CAYENNE TRUST PLC
During the six months under review the Company's Net Asset Value per share (NAV), calculated in accordance with AIC guidelines, increased by 3.22p (2.2%) and a dividend of 1.2p was paid on 20 June 2014. This equates to a total return for the period of 3.1%. Over the period the share price total return was 3.0% and the FTSE All Share Investment Instruments Index (FTASEII) appreciated by approximately 3.9%. It is now two years since the Company adopted a revised hedging strategy and embarked on the process of rationalising and refocusing the portfolio. Since that time, performance both in absolute terms and relative to its benchmark and closest peers has been most satisfactory.
In the report which follows, your Manager highlights a number of issues which are influencing stock market sentiment. The most obvious of these is the long-running support to markets provided by central banks through their ultra-loose monetary policy. It is clear that without such support, markets would not be trading at such elevated levels. What is less clear, and what concerns the investment community, is what will happen as stimulus is withdrawn and policy tightens. Your Manager continues to invest in order to participate in much of the stock market's gains, but with this probable headwind in mind.
As ever, the Company operates a rigorous discount control mechanism which ensures that the Ordinary shares do not trade at a discount to NAV in excess of 5%. Over the course of the period under review, the Company repurchased and placed into Treasury 218,296 shares for an aggregate consideration of £305,329. No shares were cancelled and, as a result, there are currently 4,525,329 Ordinary shares held in Treasury which are available for reissue at a discount of 4% or less.
Chairman
15 September 2014
Investment Manager's Report
Economic and geopolitical developments injected some volatility into markets, however, over the period as a whole the multitude of equal and opposite forces led to little overall change in equity index levels. Of particular note are economic developments in the USA,
the UK and Europe and their impact on the thoughts and 'guidance' provided by central bankers, and the state of play in China still
weighs heavily on investor sentiment. The positive, though reduced, stimulus provided by central banks and a distinct pick-up in M&A activity has provided a much needed antidote to the political (Syria, Iraq, Israel & Ukraine) uncertainty. Hidden within this apparent lack of direction was some notable sectorial and segmental rotation. Our favourite sectors; Private Equity; Technology; Healthcare and Biotechnology all came under pressure at certain points within the period, but all recovered lost ground and ended on a positive note. Exposure to Real Estate, Emerging Markets (sold during the period) and Mining proved beneficial to the Company as was, on a relative basis, a lack of any exposure to Eastern Europe. The Company also has some indirect exposure to a number of smaller company investments which, while experiencing a difficult period, have not unduly impacted on overall performance.
We highlighted at the last year-end that a number of Investment Company IPOs had struggled to reach critical mass and that some had even failed to garner sufficient support to be viable. While there is still an appetite for issues offering high yields, the market appears to be suffering some indigestion at the moment. The premium rating of many existing income products has eased and the broader sector (and particularly the smaller company space) has noticeably decreased from its historically tight levels. The reason for this drop-off in demand is uncertain but it is a fair assumption that speculation surrounding central bank policy and increased geopolitical uncertainty is probably to blame.
With some degree of economic uncertainty and a number of known risks, we continue to focus on high quality investments and those which should provide our shareholders with 'asymmetric' returns by maximising upside potential and capping downside risk. The portfolio remains very tightly controlled and focused on a small number of holdings within the five distinct 'asset classes' which we highlighted at the last year-end. With a weighting of 6.7%, the Apollo Fund (also managed by Cayenne Asset Management) represents the Company's largest single investment and the following asset breakdown includes this investment on a look through basis. Listed Private Equity still makes up the largest sector with exposure of 27%; Sector Specialists (predominantly Technology, Healthcare and Real Estate) also represent approximately 27%. Exposure to Convertible Loan Stocks and Bonds and to Equity Special Situations has been increased to 17% and 14% respectively at the expense of the General Equity book, which has been reduced to just 11%. Current assets account for the balance (4%) of the portfolio.
As always, we comment on the major portfolio positions below, grouped by the asset classes above. With the exception of the Apollo Fund plc, we highlight the current discount or premium and our estimate of the reasonable value (RV) at which we would expect such funds to trade in normal market conditions.
Exposure to Apollo Fund (also managed by Cayenne Asset Management) was increased from the beginning of August and now accounts for 8% of the portfolio. The fund has a long record of extracting value from deep value and illiquid opportunities within the Investment Company sector, especially those with higher risk or lower liquidity characteristics than the investments in the Company's own portfolio. While there is of course some overlap between the two portfolios, the majority of the holdings are distinct. Apollo's regulatory environment places fewer constraints on its portfolio construction
and this allows the Company to gain access to opportunities which might not otherwise be available to it. Holdings in Apollo include special situations such as Marwyn Value, Gresham House and Renn Universal Growth. It also owns Pantheon International Participations Redeemable shares which, while significantly cheaper than the Ordinary shares held by the Company, are far less liquid.
