TIDMIPE
Invesco Enhanced Income Limited
Half-Yearly Financial Report Announcement for the Six Months to 31 March 2020
Key Facts
Invesco Enhanced Income Limited is a closed-end investment company with limited
liability incorporated in Jersey. The Company's ordinary shares are listed on
the London Stock Exchange.
Investment Objective of the Company
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.
Full details of the Company's Investment Policy (incorporating the Company's
investment objective, investment policy and risk and investment limits) can be
found on pages 9 and 10 of the Company's 2019 annual financial report.
Performance Statistics
At At
31 MAR 30 SEPT %
2020 2019 Change
Balance sheet
Shareholders' funds (GBP'000) 107,976 126,157 -14.4
(1)
Net asset value(2) per 62.1p 74.2p -16.3
ordinary share
Share price(3) 56.4p 75.2p -25.0
(Discount)/premium per (9.2)% 1.3%
ordinary share(2)
Gross borrowing(2) 19% 19%
Net borrowing(2) 14% 15%
SIX MONTHS SIX MONTHS YEAREDEDED
31 MAR 31 Mar 30 SEPT
2020 2019 2019
Total Return(3)
Net asset value(2) -13.4% +1.9% +8.9%
Share price(2) -22.5% -2.3% +6.7%
3 month LIBOR rate +0.4% +0.8% +0.8%
Revenue
Net revenue return (GBP'000) 3,953 3,793 7,808
Revenue return per ordinary 2.3p 2.3p 4.7p
share
Dividends per ordinary
share:
- first interim 1.25p 1.25p 1.25p
- second interim 1.25p 1.25p 1.25p
- third interim - - 1.25p
- fourth interim - - 1.25p
Total 2.50p 2.50p 5.00p
(1) For the period to 31 March 2020, 3,750,000 ordinary shares were issued for
net proceeds, after issue costs, of GBP2,865,000 (2019: nil).
(2) Alternative Performance Measures (APM) see page 7 for the explanation and
calculation of APMs. Further details are provided in the Glossary of Terms and
Alternative Performance Measures in the 2019 annual financial report.
(3) Source: Refinitiv.
Interim management report incorporating the Chairman's Statement
Chairman's Statement
The period running up to and since our year end has been one of the most
challenging in recent times. So, I would firstly like to say thank you to you,
our shareholders, for your support and, as importantly, to everyone involved in
the management and operation of this Company. Our portfolio manager, Rhys, has
been working very hard to make good investment decisions and remains diligent
in keeping the Board apprised of market changes and their impact on the
Company. Operationally, the move to remote working has been accomplished by all
of our service providers in a seamless manner and as a Board we would like to
reassure you that we remain confident that the Company is in good hands.
Results for the six months to 31 March 2020
Turning now to the six months under review, the Company has delivered a total
net asset value return of -13.4%. This compares to 3 month LIBOR of +0.4%.
The share price premium decreased from 1.3% to a discount of 9.2%. Since the
end of the reporting period, the Company has returned to a premium and has
recommenced issuance of shares. This reflects not only the improving market
environment but also the Company's strong performance relative to both its
peers and 3 month LIBOR. On behalf of the Board, I would like to thank the
portfolio managers for their continued hard work on behalf of shareholders.
The Portfolio Managers' Report which follows continues the cautionary tone of
much of their recent reporting. Borrowing at the period end was 19% gross and
14% net of cash balances.
Outlook
During this extremely challenging time, there has been no material change in
portfolio strategy. The Company's closed ended structure means the Manager does
not have to realise investments in these volatile markets to meet redemptions.
It enables the Manager to utilise borrowings to take advantage of opportunities
to purchase bonds at attractive prices and enhance income as and when they
present themselves. The Company has material revenue reserves available to
support the payment of the quarterly dividend. The Company's dividend policy
remains unchanged and, whilst the Board is closely monitoring developments
throughout the COVID-19 crisis, it remains confident that the portfolio is in
good hands.
Kate Bolsover
Chairman
15 May 2020
Portfolio Managers' report
Market background
The performance of the high yield bond market over the six months to the
31 March 2020 was dominated by the market's reaction to the impact of Covid-19
in late February and March 2020. The deterioration in sentiment was further
compounded by a collapse in the oil price. This had a significant impact on the
US high yield market, which has a high number of energy companies.
By end of March, most countries across the world had, in response to the virus,
introduced some form of lockdown. Economic activity has been significantly
curtailed and many companies shuttered.
The world's central banks have responded to these shocks with unprecedented
stimulus, slashing interest rates and restarting Quantitative Easing
programmes. In the US, the Federal Reserve has committed to direct support of
the corporate bond market including the unprecedented step of announcing it
will purchase high yield bonds under certain conditions. After a very sharp
market correction from late February, these announcements sparked the biggest
rally in high yield bonds since the global financial crisis in 2008.
Large fiscal policy stimulus programmes have also been a part of the response
of many governments. This has included loans and support for companies.
Nonetheless, the period has been extremely difficult for many companies, in
particular those in leisure, travel and parts of the retail sector. For many
companies the impact of this crisis will be felt for some time.
