City Merchants High Yield Trust plc
Unaudited Preliminary Announcement of Final Results
for the year to 31 December 2002
Performance Statistics
31 December At %
31 December
2002 2001 Change
Capital
Net asset value per Ordinary Share 141.9p 155.2p -8.6
Mid-market price per Ordinary Share l70.5p l83.0p -6.8
FT-Actuaries All-Share Index 1,893.73 2,523.88 -25.0
FTSE Actuaries Government Securities 157.16 152.94 +2.8
Actual gearing 124 121
Year to 31 December
2002 2001
Revenue
Gross income (�'000) 6,481 6,471 +0.2
Net revenue available for Ordinary 4,607 4,670 -l .4
Shares (�'000)
Total expense ratio 1.7% 1.5%
Total Return per Ordinary Share
Revenue return 12.26p 12.72p
Capital return (l2.54)p l.5lp
Total return (0.28)p l4.23p
Chairman's Statement
Introduction
The new Millennium continues to be a time of great difficulty for investors, be
they individual or institutional. After three years of declining values in
global equity markets, individual investors in equities have not only seen
their personal wealth diminished but have been further punished by the
inability of the insurance companies and pension funds to deliver their
promised returns. Bonds, property and, to some degree, cash have offered safe
havens. Fortunately, your Trust has a specialised focus on high-yielding
fixed-interest securities and thus the pain has, to some extent, been
mitigated. The excellent yield offered, together with the quarterly dividend
payments made, has ensured that the Trust's successful record of performance
over the 12 years since inception has been maintained. Of course we were not
immune to global trends and suffered our own disappointments in the investment
portfolio. As detailed in your Manager's report these were mercifully few. For
the second year running the Trust was awarded the accolade of Best UK High
Income Trust by Investment Trust Magazine.
Review
Difficult geo-political conditions have been a distinguishing characteristic of
the past twelve months. And these will not be resolved easily, therefore
creating further uncertainty in the minds of investors. At present there is
minimal confidence among businessmen and investors of all categories.
Overcapacity, lack of pricing power and uncertain demand, when combined with
the need to restructure balance sheets and repay debt, have left business
people looking like rabbits dazzled in the powerful headlights of the slowing
locomotive of world growth. Investors, savaged by three years of declining
equity prices, the duplicities of creative accounting and the rapacity of
investment banks and financial advisors, have understandably had their
confidence totally undermined. It will take time, and a period of calm in world
politics and economies, before they can be expected to turn more positive.
On the other hand, consumers have displayed an amazing capacity to continue
high levels of expenditure in these difficult times. Rising property prices,
and historically low levels of interest rates, have enabled and encouraged
people to purchase properties, re-finance their mortgages and extract a portion
of their "equity" which in turn is spent in the shopping malls, restaurants,
bars and other areas of entertainment, holidays, new cars and education for
their children. Abundant liquidity, when allied with low interest rates and
intense competition among credit card organisations, has ensured that consumers
have been spending freely; some would say recklessly. The level of personal
savings as a percentage of Gross Domestic Product has declined to very low
levels, especially in the USA and the UK. Can this continue? For a relatively
short period of time it can. But declining global economic growth, and the
prospect of rising unemployment in both the manufacturing and service sectors,
is already inducing a perceptible level of caution. House prices will not rise
forever. Given the exceptionally accommodative monetary and fiscal policies of
the governments in both countries rises in interest rates will be inevitable,
perhaps in 2004.
Little assistance can be expected from Europe. Given the problems of incipient
deflation in Germany (the economic powerhouse) and inflexible social labour,
legal and financial infrastructures, we can expect a series of uncertainties
similar to those currently exhibited in Japan. That country is now entering its
fourth recession in the last ten years. "The Iron Triangle" of bureaucracy,
politicians and big business continue to stifle any sustained attempt to revive
the economy by appropriate monetary and fiscal policies. Indeed, for those
Japanese citizens with jobs, or pensions, a period of continued deflation is
quite acceptable and explains the consensus acceptance of misgovernment, greed
and self-interest which has characterised Japan for the past twenty years.
Asia ex-Japan is the only region of relatively strong growth. This is derived
from the strength of the Chinese economy. China is now the location of choice
for global manufacturers. In addition, the combination of Keynesian-based
expenditure by the Government, the privatisation of national housing and the
extraordinarily high level of savings in China has enabled the economy to grow
about 7% per annum consistently. The emergence of China as a powerful global
exporter and consumer of substantial quantities of sophisticated capital goods,
energy, raw materials and foodstuffs has benefited the regional economies in
the Pacific. This will continue to be the case for the rest of the decade,
barring an escalation of sustained war either in the Middle East or North-East
Asia. Intra-regional trade, supported by low interest rates, flexible
currencies, high levels of savings and sustained increases in demand for
consumer durable goods and services augur well for the outlook in Asia.
