
Dividends paid and recognised in the
year: |
|
|
|
|
Fourth interim from
prior year |
1.25 |
2,126 |
1.25 |
2,062 |
First interim |
1.25 |
2,147 |
1.25 |
2,062 |
Second interim |
1.25 |
2,173 |
1.25 |
2,062 |
Third interim |
1.25 |
2,181 |
1.25 |
2,113 |
|
5.00 |
8,627 |
5.00 |
8,299 |
Set out below are the dividends that have been declared in
respect of the financial years ended 30 September:
|
2020 |
2019 |
|
Pence |
£’000 |
Pence |
£’000 |
Dividends in respect of the
year: |
|
|
|
|
First interim |
1.25 |
2,147 |
1.25 |
2,062 |
Second interim |
1.25 |
2,173 |
1.25 |
2,062 |
Third interim |
1.25 |
2,181 |
1.25 |
2,113 |
Fourth interim |
1.25 |
2,181 |
1.25 |
2,126 |
|
5.00 |
8,682 |
5.00 |
8,363 |
Dividends paid in respect of the year have been charged to
revenue except for £21,000 (2019: £30,000) which was charged to
share premium. This amount is equivalent to the income accrued on
the new shares issued in the year. This income accrued represented
the income element of the net asset value at the time of each
individual new share issue.
The fourth interim dividend for 2020 was paid on 30 October 2020 to shareholders on the register
on 2 October 2020.
11. Investments Held at
Fair Value Through Profit and Loss
The portfolio is made up of investments which are traded on
regulated exchanges. Gains and losses are either:
• realised, usually arising when
investments are sold; or
• unrealised, being the difference
from cost on the investments held at the year end.
(a) Analysis of
investments:
|
2020 |
2019 |
|
£’000 |
£’000 |
Investments listed on a recognised
investment exchange |
151,807 |
144,528 |
(b) Analysis of investment
(loss)/profit in the year
|
2020 |
2019 |
|
UK |
Overseas |
|
UK |
Overseas |
|
|
listed |
listed |
Total |
listed |
listed |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Opening valuation |
61,292 |
83,236 |
144,528 |
63,787 |
76,125 |
139,912 |
Movements in year: |
|
|
|
|
|
|
Purchases at cost |
19,267 |
54,568 |
73,835 |
17,270 |
25,519 |
42,789 |
Sales – proceeds |
(30,382) |
(32,280) |
(62,662) |
(20,409) |
(23,312) |
(43,721) |
(Loss)/profit on investments in the
year |
(1,024) |
(2,870) |
(3,894) |
644 |
4,904 |
5,548 |
Closing valuation |
49,153 |
102,654 |
151,807 |
61,292 |
83,236 |
144,528 |
Closing book cost |
46,999 |
96,560 |
143,559 |
59,297 |
74,913 |
134,210 |
Closing investment holding
profit |
2,154 |
6,094 |
8,248 |
1,995 |
8,323 |
10,318 |
Closing valuation |
49,153 |
102,654 |
151,807 |
61,292 |
83,236 |
144,528 |
The Company received £62,662,000 (2019: £43,721,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £64,486,000 (2019: £41,077,000)
realising a loss of £1,824,000 (2019: profit £2,644,000). These
investments have been revalued over time and until they were sold
any unrealised profits/losses were included in the fair value of
the investments.
(c) Registration of
investments
The investments of the Company are registered in the name of the
Company or in the name of nominees and held to the account of the
Company. Securities transferred under repo financing arrangements
are registered in the name of the counterparty until these are
repurchased by the Company, when these are re-registered in the
name of the Company.
(d) Securities under agreements to repurchase had a
market value of £37,341,000 (2019: £29,850,000).
(e) The transaction costs on investments amount to
£nil for both purchases and sales (2019: £nil for both purchases
and sales).