The banking sector has also come under pressure and many banks have announced
that they are stopping dividends, in-line with recommendations from both the
European Central Bank and the Bank of England. The payment of interest on bank
capital bonds, including additional tier 1 (AT1) bonds, is not affected.
Unsurprisingly, this difficult environment for companies has led the rating
agencies to revise their predictions of default rates higher. The market has
also aggressively repriced the risk of default with large moves in credit
spreads (the premium over government bonds that companies need to pay to
borrow). By 31 March 2020 European high yield spreads had increased to 854
basis points (bps). This compares to a level of 405 bps at the 30 September
2019 and a low of 316 in mid-January 2020.
With a recessionary backdrop it is inevitable that default rates will rise, and
indeed we have already observed several high yield issuers appoint financial
advisors with a view to restructuring their debt.
Portfolio strategy
The Company entered the crisis on a relatively strong footing. The portfolio
was cautiously positioned by the end of 2019, which was a natural response to
yields having fallen so much and our sober view on valuations. At the very
early stages of the virus outbreak we raised cash in the portfolio
significantly. This defensive stance, combined with the closed-ended structure,
meant that we were well positioned to take advantage of the re-pricing that
occurred. Slowly and cautiously credit risk was added.
The focus of these purchases was on companies that we think have the balance
sheet and business profile to survive the economic shock. Names added included
Ziggo, Pinewood, IHO Schaeffler and Teva. The financial sector also provided
some very attractive opportunities during March. Both Senior and AT1 bonds were
added across multiple issuers with a focus on large European banks.
Following these purchases, subordinated financials remain the fund's largest
sectoral allocation. Despite European banks having been asked to halt dividends
and share buy-backs, the current situation is very different to the 2008
crisis. Then, banks and other financial institutions were the problem. This is
a real economy shock and banks have come into it with much stronger liquidity
and higher capital levels and asset quality. The announcement to halt
shareholder payments has no bearing on banks' intentions to pay AT1 coupons and
we believe they will continue to do so. Outside of subordinated financials, the
three largest sectors in the portfolio are telecoms, food and utilities.
Over the period under review, the Company's NAV fell from 74.2p to 62.1p. The
NAV total return was -13.4%. The portfolio maintained gross borrowing of 19%.
Outlook
High yield bond markets have repriced to reflect the severe economic shock that
the crisis is inflicting. A lack of market liquidity at the start of the crisis
exacerbated price moves and created some very attractive opportunities for the
Company. We were able to add positions to the portfolio, buying bonds from
companies that we believe have a balance sheet and business profile that can
survive.
Looking ahead, although markets have rallied from the lows of 23 March 2020,
credit spreads still offer some of the best value we have seen for many years.
That said, there are undoubtedly challenging times ahead for many companies and
default rates are likely to increase. A thorough and comprehensive analysis of
each issuer and maintaining a diversified portfolio remain a crucial part of
our approach, as we seek to add exposure and lock in value for when markets do
recover.
Paul Read/Paul Causer/Rhys Davies
Portfolio Managers
15 May 2020
Principal Risks and Uncertainties
The Board carries out a review, regularly, of the risk environment in which the
Company operates, including consideration of emerging risks and now COVID-19.
The principal risks and uncertainties relating to the Company can be summarised
as:
- Investment Policy - the adopted investment policy and process may not
achieve the Company's published investment objective.
- Market Risk - a fall in the stock markets and/or a prolonged period of
decline in the stock markets relative to other forms of investments will affect
the performance of the portfolio, as well as the performance of individual
portfolio investments.
- Investment Risk - the investment process employed by the Manager is likely
to result, from time to time, in a more concentrated portfolio than those of
other investment funds.
- 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.
- Shares - share price is affected by market sentiment, supply and demand
for the shares, dividends declared, portfolio performance as well as wider
economic factors and changes in the law. The market value of, and the income
derived from, the Company's ordinary shares can fluctuate and may go down as
well as up.
- Gearing Returns Using Borrowings - the net borrowing may not exceed, at
the time of drawdown, 50% of shareholders' funds. 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). The
Company borrows principally using repo financing arrangements. In certain
circumstances it may have to realise investments at short notice to repay
amounts owing under those arrangements and may not be able to realise the
expected market value of those assets.
- High Yield Corporate Bonds - corporate bonds are subject to credit,
liquidity, duration and interest rate risk. Adverse changes in the financial
position of the issuer of corporate bonds or in general economic conditions may
impair the ability of the issuer to make payments of principal interest or may
cause the liquidation or insolvency of the issuer.
- Derivatives - the Company may enter into derivative transactions for the
purpose of efficient portfolio management. The Company will not enter into
derivative transactions for speculative purposes.
- Reliance on External Service Providers - failure by any service provider
to carry out its obligations to the Company could have a materially detrimental
impact on the operation of the Company and affect the ability of the Company to
successfully pursue its investment policy. The Company's operations and
reputation could be affected if any of its service providers suffered a major
cyber security breach.
- Regulatory - whilst compliance with rules and regulations is closely
monitored, breaches and changes could affect returns to shareholders.