Exposure to the Listed Private Equity (LPEq) (including on a look through basis via Apollo Fund) was maintained in the 25 - 30% range throughout the period. Indeed, other than a switch out of Electra Private Equity at close to NAV into HgCapital Trust at a 10% discount, the Company's investments remained little changed. In addition, each of the Company's other holdings were adjusted at various times as relative valuations fluctuated. The private equity sector again produced returns in excess of those provided by the equity market and our LPEq holdings outperformed the sector. The discounted valuations at which these funds trade continue to provide a compelling investment opportunity, above and beyond the well documented benefits of private equity investment in general. We expect the sector to continue its long re-rating process and for underlying returns to be ahead of equity markets over the longer term. On a corporate level, the noise surrounding Electra continues to focus a spotlight on the sector.
F&C Private Equity Trust (FPEO) www.fcpet.co.uk
16% Discount RV: 10% Discount
FPEO started the period on a high, with the share price gaining 10% over the first 3 months. We took the opportunity to reduce exposure at this all-time high and at a discount to NAV of 10%. Following this disposal, the discount widened out to 15% at
which time an institutional placing of stock (below the market price) allowed us to re-establish a full position at a 20% discount
to NAV. Activity at the portfolio level over the period was relatively quiet and NAV progress rather muted. On a corporate level however, uncertainty over the future has been removed as the board has concluded the long-awaited refinancing of the fund. We view this restructuring positively as the expensive ZDPs (due for redemption in December 2014) have been replaced with more cost effective and flexible bank facilities which have the additional benefit of simplifying the balance sheet. The fund continues to pay out 4% of the NAV annually by way of dividend and this, together with a significant discount and simplified structure, should appeal to investors looking for an attractive yield from a growing asset base.
Pantheon International Participations (PIN) www.pipplc.com
16% Discount RV: 10% Discount
PIN is typical of the general prognosis for the LPEq sector. At approximately 5%, the NAV return was comfortably ahead of equity markets (in spite of adverse currency movements) while a slight narrowing of the discount led to a share price gain of 7.5%. The PIN portfolio continues to generate cash levels in excess of calls, while selective commitments to primary investments, co- investments and secondary deals has ensured that the portfolio continues to be renewed for future returns. PIN continues its share repurchase program and while this is in place it remains a core holding for the Company.
NB Private Equity Partners (NBPE) www.nbprivateequitypartners.com
20% Discount RV: 10% Discount
NBPE exhibits one of the best reward / risk profiles in the LPEq sector. Over the period, the NAV gained approximately 4% in £ Sterling terms, while on the same basis the share price rose 5%. The hybrid portfolio of private equity co-investments, corporate private debt and private equity funds produces an interesting return profile for this fund. The portfolio reshaping process continues at a conservative pace and the allocation to co-investments and private debt now makes up approximately 70% of the assets. The semi-annual dividend (with a current yield of over 4%) is now fully covered by the income from the debt portfolio. This asset mix makes NBPE a unique proposition within the investment company sector and is worthy of a greater following. Indeed, if the disadvantageous listing characteristics could be addressed by its board, NBPE would surely trade at a price significantly closer to NAV.
HgCapital Trust (HGT) www.hgcapitaltrust.com
11% Discount RV: 5% Discount
HGT endured a problematic period following the release of disappointing results in August 2013. The NAV came in at 5% below the market consensus at that time and the share price subsequently declined by over 15%. We entered the position following this sell- off and expect the set-back to be short-lived and that a recovery in the NAV, and therefore a re-rating, will be forthcoming. Results released post our reporting period this year certainly appear encouraging. Sales and EBITDA growth across the majority of the portfolio is now running at above 10%. Problematic positions including renewable energy (now just 3% of the portfolio), Sporting Index and Atlas have been written down, but as expected some previous write-downs have been written back up. Excluding realisations, the most notable uplifts came from 2010 vintage investments including TeamSystem and SimonVoss. Over the period, HGT made notable sales in Scleich (at a 55% uplift to carrying value), Manx Telecom (30% uplift) and Visma (30% uplift). Investments (including a re-investment in Visma) include Zenith (vehicle leasing) and the technology businesses; Ullink and Relay Software.
Graphite Enterprise Trust (GPE) www.graphite-enterprise.com
13% Discount RV: 8% Discount
GPE made steady yet unspectacular progress over the 6 month period with any NAV appreciation (subject to revaluations) held back by adverse currency movements. The share price initially enjoyed a successful period, appreciating by over 10% before a summer reversal set-in. As with FPEO, we used this initial re-rating to reduce exposure at a 10% discount to NAV but may top-up the position again should the rating slip much further. GPE is one of our preferred hybrid LPEq funds as it has an excellent track record, strong management team and a very strong balance sheet. Major realisations include Education Personnel (6x return and a 70% uplift to carrying value) and London Square (50% uplift).
The Company continues to focus a meaningful proportion of its portfolio on various themes and in sectors which we see as being beneficiaries of long-term demographic changes (healthcare) or new, and therefore disruptive, technologies. In addition, sectors which are going through structural change or a financial sweet-spot (such as real estate) may also be included.