The Trust
Richard Lockwood has managed the Trust since inception. He is experienced in
his ability to read balance sheets, understands and appreciates dividend
returns and can weather the agonies of long bear markets patiently and
skilfully. He has combined these qualities to manage adroitly the investments
of the Trust. In a period of declining interest rates, the yield on the Trust
is decent and our ability to pay a dividend each quarter is well appreciated by
our shareholders. The Manager's Review describes the investment philosophy,
strategy and the level of research associated with the management of the Trust.
Dividends
The net dividend payments made and proposed for the year as compared with last
year are as follows:
2002 2001
1st interim 3.0p 3.0p
2nd interim 3.0p 3.0p
3rd interim 3.0p 3.0p
Proposed final 4.0p 4.0p
Total 13.0p 13.0p
Annual General Meeting
There are four items of Special Business to be addressed at this year's Annual
General Meeting.
Special Resolution No.7. seeks the renewal of the authority granted last year
to issue new ordinary shares of the Company. This will allow the Directors
flexibility to issue new shares within prescribed limits in a shorter period
than would otherwise be the case. The powers authorised will not be exercised
at an issue price below Net Asset Value so that the interests of existing
shareholders are not diluted.
Special Resolution No.8. seeks to renew the authority to buy-back up to 14.99%
(5,633,459 ordinary shares) of the Company's issued ordinary shares, subject to
the restrictions referred to in the Notice of Annual General Meeting, which,
again, aim to protect the interests of existing shareholders.
Ordinary Resolution No.9. relates to the continuation of the Company. The
passing of this resolution will release the Directors from the obligation
contained within the Company's Articles of Association to convene an
Extraordinary General Meeting at which an Extraordinary Resolution would be
proposed to wind up the Company this year.
Lastly, Ordinary Resolution No.10. relates to the maximum aggregate of
Directors' fees allowable under the Articles of Association. Whilst no increase
to the fees for existing Directors is proposed, the replacement of Peter Clark,
who as a Director of the Manager was paid considerably less than the rest of
the Board, necessitates an increase to the maximum aggregate payable.
Your support for these items of Special Business is requested.
Conclusion
May I take the opportunity, on your behalf, to thank the manager for the
creditable result achieved in this very difficult year. My colleagues on the
Board have exercised their usual high level of consistent diligence and wise
counsel to the benefit of the Trust and its shareholders. Peter Clark will not
be offering himself for re-election at the Annual General Meeting. The
additional responsibilities he had taken on as Chief Investment Officer at the
newly-created private wealth management division of AMVESCAP plc, Atlantic
Wealth Management, gives him little time for external activities. We thank him
for his services and wish him well in his new role. In his place, we have
appointed Richard King, who has a strong investment background, lengthy
experience in asset management and impeccable independence. We hope to
introduce him to you at the Annual General Meeting, which will be held on
Friday, 25 April 2003 at 2.30pm.
Peter E. O'Connor
Chairman
7 March 2003
Statement of Total Return (Unaudited)(incorporating the revenue account)
for the year ended 31 December
2002 2001
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �`000 �`000 �`000
(Losses)/gains on - (4,170) (4,170) - 897 897
investments
Exchange (Iosses)/gains - (224) (224) - 8 8
Income 6,481 - 6,481 6,471 - 6,471
Investment management fee (415) (224) (639) (407) (219) (626)
Other expenses (276) (3) (279) (245) - (245)
Net return before finance
costs
and taxation 5,790 (4,621) 1,169 5,819 686 6,505
Interest payable and similar (419) (225) (644) (525) (282) (807)
charges
Return on ordinary
activities
before taxation 5,371 (4,846) 525 5,294 404 5,698
Tax on ordinary activities (764) 135 (629) (624) 152 (472)
Return on ordinary
activities after
tax for the financial year 4,607 (4,711) (104) 4,670 556 5,226
Dividends in respect of (4,885) - (4,885) (4,834) - (4,834)
equity shares
Transfer (from)/to reserves (278) (4,711) (4,989) (164) 556 392
Return per ordinary share l2.26p (12.54)p (0.28)p 12.72p 1.5lp l4.23p
The revenue column of this statement is the profit and loss account of the
company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
Reconciliation of Movement in Shareholders' Funds (Unaudited)
for the year ended 31 December
2002 2001
�'000 �'000
Revenue return for the year (278) (164)
Capital return for the year (4,711) 556
Net proceeds from issue of shares - 2,958
Net addition to Shareholders' funds (4,989) 3,350
Opening Shareholders' funds 58,329 54,979
Closing Shareholders' funds 53,340 58,329
Balance Sheet (Unaudited)
at 31 December
2002 2001
�'000 �'000
Fixed assets
Investments 68,325 70,969
Current assets
Debtors 1,254 2,164
Cash at bank 11 545
1,265 2,709
Creditors: amounts falling due within one year 16,250 15,349
Net current liabilities (14,985) (12,640)