12. Other Receivables
Other receivables are amounts which
are due to the Company, such as income which has been earned
(accrued) but not yet received and monies due from brokers for
investments sold.
|
2020 |
2019 |
|
£’000 |
£’000 |
Amounts due from brokers |
582 |
– |
Margin held at brokers |
224 |
189 |
Prepayments and accrued income |
2,543 |
2,529 |
|
3,349 |
2,718 |
13. Derivative Financial
Instruments
Derivative financial instruments are
financial instruments that derive their value from the performance
of another item, such as an asset or exchange rates. They are used
to manage the risk associated with fluctuations in the value of
certain assets and liabilities. In accordance with Board approved
policies, the Company can use derivatives to manage its exposure to
fluctuations in foreign exchange rates.
Derivative financial instruments comprise forward currency
contracts.
|
2020 |
2019 |
|
£’000 |
£’000 |
Forward currency contracts – net
unrealised profit/(loss) |
74 |
(940) |
14. Other Payables
Other payables are amounts which must be paid by the Company,
and include any amounts due to brokers for the purchase of
investments or amounts owed to suppliers, such as the Manager and
Auditor.
|
2020 |
2019 |
|
£’000 |
£’000 |
Amounts due to brokers |
1,263 |
– |
Accruals |
353 |
305 |
|
1,616 |
305 |
15. Provision
The Company makes a provision when a
potential obligation exists, relating to events in the future that
will probably result in payment of the amount.
|
2020 |
2019 |
|
£’000 |
£’000 |
Provision for performance fee
brought forward |
306 |
306 |
Performance fee provision
written-back in the year |
(306) |
– |
Provision for performance fee
carried forward |
– |
306 |
Performance fee arrangements have been removed with effect from
1 October 2017. The deferred
performance fee, earned for the year to 30
September 2017, was written back in the current year as the
conditions required for the payment to occur, were not met in in
each of the three years since 30 September
2017.
16. Share Capital
Dividends represent the return of income less expenses to
shareholders. Dividends are paid as an amount per ordinary share
held.
|
2020 |
2019 |
|
Number |
£’000 |
Number |
£’000 |
Authorised: |
|
|
|
|
Ordinary shares of 5p
each |
200,000,000 |
10,000 |
200,000,000 |
10,000 |
Allotted, called-up and fully
paid |
|
|
|
|
ordinary shares of 5p
each: |
|
|
|
|
Brought forward |
170,069,855 |
8,503 |
164,994,855 |
8,250 |
Issued in the year |
4,400,000 |
220 |
5,075,000 |
253 |
Carried forward |
174,469,855 |
8,723 |
170,069,855 |
8,503 |
During the year 4,400,000 (2019: 5,075,000) ordinary shares were
issued at an average share price excluding costs of 74.84p per
share (2019: 75.02p).
Subsequent to the year end no ordinary shares were issued.
17. Reserves
This note explains the different reserves that have arisen over
the years. The aggregate of the reserves and share capital (see
previous note) make up total shareholders’ funds.
The share premium arises from the excess of consideration
received on the issue of shares over the nominal 5p value. The
capital reserve includes investment holding profits and losses
(being the difference between cost and market value at the balance
sheet date), realised profits and losses on disposals of
investments, profits and losses on derivatives and expenses
allocated to capital. The revenue reserve is formed from the
aggregate of income received less expenses and any dividends paid
from revenue. All reserves, including the share premium, are
distributable.
18. Net Asset Value per
Share
The Company’s total net assets (total assets less total
liabilities) are often termed shareholders’ funds and are converted
into net asset value per ordinary share by dividing by the number
of shares in issue.
The net asset value per share and the net asset values
attributable at the year end were as follows:
|
Net
asset value |
Net
assets |
|
per
ordinary share |
attributable |
|
2020 |
2019 |
2020 |
2019 |
|
Pence |
Pence |
£’000 |
£’000 |
Ordinary shares |
72.21 |
74.18 |
125,990 |
126,157 |
Net asset value per ordinary share is based on net assets at the
year end and on 174,469,855 (2019: 170,069,855) ordinary shares,
being the number of ordinary shares in issue (excluding treasury)
at the year end.
19. Financial
Instruments
Financial instruments comprise the
Company’s investment portfolio and derivative financial instruments
(for the latter see note 13) as well as its cash, borrowings (i.e.
securities sold under agreements to repurchase otherwise known as
‘repo financing’, and overdraft), other receivables and other
payables.