Healthcare (9%)
Worldwide Healthcare Trust (WWH) www.worldwidewh.com
4% Discount RV: 5% Discount
WWH is the bellwether healthcare fund within the investment company sector. Its unconstrained global mandate provides investors with exposure to pharmaceutical companies, biotechnology, life sciences tools and services, managed healthcare and
medical technology. The fund continues to outperform its benchmark MSCI World Healthcare Index by a healthy margin mainly
due to its overweight position in biotechnology and underweight in mega-cap pharma. Whilst we agree with this positioning and continue to hold this fund in high regard, we have better value healthcare investments in the portfolio, so have restricted exposure to WWH accordingly.
Polar Capital Global Healthcare Trust (PCGH) www.polarcapitalhealthcaretrust.com
7% Discount RV: 2% Discount
PGCH is a purer play on the global pharmaceutical sector because its income mandate limits its exposure to companies other than large-cap pharmaceuticals. The portfolio is split 80/20 in favour of income stocks over growth stocks and is therefore relatively defensive versus its listed healthcare rivals. In a period when biotechnology ratings were called into question and the sector came under short-term (but intense) pressure, we appreciated the diversifying nature of the fund. In March and April the majority of the London listed funds declined by between 15 and 25%, PGCH fell 8% at worst and, despite a significant rally by its competitors, tops the league for performance over the period.
BB Biotech (BION) www.bbbiotech.ch
26% Discount RV: 10% Discount
Like all Biotech funds, BION was affected by the spring sell-off but the significant discount to NAV, at which the shares started the period, insulated shareholders from much of the NAV decline. The fund paid a dividend of CHF7 per share and, as a result, the shares produced a positive total return for the period of 4.1% whilst Biotech Growth and International Biotech, BION's London-listed rivals, declined 6.1% and 5.3% respectively. BION continues to run a high conviction portfolio of (mainly) profitable biotechnology companies which focus on addressing unmet medical needs, especially in oncology and infectious diseases. BION reports that the 2Q earnings season was positive for many of its investee companies (including Pharmacyclics and Gilead) and that M&A and trial results have added value to selective holdings (Puma Biotechnology +4% uplift to NAV). Despite these successes, BION continues to trade at a wide discount to NAV and to its UK peers. BION has been active in raising awareness among UK investors and although we see the annual 5% dividend and 5% repurchase programme as positive initiatives, more needs to be done.
HBM Healthcare Investments (HBMN) www.hbmhealthcare.com
27% Discount RV: 15% Discount
Swiss listed HBMN invests in public and private companies in the biotechnology, speciality pharma, medical technology and diagnostic sectors. This exposure is split roughly 65% public companies, 15% private companies, 10% private equity funds and 10% other assets. HBMN enjoyed a successful period and avoided the worst ravages of the biotech sell-off, with the NAV gaining 7.7% and the shares returning 13.1%. HBMN experienced a number of successes over the period including the tender by Skyepharma for its bonds (2% uplift to NAV), Opthotech licensing agreement (5% uplift) positive opinion from EMA for PTC Therapeutics (1.5% uplift) and the, as yet unconsummated, merger between Paratek Pharmaceuticals (an unlisted holding) and NASDAQ-listed Transcept Pharmaceuticals. Despite these many successes; a repurchase of stock via the issue of listed put options; and a CHF3 cash distribution, the shares still languish at an excessive discount to NAV. One reason for this is the rather parochial nature of this fund and its unsophisticated shareholder base. It is disappointing that its board opposed an AGM resolution, tabled by the largest shareholder, to remove some voting restrictions which (if passed) may have helped to narrow the discount. The fact that 32% of shareholders supported the resolution shows that there is some appetite to address the issue. We hope that progress will be made over the coming months to address the stubbornly wide discount.
Polar Capital Technology Trust (PCT) www.polarcapitaltechnologytrust.co.uk
5% Discount RV: 0% Discount
Good results at incumbent businesses such as Adobe and Intel, and poor ones at Samsung and ARM, were over-shadowed by headline grabbing M&A deals involving WhatsApp and Nest Labs and IPOs such as Zoopla and King Digital. Clearly some of these stocks will fail to live up to their hype and that's what concerned the market in the spring when some commentators warned of a second internet bubble. Ben Rogoff, the manager of PCT, accepts that there were some stocks which appeared to be trading at extreme valuations but, on the whole, the sector continues to trade on strong fundamentals. While Ben is happy to hold incumbent stocks where valuations are drifting higher, his favoured sectors continue to be next-generation companies where smartphone penetration has changed the worlds of social media, search and e-commerce. He also stands by his positive outlook for internet infrastructure, broadband applications and mobility, and reinforces his belief that the Cloud has begun to 'substitute rather than merely complement existing technologies'.
Herald Investment Trust (HRI) www.heralduk.com
17% Discount RV: 10% Discount
HRI was caught up in the rush to dispose of risk assets (and smaller company stocks in particular), as the market rotation took hold in the spring. However, unlike PCT, HRI has failed to recover the ground it lost despite market sentiment improving in recent months. HRI focuses on smaller companies within the technology sector and was therefore buffeted by the dual forces of NAV erosion and a de-rating of the share price versus the NAV. The result is that this much respected fund has returned to a wide discount, just as it appeared to have left its poor historical rating behind it. Perhaps there really is no call for a specialist fund within this specialist sector, which would be a shame as NAV performance has been exceptionally good. Either way, we are comfortable that HRI provides the Company with much needed diversification within its technology allocation and any improvement in the rating will provide a fillip to performance, should demand for this unique offering pick-up.