- Pandemic (COVID-19) Risk - restrictions to movement of people and
disruption to business operations are impacting portfolio company valuations
and returns and could impact operational resilience of service providers. As
the spread of COVID-19 continues, the Directors are monitoring the situation
closely, together with the Manager and third-party service providers. A range
of actions has been implemented to ensure that the Company and its service
providers are able to continue to operate as normal, even in the event of
prolonged disruption. 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 so
that the Company can continue to trade, meet regulatory obligations, report and
meet shareholder requirements.
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 being held virtually or via conference
calls.
Other similar working arrangements are in place for the Company's
third-party service providers. The Directors remain confident that with these
measures in place, the Company is in a good position to continue operating
largely as normal in these extreme market conditions. In addition, due to the
nature of the Company being a closed end investment company, the Portfolio
Manager is not presented with regular daily inflows and outflows that require
managing.
Except for the pandemic risk above, a detailed explanation of these principal
risks and uncertainties can be found on pages 12 to 16 of the Company's 2019
annual financial report, which is available on the Company's section of the
Manager's website at:
www.invesco.co.uk/enhancedincome
In the view of the Board, these principal risks and uncertainties are as much
applicable to the remaining six months of the financial year as they were to
the six months under review.
Going Concern
The half-yearly financial report has been prepared on a going concern basis.
The Directors consider that this is the appropriate basis as they have a
reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. In considering this, the
Directors took into account the Company's investment objective, risk management
policies and capital management policies, the diversified portfolio, the
liquidity of the securities which can be used to meet short-term funding
commitments, and the ability of the Company to meet all of its liabilities,
including its repo financing, and ongoing expenses from its assets.
RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE MANAGER
Under International Financial Reporting Standards, the Company has identified
the Directors as related parties. Transactions with Directors are limited to
their remuneration. Transactions with the Manager comprise management fees. The
basis of these has not changed from that reported in the latest annual
financial report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
in respect of the preparation of the half-yearly financial report
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and International
Financial Reporting Standards.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements contained within the half-yearly
financial report have been prepared in accordance with the International
Accounting Standards 34 'Interim Financial Reporting';
- the interim management report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R of the FCA's Disclosure Guidance and
Transparency Rules; and
- the interim management report includes a fair review of the information
required on related party transactions.
The half-yearly financial report has not been audited or reviewed by the
Company's auditor.
Signed on behalf of the Board of Directors.
Kate Bolsover
Chairman
15 May 2020
BOND RATING ANALYSIS
At 31 March 2020
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 71 of the 2019 annual financial report.
31 MAR 2020 30 SEPT 2019
% OF CUMULATIVE % OF CUMULATIVE
Rating PORTFOLIO TOTAL % PORTFOLIO TOTAL %
Investment Grade:
A- - - 1.8 1.8
BBB+ 3.8 3.8 3.0 4.8
BBB 10.3 14.1 9.8 14.6
BBB- 8.1 22.2 6.5 21.1
Non-Investment
Grade:
BB+ 13.0 35.2 13.8 34.9
BB 10.0 45.2 6.2 41.1
BB- 9.5 54.7 13.0 54.1
B+ 8.0 62.7 8.5 62.6
B 15.6 78.3 16.9 79.5
B- 7.6 85.9 8.5 88.0
CCC+ 4.0 89.9 1.8 89.8
CCC 1.6 91.5 1.4 91.2
CCC- 0.1 91.6 0.5 91.7
D - 91.6 0.1 91.8
NR (including 8.4 100.0 8.2 100.0
equities)
100.0 100.0
INVESTMENT PORTFOLIO
At 31 March 2020
All investments are fixed interest bonds unless otherwise stated; floating
rates notes are depicted by FRN.