Total assets less current liabilities 53,340 58,329
Capital and reserves
Called up share capital 9,395 9,395
Share premium account 19,133 19,133
Special reserve account 20,000 20,000
Other reserves
Capital reserve - realised 13,338 16,976
Capital reserve - unrealised (9,989) (8,916)
Revenue reserve 1,463 1,741
Total Shareholders' funds 53,340 58,329
Net asset value per Ordinary Share 141.9p 155.2p
Cash Flow Statement (Unaudited)
for the year ended 31 December
2002 2001
�'000 �'000
Net cash inflow from operating activities 6,039 5,312
Returns on investments and servicing of finance
Interest paid (658) (813)
Taxation
Corporation tax paid (502) -
UK income tax recovered 262 90
Capital expenditure and financial investment (1,526) 83
Equity dividends paid (4,885) (4,713)
Cash outflow before financing (1,270) (41)
Financing 960 463
Movement in cash (310) 422
Reconciliation of net cash flow to movement in net funds
2002 2001
�'000 �'000
(Decrease)/increase in cash (310) 422
Cash (inflow)/outflow from (increase)/decrease in (960) 2,495
debt
Change in net debt resulting from cash flows (1,270) 2,917
Translation difference (224) 8
Movement in net debt in the year (1,494) 2,925
Net debt at beginning of year (11,495) (14,420)
Net debt at end of year (12,989) (11,495)
Notes to the Preliminary Announcement
for the year ended 31 December 2002
1. Income
2002 2001
�'000 �'000
Income from listed investments
UK dividends 2,829 3,352
UK unfranked investment income - interest 1,906 1,793
Overseas interest 1,658 1,282
Overseas dividends 70 26
6,463 6,453
Other income
Deposit interest 17 18
Underwriting & other commissions 1 -
Total income 6,481 6,471
Total income comprises:
Dividends 2,899 3,378
Interest 3,581 3,093
Other income 1 -
6,481 6,471
2. Investment management fee
2002 2001
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Investment 353 191 544 346 187 533
management fee
Irrecoverable VAT 62 33 95 61 32 93
thereon
415 224 639 407 219 626
Atlantic Wealth Management Limited, a wholly owned subsidiary of AMVESCAP plc,
act as Portfolio Manager to the Company under an agreement dated 20 May 1991
for an initial two year period
terminable at any time thereafter by three months prior written notice and
subject to earlier termination in the event of 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 2002
�151,000 (2001 �157,000) was due for payment in respect of investment
management fees.
The Company incurred fees payable to the Managers of �4,900 (2001 : �8,900)
during the year for investment transaction services in the course of normal
business.
3. Other expenses
2002 2001
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Secretarial services 45 - 45 44 - 44
General expenses 136 3 139 108 - 108
Directors' fees 69 - 69 67 - 67
Auditors' 20 - 20 15 - 15
remuneration
- for audit services
- for other services 6 - 6 11 - 11
276 3 279 245 - 245
4. Interest payable and similar charges
2002 2001
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
On bank 419 225 644 525 282 807
borrowings
5. Tax on net revenue from ordinary activities
Analysis of charge for the year
2002 2001
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
United Kingdom
taxation:
Corporation tax at
30%
(2001:30%) 624 - 624 431 - 431
Tax relief on
expenses
allocated to
capital
reserve- realised 135 (135) - 132 (152) -
Overseas tax 5 - 5 41 - 41
764 (135) 629 624 (152) 472
6. Dividends
2002 2001
Dividends on equity shares �'000 �'000
Ordinary - 1st interim of 3p per share 1,127 1,076
(2001: 3p) paid
Ordinary - 2nd interim of 3p per share 1,127 1,127
(2001: 3p) paid
Ordinary - 3rd interim of 3p per share 1,128 1,128
(2001: 3p) declared
Ordinary - Final dividend of 4p per share 1,503 1,503
(2001: 4p) proposed
4,885 4,834
7. Return per ordinary share
Revenue return per ordinary share is based on the net revenue on ordinary
activities after taxation and on 37,581,453 (2001: 36,711,864) ordinary shares,
being the weighted average number of ordinary shares in issue during the year.
Capital return per ordinary share is based on the net capital gains for the
financial year after taxation and on 37,581,453 (2001: 36,711,864) ordinary
shares, being the weighted average number of ordinary shares in issue during
the year.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2002 or the year ended 31
December 2001. The financial information for 2001 is derived from the statutory
accounts for 2001, which have been delivered to the Registrar of Companies. The
auditors have reported on the 2001 accounts; their report was unqualified and
did not contain a statement under section 237 (2) or (3) of the Companies Act
1985. The financial information for year ended 31 December 2002 is unaudited.
The statutory accounts for 2002 will be finalised on the basis of the financial
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.
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.
The Annual General Meeting will be held at the Company's Registered Office on
25 April 2003 at 2.30pm.
Subject to approval at the Annual General Meeting, the proposed final dividend
of 4p per ordinary share will be payable on 29 April 2003 to shareholders
registered on 28 March 2003.
By order of the Board
INVESCO Asset Management Limited - Secretary 20 March 2003
END