The Company’s financial instruments comprise its investment
portfolio (as shown on pages 17 to 21), cash, securities sold under
agreements to repurchase (repo financing), derivative financial
instruments, other receivables and other payables that arise
directly from its operations such as sales and purchases awaiting
settlement and accrued income. The accounting policies in
note 2 include criteria for the recognition and the basis of
measurement applied for financial instruments. Note 2 also includes
the basis on which income and expenses arising from financial
assets and liabilities are recognised and measured.
The principal risks that an investment company faces in its
portfolio management activities are set out below:
Market risk – arising from fluctuations in the
fair value or future cash flows of a financial instrument because
of changes in market prices. Market risk comprises three types of
risk: currency risk, interest rate risk and other price risk:
Currency risk – arising from fluctuations in the
fair value or future cash flows of a financial instrument because
of changes in foreign exchange rates;
Interest rate risk – arising from fluctuations in
the fair value or future cash flows of a financial instrument
because of changes in market interest rates; and
Other price risk – arising from fluctuations in
the fair value or future cash flows of a financial instrument for
reasons other than changes in foreign exchange rates or market
interest rates.
Liquidity risk – arising from any difficulty in
meeting obligations associated with financial liabilities.
Credit risk – arising from financial loss for a
company where the other party to a financial instrument fails to
discharge an obligation.
Risk Management Policies and
Procedures
The Directors have delegated to the Manager the responsibility
for the day-to-day investment activities, management of borrowings
and hedging undertaken by the Company as more fully described in
the Directors’ Report.
Investments include, but are not restricted to, corporate bonds,
government bonds, preference shares, loan stocks and equities for
the long-term so as to comply with its Investment Policy
(incorporating the Company’s investment objective). In pursuing its
investment objective, the Company is exposed to a variety of risks
that could result in either a reduction in the Company’s net assets
or a reduction of the profits available for dividends. The risks
applicable to the Company and the policies the Company uses to
manage these risks for the two years under review are detailed
overleaf.
Market Risk
The Manager assesses the exposure to market risk when making
each investment decision, and monitors the overall level of market
risk on the whole of the portfolio on an ongoing basis. Risk
management is an integral part of the investment management
process. The Manager controls risk by ensuring that the Company’s
investment portfolio is appropriately diversified. In-depth and
continual analysis of market and stock fundamentals give the
Manager the best possible understanding of the risks associated
with a particular stock.
As more fully described in the Business Review on page 14,
high-yield corporate bonds are subject to a variety of risks.
A majority of the Company’s investments are in non-investment grade
securities and so adverse changes in the financial position of an
issuer of corporate bonds or in the general economy may affect both
the principal and the interest.
(a)
Currency Risk
The sterling value of the Company’s assets, liabilities and
income which are denominated in currencies other than sterling will
be affected by movements in exchange rates.
Management of the currency risk
The Manager monitors the Company’s exposure to foreign
currencies on a daily basis and reports to the Board on a regular
basis. The Company uses both forward currency contracts and repo
financing to mitigate currency movements that would affect the
investment portfolio and cash.
Repo financing is matched to the currency of the underlying
assets, which minimises currency risk on the movement of exchange
rates affecting the underlying investments. Non-sterling
investments that are not pledged under repo financing can be hedged
using forward currency contracts.
Income denominated in foreign currencies is converted to
sterling on receipt. The Company does not use financial instruments
to mitigate the currency exposure in the period between the time
that income is included in the financial statements and its
receipt.
Currency exposure
The fair values of the Company’s monetary items that have
foreign currency exposure at 30 September are shown in the table
below. Where the Company’s investments (which are not monetary
items) are priced in a foreign currency, they have been included
separately in the analysis so as to show the overall level of
exposure.