Bonds and Equity Investments
VALUE % OF
ISSUER ISSUE RATING(1) GBP'000 PORTFOLIO
Euro
Achmea 6% 04 Apr 2043 NR/BBB-/BBB 1,794 1.5
Telecom Italia 5.25% 17 Mar 2055 Ba1/BB+/BB 1,740 1.4
Banco Santander 6.25% FRN Ba1/NR/BB 1,583 1.4
Perpetual
4.375% FRN Ba1/NR/BB 132
Perpetual
IHO Verwaltungs 3.875% 15 May Ba2/BB+/BB 745 0.9
2027 (SNR)
3.625% 15 May Ba2/BB+/BB 409
2025 (SNR)
Burger King 8% 15 Dec 2022 NR/CCC/CCC 639 0.9
France (SNR)
FRN 01 May 2023 B3/B-/B 338
6% 01 May 2024 B3/B-/B 158
(SNR)
Banco BPM 8.75% FRN B3/NR/B 1,025 0.8
Perpetual
IM Group 6.625% 01 Mar B2/B-/B 1,012 0.8
2025
Permanent TSB 8.625% FRN NR/NR/NR 970 0.8
Perpetual
Frigoglass 6.875% 12 Feb B3/B-/B 873 0.7
Finance 2025
Picard FRN 30 Nov 2023 B3/B/B 823 0.7
Loxam SAS 5.75% 15 Jul 2027 NR/CCC+/CCC 403 0.6
3.75% 15 Jul 2026 NR/B/B 395
(SNR)
Platin 5.375% 15 Jun B3/B/B 740 0.6
2023 (SNR)
Intesa Sanpaolo 7% Perpetual Ba3/BB-/BB 700 0.6
Quintiles IMS 3.25% 15 Mar 2025 Ba3/BB/BB 689 0.6
(SNR)
Banco Comercial 9.25% 30 Apr 2067 B2/CCC+/B 688 0.6
Portugues
Ziggo Bond 3.375% 28 Feb B3/B-/B 674 0.6
Finance 2030 (SNR)
DKT Finance 7% 17 Jun 2023 Caa1/CCC+/CCC 669 0.5
(SNR)
Banco Sabadell 6.5% FRN B2/NR/B 640 0.5
Perpetual
Teva 6% 31 Jan 2025 Ba2/BB/BB 383 0.5
Pharmaceutical (SNR)
Finance
1.125% 15 Oct Ba2/BB/BB 246
2024 (SNR)
CNP Assurances FRN Perpetual NR/NR/NR 624 0.5
Tereos Finance 4.125% 16 Jun NR/B+/B 596 0.5
2023 (SNR)
INEOS Group 5.375% 01 Aug B1/B+/B 437 0.5
2024 (SNR)
2.875% 01 May Ba1/BB+/BB 158
2026 (SNR)
Maxeda DIY 6.125% 15 Jul Caa1/B-/CCC 581 0.5
2022 (SNR)
Yew Grove REIT Common Stock NR/NR/NR 539 0.4
Banca Monte Dei 8% FRN 22 Jan Caa1/NR/CCC 296 0.4
Paschi - Siena 2030
10.5% 23 Jul 2029 Caa1/NR/CCC 225
(SUB)
PrestigeBidCo 6.25% 15 Dec 2023 B2/B/B 496 0.4
(SNR)
Aegon 5.625% FRN Baa3/BBB-/BBB 489 0.4
Perpetual
Crystal Almond 4.25% 15 Oct 2024 NR/B/B 469 0.4
(SNR)
Barclays 3.375% FRN 2 NR/NR/NR 462 0.4
April 2020 (SNR)
La Financière 4% 15 May 2024 Caa1/B/CCC 460 0.4
ATALIAN (SNR)
Lloyds Banking 3.5% FRN (SNR) A3/BBB+/A 307 0.4
Group
6.375% FRN Baa3/BB-/BB 130
Perpetual
Crown European 2.875% 01 Feb Ba2/BB+/BB 434 0.4
Holdings 2026 (SNR)
National Bank Of 8.25% FRN 18 Jul Caa2/CCC/CCC 414 0.3
Greece 2029
Tasty Bondco 6.25 15 May 2026 B2/B/B 396 0.3
(SNR)
EDP - Energias de 4.496% 30 Apr Ba2/BB/BB 364 0.3
Portugal 2079
EG Global Finance 4.375% 07 Feb B2/B/B 354 0.3
2025 (SNR)
Codere Finance 6.75% 01 Nov 2021 Caa1/CCC+/CCC 321 0.3
(SNR)
BNP Paribas Cnv FRN Perpetual Baa3/BB+/BBB 299 0.3
Caixabank 6.75% FRN Ba3u/BB/BB 288 0.2
Perpetual
Trafigura 7.5% FRN NR/NR/NR 284 0.2
Perpetual (SUB)
Odyssey Europe 8% 15 May 2023 B2/B/B 269 0.2
(SNR)
Motion Bondco 4.5% 15 Nov 2027 B3/B-/B 257 0.2
(SNR)
Bayer AG 3.125% FRN 12 Nov Baa3/BB+/BBB 243 0.2
2079 (SUB)
UniCredit 3.875% FRN Ba3/NR/BB 242 0.2
International Perpetual
Bank
Aviva 6.125% FRN 05 Jul A3/BBB+/BBB 230 0.2
2043
Europcar Mobility 4.125% 15 Nov Caa1/B/CCC 129 0.1
2024 (SNR)
4% 30 Apr 2026 Caa1/B/CCC 68
(SNR)
ASR Nederland 4.625% Cnv FRN NR/BB+/BB 150 0.1
Perpetual
Jaguar Land Rover 5.875% 15 Nov B1/B+/B 130 0.1
2024 (SNR)
29,609 24.1
Sterling
Virgin Media 6.25% 28 Mar 2029 Ba3/BB-/BB 1,782 2.8
Finance
5.75% 15 Apr 2023 B1/B/B 1,635
(SNR)
Barclays 7.875% FRN Ba2/B+/BB 1,479 2.2
