CQS
NEW CITY
HIGH YIELD FUND LIMITED
Annual Report
& Financial Statements
30 June 2024
The purpose of CQS New City High
Yield Fund Limited (the “Company”)
is to provide Shareholders with a
high gross dividend yield and the
potential for capital growth by mainly
investing in high yielding xed
interest securities. To achieve this, the
strategy of the Company is to follow
the investment policy outlined on
page 27 of this report and to utilise
the benets of being a closed-ended
investment vehicle.
Purpose
and Strategy
CQS New City High Yield Fund Limited Annual Report & Financial Statements
4.6
4.5
4.4
4.3
4.2
4.1
4.0
3.9
3.8
Source: Bloomberg
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2023/242022/23
Dividend per share (pence)
Dividends declared in respect of each financial year
NAV total return and share price total return
300
280
260
240
220
200
180
160
140
120
100
80
Index restated to 100 from 30 June 2010
Source: BNP Paribas S.A., Jersey Branch
Bloomberg and Morningstar
Share price total return (dividends reinvested)
NAV total return (dividends reinvested)
Total return index
June
2010
June
2011
June
2012
June
2013
June
2014
June
2015
June
2016
June
2017
June
2018
June
2019
June
2020
June
2021
June
2022
June
2024
June
2023
1
2
CQS New City High Yield Fund Limited Annual Report & Financial Statements
Contents
FINANCIAL HIGHLIGHTS
6 Financial Highlights
STRATEGIC REPORT
10 Statement from the Chair
14 Investment Manager’s Review
16 ClassicationofInvestmentPortfolio
17 InvestmentPortfolio
19 Ten Largest Holdings
20 PrincipalRisksandUncertainties
andRiskMitigation
25 Stakeholders–Section172Statement
andPrincipalDecisions
27 Strategic Review
DIRECTORS’ REPORTS
AND GOVERNANCE REPORTS
34 StatementofDirectors’Responsibilitiesinrespect
oftheAnnualReportandFinancialStatements
36 BoardofDirectorsandInvestmentManager
39 Directors’Report
41 The Board and Committees
44 StatementofCompliancewiththeAICCode
45 Environmental, Social and
Governance (“ESG”) Statement
46 ReportoftheAuditandRiskCommittee
49 Directors’RemunerationReport
INDEPENDENT AUDITOR’S REPORT
52 IndependentAuditor’sReporttothemembers
of CQS New City High Yield Fund Limited
FINANCIAL STATEMENTS
62 StatementofComprehensiveIncome
63 StatementofFinancialPosition
64 Statement of Changes in Equity
65 Cash Flow Statement
66 Notes to the Financial Statements
SUPPLEMENTAL INFORMATION
AND ANNUAL GENERAL MEETING
90 GlossaryofTermsandDenitions
91 AlternativePerformanceMeasures
95 ExplanationofAnnualGeneralMeetingResolutions
98 Notice of Annual General Meeting
101 ReportoftheInvestmentManagerRelatingto
Matters under the Alternative Investment Fund
Managers’Directive(unaudited)
IBC CorporateInformation
3
4
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Highlights
Financial
Highlights
5
NAV and share price total return
2
12 months to
30 June 2024
12 months to
30 June 2023
NAV
1
19.07% 2.04%
Ordinary share price 22.73% (0.68)%
Capital values
As at
30 June 2024
As at
30 June 2023 % change
Total assets less current liabilities
(with the exception of the bank loan facility)
£308.5m £275.4m 12.02%
NAV per ordinary share
1
49.59p 45.83p 8.20%
Share price (bid)
3
52.20p 46.60p 12.02%
Revenue and dividends
12 months to
30 June 2024
12 months to
30 June 2023 % change
Revenue earnings per ordinary share
2
4.50p 4.51p (0.22)%
Annual dividends per ordinary share
2
4.50p 4.49p 0.22%
Dividend cover
2
1.00x 1.00x
Revenue reserve per ordinary share
(aer recognition of annual dividends)
2
2.93p 3.05p
Ongoing charges ratio
2
1.18% 1.16%
As at
30 June 2024
As at
30 June 2023
Dividend yield
2
8.62% 9.64%
Premium
2
5.26% 1.68%
Gearing
2
8.28% 11.81%
Dividend history Rate xd date Record date Payment date
First interim 2024 1.00p 26 October 2023 27 October 2023 30 November 2023
Second interim 2024 1.00p 25 January 2024 26 January 2024 28 February 2024
Third interim 2024 1.00p 2 May 2024 3 May 2024 31 May 2024
Fourth interim 2024 1.50p 1 August 2024 2 August 2024 30 August 2024
Annual dividend per ordinary share 4.50p
First interim 2023 1.00p 27 October 2022 28 October 2022 25 November 2022
Second interim 2023 1.00p 26 January 2023 27 January 2023 28 February 2023
Third interim 2023 1.00p 27 April 2023 28 April 2023 26 May 2023
Fourth interim 2023 1.49p 27 July 2023 28 July 2023 31 August 2023
Annual dividend per ordinary share 4.49p
Financial Highlights
1
The denition of the terms used can be found in the glossary on page 90.
