CT UK Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2024

Date:                      29 May 2024

LEI:                         21380052ETTRKV2A6Y19

Highlights for the half-year ended 31 March 2024:

·    The Company's Net Asset Value ("NAV") total return⁽³⁾ was 12.9%, outperforming the FTSE All-Share Index (the "Benchmark") which returned 6.9% over the same period.

·    Share price total return⁽³⁾ was 9.5%. The share price ended the period at 319p.

·    The dividend⁽¹⁾ for this half-year of 5.70p represents an increase of 3.6% in comparison to the six-months ended 31 March 2023 and provides Shareholders with an annual yield⁽²⁾ of 3.9%.

·    The Company is recognised as a "Dividend Hero" by the Association of Investment Companies having increased its dividend every year since launch in 1992. 

"During the period under review the Company has delivered NAV growth of 12.9% per share on a total return basis compared to its FTSE All Share benchmark which increased by 6.9% over the same period.  The Company's share price total return was 9.5%.  A further interim dividend of 2.85p per share has been declared, extending the Company's record of annual dividend increases.  The Board is pleased that the Company continues to demonstrate that it offers shareholders a reliable income while at the same time seeking to grow the size of their investment."

Jane Lewis

Chair

SUMMARY OF RESULTS

(1)    The first interim dividend of 2.85 pence per share was paid on 28 March 2024 and the second interim dividend of 2.85 pence per share is payable on 28 June 2024 to Shareholders registered on 14 June 2024 with an ex-dividend date 13 June 2024.

(2)    Calculated as the total of the four most recent quarterly dividends declared divided by the period end share price.

(3)    Total Return - the return to Shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or Net Asset Value in the period. The dividends are assumed to have been re-invested in the form of shares or net assets, respectively, on the date on which the shares were quoted ex-dividend.

The Chair, commenting on the results, said:

Dear Shareholder,

I am pleased to report that over the six months to 31 March 2024, the UK stock market, as measured by the FTSE All-Share Index, experienced a reasonable gain of 6.9% (including dividends), while our own Net Asset Value ('NAV') per share increased more with a gain of 12.9% (including dividends). With this half-year report, we also announce another increase in our dividend.

Total Return - The Company offers reliable income while at the same time seeking to grow the size of your investment

At face value, it is perhaps surprising that the UK stock market has made any progress over the six months under review as early in the period, corporate financial results were widely seen as disappointing, the UK economy was in recession from October to December and geopolitical events continued to cause concern. Despite this, our portfolio was able to make significant headway, in both absolute terms and relative to our benchmark, the FTSE All-Share Index.

The first month of our reporting period, October 2023, was difficult for the UK stock market as the FTSE All-Share Index fell by over 4%, largely as a consequence of disappointing corporate results, or in some cases, just the fear of poor results. October also marked Hamas's attack on Israel and the start of greater insecurity in the wider Middle East. The equity market's low point for the period was towards the end of that month, since when there has been a reasonable rally.

The dominant theme behind the turn and subsequent strength of the market was data indicating that inflation in the UK was falling which brought hope that interest rates would start to reduce as well. The Bank of England's Official Bank Rate (the 'Bank Rate') was unchanged throughout the six months at 5.25%, but the direction of forecasts did change.  At the start of October market forecasts were for the Bank Rate to increase further, however, more recently the expectation is that the Bank Rate, in six months' time, will be below 5%. The fall in forecast rates may be relatively modest, but the change in direction of rates is symbolic, allowing investment sentiment to become more positive.

The strongest total returns from stocks within our portfolio came from CRH, the building materials supplier (+54%), Intermediate Capital, the specialist lender (+51%) and DS Smith, the packaging business (+41%). Both CRH and Intermediate Capital are driving strong growth in their businesses, which will be helped further by lower interest rates, while DS Smith received the first of two take-over approaches.

In a balanced portfolio it is inevitable that at some point some companies will perform poorly, the two worst in our portfolio during this six-month period were XP Power, the supplier of power control systems (-54%) and Close Brothers, the merchant banking group (-50%). The issues affecting these companies were very different, XP Power suffered from volatility in customer orders, which we expect to stabilise in time. Close Brothers was impacted by the possibility of compensation claims within its motor finance division.

Looking now at longer term performance, it is notable that the effect on the Company of the turmoil of 2022, including Russia's invasion of Ukraine, rising interest rates and the Truss/Kwarteng 'mini-budget' are now outweighed by the strength of performance in previous and subsequent years, leading to outperformance of our benchmark, and supporting your Company's long term growth objectives.

Income Growth - The Company has increased its dividend every year since it was launched, through the market's ups and downs

We have previously announced a dividend for our first quarter of 2.85 pence per share and I am pleased to announce we will also pay this amount for the second quarter. The total, therefore, for the first half-year is 5.70p, an increase of 3.6% over the comparable period last year.