TR Property Investment Trust (TRY) www.trproperty.com
2% Discount RV: 0% Discount
The commercial real-estate market both throughout the UK and across Europe has, on a total return basis, appreciated by approximately 10% so far this year. We had three positions (TRY, Schroder Real Estate Investment Trust and F&C UK Real Estate Investments) giving us exposure to this sector and each has made a positive contribution to the portfolio. While the direct funds have their benefits (and have been purchased and sold opportunistically over the period) our favoured conduit for exposure to the real-estate market remains TRY. We first purchased this position at a 10% discount to NAV in 2013 and retain a position at close to NAV. We appreciate the liquid and diverse nature of the underlying portfolio and the knowledge and shrewdness of the manager, Marcus Phare-Mudge. Marcus argues that REITs and other listed property companies should, and indeed do, outperform physical property indices in the longer term and we share his enthusiasm for his portfolio, despite the slowdown in a number of European economies where some of TRY's companies operate.
A convertible bond or loan stock is a hybrid instrument which provides asymmetric returns in line with the Company's own objective. Their return profiles tend to provide downside protection in falling markets versus a high degree of participation in any positive movement in the underlying stock. Investing in CULS has been a successful strategy for the Company over the last few years and continues to offer superior reward / risk characteristics for future returns. An allocation to this asset class is a natural use of the Company's gearing which is provided by its own CULS in issue. The largest positions within this book are Aberdeen Asian Smaller Companies 3.5% CULS 2019 (AASC), Ecofin Water & Power Opportunities 6% CULS 2016 (ECWL) and Standard Life Smaller Companies 3.5% CULS 2018 (SLSC). We would be very unlikely to invest in the ordinary shares of any of these funds in the present environment as none fits within our current strategy. That said, all these funds have tremendous upside potential and a holding in their CULS allows us some participation in gains without significant risk to capital. Yields of between 3.5% and 6% compensate us for the lack of full upside participation. As the period came to a close, two new opportunities to invest in the sector (via F&C Global Smaller Companies 3.5% 2019 CULS and JZ Capital Partners 6.0% CULS 2021) presented themselves and we participated in both issues. We have built up valuable positions in CULS over the years by carefully selecting from a range of new issues and there is no reason to suggest that this strategy should come to an end.
JP Morgan Global Convertibles Income Fund (JGCI) www.jpmconvertiblesincome.co.uk
3% Premium RV: 2% Premium
In addition to the direct CULS holdings above, the Company took a position in the sector's only convertible bond fund on its issue in
2013. We believe that JGCI gives us access to a broad portfolio of convertibles possessing solid bond like characteristics, but with equity optionality. The dividend yield in excess of 4.0% provides an attractive return on capital and has been augmented by a 7%
growth in capital value since launch 12 months ago.
RIT Capital Partners (RCP) www.ritcap.com
5% Discount RV: 3% Discount
RCP is one of three industry behemoths which make up the majority of our special situations book. RCP is managed to best suit the interests of the Rothschild family and thus aims to deliver long-term capital growth, while preserving shareholder value. These are
exactly the characteristics we are hoping to deliver for our shareholders and so consider RCP to be an excellent fit with our own
portfolio. RCP marginally underperformed its peers during this period but a narrowing of the discount from 9% led to some outperformance in share price terms. Current asset allocation is divided between long equity (45%) hedged equity (13%) private investments (23%) real assets (4%) and absolute return strategies (15%). Lord Rothschild has recently stated that management have recently 'become uncomfortable in participating in liquidity fuelled markets', so we would expect returns to become less correlated with equity markets as time passes.
Caledonia Investments (CLDN) www.caledonia.com
15% Discount RV: 10% Discount
CLDN was one of the global sector's star performers over the period, with NAV appreciation of 8%. This performance has led to a narrowing of the discount and share price return of nearly 14%. The Company first invested in CLDN in 2007 and although it has
traded the position actively it has retained a significant enough investment to take advantage of the recent recovery in fortunes.
This active approach has added significant value for our shareholders with an IRR over the period of 7.2% versus an annualised return of 2.6% had we held the original position throughout. On a portfolio level, much has changed over our holding period. Gone are the holdings in British Empire Securities, Rathbones and Oval, while exposure to Close Brothers, Bristow Group, Quintain Estates and London Metric has been much reduced. The current portfolio makes for some very interesting reading and should amount to an appealing investment proposition.