2
A description of the Alternative Performance Measures (“APMs”) used above and information on how they are calculated can be found
on pages 91 to 94
3
Source: Bloomberg
6
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Highlights
7
8
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Strategic
Report
9
Statement from the Chair
Investment and share price performance
The NAV total return of the Company for this nancial
period was an impressive 19.07% - an excellent result
I believe. The share price enjoyed an even better year
with a total return of 22.73%, resulting in an increase in
the share price premium over the NAV. Many investment
trusts continue to be negatively impacted by the current
high interest rate environment and your Company is
one of a handful that trades at a premium to their NAV
and has done so for most of the year. The Company’s
shares closed the year on a premium of 5.26% and
ongoing demand allowed us to continue issuing shares
(see below), again something of a current rarity in the
investment trust sector. The Company’s longer-term
performance remains strong.
Stock markets were higher over the nancial year as
markets shrugged o geo-political worries arising from
the conicts in Ukraine and Israel/Gaza and, with ination
continuing to ease, focused on potential interest rate cuts.
Major central banks have been fairly cautious and earlier
expectations of interest rate cuts have faded as core wage
ination remains stubborn. In the UK for example, the
10-year gilt yield came down sharply from its August 2023
highs, reaching 3.50% at the end of December 2023 but
has since risen to 4.10% as at 30 June 2024. This does
suggest interest rate cuts in the second half of 2024 and
we have indeed recently seen a reduction of 0.25% in the
Bank of England base rate in July 2024. The Company’s
portfolio performed well in this environment with no
major setbacks and several corporate actions which
helped the overall return. Ian “Franco” Francis, your
investment manager, gives more detail in his review on
pages 14 to 15.
Earnings and dividends
I am pleased to report that revenue earnings remain
strong and were 4.50 pence per ordinary share for the
year to 30 June 2024 (4.51 pence for the same period in
2023). Receipts were stable over the year and we have
continued to receive repayment of previous arrears by
securities in the portfolio. The Board decided to increase
this year’s dividend, albeit marginally, maintaining the
Company’s record of annual dividend increases which has
been unbroken since 2007. The Company declared three
interim dividends of 1.00 pence in respect of the period
and one interim dividend of 1.50 pence since the year
end. The aggregate payment of 4.50 pence per ordinary
Caroline Hitch
Chair
Key Points
NAV total return of 19.07% for the year
ended 30 June 2024
Ordinary share price total return of
22.73% for the year ended 30 June 2024
Dividend yield of 8.62%, based on
dividends at an annualised rate of 4.50
pence and a share price of 52.20 pence
as at 30 June 2024
Ordinary share price at a premium of
5.26% as at 30 June 2024
£13,480,000 of equity issued during the
year ended 30 June 2024
Dividend cover of 1.00x for the year
ended 30 June 2024
10
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
share represents a 0.22% increase on the 4.49 pence
paid last year and is covered almost exactly by revenue
earnings.
As things stand, the Board intends to follow the same
pattern of dividend payments in the 2024/2025 nancial
year as declared in the last and maintain or slightly
increase the total level of dividends. Based on an annual
rate of 4.50 pence and a share price of 51.80 pence at the
time of writing, this represents an attractive dividend
yield of 8.69%. As I stress in every report, the Board pays
great attention to dividend payments as we understand
how much shareholders value this aspect of the
Company.
Gearing
The Company has a £45,000,000 loan facility with
Scotiabank which is due to expire in December 2024.
Out of this facility, £35,000,000 was drawn down as at
30 June 2024 and at the time of writing the Company
has an eective gearing rate of 12.40%. At present, we
believe that Shareholders will benet from a modest but
meaningful amount of gearing (a notable advantage of
closed-ended funds compared to open-ended) and expect
to maintain approximately this level of gearing during
the next nancial year. The Company’s expects that it will
renance its loan facility on similar terms later in the year.