|
2020 |
2019 |
|
|
US |
|
US |
|
Euro |
Dollar |
Euro |
Dollar |
|
£’000 |
£’000 |
£’000 |
£’000 |
Investments at fair value
through |
|
|
|
|
profit or loss that are
monetary items |
|
|
|
|
(fixed and floating
interest) |
43,401 |
58,719 |
29,655 |
53,419 |
Forward currency contracts |
(25,885) |
(51,860) |
(10,159) |
(46,297) |
Other receivables (due from
brokers |
|
|
|
|
and dividends) |
812 |
1,160 |
797 |
885 |
Cash and cash equivalents |
466 |
849 |
176 |
496 |
Other payables (due to brokers
and |
|
|
|
|
accruals) |
(956) |
(315) |
— |
— |
Securities sold under agreement |
|
|
|
|
to repurchase |
(10,786) |
(6,090) |
(13,343) |
— |
Foreign currency exposure on
net |
|
|
|
|
monetary items |
7,052 |
2,463 |
7,126 |
8,503 |
Investments at fair value through
profit |
|
|
|
|
or loss |
534 |
– |
162 |
— |
Total net foreign currency |
7,586 |
2,463 |
7,288 |
8,503 |
Cash and cash equivalent figures include amounts at Custodian
that have a right of offset. Sterling cash at the year end was
£231,000 (2019: £3,951,000).
Currency sensitivity
The following tables illustrate the sensitivity of the profit
after taxation for the year with respect to the Company’s monetary
financial assets and liabilities and each of the exchange rates for
£ to Euro and £ to US dollar based on the following:
|
2020 |
2019 |
|
% |
% |
£/Euro |
±2.9% |
±2.0% |
£/US dollar |
±2.7% |
±2.5% |
The above percentages have been determined based on the market
volatility in exchange rates in the year. The sensitivity analysis
is based on the Company’s monetary foreign currency financial
instruments held at each balance sheet date and takes account of
any forward foreign exchange contracts that offset the effects of
changes in currency exchange rates. The effect of the strengthening
or weakening of sterling against currencies to which the Company is
exposed is calculated by reference to the volatility of exchange
rates during the year using the standard deviation of currency
fluctuations against the mean.
If sterling had strengthened by the changes in exchange rates
shown in the table above, this would have had the following
effect:
|
|
2020 |
|
2019 |
|
|
US |
|
US |
|
Euro |
Dollar |
Euro |
Dollar |
|
£’000 |
£’000 |
£’000 |
£’000 |
Income statement – loss after
taxation |
|
|
|
|
Revenue return |
(60) |
(92) |
(34) |
(80) |
Capital return |
(196) |
(35) |
(129) |
(190) |
Total loss after
taxation for the year |
(256) |
(127) |
(163) |
(270) |
If sterling had weakened against the euro or dollar to this
extent, the effect would have been the converse.
In the opinion of the Directors, this sensitivity analysis is
not representative of the year as a whole, since the level of
exposure changes frequently as part of the currency risk management
process of the Company.
(b)
Interest Rate Risk
Interest rate movements may affect:
• the fair value of the investments in fixed
interest rate securities;
• the level of income receivable on cash
deposits; and
• the interest payable on variable rate
borrowings.
Management of
interest rate risk
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment decisions and borrowings. The Board
reviews on a regular basis the investment portfolio and borrowings.
This encompasses the valuation of fixed interest, floating rate
securities and gearing levels. When the Company has Custodian cash
or overdraft balances, they are held on variable rate bank accounts
yielding rates of interest dependent on the base rate of the
Custodian, The Bank of New York Mellon (International) Limited.
Holdings in the Invesco Liquidity Funds plc – Sterling (“STIC”)
(formerly Short Term Investment Companies (Global Series) plc) are
subject to interest rate changes.
Interest rate
exposure
At 30 September the exposure of financial assets and financial
liabilities to interest rate risk is shown by reference to:
• floating interest rates (giving cash flow
interest rate risk) – when the interest rate is due to be reset;
and
• fixed interest rates (giving fair value
interest rate risk) – when the financial instrument is due for
repayment.