Perpetual
7.125% FRN Ba2/B+/BB 645
Perpetual
6.375% FRN Ba2/B+/BB 616
Perpetual
Enel 7.75% 10 Sep 2075 Ba1/BBB-/BBB 1,908 2.2
6.625% 15 Sep Ba1/BBB-/BBB 774
2076
Sainsbury's 6.5% FRN NR/NR/NR 1,604 1.9
Perpetual
6% FRN 23 Nov NR/NR/NR 753
2027
NWEN Finance 5.875% 21 Jun NR/BB+/BB 2,351 1.9
2021 (SNR)
NGG Finance 5.625% FRN 18 Jun Baa3/BBB/BBB 2,310 1.9
2073
Arqiva Broadcast 6.75% 30 Sep 2023 B2/NR/B 2,100 1.7
Finance
Premier Foods 6.25% 15 Oct 2023 B2/B/B 1,556 1.7
Finance
FRN 15 Jul 2022 B2/B/B 535
(SNR)
Co-Operative Bank 9.5% FRN 25 Apr NR/NR/NR 1,432 1.6
2029
5.125% 17 May NR/BB/BB 451
2024 (SNR)
Eléctricité De 6% Perpetual Baa3/BB/BBB 1,248 1.5
France
5.875% Perpetual Baa3/BB/BBB 590
Virgin Money 8.75% Perpetual Ba2/B/BB 1,671 1.4
Balfour Beatty 10.75p Cnv NR/NR/NR 1,549 1.3
Preference
Aviva 6.125% Perpetual A3/BBB+/BBB 1,462 1.2
Pinnacle Bidco 6.375% 15 Feb B2/B/B 1,366 1.1
2025 (SNR)
Pension Insurance 7.375% FRN NR/NR/BBB 1,302 1.1
Perpetual
Wagamama Finance 4.125% 01 Jul B2/B-/B 1,246 1.0
2022 (SNR)
Matalan Finance 6.75% 31 Jan 2023 B3/B-/B 700 1.0
(SNR)
9.5% 31 Jan 2024 Caa3/CCC/CCC 509
(SNR)
Orange 5.875% Perpetual Baa3/BBB-/BBB 1,160 0.9
Vodafone Group 4.875% 03 Oct Ba1/BB+/BB 967 0.9
2078
1.5% Cnv 12 Mar NR/NR/NR 183
2022
Time Warner Cable 5.25% 15 Jul 2042 Ba1/BBB-/BBB 1,076 0.9
Iron Mountain 3.875% 15 Nov Ba3/BB-/BB 896 0.7
2025
Drax Finco 4.25% 01 May 2022 NR/BB+/BB 859 0.7
(SNR)
Scottish Widows 5.5% 16 Jun 2023 Baa1/BBB+/BBB 847 0.7
William Hill 4.75% 01 May 2026 Ba1/BB/BB 795 0.6
Bupa Finance 5% 08 Dec 2026 Baa1/NR/BBB 752 0.6
Lloyds Banking 7.875% Perpetual Baa3/BB-/BB 361 0.6
Group
7.625% FRN Baa3/BB-/BB 335
Perpetual
Miller Homes FRN 15 Oct 2023 NR/BB-/BB 475 0.5
(SNR)
5.5% 15 Oct 2023 NR/BB-/BB 168
(SNR)
Pinewood 3.25% 30 Sep 2025 NR/BB/BB 554 0.5
(SNR)
OneSavings Bank 9.125% FRN NR/NR/NR 550 0.4
Perpetual
AXA 5.453% FRN Baa1/BBB+/BBB 501 0.4
Perpetual
Jaguar Land Rover 2.75% 24 Jan 2021 B1/B+/B 465 0.4
Deutsche Bank 7.125% Perpetual B1/B+/B 464 0.4
Experian Finance 3.25% 07 Apr 2032 Baa1/NR/0 302 0.2
Nationwide 5.875% FRN Baa3/BB+/BB 291 0.2
Perpetual
Rothesay Life 8% 30 Oct 2025 NR/NR/BBB 267 0.2
CYBG 9.25% Perpetual Ba2u/B/BB 231 0.2
AMC Entertainment 6.375% 15 Nov Caa1/CCC+/CCC 224 0.2
2024 (SUB NTS)
Legal & General 5.5% 27 Jun 2064 A3/BBB+/BBB 193 0.2
FRN (SUB)
CIS General 12% FRN 08 May NR/NR/NR 100 0.1
Insurance 2025
Petroleos 8.25% 02 Jun 2022 Baa3/BBB/BBB 83 0.1
Mexicanos (SNR)
46,673 38.1
US Dollar
Altice SFR 7.375% 01 May B2/B/B 2,478 2.4
2026
7.5% 15 May 2026 B2/B/B 495
Royal Bank of 7.64% FRN Ba2/BB-/BB 1,328 2.2
Scotland Perpetual
8.625% FRN Ba2u/B+/BB 814
Perpetual
8% Cnv FRN Ba2u/B+/BB 375
Perpetual
7.5% Cnv FRN Ba2u/B+/BB 155
Perpetual
AT&T 4.65% 01 Jun 2044 Baa2/BBB/BBB 2,540 2.1
(SNR)
Teva 6.75% 01 Mar 2028 Ba2/BB/BB 1,524 2.1
Pharmaceutical (SNR)
Finance
7.125% 31 Jan Ba2/BB/BB 994
2025 (SUB)
Stora Enso 7.25% 15 Apr 2036 Baa3/NR/BBB 1,943 1.6
Ziggo Bond 6% 15 Jan 2027 B3/B-/B 1,542 1.5
Finance (SNR)
4.875% 15 Jan B1/B+/B 254
2030 (SNR)
Vodafone Group 6.25% 03 Oct 2078 Ba1/BB+/BB 1,090 1.4
7% FRN 04 Apr Ba1/BB+/BB 621
2079
Fiat Chrysler 4.5% 15 Apr 2020 Ba2/BB+/BB 1,600 1.3
Automobiles
Celanese 4.625% 15 Nov Baa3/BBB/BBB 1,570 1.3
2022