Share issuance
Taking advantage of the premium rating that the market
continued to attach to the Company’s shares, £13,480,000
was raised from new and existing shareholders during
the nancial year, with 26,850,000 ordinary shares
issued from the block listing facility. Shares were only
issued when the Investment Manager was condent he
could invest the additional funds favourably. As well as a
modest benet to the NAV from any issue of shares, the
Board believes that over time, existing Shareholders will
benet from lower ongoing charges and greater liquidity
in the Company’s shares, all other things being equal.
Environmental, Social and Governance (“ESG”)
statement and Task Force on Climate-related
Financial Disclosure (“TCFD”) reporting
The Board’s intention is to invest responsibly and to
consider the Company’s broader impact on society and
the environment. We believe the integration of ESG
factors in the investment process is consistent with
delivering sustainable attractive returns for Shareholders
through deeper, more informed investment decisions.
During the year, the Board met with the Investment
Manager’s ESG specialists to discuss the approach
and processes adopted. The Board has reviewed and
agreed the responsible investment approach adopted
by CQS (UK) LLP. Further details can be found on the
Company’s website (https://ncim.co.uk/wp/wp-content/
uploads/2023/09/CQS-New-City-High-Yield-ESG-
Statement-September-2023.pdf).
This is the rst year in which the Investment Manager
is required to publish a product-level TCFD report for
your Company under Financial Conduct Authority
(“FCA”) rules. A climate related nancial disclosure
report is available on the Company’s website, under
the following link: (https://ncim.co.uk/wp/wp-content/
uploads/2024/06/CQS-New-City-High-Yield-Fund-
Limited_TCFD_20231231_R-105385.pdf)
Investment Management Company
In October 2023, CQS (UK) LLP, your Company’s
Investment Manager, advised that it was being acquired
by Manulife Investment Management, a major asset
manager and insurer headquartered in Canada. This
transaction completed in April 2024. This has not had a
discernible impact on your Company to date and is not
expected to do so going forward.
The Board will continue to request and monitor
information on any changes that may occur. The
Investment Manager is now trading as Manulife | CQS
Investment Management but at present the name of your
Company is not expected to change.
Your Board
The Company has beneted from a stable Board of
Directors over recent years but in accordance with good
corporate governance standards, we understand the need
to refresh the Board at appropriate intervals. Duncan
Baxter, who is the Senior Independent Non-Executive
Director and Chair of the Management Engagement
Committee, has been a Director since July 2015 and has
indicated that he will step down at the Annual General
Meeting (“AGM”) in December this year. We will very much
miss Duncan’s expertise and thank him for his valuable
contribution to the Company. We have begun the process
of recruiting a suitable replacement and will update
Shareholders when we can.
11
I am pleased to report that revenue
earnings remain strong and were 4.50
pence per ordinary share for the year to
30 June 2024 (4.51 pence for the same
period in 2023). Receipts were stable
over the year and we have continued to
receive repayment of previous arrears by
securities in the portfolio.
Caroline Hitch
Chair
Articles of Association (Articles)
The Board is recommending that the Company adopt new
Articles of Association (the “New Articles”). The proposed
changes in the New Articles are driven by a desire to
modernise the Company’s Articles of Association in line
with developments in market and industry practice, good
corporate governance and to enable the Company to
promote eicient, cost eective and modern methods
of engagement with Shareholders. Special Resolution
13 is included in the AGM notice and a description of the
proposed amendments being introduced in the New
Articles is set out on pages 96 to 97.
Outlook
Will the next nancial year be as rewarding as this
past one? As your Investment Manager is forecasting
declining interest rates, albeit at a steady pace, and the
global economic outlook appears reasonably good,
the Board is expecting healthy performance from your
Company. A critical factor, as always, is the dividends the
Company pays and not only do the projections for the
revenue account look positive, but also the Company has
comfortable revenue reserves which could be drawn on.
The Board therefore expects the Company to maintain the
distribution of attractive dividends. Avoiding ‘blow ups’
is a key success factor when investing in high yield bonds
and the Board has condence in the Manulife | CQS team
of credit analysts to continue monitoring the quality of
the bonds your Investment Manager selects and holds in
the underlying portfolio.
