City Merchants High Yield Trust plc
Unaudited Preliminary Announcement of Final Results
For the year to 31 December 2006
Performance Statistics
At At
31 December 31 December %
2006 2005 Change
Total Return
Total Return per Ordinary Share (NAV) +11.7
FTSE All-Share Index +16.7
FTSE Government Securities - All Stocks +0.7
Index
Capital Return
Net asset value per Ordinary Share 179.73p 175.59p +2.4
Mid-market price per Ordinary Share 190.25p 181.75p +4.7
Premium per Ordinary Share 5.9% 3.5%
FTSE All-Share Index +13.2
FTSE Government Securities - All Stocks - 4.5
Index
Gearing
Asset gearing 101 114
Actual gearing 111 121
Total expense ratio # 1.4% 1.6%
# The total expense ratio for 2005 is based on `old' City Merchants High Yield
Trust expenses to the merger date and the Company expenses from then to 31
December 2005, excluding merger costs.
Chairman's Statement
Introduction
It is my privilege and pleasure to present my first annual report as Chairman
of City Merchants High Yield Trust.
The Company continued to make good progress over the last year. We have
produced a net asset value total return of 11.7%. This is less than the total
return on the FTSE All-Share Index of 16.7% over the same period, but compares
very favourably with the average return of the funds in the Investment
Management Association's UK Other Bond sector of 3.8%. Indeed, we out-performed
every fund in this sector over the year.
Investor demand for the Company's shares has continued to be strong. Using the
authority granted at the 2006 AGM, the Company has raised £4,279,159 by the
issue of new ordinary shares at an average premium of 5.7% to the net asset
value prevailing at the time of issue, enhancing the Company's net assets by
approximately £230,000 and providing a modest increase in net asset value per
share for existing shareholders.
Dividends
The Company has paid dividends in the last financial year of 17.4p per share,
including the 5.4p per share special dividend arising from the merger in 2005.
This is the fourth year the Company has maintained a dividend of 12p per share.
It remains the Board's objective to continue paying a total dividend of 12p per
share in equal instalments. As noted in the Manager's Report in the Annual
Report and Accounts, it has, however, become increasingly difficult to acquire
high-yield stocks with coupons at the levels previously obtained without
incurring additional risk.
Market Background
As detailed in the Manager's Report in the Annual Report and Accounts, the most
striking feature of 2006 was the continued appetite for risk among investors.
The demand for yield was such that premiums in the high-yield markets over
government debt continued to reduce. Against a market background characterised
by high valuations and low volatility, we have maintained a relatively cautious
investment stance. We expect this to continue in 2007 and would not expect to
make significant capital gains. We hope, however, to continue to deliver a
worthwhile total return with a high-income focus.
The Board
We were pleased to welcome Christopher FitzGerald as a new non-executive
Director of the Company on 1 January 2007. Christopher's wide experience of our
regulatory environment and the law governing investment markets will prove to
be invaluable and of great benefit to the Company and its shareholders.
Our warm thanks are due to Peregrine Banbury who retired as a Director on 4 May
2006. Peregrine was Chairman of the Company, then Exeter Selective Assets
Trusts Plc, prior to and during the merger with "old" City Merchants. His
assistance at that time was of particular value to shareholders.
On behalf of shareholders and for myself and my colleagues, I would like to pay
particular tribute to Peter O'Connor who retired as a Director and Chairman of
the Company on 31 December 2006. Peter was also Chairman of "old" City
Merchants from its incorporation in 1991. His wise counsel and leadership over
the past fifteen years have guided both Companies through a wide variety of
market conditions and circumstances. My fellow Directors and I wish Peter the
very best for the future.
Extraordinary General Meeting ("EGM")
On 26 February 2007, an EGM of shareholders was held in order to seek renewal
of the Directors' authority to issue new ordinary shares, as the Company had
previously used all of its authority to allot shares and thereby satisfy
investor demand. The use of the share issuance authority is consistent with the
Board's long-term ambition to increase the size of the Company by a combination
of growth in underlying asset values and the issue of additional equity
capital, so that the market capitalisation exceeds £100 million and the Company
is able to attract a wider range of investors with a concomitant improvement in
the liquidity of its shares.
At the EGM, shareholders were also asked to authorise the purchase of the
Company's deferred shares for cancellation. These deferred shares had been
created for technical reasons as part of the mechanics of the merger with
Exeter Selective Assets Trust plc in 2005 and it had been intended that they be
repurchased for a nominal sum and cancelled by the Company following completion
of the merger process. Having received shareholder approval at the EGM, this
last item of post-merger administration is now being finalised.