|
2020 |
2019 |
|
Within |
More |
|
Within |
More |
|
|
one |
than |
|
one |
than |
|
|
year |
one
year |
Total |
year |
one year |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Exposure to floating |
|
|
|
|
|
|
interest rates: |
|
|
|
|
|
|
Investments held at fair value |
|
|
|
|
|
|
through profit or
loss |
355 |
44,844 |
45,199 |
— |
38,740 |
38,740 |
Cash and cash equivalents* |
1,546 |
– |
1,546 |
4,623 |
— |
4,623 |
|
1,901 |
44,844 |
46,745 |
4,623 |
38,740 |
43,363 |
Exposure to fixed interest
rates: |
|
|
|
|
|
|
Investments held at fair |
|
|
|
|
|
|
value through profit or
loss |
2,890 |
103,184 |
106,074 |
1,643 |
102,339 |
103,982 |
Securities sold under |
|
|
|
|
|
|
agreements to
repurchase |
(29,170) |
– |
(29,170) |
(24,161) |
— |
(24,161) |
|
(26,280) |
103,184 |
76,904 |
(22,518) |
102,339 |
79,821 |
Net exposure to interest rates |
(24,379) |
148,028 |
123,649 |
(17,895) |
141,079 |
123,184 |
|
|
|
|
|
|
|
|
*Includes £70,000 (2019: £3,150,000) held on STIC.
The nominal interest rates on investments at fair value through
profit or loss are shown in the portfolio statement on
pages 17 to 21. The weighted average effective interest
rate on these investments is 6.0% (2019: 6.3%).
Interest rate
sensitivity
The following table illustrates the sensitivity of the profit
after taxation for the year to a 1.0% increase in interest rates in
regard to the Company’s financial assets and financial liabilities.
This level of change is considered to be reasonably possible based
on the observation of current market conditions. The sensitivity
analysis is based on the Company’s financial instruments held at
the balance sheet date, with all other variables held constant.
|
2020 |
2019 |
|
Increase |
Increase |
|
in rate |
in rate |
|
£’000 |
£’000 |
Income statement – profit/(loss)
after taxation |
|
|
Revenue return |
15 |
46 |
Capital return |
(6,353) |
(5,609) |
Total loss after taxation for the
year |
(6,338) |
(5,563) |
Effect on NAV |
(3.6)p |
(3.3)p |
The effect would have been the exact opposite if interest rates
had decreased by the same amount.
The above exposure and sensitivity analysis are not
representative of the year as a whole, since the level of exposure
changes frequently as borrowings are drawn down and repaid
throughout the year.
(c)
Other Price Risk
Other price risk (i.e. changes in market prices other than those
arising from interest rate risk or currency risk) may affect the
value of the portfolio. It is the business of the Manager to manage
the portfolio and borrowings to achieve the best returns.
Management of
other price risk
The Directors manage the market price risks inherent in the
portfolio by meeting regularly to monitor, on a formal basis, the
Manager’s compliance with the Company’s stated Investment Policy
and to review investment performance.
The Company’s portfolio is the result of the Manager’s
investment process and the result is not correlated with the market
in which the Company invests, with the value of the portfolio
moving as a result of the performance of the company shares held in
the portfolio. The Company can hedge part of its portfolio
denominated in foreign currency by using repo financing
arrangements in the same foreign currency. It can also hold
derivative positions in options and futures to hedge movements in
the stocks in which the Company’s portfolio has an exposure.
The Company’s exposure to other changes in market prices at 30
September on its quoted equity investments and fixed interest
investments was as follows:
|
2020 |
2019 |
|
£’000 |
£’000 |
Bonds |
151,273 |
142,722 |
Equity* – convertible preference
share and common stock |
534 |
1,806 |
Investments |
151,807 |
144,528 |
Cash and cash equivalents |
1,546 |
4,623 |
|
153,353 |
149,151 |
*Equity comprised of Yew Grove REIT ordinary shares of £534,000.
For the previous year, Balfour Beatty 10.75p Convertible Preference
of £1,644,000 and CGG ordinary shares of £162,000.
Concentration of
exposure to other price risks
The Company’s investment portfolio on pages 17 to 21 is not
concentrated to any single country of domicile, however, it is
recognised that an investment’s country of domicile or listing does
not necessarily equate to its exposure to the economic conditions
in that country.
Other price risk
sensitivity
At the year end, the Company held equity investments of £534,000
(2019: £1,806,000). The effect of a 10% increase or decrease in the
fair values (including equity exposure through derivatives) on the
profit after taxation for the year is £53,000 (2019: £181,000).