Caroline Hitch
Chair
27 September 2024
Statement from the Chair
Continued
12
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
13
Investment Manager’s Review
Introduction
Our central thesis that stubborn ination will mean
higher interest rates will be in place for longer than
market commentators in 2023 were predicting has been
very much evident over the course of our last nancial
year to 30 June 2024. For your Company, the prevailing
higher interest rates have meant that we have seen good
opportunities to nd quality investments in stocks and
sectors that have previously been too diicult to invest
in as yields have been lower. In addition, the economic
backdrop has improved, albeit marginally, which has
helped market condence and assisted the xed interest
markets. We have thankfully not seen any shocks in the
portfolio from either a capital or revenue perspective
and returns have been good across both metrics in the
portfolio. More details of that are in the portfolio review
below. The Company raised new monies this year as we
issued shares at a premium. Proceeds have been invested
into a wide and diverse range of sectors and stocks. The
overall NAV total return for the 12 months to 30 June 2024
was a very positive one at 19.07%.
Market and economic review
When I wrote the market review for the interim report six
months ago, I noted that a lot was going on which might
impact markets, but the net result was probably less
negative for Western economies than in previous years.
That theme seems to have continued over the last six
months with political news and widespread upheavals
everywhere; meanwhile the economic news has
continued to improve with recessions seemingly avoided
and interest rates starting to reduce in the UK and Europe
with hopefully more to follow. Ination remains as a
major concern for central banks and the unending game
of “whack-a-mole” keeps popping up, be it wage ination
or unexpected cost pressures causing an issue.
Bond markets in general had a good year with the average
investment rated xed interest return being around the
plus 10% mark, admittedly with most of that occurring
in the rst six months of our nancial year. At the end of
2023, UK 10-year gilts were anticipating earlier interest
rate cuts and fell to 3.50% but then have risen over the
last six months to 4.20% as markets have worried that the
Bank of England will be slow to reduce rates.
Ian “Franco” Francis
New City Investment Managers
14
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
In the US, although the economy has seen growth
across both the service and manufacturing sectors,
sticky wage ination has caused the US Federal Reserve
to resist reducing rates there. Europe has seen weak
manufacturing output which has caused the European
Central Bank to recently cut their key interest rates by
0.25% in the hope of stimulating growth.
Portfolio and revenue review
We saw two of our larger positions being acquired
during the course of our nancial year. Our Virgin
Money FRN position is in the process of being acquired
by the Nationwide Building Society and our holding of
Co-operative Bank FRN is also being acquired by the
Coventry Building Society. Over our nancial year, both
positions have seen their bond prices increase by around
20.00% as a result and we await to see whether the terms
will be amended as we go forward. We have also seen
a good capital re-rating from the AT1 positions we have
held in other nancial institutions such as Barclays and
Lloyds - these have increased by around 10% over the
year as condence has returned to the banking sector. In
the equity portion of the portfolio we sold our position in
Euronav at a healthy prot in the latter part of 2023 and
re-invested the proceeds into another shipping company
called Frontline which has generated good returns to
date.
The Company still has a meaningful exposure to the US
dollar with 15.73% of the portfolio investment in that
currency and a further 13.87% in the Euro and other ‘non-
sterling’ currencies.
New entries into the top 10 this year are Frontline plc
which is a world leader in shipping natural resources,
TVL Finance, which is part of the Travelodge hotel group
and we have been buying the 10.25% 2028 and nally
RL Finance FRN is the nancing company for the Royal
London Mutual Insurance Society. The Co-op Bank Holdco
position was rolled over into a new bond during the year.
For the year to 30 June 2024, the revenue account
earnings were 4.50 pence compared to 4.51 pence for
the same period last year. Earnings per share were
stable during the year with no negative surprises and we
continued to receive repayment of historic arrears from
the REA preference shares we hold. The current balance
of revenue reserves provides a good level of comfort and
in our regular discussions with Shareholders, revenue and
dividends are topics of crucial importance and the ability
of any portfolio company to pay its coupon or expected
dividend is one of the major indicators we follow.
Outlook
For the UK economy a lot will depend on how painful
the rst Labour budget will be and how this impacts
investors and the knock on to markets. Nevertheless, we
do expect another interest cut in the UK before the end
of 2024. The ination outlook is positive for now, but the
public sector ination busting pay rises given in the early
days of the new government may come home to roost
in future pay rounds. The presidential elections in the
USA look to be a close run thing at time of writing and
will have an eect on the world’s largest economy. The
geopolitics of the wars in Ukraine and Gaza show no signs
of de-escalating, and the recent attacks by Houti rebels
on tankers in the Red Sea threaten not just economic but
major environmental disaster too. We expect to see a
resumption of high yield and nancial issuance in the end
of the third and beginning of the fourth quarter of 2024.