British Empire Securities and General Trust (BTEM) www.british-empire.co.uk
15% Discount RV: 10% Discount
Commentators currently complain of a lack of value within the investment company sector but many opportunities do still exist. BTEM is a case in point, although those looking for a tremendous track record will be disappointed, as this fund hasn't really performed that well for over a decade. That said, there is genuine value both within the fund's portfolio (estimated to be a
28% discount to asset value) and at the share price level (an additional 15% discount to NAV). We see the current discount level as an attractive entry point and consider the look through value to be an insurance policy against any substantial de- rating.
Monks Investment Trust (MNKS) www.monksinvestmenttrust.co.uk
5% Discount RV: 8% Discount
This investment is now 18 months old and it is disappointing to note that following some initial success the fund appears to be losing ground once again. The NAV performed well throughout 2013 and into 2014 but, with the onset of some jittery market conditions, the performance dropped off and the discount widened again from 10% to 15%. We had hoped that the appointment of Tom Walsh, to work alongside Gerald Smith, would be seen as a turning point in the fund's fortunes but this appears not to be the case. The critical cause for concern is that the fund appears to have lost its raison d'être, and with it its loyal following.
Diverse Income Trust (DIVI) www.mitongroup.com
3% Premium RV: 2% Premium
By its own high standards, DIVI experienced a disappointing six months. However, while it underperformed the UK Equity income sector, shareholders will be cognisant that it is predominantly a micro-cap portfolio and therefore will judge it against the Small-Cap as well. DIVI continues to outperform the latter peer group. That said, it is crucial for DIVI to get back on track as a premium rating is only sustainable for as long as performance justifies it. The dividend yield, at a little under 3%, is not sufficient to support a premium rating on its own. We continue to have great faith in the manager and take comfort that the annual opportunity to redeem shares will help maintain the rating within a tight range while performance recovers.
Regular readers will note that the list of major portfolio holdings has changed little over the recent past and that our favoured sectors continue to dominate the schedule. This is not because we are bereft of ideas but because we consider our chosen investments to be of the very highest quality and in sectors which present the best fundamentals for long term appreciation. We continue to take advantage of short term valuation moves in long term holdings by increasing or reducing exposure accordingly. There are, of course, many other attractive opportunities available to the Company but we consider them to possess inferior reward / risk characteristics. Many of the funds we own have performed well over the recent years and the vast majority have contributed to the outperformance, which the Company has enjoyed over its 'benchmark index' since the revised investment and hedging strategy was implemented towards the end of 2012. We are convinced that this strategy of owning 'quality assets at a reasonable price' linked to a sectoral approach, special situations and assets which produce asymmetric returns is the right one for the Company and for its shareholders.
Turning to the Company's hedging strategy we continue to concentrate on protecting shareholders from a major market correction, rather than managing shorter-term volatility, and have therefore maintained the delta short position provided by FTSE
100 put options at approximately 15% while the gross position is 75%. Like Lord Rothchild, we have become wary of liquidity fuelled markets and of elevated geopolitical risks and have therefore raised the cash level within the portfolio to 7% (at the time of
writing). This liquidity, together with the Company's investments in CULS (at par value) has defeased virtually all of the Company's
structural leverage. At present, at least 50% of the Company's ultimate investments are denominated in overseas currencies, and to insulate shareholders from the effects of adverse FX moves we continue to run short US$ and Euro positions.
Investment Manager
15 September 2014
Income Statement Six months ended 31 July 2014 Unaudited
Six months ended
31 July 2013
Unaudited
Year ended
31 January 2014
Audited
Gains on investments held at
fair value - 2,419 2,419 - 4,819 4,819 - 7,491 7,491
Current assets held at fair value:
Losses on futures contracts - (998) (998) - (54) (54) - (53) (53) Losses on listed put options - (781) (781) - (1,954) (1,954) - (3,018) (3,018)
Gains/(losses) on forward
currency contracts - 187 187 - (89) (89) - 406 406
Losses on cancellation of - - - - (13) (13) - (13) (13)
3.25% Convertible
Unsecured Loan Stock
2016
Exchange gains/(losses) on
currency balances - 12 12 - (8) (8) - (20) (20) Investment and other
income 689 - 689 653 - 653 1,053 - 1,053
Investment management fee (59) (238) (297) (57) (230) (287) (117) (468) (585) Other expenses (179) (4) (183) (195) (28) (223) (377) (24) (401) Net return before finance
Interest payable and similar
charges (60) (239) (299) (67) (266) (333) (127) (506) (633)
Tax on ordinary activities - - - - - - - - -
Basic 1.13p 3.28p 4.41p 0.94p 9.46p 10.40p 1.23p 15.50p 16.73p
Diluted 1.03p 3.15p 4.18p 0.89p 8.07p 8.96p 1.23p 13.43p 14.66p
The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. A statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above
statement.
