Company Announcements

A copy of the Company's Half Year Report will shortly be available on the Company's website (https://ncim.co.uk/cqs-new-city-high-yield-fund-ltd), on the National Storage Mechanism (https://data.fca.org.uk/#/nsm/nationalstoragemechanism) and will also be provided to those shareholders who have requested a printed or electronic copy.

CQS NEW CITY HIGH YIELD FUND LIMITED

Interim Results Announcement

for the six months ended 31 December 2020

Statement from the Chair

Key points

• Net asset value total return of 8.83%

• Ordinary share price total return of 15.39%

• Dividend yield of 8.57%, based on dividends at an annualised rate of 4.46 pence and a share price of 52.00 pence at 31 December 2020

• Ordinary share price at a premium of 6.38% at 31 December 2020

• £1.70m of equity raised during the six months to 31 December 2020

Investment Performance

The six months to 31 December 2020 covered by this interim report have seen a welcome recovery from last March and April's Covid-19 market dislocation. Your Company had a net asset value total return of 8.83% for the period and, thanks to an increase in the share price premium, a share price total return of 15.39%. The Company's shares traded at a premium to their net asset value for most of the review period and as 31 December 2020 this stood at 6.38%, recovering from a slight discount of 0.25% at the start of the financial year. The average premium over the six months to 31 December 2020 was 1.64% and over three years 4.57%.

The market backdrop to your Company's results has been eventful with the Brexit endgame being played out, political turbulence in the United States and overriding everything the ongoing Covid-19 pandemic. Helped by massive amounts of government stimulus, the equity and bond markets have held up well, particularly towards the end of 2020. Ian Francis, your investment manager, discusses the six months in more detail in his review below.

Earnings and Dividends

The Company's earnings per share were 2.12 pence for the six months, lower than the 2.24 pence earned in the same period last year, covering the dividends paid. The Company has declared two dividends of 1.00 pence so far in this financial period, maintaining the level of those declared in the same period in the past two years. In the absence of unforeseen circumstances, the Board expects to follow the same pattern of dividend payments as declared last year and maintain or slightly increase the total level of dividends for the year. Based on an annual rate of 4.46 pence and a share price of 50.92 pence at the time of writing, this represents a dividend yield of 8.76%.

Dividend payments are a critical aspect of the Company for shareholders and the Board continually assesses the Company's dividend policy, both in the immediate future and looking further out.  In the current financial year, a dividend of at least the same as the previous year (4.46 pence) is likely to be covered by earnings. Should this not be the case, the Board is prepared to use a modest amount of reserves to make up a marginal shortfall and anticipates that this will be the most likely scenario for the next few years as well.   

Gearing

The Company renewed its existing Scotiabank £35m loan facility in December 2020 with a one year £35m facility with the same bank at a current all-in rate of 1.39%. The facility is comparable to the one that it replaced. £33m was drawn down at 31 December 2020 which gave the Company an effective gearing rate of 14.02%. This is broadly similar to this time last year and the Board does not expect much fluctuation in this level.

Share Issuance

Taking advantage of the premium rating that the market continues to attach to your Company's shares, £1.7m was raised from new and existing shareholders during the six-month period, with 3.45m ordinary shares issued from the block listing facility. A further £1.5m has been raised since 31 December 2020. As well as a modest uplift in net asset value from any issue of shares, over time existing shareholders should benefit from lower ongoing charges and greater liquidity in the Company's shares.

Outlook

The Covid-19 pandemic continues to impact every part of the world to a greater or lesser extent. The roll out of vaccines is probably a 'game changer' but not an instant one given the administration logistics and new variants emerging. The impact of the virus, not least on government finances, will be felt for many years to come. From your Company's perspective, continued rigorous credit analysis on the issuers of the bonds held remains paramount as is seizing opportunities as they arise in the secondary markets. Your investment manager, Ian Francis, is an experienced professional with a strong team supporting him and he is adept at this. He shares his outlook below.