Annual General Meeting ("AGM")
Your attention is drawn to two items of Special Business to be proposed at the
AGM as Special Resolutions and one item of Special Business to be proposed as
an Ordinary Resolution:
Special Resolutions
* Issuance of New Shares and Disapplication of Pre-emption Rights
Your Board is seeking authority to issue up to an aggregate nominal amount of £
97,260 new ordinary shares, being 10% of the Company's issued ordinary share
capital, disapplying pre-emption rights. This authority will allow a limited
issue of new shares without them first having to be offered to existing
shareholders, thereby broadening the shareholder base of the Company. These
powers will not be exercised to issue shares at a price below net asset value
so that the interests of existing shareholders are not diluted. The authority,
set out in Special Resolution 6, will expire at the AGM in 2008.
* BuyBack of up to 14.99% of Ordinary Share Capital
Your Board seeks to renew the authority to buy back up to 14.99% of the
Company's issued ordinary shares. Acquisition under this authority will be
subject to restrictions referred to in the notice of AGM. Again, the interests
of existing shareholders will be protected and the authority will expire at the
AGM in 2008.
Ordinary Resolution
* Continuation of the Company
The Directors seek authorisation to be released from their obligation under the
Company's Articles of Association to convene an Extraordinary General Meeting
of the Company to be held in 2007 at which an extraordinary resolution would be
proposed to wind up the Company.
Your Directors have carefully considered all the resolutions proposed in the
notice of Annual General Meeting and believe them to be in the best interests
of shareholders. The Directors therefore recommend that shareholders vote in
favour of each resolution.
I look forward to seeing shareholders at the Annual General Meeting of the
Company on 5 June 2007 when they will have an opportunity to meet members of
the Board and the portfolio managers.
Clive Nicholson
Chairman
5 April 2007
Income Statement
For the year ended For the period
31 December 2006 1 April to 31 December 2005
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on - 4,040 4,040 - 394 394
investments
Exchange gains/ - 227 227 - (318) (318)
(losses)
Income 6,924 - 6,924 1,241 - 1,241
Investment (526) (283) (809) (110) (32) (142)
management fee
Other expenses (423) (5) (428) (209) (776) (985)
Net return before 5,975 3,979 9,954 922 (732) 190
finance costs and
taxation
Interest payable (334) (180) (514) (14) (7) (21)
and similar charges
Return on ordinary 5,641 3,799 9,440 908 (739) 169
activities before
taxation
Taxation (6) - (6) 2,600 - 2,600
Return on ordinary 5,635 3,799 9,434 3,508 (739) 2,769
activities after
taxation
Return per ordinary 12.03p 8.11p 20.14p 24.84p ( 5.23)p 19.61p
share
The Total column represents the Company's profit and loss account. The
supplementary revenue and capital columns are presented for information
purposes as recommended by the guidance note issued by the Association of
Investment Companies. All items in the above statement derive from continuing
operations and the Company has no other gains or losses; therefore no statement
of recognised gains or losses is presented. No operations were acquired or
discontinued in the year.
Reconciliation of Movements in Shareholders' Funds
Capital
Share Capital Capital Reserve-
Share Premium Special Redemption Reserve- Unrealised Revenue
Capital Account Reserve Reserve Realised Restated Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 279 35,269 11,644 8,301 (44,816) (602) 2,555 12,630
1 April
2005
Return for - - - - (1,007) 268 3,508 2,769
the period
from income
statement
Issue of 756 65,167 - - - - - 65,923
new shares
Balance at 1,035 100,436 11,644 8,301 (45,823) (334) 6,063 81,322
31 December
2005
Return for - - - - 1,060 2,739 5,635 9,434
the year
from income
statement
Dividends - - - - - - (7,632) (7,632)
paid in
year
Issue of 47 4,232 - - - - - 4,279
new shares
Balance at 1,082 104,668 11,644 8,301 (44,763) 2,405 4,066 87,403
31 December
2006
Balance Sheet
31 December 31 December
2006 2005
£'000 £'000
Non-current assets
Investments at fair value through 88,614 92,396
profit or loss
Current assets
Debtors 4,493 4,741
Cash at bank 4,419 1,749
8,912 6,490
Creditors: amounts falling due within (10,123) (17,564)
one year
Net current liabilities (1,211) (11,074)
Total assets less current liabilities 87,403 81,322
Capital and reserves
Called up share capital 1,082 1,035
Share premium account 104,668 100,436
Special reserve 11,644 11,644
Capital redemption reserve 8,301 8,301