This level of change is considered to be reasonably possible based
on the observation of current market conditions. The sensitivity
analysis is based on the Company’s equities and equity exposure
through derivatives at the balance sheet date with all other
variables held constant.
Liquidity Risk
This is the risk that the Company may encounter in realising
assets or raising/replacing repo financing to meet financial
commitments. A lack of liquidity in corporate bonds may make
it difficult for the Company to sell its bonds at or near their
purported value compounding the liquidity pressure caused by the
requirement to roll repo financing at repo maturity dates.
Management of
Liquidity Risk
The Manager, as part of the ongoing management of the Company,
ascertains the Company’s cash requirements taking account of the
asset purchases and sales, income receivable from investments,
running expenses and dividend payments as well as the ongoing
borrowing requirements of the Company arising from repo financing.
The Manager reviews the repo financing of the Company on a daily
basis, with a view to new repo agreements ending at a quarter end,
and rolling of existing repo agreements on a quarterly time basis.
If any shortfalls could not be met by repo financing, the Manager
could potentially realise the more liquid corporate bonds in the
portfolio, taking into account the effect of this on performance as
well as the objectives of the Company.
Further details can be found in the ‘Gearing Policy’ section on
page 12 in the Business Review, which also discusses the risks
arising from repo financing and gearing of the investment
portfolio.
Liquidity Risk
Exposure
The contractual maturities of the financial liabilities at 30
September, based on the earliest date on which payment can be
required, was as follows:
|
2020 |
2019 |
|
Less |
More |
|
Less |
More |
|
|
than |
than |
|
than |
than |
|
|
three |
one |
|
three |
one |
|
|
months |
year |
total |
months |
year |
total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Other payables (note 14) |
1,616 |
– |
1,616 |
305 |
— |
305 |
Unrealised loss on forward
currency |
|
|
|
|
|
|
contracts (note 13) |
– |
– |
– |
940 |
— |
940 |
Performance fee provision (note
15) |
– |
– |
– |
— |
306 |
306 |
Securities sold under agreements
to |
|
|
|
|
|
|
repurchase |
29,170 |
– |
29,170 |
24,161 |
— |
24,161 |
|
30,786 |
– |
30,786 |
25,406 |
306 |
25,712 |
Credit Risk
The Company’s principal credit risk is the risk of default on
the non-investment grade debt. The Company’s other main credit risk
arises from the repo financing arrangements whereby, if a
counterparty failed to sell the required assets to the Company on
the repurchase date, the Company would be left with the claim
against the defaulting counterparty for the stock and, if
applicable, any margin held by the counterparty and not
returned.
Credit risk also encompasses the failure by counterparties to
deliver securities which the Company has paid for, or to pay for
securities which the Company has delivered. This risk also includes
transactions involving derivatives.
The portfolio may be adversely affected if the Custodian of the
Company’s assets suffers insolvency or other financial
difficulties. The portfolio in this instance covers both
investments and any cash held at the Custodian.
Exposure to and
Management of Credit Risk
The Company’s portfolio of investments on pages 17 to 21 shows
the Moody’s and Standard & Poor’s ratings and an analysis of
this is also shown by the graph on page 6. Where the Manager makes
an investment in a bond, corporate or otherwise, the credit rating
of the issuer is taken into account to manage the Company’s
exposure to risk of default. Investments in bonds are across a
variety of industrial sectors and geographical markets, to avoid
concentration of credit risk.