Our revenue, which is the dividends we receive from our investments, fell compared to the first six months of our previous financial year. This reflects a number of specific issues, rather than a more general weakening of dividend generating ability from the whole portfolio. First, there was the effect of timing as dividends from two companies, totalling almost £1.4 million, which were recorded in the first half last year will fall into our second half. Dividends from these companies are expected to increase over the year as a whole. Secondly, in a couple of instances, companies decided to suspend their dividend payments in order to preserve cash and strengthen their balance sheets. Our fund manager took the view that it would be disadvantageous to sell these companies at what could prove to be a moment of exaggerated pessimism and a temporarily depressed share price. This has certainly been the case with Close Brothers and also Hipgnosis Songs Fund, the music royalties business, which has subsequently had four public take-over bids. Finally, other portfolio companies, such as Vistry Group, the house builder, returned cash to shareholders through share buy-backs rather than dividends and its share price has been strong in response.

Dividend Cover and Revenue Reserve

Although our dividends for the first half of the year are not fully covered by earnings, our forecasts for the rest of the year and the stronger capital generation demonstrated during the period under review lead us to be more optimistic for the second half. At the start of this year, our Revenue Reserve was £12.3 million and as we have noted in the past, we have the ability to use this to help finance our dividend payment, where required.

We are proud of our record of more than 30 years of dividend growth and recognise that it is an important attraction for our shareholders. We aim to extend our record of dividend growth yet further.

Share Issuance and Buy-backs

As a principle, the Board believes our share price should not become too detached from the underlying NAV per share. In order to try to keep the share price and NAV relatively close together we are willing and able to buy and sell the Company's own shares when they trade too far adrift from that anchor.  

In the first six months of this financial year, we bought 2.3 million shares at an average discount to NAV of 4% marginally adding to NAV for remaining shareholders, while also providing some liquidity to the stock market.

Share Price Premium/Discount

Discounts have generally widened across investment trusts in recent months, but with our share buy-back programme we are seeking to mitigate the widening of our discount. During the six months under review, the share price traded at an average discount to NAV of (3.8)% and within a range of (1.2)% to (5.8)%. The shares ended the period trading at a wider discount (4.3)% than at the start (1.2)% which meant that the share price total return of 9.5% was rather less than that of the NAV, although it was still well ahead of the FTSE All-Share Index.

Balance Sheet and Gearing

Our previous loan facility with The Bank of Nova Scotia came to an end in March 2024 and a new facility with The Royal Bank of Scotland International replaces it. We started the financial year having borrowed £25 million and increased this to £26 million during the six months, giving net gearing as at 31 March 2024 of 6.4%.

Directorate Change

The Board recognises the value in both attracting fresh talent and the maintenance of continuity and accordingly a plan has been developed to ensure an orderly succession as Directors retire.

I was appointed to the Board in November 2015 and became Chair with effect from 1 July 2023. As a part of the Board's ongoing succession planning and in accordance with corporate governance best practice, I announce my intention to retire from the Board at the conclusion of the Company's 2025 Annual General Meeting.

Upon my retirement, Nicky McCabe, the Company's Senior Independent Director, who was appointed to the Board in January 2021 will become Chair. Nicky has extensive sector experience as she was formerly Head of Product and Investment Trusts at Fidelity International as well as a director and Chief Operating Officer of a number of Fidelity companies. Nicky is currently a non-executive director of abrdn Asian Income Fund Ltd, Artemis Investment Management Limited and EFG Asset Management (UK) Limited.

The Board will commence the process to recruit a new Director later this year.

Outlook

The UK stock market has made reasonable gains since the start of our financial year. Nevertheless, UK equities have performed less well and are valued at a lower level than many other international markets. This certainly provides scope for additional progress. 

There is also tangible evidence that certain stocks in the UK market are cheap.  The increasing number of corporate bids and acquisitions within the UK stock market gives first-hand evidence that acquirors, whether they be industry peers or financial buyers, recognise the value available and are prepared to pay up for it, with take-over premiums being at levels substantially above pre-bid share prices.

The Board continues to support our fund manager's investment in companies he strongly believes in, many of which generate revenues outside of the UK and which have the sustainable foundations to continue profitable growth into the future.

On behalf of the Board

Jane Lewis

28 May 2024

Forward -looking statements

This half-year report may contain forward-looking statements with respect to the financial condition, results of operations and business of the Company. Such statements involve risk and uncertainty because they relate to future events and circumstances that could cause actual results to differ materially from those expressed or implied by forward-looking statements. The forward-looking statements are based on the Directors' current view and on information known to them at the date of this report. Nothing should be construed as a profit forecast.

Directors' Statement of Principal Risks and Uncertainties

Most of the Company's principal risks and uncertainties are market related and no different from those of other investment trusts investing primarily in listed equities. They are described in more detail under the heading "Principal Risks and Future Prospects" within the Strategic Report in the Company's Annual Report for the year ended 30 September 2023.