Caroline Hitch

Chair

25 February 2021

Investment Manager's Review

Market and economic review

Condensed Statement of Comprehensive Income

For the six months ended 31 December 2020 (Unaudited)

For the six months ended 31 December 2019 (Unaudited)

For the year ended 30 June 2020 (Audited)

The total column of this statement represents the Company's Condensed Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

No operations were acquired or discontinued during the period.

There is no other comprehensive income as all income is recorded in the Condensed Statement of Comprehensive Income above.

The accompanying notes below are an integral part of these condensed financial statements.

Condensed Statement of Financial Position

As at 31 December 2020

The condensed financial statements were approved by the Board of Directors and authorised for issue on 25 February 2021 and were signed on its behalf by:

Caroline Hitch

Chair

The accompanying notes below are an integral part of these condensed financial statements.

Condensed Statement of Changes in Equity

For the six months ended 30 December 2020 (Unaudited)

For the six months ended 31 December 2019 (Unaudited)

For the year ended 30 June 2020 (Audited)

The accompanying notes below are an integral part of these condensed financial statements.

Condensed Cash Flow Statement

¹ - Amounts due to brokers as at 31 December 2020 relating to purchases of financial assets designated at fair value through profit amounted to £244,000 (31 December 2019: £nil; 30 June 2020: £6,059,000).

² - Amounts due from brokers as at 31 December 2020 relating to sales of financial assets designated at fair value through profit amounted to £nil (31 December 2019: £nil; 30 June 2020: £6,520,000).

The accompanying notes below are an integral part of these condensed financial statements.

Notes to the  Financial Statements

1.    General Information

The Company was incorporated as a closed-end investment company with limited liability in Jersey under the Companies (Jersey) Law 1991 on 17 January 2007, with registered number 95691. The Company's ordinary shares were admitted to the Official List as maintained by the Financial Conduct Authority and admitted to trading on the Main Market of the London Stock Exchange on 7 March 2007.

The Company's registered address is IFC1, The Esplanade, St Helier, Jersey, JE1 4BP.

2.    Accounting policies

2.1   Basis of accounting

The Annual Report and Financial Statements is prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Financial Reporting Standards ("IFRS") as adopted by the European Union which comprise standards and interpretations approved by the International Accounting Standards Board, and interpretations issued by the International Financial Reporting Standards and Standing Interpretations Committee as approved by the International Accounting Standards Committee which remain in effect. The Annual Report and Financial Statements are also prepared in accordance with the guidance set out in the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (the "AIC SORP") in November 2014 and updated in January 2017, March 2018 and October 2019 with consequential amendments where this does not conflict with IFRS. The Interim Report has been prepared in accordance with International Accounting Standards (IAS) 34 - Interim Financial Reporting ("IAS 34") as adopted by the European Union. They have also been prepared using the same accounting policies applied for the year ended 30 June 2020 Annual Report and Financial Statements, which was prepared in accordance with IFRS, except for new standards and interpretations adopted by the Company as set out below. The Company has also prepared the condensed interim financial statements in line with the updated AIC SORP where this does not conflict with IFRS. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Standards and amendments to existing standards effective for annual periods beginning on or after 1 January 2020

The Company applies for the first time IFRS 3 Business Combinations (amendment) and Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) which all became effective on 1 January 2020. The Directors do not expect that the adoption of standards listed above will have a material impact on the financial statements of the Company in future periods.

Definition of Material (Amendments to IAS 1 and IAS 8)

The International Accounting Standards Board has redefined its definition of material, issued practical guidance on applying the concept of materiality and issued proposals focused on the application of materiality to disclosure of other accounting policies. The amendments do not have a material impact on the Company's financial statements

Several other amendments and interpretations apply for the first time in 2020, but these do not have an impact on the condensed financial statements.