The Company manages the credit risk inherent in repo financing
by only dealing with good quality counterparties whose
credit-standing is reviewed periodically by the Manager. There is a
maximum limit allowed with any one counterparty, and have a
maturity tenor of three months or less. The Company has exposure to
credit risk on securities pledged under repo financing held, with
four counterparties, as follows:
|
2020 |
2019 |
|
|
|
|
Market |
|
|
Market |
|
|
|
|
|
value of |
|
|
value of |
|
|
|
|
Amounts |
Securities |
Net credit |
Amounts |
Securities |
Net credit |
|
|
|
borrowed |
Pledged |
exposure to |
borrowed |
pledged |
exposure to |
|
|
|
Under repo |
under repo |
counter- |
under repo |
under repo |
counter- |
|
|
|
financing |
financing |
party |
financing |
financing |
party |
Counterparty |
Rating |
Location |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Barclays |
A1/A+ |
UK |
5,100 |
5,816 |
716 |
4,339 |
5,218 |
879 |
CitiBank |
Aa3/A+ |
UK |
6,524 |
8,373 |
1,849 |
3,785 |
4,550 |
765 |
Credit Suisse |
A1/A+ |
UK |
14,352 |
19,080 |
4,728 |
7,286 |
9,305 |
2,019 |
HSBC |
Aa3/AA– |
UK |
3,194 |
4,072 |
878 |
8,751 |
10,777 |
2,026 |
|
|
|
29,170 |
37,341 |
8,171 |
24,161 |
29,850 |
5,689 |
Net credit exposure as %
of net assets |
|
|
6.5% |
|
|
4.5% |
Transactions in derivatives, including forward currency
contracts (the exposure to which is shown in this note, under
currency risk) are entered into only with investment banks, the
credit rating of which is taken into account to manage default
risk. Failure by counterparties is mitigated by using only approved
counterparties.
As part of the Board’s risk management and control monitoring,
the Board reviews the Custodian’s annual control report and the
Manager’s management of the relationship with the Custodian.
The risk associated with failure of the Custodian is mitigated
by the Depositary, which is ultimately responsible for safekeeping
of the Company’s assets and is strictly liable for the recovery of
financial instruments in the event of loss. Additionally, the
Depositary reconciles both stock and cash held at the Custodian to
Custodian records throughout the year and reports to the audit
committee at the year end.
Cash balances are limited to a maximum of £10 million with any
one deposit taker, with only approved deposit takers being used,
and a maximum of £10 million for holdings in the Invesco Liquidity
Funds plc – Sterling (formerly Short Term Investment Companies
(Global Series) plc) a triple A rated money market fund.
Fair Values of
Financial Assets and Financial Liabilities
The financial assets are either carried at their fair value
(investments and derivatives), or the balance sheet amount is a
reasonable approximation of fair value (due from brokers, dividends
receivable, accrued income and cash and cash equivalents). Total
gains and losses on investments, represents the total carrying
amount of gains and losses on financial assets designated by the
Company as financial assets at fair value through profit and
loss.
The financial liabilities are carried at amortised cost except
for derivatives which are carried at fair value.
20. Classification Under
Fair Value Hierarchy
Nearly all of the Company’s portfolio of investments are in the
Level 2 category as defined in IFRS 7 ‘Financial Instruments:
Disclosures’. The three levels set out in IFRS 7 follow:
Level 1 – The unadjusted quoted price 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 (i.e. developed using market data) for
the asset or liability, either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market
data is unavailable) for the asset or liability.
Categorisation within the hierarchy is determined on the basis
of the lowest level input that is significant to the fair value
measurement of each relevant asset/liability.
The valuation techniques used by the Company are explained in
the accounting policies note. There were no transfers in the year
between any of the levels.
Normally, investment company investments would be valued using
stock market active prices with investments disclosed as
Level 1, and this is the case for the quoted equity
investments that the Company holds. However, a majority, if not
all, of the investments are non-equity investments. These
securities are priced using evaluated prices from a third party
vendor, together with a price comparison made to secondary and
tertiary evaluated third party sources. Evaluated prices are in
turn based on a variety of sources, including broker quotes and
benchmarks. As a result these investments are disclosed as Level 2
– recognising that the fair values of these investments are not as
visible as quoted equity investments and their higher inherent
pricing risk. However, this does not mean that the fair values
shown in the portfolio valuation are not achievable at point of
sale. No Level 3 investments were held in the year, or the previous
year and there have been no transfers between levels during the
year.