Capital reserve - realised (44,763) (45,823)
Capital reserve - unrealised 2,405 (334)
Revenue reserve 4,066 6,063
Total equity Shareholders' funds 87,403 81,322
Net asset value per Ordinary Share 179.73p 175.59p
Cash Flow Statement
For the For the
period
year ended 1 April to
31 December 31 December
2006 2005
£'000 £'000
Net cash inflow/(outflow) from operating 5,727 (3,112)
activities
Servicing of finance (513) (9)
Taxation (303) -
Net inflow/(outflow) from financial 7,822 (1,582)
investment
Equity dividends paid (7,632) -
Cash inflow/(outflow) before financing 5,101 (4,703)
Financing (2,431) 4,861
Increase in cash 2,670 158
Reconciliation of net cash flow to movement in net debt
£'000 £'000
Increase in cash 2,670 158
Cash outflow/(inflow) from decrease/ 6,710 (16,389)
(increase) in debt
Change in debt resulting from cash flows 9,380 (16,231)
Translation difference - exchange gains/ 227 (318)
(loss)
Movement in net debt in the period 9,607 (16,549)
Net (debt)/funds at beginning of period (14,958) 1,591
Net debt at end of period (5,351) (14,958)
Notes
1. Income
Year ended 1 April to
31 December 31 December
2006 2005
£'000 £'000
Income from listed investments
UK dividends 1,886 247
Dividend received from CMHYT plc - 250
UK unfranked investment income - interest 1,562 316
Overseas interest 3,344 240
6,792 1,053
Other income
Deposit interest 132 188
Total income 6,924 1,241
Total income comprises:
Dividends 1,886 497
Interest 5,038 744
6,924 1,241
2. Investment management fee
Year ended 31 December 1 April to 31 December
2006 2005
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 448 241 689 94 27 121
Irrecoverable VAT thereon 78 42 120 16 5 21
526 283 809 110 32 142
INVESCO Asset Management Limited acts as Manager to the Company under an
agreement dated 21 November 2005 terminable at any time by either party giving
no less than three months prior written notice and subject to earlier
termination without compensation in the event of a material breach of the
agreement or the insolvency of either party as provided for therein.
The fee is payable quarterly in arrears and is equal to 0.1875 per cent. (plus
VAT) of the value of the Company's total assets less current liabilities,
excluding short-term borrowings undertaken for investment purposes, under
management at the end of the relevant quarter. At 31 December 2006 £204,000
(2005: £90,600) was due for payment in respect of investment management fees.
Prior to 21 November 2005, investment management services were provided by
Exeter Asset Management Limited and the management fee was calculated at 0.75%
per annum of the total assets of the Company attributable to the portfolio.
3. Return per ordinary share
Total return per ordinary share is based on the net total return. Revenue
return per ordinary share is based on the net revenue on ordinary activities
after taxation. Capital return per ordinary share is based on the net capital
gains after taxation. All three returns are also based on 46,828,629 (period
ended 31 December 2005: 14,123,623) ordinary shares, being the weighted average
number of ordinary shares in issue during the period.
4. Net asset value per ordinary share
The net asset value per Ordinary Share at 31 December 2006 is based on net
assets of £87,403,000 and on 48,630,448 shares (2005: net assets of £81,322,000
and 46,314,748 shares), being the number of Ordinary Shares in issue at the
period end.
5. The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2006 or the period ended
2005. The financial information for 2005 is derived from the statutory accounts
for 2005 which have been delivered to the Registrar of Companies. The auditors
have reported on the 2005 statutory accounts and their report was unqualified,
did not include a reference to any matter to which the auditors drew attention
by way of emphasis without qualifying their report and did not contain a
statement under s237(2) or (3) of the Companies Act 1985. The statutory
accounts for 2006 will be finalised on the basis of the information presented
by the Directors in this preliminary announcement and will be delivered to the
Registrar of Companies following the Company's Annual General Meeting.
6. The Annual General Meeting of the Company will be held at 2.30 pm on 5 June
2007 at 30 Finsbury Square, London EC2A 1AG.
7. The Audited Report and Accounts will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
Registered Office, 30 Finsbury Square, London EC2A 1AG.
By order of the Board
INVESCO Asset Management Limited - Secretary
5 April 2007
Thursday, April 5, 2007
CITY MERCHANTS HIGH YIELD TRUST PLC - FINAL RESULT
05/04/2007
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