The principal risks identified in the Annual Report were:

Market and Political Risks

Macroeconomic and geopolitical risk including rising international tensions arising from the war in Ukraine, events in the Middle East, disputes in the South China Sea, and UK and US elections.

Investment Performance Risks

Unfavourable markets or asset allocation, sector and stock selection and use of gearing and derivatives are inappropriate giving rise to investment underperformance as well as impacting capacity to pay dividends.

Cyber, Legal and Regulatory Risks

Errors, fraud or control failures at service providers or loss of data through increasing cyber threats or business continuity failure could damage reputation or investors' interests or result in losses.

Product Strategy Risks

Inappropriate business or marketing strategy particularly in relation to investor needs or sentiment giving rise to a share price discount to NAV per share.

At present the global economy continues to suffer disruption due to the war in Ukraine, events in the Middle East and the after-effects of a high inflation environment. The Directors continue to review the key risk register for the Company which identifies the risks that the Company is exposed to, including those that are considered to be emerging, the controls in place and the actions being taken to mitigate them.

The Board considers that the principal risks have not changed materially since 29 November 2023, the date of the Company's Annual Report. The Board has also considered these principal risks in relation to going concern.

Directors' Statement of Responsibilities in Respect of the Half-Yearly Financial Report

We confirm that to the best of our knowledge:

·      the condensed set of financial statements have been prepared in accordance with applicable UK Accounting Standards on a going concern basis and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      the Chair's Statement and the Directors' Statement of Principal Risks and Uncertainties (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure Guidance and Transparency Rule ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·      the Directors' Statement of Principal Risks and Uncertainties is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

·      the half-yearly report includes a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

Jane Lewis

Chair

28 May 2024

Condensed Income Statement

The total column of this statement is the profit and loss account of the Company.  The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 

                  All revenue and capital items in the above statement derive from continuing operations.

                  A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

Condensed Statement of Changes in Equity

Condensed Balance Sheet

Condensed Statement of Cash Flows

Notes

1      Basis of preparation

These condensed financial statements, which are unaudited, have been prepared on a going concern basis in accordance with the Companies Act 2006, FRS 102, Interim Financial Reporting (FRS104) and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by the AIC.

The accounting policies applied in the condensed set of financial statements are set out in the Company's Annual Report for the year ended 30 September 2023.

2      Earnings per ordinary share

Earnings per ordinary share attributable to Shareholders reflects the overall performance of the Company in the period.  Net revenue recognised in the first six months is not necessarily indicative of the total likely to be received in the full accounting year.

3      Dividend

The second interim dividend of 2.85 pence per share in respect of the year ending 30 September 2024 will be paid on 28 June 2024 to all Shareholders on the register at close of business on 14 June 2024, with an ex-dividend date of 13 June 2024. The total cost of this dividend, based on 101,385,845 shares in issue, and entitled to the dividend on 27 May 2024, being the last practicable date before publication, is £2.9 million.

4      Going concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have also considered the Company's objective, strategy and policy, the current cash position of the Company, the availability of the loan facility and compliance with its covenants and the operational resilience of the Company and its service providers.

The global economy continues to suffer disruption due to the war in Ukraine, events in the Middle East, disputes in the South China Sea and the after-effects of a high inflation environment and the Directors have given careful consideration to the consequences for this Company. The Company has a number of banking covenants and at present the Company's financial position does not suggest that any of these are close to being breached.

The primary risk is that there is a very substantial decrease in the Net Asset Value of the Company in the short to medium term. The Directors have considered the remedial measures that are open to the Company if such a covenant breach appears possible. As at 27 May 2024, the last practicable date before publication of this report, borrowings amounted to £26 million. This is in comparison to a Net Asset Value of £355.1 million. In accordance with its investment policy the Company is mainly invested in readily realisable, FTSE All-Share listed securities. These can be realised, if necessary, to repay the loan facility and fund the cash requirements for future dividend payments.

The Company operates within a robust regulatory environment. The Company retains title to all assets held by the Custodian. Cash is held with banks approved and regularly reviewed by the Manager and the Board.

Based on this information the Directors believe that the Company has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, these financial statements have been prepared on a going concern basis.

5      Results

The results for the half-year ended 31 March 2024 and 31 March 2023, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 September 2023; the report of the independent auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 September 2023 are an extract from those accounts.

6      Half-Year Report

The Company's Half-Year Report is available on the internet at www.ctcapitalandincome.co.uk.

Printed copies may be obtained by contacting the Company Secretary at the Company's Registered Office, Cannon Place, 78 Cannon Street, London EC4N 6AG.

By order of the Board

Columbia Threadneedle Investment Business Limited, Secretary

28 May 2024