|
|
2020 |
|
|
Level 1 |
Level 2 |
Total |
|
£'000 |
£'000 |
£'000 |
Financial assets designated at fair
value through profit or loss |
|
|
|
Debt securities |
– |
151,273 |
151,273 |
Equities |
534 |
– |
534 |
Derivative financial instruments:
Currency hedges |
– |
74 |
74 |
Total for financial assets |
534 |
151,347 |
151,881 |
|
|
2019 |
|
|
Level 1 |
Level 2 |
Total |
|
£’000 |
£’000 |
£’000 |
Financial assets designated at fair
value through profit or loss |
|
|
|
Debt securities |
— |
142,722 |
142,722 |
Equities – convertible preference
shares and common stock |
162 |
1,644 |
1,806 |
Total for financial assets |
162 |
144,366 |
144,528 |
Financial liabilities designated at
fair value through profit or loss |
|
|
|
Derivative financial instruments:
Currency hedges |
— |
940 |
940 |
Total for financial liabilities |
— |
940 |
940 |
21. Maturity Analysis of
Contractual Liability Cash Flows
The financial liabilities of the Company comprise securities
sold under agreement to repurchase which are all repayable within
three months of the balance sheet date totalling £29,170,000 (2019:
£24,161,000), together with interest thereon of £18,000 (2019:
£9,000). Other liabilities may include forward currency contracts,
amounts due to brokers and accruals. All are paid under contractual
terms. Forward currency contracts in place at the balance sheet
date were all due within three months. Any amounts due to brokers,
are usually payable on the purchase date of the investment plus
three business days.
22. Capital Management
The Company’s total capital employed
at 30 September 2020 was
£155,160,000 (2019: £150,318,000) comprising repo financing
of £29,170,000 (2019: £24,161,000) and equity share capital and
other reserves of £125,990,000 (2019: £126,157,000).
The Company’s total capital employed is managed to achieve the
Company’s objective and investment policy as set out on pages 11
and 12.
The main risks to the Company’s investments are shown in the
Business Review under the ‘Principal Risks and Uncertainties’
section on pages 13 to 15. These also explain that the Company is
able to gear its portfolio by borrowing in the form of repo
financing and that gearing will amplify the effect on equity of
changes in the value of the portfolio. At the balance sheet date,
net borrowing was 22% (2019: 15%). Net borrowings cannot exceed 50%
of shareholders’ funds. The Company’s policies and processes for
managing capital were unchanged throughout the year and the
preceding year.
The Board can also manage the capital structure directly since
it has taken the powers, which it is seeking to renew, to issue and
buy back shares and it also determines dividend payments.
The Company is subject to counterparty imposed requirements with
respect to the repo financing and the terms imposed by the lenders
with respect to the short term overdraft facility. The Board
regularly monitors, and has complied with, these requirements and
are unchanged from the prior year.
23. Contingent
Liabilities
Contingent liabilities that the Company will or has given would
be disclosed in this note if any existed.
There were no contingencies, guarantees or other financial
commitments of the Company as at 30
September 2020 (2019: nil).
24. Related Party
Transactions and Transactions with the Manager
A related party is a company or individual who has direct or
indirect control or who has significant influence over the Company.
The Manager is not considered a related party.
Under International Financial Reporting Standards, the Company
has identified the Directors as related parties. The Directors’
interests and remuneration have been disclosed on pages 29 and 30
with additional disclosure in note 6. No other related parties have
been identified.
Details of the Manager’s services and fees are disclosed in the
Directors’ Report on page 31, and in note 5.
25. Post Balance Sheet
Events
Any significant events that occurred after the end of the
reporting period but before the signing of the statement of
financial position will be shown here.
There are no significant events after the end of the reporting
period requiring disclosure.
This annual financial report announcement is not the Company's
statutory accounts. The statutory accounts for the year ended
30 September 2019 and for the year
ended 30 September 2020 received an
audit report which was unqualified and did not include a reference
to any matters to which the auditors drew attention by way of
emphasis without qualifying the report. The statutory accounts for
the financial year ended 30 September
2020 have been approved and audited but not yet filed.
The audited annual financial report will be posted to
shareholders shortly. Copies may be obtained during normal business
hours from the Company's Registered Office, 28 Esplanade, Jersey,
JE2 3QA or the Manager's website at:
www.invesco.co.uk/enhancedincome
By order of the Board
JTC Fund Solutions (Jersey) Limited
Company Secretary
Contacts:
Invesco Fund Managers Limited
Will Ellis
Kelly Nice
Tel - 020 3753 1000