Aker BP 5.875% 31 Mar Ba1/BBB-/BB 1,421 1.2
2025 (SNR)
Lloyds Banking 7.5% 31 Dec 2065 Baa3/BB-/BBB 1,379 1.1
Group
Panther BF 8.5% 15 May 2027 B3/CCC+/B 1,253 1.0
Aggregator (SNR)
Telecom Italia 5.303% 30 May Ba1/BB+/BB 1,217 1.0
2024
Adient 7% 15 May 2026 Ba3/BB-/BB 1,201 1.0
(SNR)
Beazley 5.875% 04 Nov NR/NR/BBB 1,158 0.9
2026
Société Genérale 7.375% 31 Dec Ba2/BB+/BB 1,024 0.8
2065
DKT Finance 9.375% 17 Jun Caa1/CCC+/CCC 1,007 0.8
2023 (SNR)
Marfrig Global 7% 15 Mar 2024 NR/BB-/BB 879 0.7
Foods
Algeco Scotsman 8% 15 Feb 2023 B2/B-/B 811 0.7
(SNR)
Diamond 1 5.45% 15 Jun 2023 Baa3/BBB-/BBB 802 0.7
Neptune Energy 6.625% 15 May B1/BB-/BB 793 0.6
2025 (SNR)
Lamb Weston 4.625% 01 Nov Ba2/BB+/BB 783 0.6
2024
Verizon 4.272% 15 Jan Baa1/BBB+/BBB 780 0.6
Communications 2036
Trinseo 5.375% 01 Sep B2/B+/B 777 0.6
2025 (SNR)
VIVAT 6.25% Perpetual NR/NR/BB 748 0.6
Owens 5.875% 15 Aug B1/B+/B 725 0.6
2023
Barclays 8% FRN Perpetual Ba2/B+/BB 607 0.6
2.75% FRN Ba1/BB+/BB 116
Perpetual
Sigma Holdco 7.875% 15 May B3/B-/B 650 0.5
2026 (SNR)
XPO Logistics 6.5% 15 Jun 2022 Ba3/BB-/BB 637 0.5
(SNR)
FAGE 5.625% 15 Aug B2/B+/B 626 0.5
International 2026 (SNR)
UBS 7% Perpetual NR/BB+/BB 345 0.5
5% Perpetual Ba1u/BB/BB 248
IHO Verwaltungs 6% 15 May 2027 Ba2/BB+/BB 569 0.5
(SNR)
Rothschilds FRN Perpetual NR/NR/NR 514 0.4
Continuation
Finance
Walnut Bidco 9.125% 01 AUG B1/B+/B 482 0.4
2024 (SNR)
Brink's 4.625% 15 Oct Ba2/BB/BB 474 0.4
2027
Marb Bondco 6.875% 19 Jan NR/BB-/BB 462 0.4
2025 (SNR)
DNO ASA 8.375% 29 May NR/NR/NR 255 0.3
2024
8.75% 31 May 2023 NR/NR/NR 177
CIRSA Finance 7.875% 20 Dec B2/B/B 411 0.3
2023
Motion Bondco 6.625% 15 Nov B3/B-/B 406 0.3
2027 (SNR)
Petroleos 6.95% 28 Jan 2060 Baa3/BBB/BBB 197 0.3
Mexicanos (SNR)
6.75% 21 Sep 2047 Baa3/BBB/BBB 180
(SNR)
Ithaca Energy 9.375% 15 Jul B3/B/B 355 0.3
2024 (SNR)
Hertz 7.625% 01 Jun B2/BB-/B 282 0.2
2022
Codere Finance 7.625% 01 Nov Caa1/CCC+/CCC 280 0.2
2021 (SNR)
UniCredit 8% FRN Perpetual NR/NR/BB 273 0.2
International
Bank
Tesco 6.15% 15 Nov 2037 Baa3/BBB-/BBB 217 0.2
(SNR)
PGH Capital 5.375% 06 Jul NR/NR/BBB 212 0.2
2027
Millicom 5.125% 15 Jan Ba2/NR/BB 203 0.2
International 2028
Cellular
Petra Diamonds 7.25% 01 May 2022 Caa1/CCC+/CCC 139 0.1
(SNR)
7.25% 01 May 2022 Caa1/CCC+/CCC 46
(SNR)
J. C. Penney 8.625% 15 Mar Caa2/CCC-/CCC 128 0.1
2025 (SNR)
6.375% 15 Oct Caa3/CCC-/CCC 35
2036 (SNR)
Puma 5% 24 Jan 2026 Ba3/NR/BB 154 0.1
International
Nyrstar 0% 31 Jul 2026 NR/NR/NR 153 0.1
(SNR)
EG Global Finance 8.5% 30 Oct 2025 B2/B/B 144 0.1
(SNR)
BNP Paribas 4.5% FRN Ba1/BBB-/BBB 122 0.1
Perpetual
Deutsche Bank 6% FRN Perpetual B1/B+/B 107 0.1
Trafigura 5.25% 19 Mar 2023 NR/NR/NR 93 0.1
(SNR)
Yum Brands 7.75% 01 Apr 2025 NR/NR/NR 33 0.0
(SNR)
46,413 37.6
Total investments 122,695 99.8
Derivative Instruments - Credit Default Swaps
AT MARKET
VALUE % OF
ISSUER ISSUE Nominal Exposure GBP'000 PORTFOLIO
GBP
Euro
iTraxx Eur Xover Series 33 5% 5 5,334,300 159 0.1
Year 20 Jun 2025
iTraxx Eur Xover Series 32 5% 5 2,667,150 53 0.1
Year 20 Dec 2024
iTraxx Eur Xover Series 32 5% 5 1,778,100 36
Year 20 Dec 2024
Total value of 9,779,550 248 0.2
derivatives
Total investments 122,943 100.0
and derivatives
(1) Moody/Standard & Poor's (S&P)/Equivalent average rating.