Reconciliation of Movements in Shareholders' Funds
For the six months ended 31 July 2014 (unaudited)
Ordinary Share Capital
Share
Premium
Special
Reserve
Capital Redemption Reserve
Equity Component CULS 2016
Capital
Reserve
Revenue
Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 January 2014 9,775 15,601 10,089 2,592 1,473 9,887 1,187 50,604
Ordinary shares bought
back and held in treasury - - (305) - - - - (305)
Net return from ordinary
activities - - - - - 1,139 391 1,530
Final dividend paid for the year ended 31 January
2014 - - - - - - (416) (416)
For the six months ended 31 July 2013 (unaudited)
Ordinary Share Capital
Share
Premium
Special
Reserve
Capital Redemption Reserve
Equity Component CULS 2016
Capital
Reserve
Revenue
Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 January 2013 10,900 15,556 13,552 1,467 1,653 4,446 1,069 48,643
3.25% Convertible
Unsecured Loan Stock
2016 bought back and
cancelled - - - - (180) - 180 - Ordinary shares bought
back and held in treasury - - (3,445) - - - - (3,445)
Ordinary shares cancelled
out of treasury (1,125) - - 1,125 - - - - Net return from ordinary
activities - - - - - 3,350 334 3,684
Final dividend paid for the year ended 31 January
2013 - - - - - - (494) (494)
For the year ended 31 January 2014 (audited)
Ordinary Share Capital
Share
Premium
Special
Reserve
Capital Redemption Reserve
Equity Component CULS 2016
Capital
Reserve
Revenue
Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 January 2013 10,900 15,556 13,552 1,467 1,653 4,446 1,069 48,643
3.25% Convertible
Unsecured Loan Stock
2016 bought back and
cancelled - - - - (180) - 180 - Ordinary shares bought
back and held in treasury - - (3,890) - - - - (3,890)
Ordinary shares cancelled
out of treasury (1,125) - - 1,125 - - - - Ordinary shares re-issued
out of treasury - 45 427 - - - - 472
Net return from ordinary
activities - - - - - 5,441 432 5,873
Final dividend paid for the year ended 31 January
2013 - - - - - - (494) (494)
31 July 2014
Unaudited
31 July 2013
Unaudited
31 January 2014
Audited
Fixed Assets £'000 £'000 £'000Investments held at fair value through profit or loss 61,911 58,884 55,875
Current Assets
Listed put options held at fair value through profit or loss 490 443 557
Forward currency contracts held at fair value through profit or loss 6,087 7,537 6,340
Debtors 1,925 918 989
Cash at bank 54 2,105 6,165
Forward currency contracts held at fair value through profit or loss (5,948) (7,560) (6,139) Bank overdraft (29) - - Other creditors (214) (1,241) (402) (6,191) (8,801) (6,541)
3.25% Convertible Unsecured Loan Stock 2016 (12,863) (12,698) (12,781)
Net assets 51,413 48,388 50,604 Capital and reserves
Ordinary share capital 9,775 9,775 9,775
Share premium account 15,601 15,556 15,601
Other reserves:
Special reserve 9,784 10,107 10,089
Capital redemption reserve 2,592 2,592 2,592
Equity component 3.25% Convertible Unsecured Loan Stock 2016 1,473 1,473 1,473
Capital reserve 11,026 7,796 9,887
Revenue reserve 1,162 1,089 1,187
Basic 148.69p 139.12p 145.43p
Diluted 147.68p 139.12p 144.91p
Six months ended
31 July 2014
Unaudited
Six months ended
31 July 2013
Unaudited
Year ended
31 January
2014
Audited
£'000 £'000 £'000 Net cash outflow from operating activities (1,217) (1,692) (2,167) Servicing of finance (216) (224) (442) Financial investment (3,997) 7,282 12,020 Equity dividends paid (416) (494) (494)Net cash (outflow)/inflow before financing | (5,846) | 4,872 | 8,917 |
Financing Ordinary shares bought back and held in treasury | (3,445) | (2,373) | (3,575) |
Re-issue of Ordinary shares from treasury | - | - | 472 |
Cancellation of 3.25% Convertible Unsecured Loan Stock 2016 - (1,548) (1,548)
Decrease in cash during the period (6,151) (121) 3,951Reconciliation of net cash flow to movement in net debt | |||
Decrease/(increase) in cash during the period | (6,151) | (121) | 3,951 |
Exchange movements | 12 | (8) | (20) |
Cancellation of 3.25% Convertible Unsecured Loan Stock 2016: | |||
Cancellation of debt element | - | 1,535 | 1,535 |
Non-cash flow movements: | |||
Notional interest charge on 3.25% Convertible Unsecured | |||
Loan Stock 2016 - income | (13) | (12) | (26) |
Notional interest charge on 3.25% Convertible Unsecured | |||
Loan Stock 2016 - capital | (53) | (50) | (102) |
Amortised expenses for 3.25% Convertible Unsecured Loan Stock | |||
2016 | (17) | (46) | (63) |
Change in net debt | (6,222) | 1,298 | 5,275 |
Cash at bank 54 2,105 6,165
3.25% Convertible Unsecured Loan Stock 2016 (12,863) (12,698) (12,781)
The financial statements of the Company have been prepared under the historical cost convention modified to include the revaluation of fixed assets in accordance with United Kingdom law and Accounting Standards and with the Statement of Recommended Practice ("SORP") "Financial Statements of Investment Trust Companies", issued by the Association of Investment Companies (dated January 2009).