2.2   Going Concern

The condensed financial statements have been prepared on the going concern basis. In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

2.3   Segmental reporting

No segmented reporting is provided as the Board, as the Chief Operator Decision Maker (with advice from the Investment Manager), are of the opinion that the Company is engaged in a single segment of business of investing in debt and, to a significantly lesser extent, equity securities.

2.4   Seasonality

The Company's business is not subject to seasonal fluctuations.

3.     Income

4.     Investment Management Fee

The Company's investment manager is CQS (UK) LLP ("CQS") which has delegated this function to New City Investment Managers.

As per the Investment Management Agreement dated 18 September 2019, the management fee is charged at a rate of 0.8% per annum on the Company's total assets (being total assets less current liabilities (other than bank borrowings and ignoring any taxation which is or may be payable by the Company)) up to £200 million, 0.7% per annum of Assets in excess of £200 million and up to and including £300 million and 0.6% per annum thereafter. The management fee is paid monthly in arrears.

The contract between the Company and CQS (UK) LLP may be terminated by either party giving not less than 12 months' notice of termination.         

During the six months period ended 31 December 2020, investment management fees of £939,000 were incurred (six months ended 31 December 2019: £1,028,000; year ended 30 June 2020: £1,969,000), of which £162,000 was payable at the period end (six months ended 31 December 2019:  £344,000; year ended 30 June 2020: £602,000). Investment management fees have been allocated 75% to revenue and 25% to capital. 

5.     Other expenses

During the six months ended 31 December 2020 the Company's other expenses were £440,000 (six months ended 31 December 2019: £404,000; year ended 30 June 2020: £785,000).

Secretarial and administration fees

Secretarial and administration fees incurred during the six months ended 31 December 2020 were £103,000 (six months ended 31 December 2019: £106,000; year ended 30 June 2020: £202,000).

Directors' fees

On 22 May 2019, the Board approved an increased level of remuneration for the Directors from £146,750 (Chair: £37,500; Audit Chair: £31,250 and other directors: £26,000) to £157,000 with annual effect from 1 July 2019 as follows:

Chair £40,000

Audit Chair £34,000

Other £27,500

The Board has not approved any change in remuneration during the period ended 31 December 2020.

Directors fees for the six months ended 31 December 2020 were £78,000 (six months ended 31 December 2019: £78,000; year ended 30 June 2020: £157,000).

Audit fees and non-audit fees paid to the auditor

Audit fees for the six months ended 31 December 2020 were £22,000 (six months ended 31 December 2019: £19,000; year ended 30 June 2020: £45,000).

There were no non-audit fees paid to the auditor during the period ended 31 December 2020 (six months period ended 31 December 2019: £nil; year ended 30 June 2020: £nil).

6.     Bank Loan and finance costs

The Company has a short term unsecured loan facility with Scotiabank Europe Plc ("Scotiabank"). The facility is due to expire on 18 December 2021 after which it is anticipated the Company will take out a new facility on comparable terms.

On 18 December 2020, the Company drew down a further £2,000,000. As at 31 December 2020, the unsecured loan facility had a limit of £35,000,000 of which £33,000,000 was drawn down at an interest rate of 1.38700%, which is made up of LIBOR plus a margin rate.

The current loan facility was renewed on 18 December 2020 on the same terms as applied to the previous facility that expired on the 18 December 2020. During the six months ended 31 December 2020 the covenants of the loan facility have been met. The following are the covenants for the facility held as at 31 December 2020:

• the borrower shall not permit the adjusted asset coverage to be less than 4 to 1

• the borrower shall not permit the net asset value to be less than £95,000,000 at any time

• the borrower shall maintain an additional adjusted asset coverage of at least 1.5 to 1 at all times

The loan facility is rolled over every three months and can be cancelled at any time

During the six months ended 31 December 2020, the Company incurred interest expense of £193,000 (six months ended 31 December 2019; £280,000; year ended 30 June 2020: £557,000) and received interest of £nil (six months ended 31 December 2019: £10,000; 30 June 2020: £12,000).