Condensed Statement of Comprehensive Income
SIX MONTHS TO 31 MARCH 2020 SIX MONTHS TO 31 MARCH 2019
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Loss on investments held at fair - (20,496) (20,496) - (1,555) (1,555)
value
Profit/(loss) on derivative - 1,257 1,257 - (21) (21)
instruments - currency hedges
Exchange differences - (1,227) (1,227) - 125 125
Income - note 2 4,406 - 4,406 4,236 - 4,236
4,406 (20,466) (16,060) 4,236 (1,451) 2,785
Investment management fee - note 3 (227) (227) (454) (224) (224) (448)
Other expenses (191) (3) (194) (153) - (153)
(Loss)/profit before finance costs 3,988 (20,696) (16,708) 3,859 (1,675) 2,184
and taxation
Finance costs (30) (30) (60) (60) (60) (120)
(Loss)/profit before taxation 3,958 (20,726) (16,768) 3,799 (1,735) 2,064
Taxation - note 4 (5) - (5) (6) - (6)
(Loss)/profit after taxation 3,953 (20,726) (16,773) 3,793 (1,735) 2,058
Return per ordinary share 2.3p (12.1)p (9.8)p 2.3p (1.1)p 1.2p
Weighted average number of ordinary 171,825,181 164,994,855
shares in issue during the period
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 (loss)/profit after
taxation is the total comprehensive (loss)/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 period.
Condensed Balance Sheet
Registered number 75059
AT AT
31 MARCH 30 SEPTEMBER
2020 2019
GBP'000 GBP'000
Non-current assets
Investments held at fair value through profit or 122,943 144,528
loss
Current assets
Margin held at brokers 1,631 189
Prepayments and accrued income 2,605 2,529
Cash and cash equivalents 2,740 4,623
6,976 7,341
Total assets 129,919 151,869
Current liabilities
Amounts due to brokers (1,082) -
Accruals (302) (305)
Derivative financial instruments - unrealised (249) (940)
net loss on currency hedges
Securities sold under agreements to repurchase (20,004) (24,161)
(21,637) (25,406)
Total assets less current liabilities 108,282 126,463
Provision for performance fee - note 3 (306) (306)
Net assets 107,976 126,157
Capital and reserves
Share capital - note 6 8,691 8,503
Share premium 157,729 155,068
Capital reserve (69,030) (48,304)
Revenue reserve 10,586 10,890
Total shareholders' funds 107,976 126,157
Net asset value per ordinary share 62.1p 74.2p
Number of 5p ordinary shares in issue at the 173,819,855 170,069,855
period end - note 6
Condensed Statement of Cash Flows
Six Months Six Months
to 31 March to 31 March
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit before finance costs and taxation (16,708) 2,184
Tax on overseas income (5) (6)
Adjustments for:
Purchase of investments (30,166) (20,261)
Sale of investments 32,337 19,015
2,171 (1,246)
(Decrease)/increase in securities sold under (4,157) 2,477
agreement to repurchase
Loss on investments held at fair value 20,496 1,555
Net movement from derivative instruments - (691) 467
currency hedges
Increase in receivables (1,518) (376)
Decrease in payables (3) (31)
Net cash (outflow)/inflow from operating (415) 5,024
activities
Cash flows from financing activities
Finance cost paid (60) (106)
Net proceeds from issue of new shares 2,865 -
Dividends paid - note 5 (4,273) (4,124)
Net cash outflow from financing activities (1,468) (4,230)
Net (decrease)/increase in cash and cash (1,883) 794
equivalents
Cash and cash equivalents at start of the period 4,623 2,775
Cash and cash equivalents at end of the period 2,740 3,569
Reconciliation of cash and cash equivalents to
the Balance Sheet is as follows:
Cash held at custodian 2,740 1,539
Invesco Liquidity Funds plc* - money market fund - 2,030
Cash and cash equivalents 2,740 3,569
Cash flow from operating activities includes:
Dividends received 99 85
Interest received 4,224 3,943
Changes in liabilities arising from financing
activities:
Opening securities sold under agreements to 24,161 22,109
repurchase
(Decrease)/increase from securities sold under (4,157) 2,477
agreements to repurchase
Closing securities sold under agreements to 20,004 24,586
repurchase
* Formerly Short-Term Investment Company (Global Series) plc.