The accounting policies and methods of computation followed in this half-year report are consistent with the most recent annual statements.
Six months ended
31 July 2014
Unaudited
Six months ended
31 July 2013
Unaudited
Year ended
31 January 2014
Audited
£'000 £'000 £'000
UK dividends 432 401 666
Unfranked investment income 186 185 266
UK fixed interest 69 67 121
Short-term investment fund income 2 - -
3. Return per Ordinary share
Basic earningsSix months Six months ended
Total earnings per Ordinary shareended
31 July 2014
Unaudited
31 July 2013
Unaudited
Year ended
31 January 2014
Audited
Total earnings £1,530,000 £3,684,000 £5,873,000
Weighted average number of Ordinary shares in issue during the
period* 34,702,775 35,428,150 35,095,029 Total earnings per Ordinary share 4.41p 10.40p 16.73p
The total earnings per Ordinary share above can be further analysed between revenue and capital, as follows:
Revenue earnings £391,000 £334,000 £432,000
Weighted average number of Ordinary shares in issue during the
period* 34,702,775 35,428,150 35,095,029 Revenue earnings per Ordinary share 1.13p 0.94p 1.23p
Capital earnings £1,139,000 £3,350,000 £5,441,000
Weighted average number of Ordinary shares in issue during the
period* 34,702,775 35,448,150 35,095,029
Capital earnings per Ordinary share 3.28p 9.46p 15.50p
*Excluding treasury shares
Six months ended 31 July 2014
The revenue, capital and total earnings for the half year ended 31 July 2014 are diluted. The diluted revenue, capital and total earnings per Ordinary share have been calculated on the assumption that the 3.25% Convertible Unsecured Loan Stock 2016 was fully converted on the first day of the financial period, giving a weighted average of 43,648,618 Ordinary shares in issue, revenue earnings on ordinary activities after taxation of £451,000, capital earnings on ordinary activities after taxation of
£1,376,000 and total earnings on ordinary activities after taxation of £1,827,000 after adding back finance costs of £60,000,
£237,000 and £297,000 respectively. The diluted revenue earnings per Ordinary share of 1.03p, the diluted capital earnings per Ordinary share of 3.15p and the diluted total earnings per Ordinary share of 4.18p reflect the savings in finance costs of the loan stock.
Six months ended 31 July 2013
The revenue, capital and total earnings for the half year ended 31 July 2013 were diluted. The diluted revenue, capital and total earnings per Ordinary share have been calculated on an assumption that the 3.25% Convertible Unsecured Loan Stock 2016 was
fully converted on the first day of the financial period, giving a weighted average of 44,754,999 Ordinary shares in issue, revenue
earnings on ordinary activities after taxation of £400,000, capital earnings on ordinary activities after taxation of £3,613,000 and total earnings on ordinary activities after taxation of £4,013,000 after adding back finance costs of £66,000, £263,000 and
£329,000 respectively. The diluted revenue earnings per Ordinary share of 0.89p, the diluted capital earnings per Ordinary share of 8.07p and the diluted total earnings per Ordinary share of 8.96p reflect the saving in finance costs of the loan stock.
Year ended 31 January 2014
The capital and total earnings (but not the revenue earnings) for the year ended 31 January 2014 were diluted. The diluted capital and total earnings per Ordinary share have been calculated on an assumption that the 3.25% Convertible Unsecured Loan Stock 2016 was fully converted on the first day of the financial period, giving a weighted average of 44,229,810 Ordinary shares in issue, capital earnings on ordinary activities after taxation of £5,942,000 and total earnings on ordinary activities after taxation of £6,499,000 after adding back finance costs of £501,000 and £626,000 respectively. The diluted capital earnings per Ordinary share of 13.43p and the diluted total earnings per Ordinary share of 14.66p reflect the savings in finance costs of the loan stock. The diluted revenue earnings per Ordinary share are equal to the basic return per Ordinary share.
4. Net asset value per Ordinary share
31 July
2014
Unaudited
31 July
2013
Unaudited
31 January
2014
Audited
Net asset values attributable £51,413,000 £48,388,000 £50,604,000
Ordinary shares in issue at the period end * 34,577,581 34,780,888 34,795,877
Basic net asset value per Ordinary share 148.69p 139.12p 145.43p
The basic net asset value per Ordinary share is based on net assets of £51,413,000 after deducting the liability component of the
3.25% Convertible Unsecured Loan Stock 2016 and on 34,577,581 Ordinary shares being the number of Ordinary shares in issue at the period end excluding treasury shares.
Under The Association of Investment Companies (AIC) guidelines, the basic net asset value per Ordinary share is calculated as follows:
31 July
2014
Unaudited
31 July
2013
Unaudited
31 January
2014
Audited
Total assets less current liabilities (per the balance sheet) £64,276,000 £61,086,000 £63,385,000
Redemption value of 3.25% Convertible Unsecured Loan Stock 2016 £(13,138,000) £(13,104,000) £(13,121,000) Net asset values attributable (CULS at par value) £51,138,000 £47,982,000 £50,264,000
Ordinary shares in issue at the period end * 34,577,581 34,780,888 34,795,877
Basic net asset value per Ordinary share 147.89p 137.96p 144.45p
*Excluding 4,525,329 Ordinary shares held in treasury (31 July 2013: 4,322,032; 31 January 2014: 4,307,033).