7.     Earnings per ordinary share

The revenue earnings per ordinary share for the six months ended 31 December 2020 is based on the net profit after taxation of £9,207,000 (six months ended 31 December 2019: £9,491,000; year ended 30 June 2020: £19,666,000) and on a weighted average of 434,967,075 (six months ended 31 December 2019: 424,861,641; year ended 30 June 2020: 428,002,951) ordinary shares in issue throughout the period.

The capital return per ordinary share for the six months ended 31 December 2020 is based on a net capital gain of £7,357,000 (six months ended 31 December 2019: a net capital gain of £906,000; year ended 30 June 2020: a net capital loss of £34,166,000) and on a weighted average of 434,967,075 (six months ended 31 December 2019: 424,861,641; year ended 30 June 2020: 428,002,951) ordinary shares in issue throughout the period.    

Refer to note 13 for details of ordinary shares issued subsequent to the end of the reporting period. These shares were issued at a premium to the 31 December 2020 NAV per ordinary share.

8.     Financial assets designated at fair value through profit or loss

All financial assets are valued at fair value through profit or loss. Gains or losses arising from changes in the fair value of investments are included in the Statement of Comprehensive Income.

¹ Realised losses on financial assets designated at fair value through profit or loss is made up of gains of £522,000 and losses of £7,277,000.

² Unrealised gains on financial assets designated at fair value through profit or loss is made up of gains of £28,364,000 and losses of £13,946,000.

Fair value hierarchy

IFRS 13 'Fair Value Measurement' requires an analysis of investments valued at fair value based on the reliability and significance of information used to measure their fair value. The level is determined by the lowest (that is the least reliable or independently observable) level of input that is significant to the fair value measurement for the individual investments in its entirety as follows:

Level 1 - investments quoted in an active market.

Level 2 - investments whose fair value is based directly on observable current market prices or indirectly being derived from market prices.

Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or based on observable market data.

Investments valued using stock market active prices are disclosed as Level 1 and this is the case for the quoted equity investments that the Company holds. Securities in Level 2 are priced using evaluated prices from a third party vendor, together with a price comparison made to evaluated secondary and tertiary third party sources, including broker quotes and benchmarks. As a result, these investments are disclosed as Level 2 - recognising that the fair values of these investments are not as visible as quoted investments and their higher inherent pricing risk.

Investments included as Level 3 are priced using a valuation technique reviewed by the Board taking into account, where appropriate, latest dealing prices, broker statements, valuation information and other relevant factors.

During the period ended 31 December 2020 there were no transfers between level 1 and level 2.

Financial assets designated at fair value through profit or loss reconciliation - Level 3

IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen in reference to the specific underlying circumstances and position of the investee company. On that basis, the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly. The following shows a reconciliation from the beginning to the end of the year for fair value measurements in Level 3 of the fair value hierarchy.

OakNorth Bank 01/06/2028 FRN, NT Rig Holdco 7.5% 20/12/2021 and Oro Negro Dril 7.5% 24/01/2019 were transferred to Level 3 due to a decrease in observable data.

If the market value of the Level 3 investments fell by 5%, the impact on the profit or loss and the net asset value would have been a reduction to profit of £552,000. If the value of the Level 3 investments rose by the same amount, the effect would have been equal and opposite.

(1)  Single broker quote, low liquidity

(2)  Marked to model

(3)  Asset priced

The Company also holds a number of other Level 3 assets with a value of £nil.

9.     Stated Capital

Authorised

The authorised share capital of the Company is represented by an unlimited number of ordinary shares of no par value.

Allotted, called up and fully-paid

The balance of shares held in treasury by the Company at 31 December 2020 was nil (31 December 2019: nil; 30 June 2020: nil).

On 01 October 2020, a block listing facility for 43,000,000 new shares was approved by the UK Listing Authority. This facility is used for the purposes of satisfying market demand.

Refer to note 13 for further information subsequent to the reporting period.