CONDENSED STATEMENT OF CHANGES IN EQUITY
SHARE SHARE CAPITAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the six months ended 31 March
2020
At 30 September 2019 8,503 155,068 (48,304) 10,890 126,157
Total comprehensive loss for the - - (20,726) 3,953 (16,773)
period
Dividends paid - note 5 - (16) - (4,257) (4,273)
Net proceeds from issue of new shares 188 2,677 - - 2,865
- note 6
At 31 March 2020 8,691 157,729 (69,030) 10,586 107,976
For the six months ended 31 March
2019
At 30 September 2018 8,250 151,560 (50,484) 11,351 120,677
Total comprehensive income for the - - (1,735) 3,793 2,058
period
Dividends paid - note 5 - - - (4,124) (4,124)
At 31 March 2019 8,250 151,560 (52,219) 11,020 118,611
Notes to the Condensed Financial Statements
1. Basis of Preparation
The condensed financial statements have been prepared using the same accounting
policies as those adopted in the 2019 annual financial report. They have been
prepared on an historical cost basis, in accordance with the applicable
International Financial Reporting Standards (IFRS), as adopted by the European
Union and, where possible, in accordance with the Statement of Recommended
Practice for Financial Statements of Investment Trust Companies and Venture
Capital Trusts, issued by the Association of Investment Companies in October
2019.
2. Income
Six months Six months
to 31 Mar 2020 to 31 Mar 2019
GBP'000 GBP'000
Income from investments:
UK dividends 85 85
UK bond interest 1,849 1,712
Overseas dividends 16 5
Overseas bond interest 2,449 2,426
Deposit interest 7 8
Total 4,406 4,236
3. Management Fee, Performance Fees and Finance Costs
Investment management fees and finance costs are allocated equally to revenue
and capital. The management fee is 0.8% on the first GBP80 million of
shareholders' funds; 0.7% on the next GBP70 million; and 0.6% on any excess of
shareholders' funds over GBP150 million.
The performance fee arrangements were removed with effect 1 October 2017. The
deferred performance fee arising in the year ended 30 September 2017, continues
to be recognised as a provision of GBP306,000 as at 31 March 2020 (30 September
2019: GBP306,000).
4. Taxation
The Company is subject to Jersey income tax at the rate of 0% (2019: 0%). The
tax charge consists of irrecoverable withholding tax on overseas income.
5. Dividends Paid
Six months Six months
to 31 Mar 2020 to 31 Mar 2019
GBP'000 GBP'000
Fourth interim of 1.25p 2,126 2,062
First interim of 1.25p 2,147 2,062
Total paid 4,273 4,124
The first interim for the quarter ended 31 December 2019 was paid on 31 January
2020 to Shareholders on the register on 3 January 2020. The second interim for
the quarter ended 31 March 2020 was paid on 30 April 2020 to Shareholders on
the register on 3 April 2020.
6. Share Capital, including Movements
Six months Year to
to 31 Mar 2020 30 Sept 2019
Share capital:
Brought forward GBP8,503,000 GBP8,250,000
Net issue proceeds GBP188,000 GBP253,000
Carried forward GBP8,691,000 GBP8,503,000
Number of ordinary shares:
Brought forward 170,069,855 164,994,855
Issued in period 3,750,000 5,075,000
Carried forward 173,819,855 170,069,855
Per share:
- average issue price 76.73p 75.02p
Subsequent to the period end 650,000 ordinary shares were issued at an average
price of 63.93p.
7. Classification under Fair Value Hierarchy
AT 31 MAR 2020 AT 30 SEPT 2019
LEVEL 1 LEVEL 2 LEVEL 1 LEVEL 2
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets designated at fair value
through profit or loss:
Debt securities - 120,607 - 142,722
Equities - convertible preference 539 1,549 162 1,644
shares and common stock
Derivative financial instruments:
Credit default swaps - 248 - -
Total for financial assets 539 122,404 162 144,366
Financial liabilities designated at fair
value through profit or loss:
Derivative financial instruments:
Currency hedges - 249 - 940
Total for financial liabilities - 249 - 940
8. Status of Half-Yearly Financial Report
The financial information contained in this half-yearly report, which has not
been reviewed or audited, does not constitute statutory accounts as defined in
Article 104 of Companies (Jersey) Law 1991. The financial information for the
half years ended 31 March 2019 and 2020 has not been audited. The figures and
financial information for the year ended 30 September 2019 are extracted and
abridged from the latest published accounts and do not constitute the statutory
accounts for that year.
By order of the Board
JTC Fund Solutions (Jersey) Limited
Company Secretary
15 May 2020
END
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May 18, 2020 02:00 ET (06:00 GMT)
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