During the period 218,296 (31 July 2013: 2,771,667; 31 January 2014: 3,106,678) Ordinary shares were bought back and placed in treasury for an aggregate net consideration of £305,329 (31 July 2013: £3,444,777; 31 January 2014: £3,890,091).
No Ordinary shares held in treasury were re-issued into the market (31 July 2013: nil; 31 January 2014: 350,000). During the
period no Ordinary shares were cancelled out of treasury (31 July 2013: 4,500,000; 31 January 2014: 4,500,000).
The 39,102,910 Ordinary shares in issue at the period end (31 July 2013 and 31 January 2014: 39,102,910) includes 4,525,329
Ordinary shares held in treasury (31 July 2013: 4,322,022; 31 January 2014: 4,307,033).
During the period £nil (31 July 2013: £1,547,377; 31 January 2014: £1,547,377) nominal of its 3.25% Convertible Unsecured
Loan Stock 2016 of £1 nominal ('CULS') was bought back and cancelled for an aggregate consideration of £nil (31 July 2013:
£1,548,377; 31 January 2014: £1,548,377).
At 31 July 2014 there was £13,206,146 (31 July 2013 and 31 January 2014: £13,206,146) nominal of 3.25% Convertible
Unsecured Loan Stock 2016 in issue.
The financial information contained in this half year report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the six months ended 31 July 2014 and 31 July 2013 has not been audited.
The information for the year ended 31 January 2014 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 January 2014 have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain any statements under Section 498 (2) or (3) of the Companies Act 2006.
The Cayenne Trust plc is a UK investment trust listed on The London Stock Exchange. Its investment objective is to achieve consistent positive absolute returns, and its Investment Policy is as follows:
The Company invests principally in the securities of UK investment trust companies and other closed-end funds. It also has the flexibility to invest in listed or unlisted open-ended funds and may invest in any security issued by any exchange traded fund, investment fund, investment company, holding company or similar collective investment scheme. In order to seek to achieve consistent positive absolute returns, the Company may occasionally hold positions in other equities, bonds or money-market instruments.
Up to 15% of the Company's assets, at the time of investment, may be invested in Apollo Fund plc. Apollo is an open-ended offshore fund, managed by Cayenne Asset Management Limited, with an investment objective of achieving higher rates of return than can generally be achieved by traditional long-term stock market investment by selecting investments which are
thought to be significantly undervalued and are likely to have limited liquidity.
The Company will seek to ensure preservation of capital by use of derivative and similar instruments to the extent permissible within the regulations governing investment trust companies and the Listing Rules.
In selecting investments, the Manager is not constrained by any limits on geographical or sectoral distribution of investments
by the funds in which the Company invests. As a fund of funds the portfolio is diversified through investment in a wide range of asset classes, geographical regions and currencies.
The Company may invest up to 100% of its assets in equities which are not investment entities, bonds or money market
instruments.
The Company intends to conduct its affairs so that it continues to be treated as an investment trust under The Investment
Trust (Approved Company) (Tax) Regulations 2011.
Borrowings are restricted to twice the aggregate of the paid up nominal capital plus the capital and revenue reserves. The absolute limit on borrowings is more fully described in the Articles.
No more than 10% in aggregate of the value of the Company's assets will be invested in other closed-ended listed
investment funds, save that this restriction does not apply to the extent that such companies themselves have stated investment policies to invest no more than 15% of their total assets in other closed-ended listed investment companies or
investment trusts.
The Articles of Association require the Directors to propose an ordinary resolution at the Annual General Meeting of the Company in 2016 and each Annual General Meeting thereafter that the Company should continue as an investment trust. If an ordinary
resolution for continuation is not put or is not passed at an Annual General Meeting the Directors are obliged to convene, within three months thereafter, a General Meeting to propose a special resolution for the voluntary winding up of the Company.
Printed copies of the Half Year Report to 31 July 2014 will be posted to shareholders shortly. Copies are available from the
Corporate Secretary - Phoenix Administration Services Limited, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW. A soft copy (pdf) of the Half Year Report will shortly be available for viewing and downloading from the Company's website at: www.thecayennetrust.com
The Directors of the Company (Jonathan Agnew (Chairman), Sir Laurence Magnus, Richard Atkinson) confirm that to the best of their knowledge:
a) the condensed set of financial statements for the half year to 31 July 2014, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit of the Company;
b) the Interim Management Report (together with the Investment Manager's Report) includes a fair review of important events which have occurred during the first six months of the financial year (DTR 4.2.7) and, the principal risks and uncertainties for the remaining six months of the financial year (DTR 4.2.8). No related party transactions took place during the half year.
The Directors further confirm that this half-year report has not been audited or reviewed by auditors pursuant to the Auditing
Practices Guidance on Review of Interim Financial Information.
Chairman
15 September 2014
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