10.   Net Asset Value per Ordinary share

The NAV per share is the value of all Company's total assets, less total liabilities, divided by the total number of ordinary shares at each period end. As at 31 December 2020 436,301,858 ordinary shares were held (31 December 2019: 426,601,858; 30 June 2020: 432,851,858).

11.   Dividends

Refer to note 13 for further information subsequent to the reporting period.

12.   Related Parties

The Board

During the period, there were no transactions with the Board other than directors' fees as disclosed in note 5. There were no changes to the shares held by the Directors during the period and therefore, as at 31 December 2020, the Directors each beneficially held the following shares in the Company:

Caroline Hitch:                    130,000 ordinary shares

Wendy Dorman:                 112,000 ordinary shares

Duncan A H Baxter:            195,127 ordinary shares

Ian Cadby:                         25,000 ordinary shares

John E Newlands:              10,000 ordinary shares

Investment Manager

During the period, there were no transactions with the Investment Manager other than investment manager fees. With effect from 06 November 2020 the Investment Management Agreement with the Investment Manager was amended, the changes in this amendment agreement do not have any impact on the management fee.

Refer to note 4 for further information.

All transactions with related parties are carried out on an arm's length basis.

13.   Subsequent Events

The Board have evaluated subsequent events for the Company through to 25 February 2021, the date the financial statements were available to be issued, and has concluded that the material events listed below do not require adjustment of the financial statements.

Share Issues

On 13 January 2021, the Company issued 800,000 ordinary shares at a price of 52.5p per share.

On 18 January 2021, the Company issued 600,000 ordinary shares at a price of 52.4p per share.

On 25 January 2021, the Company issued 650,000 ordinary shares at a price of 52.6p per share.

On 03 February 2021, the Company issued 850,000 ordinary shares at a price of 51.6p per share.

Dividend Declaration

On 20 January 2021, the Company announced its second interim dividend of 1.00 pence per share, payable on 26 February 2021 to shareholders on the register on 29 January 2021, having an ex-dividend date of 28 January 2021.

Directors' Statements

Directors' Statement of Principal Risks and Uncertainties

When considering the total return of the Company, the Directors take account of the risk which has been taken in order to achieve that return. The Directors have carried out a robust assessment of the principal risks and mitigating factors facing the Company including those which would threaten its business model, future performance, solvency or liquidity. The following risk factors have been identified and are listed below:

• Dividend and earnings risk

• Market risk leading to a loss of share value

• Key person risk

• Gearing risk

• Operational risk

• Regulatory risk

• Political risk

• Financial risk

Information on these risks and how they are managed is given in the Annual Report and Financial Statements for the year ended 30 June 2020. In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the current financial year as they were in the six months under review.

The Company may be exposed to certain risks that are not disclosed within the Annual Report and Financial Statements.

The Company is not necessarily free from any such risks.

Directors' Responsibility Statement in Respect of the Interim Report

We confirm that to the best of our knowledge:

• the unaudited condensed financial statements within the Interim Report have been prepared in accordance with IAS 34 - Interim Financial Reporting, as adopted by the European Union ("EU") and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as at 31 December 2020, as required by the Financial Conduct Authority's ("FCA") Disclosure Guidance and Transparency Rule ("DTR") 4.2.4R.

• the Statement from the Chair, Investment Manager's Review and the condensed financial statements include a fair review of the information required by the Disclosure Guidance and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months ended 31 December 2020 and their impact on the unaudited condensed financial statements;

• the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

• the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place during the six months ended 31 December 2020 and that have materially affected the financial position or performance of the Company during that period.

Signed on behalf of the Board

Caroline Hitch

Chair

25 February 2021

Glossary of Terms and Definitions

A copy of the Company's Interim Report will be available shortly from the Company Secretary, (BNP Paribas Securities Services S.C.A., Jersey Branch, IFC 1, The Esplanade, St Helier, Jersey, JE1 4BP), or will be circulated on the Company's website (https://ncim.co.uk/cqs-new-city-high-yield-fund-ltd).