Ian “Franco” Francis
New City Investment Managers
27 September 2024
15
Classication of
Investment Portfolio
As at 30 June 2024
Classication of Investment
Portfolio by Sector
As at 30 June 2024
By currency 2024 Total
investments
%
2023 Total
investments
%
Sterling 70.40 67.12
US dollar 15.73 19.09
Euro 11.76 11.59
Swedish krona 1.02 1.69
Norwegian krone 1.02 0.35
Canadian dollar 0.07 0.09
Australian dollar - 0.07
Total investments 100.00 100.00
By asset class 2024 Total
investments
%
2023 Total
investments
%
Fixed income securities
1
83.23 82.80
Equity shares
2
16.77 17.20
Total investments 100.00 100.00
2024 Total
investments
%
2023 Total
investments
%
Financials 43.43 44.21
Energy 17.29 21.47
Consumer discretionary 14.70 6.98
Industrials 10.42 6.50
Consumer staples 5.47 9.55
Information technology 3.93 6.22
Communication services 2.27 -
Real estate 1.79 3.17
Materials 0.70 1.90
Total investments 100.00 100.00
1
Fixed income securities include xed and oating rate securities, convertible securities and preference shares.
2
Equity shares include investment funds.
16
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Investment Portfolio
As at 30 June 2024
Company Sector Valuation £’000 Total investments
%
Co-op Bank Holdco 23-22/05/2034 FRN Financials 14,505 4.84
Galaxy Finco Ltd 9.25% 19-31/07/2027 Financials 13,463 4.49
Shawbrook Group 22-08/06/2171 FRN Financials 13,378 4.47
Virgin Money 22-08/12/2170 FRN Financials 12,964 4.33
RL Finance No6 23-25/11/2171 FRN Financials 11,241 3.75
Aggregated Micro 8% 16-17/10/2036 Energy 10,366 3.46
Frontline Plc
1
Energy 10,048 3.35
TVL Finance 10.25% 23-28/04/2028 Consumer discretionary 9,379 3.13
Barclays Plc 22-15/12/2170 FRN Financials 9,199 3.07
Stonegate Pub 8.25% 20-31/07/2025 Consumer discretionary 8,923 2.99
Top ten investments 113,466 37.88
REA Finance 8.75% 15-31/08/2025 Consumer staples 8,526 2.85
Mangrove Luxco 7.775% 19-09/10/2025 Industrials 8,342 2.79
Inspired Enterta 7.875% 21-01/06/2026 Information technology 7,097 2.37
Just Group Plc 8.125% 19-26/10/2029 Financials 6,896 2.30
Azerion Group 23-02/10/2026 FRN Communication services 6,813 2.27
Pinnacle Bidco P 10% 23-11/10/2028 Consumer discretionary 6,356 2.12
Summer BC Holdco 9.25% 19-31/10/2027 Industrials 5,261 1.76
Nextenergy Solar Fund Ltd Energy 5,022 1.68
Transocean Inc 11.5% 20-30/01/2027 Energy 4,894 1.63
Lloyds Banking 14-29/12/2049 FRN Financials 4,772 1.59
Top twenty investments 177,445 59.24
Diversied Energy Co Plc Energy 4,754 1.59
MFG/MRH Motfue TL B5 1l T/L 21/06/2025 Consumer discretionary 4,497 1.50
M&G Plc Financials 4,488 1.50
Virgin Money 23-08/06/2172 FRN Financials 4,478 1.50
Ithaca Energy N 9% 21-15/07/2026 Energy 4,405 1.47
Garfunkelux Hold 7.75% 20-01/11/2025 Financials 4,266 1.42
Arrow Bidco Llc 10.75% 23-15/06/2025 Consumer discretionary 4,260 1.42
REA Holdings Plc – PREF Consumer staples 4,186 1.40
Phoenix Group Holdings Plc Financials 4,172 1.39
Enquest Plc 11.625% 22-01/11/2027 Energy 4,018 1.34
Top thirty investments 220,969 73.77
Booster Precisio 22-28/11/2026 SR Industrials 3,578 1.19
Stonegate Pub 8% 20-13/07/2025 Consumer discretionary 3,544 1.18
Bidco Rely 23-12/05/2026 FRN Industrials 3,473 1.16
OSB Group 23-07/09/2028 FRN Financials 3,200 1.07
3T Global 11.25% 24-22/05/2028 Consumer discretionary 3,188 1.06
Barclays Plc 23-15/06/2171 FRN Financials 3,100 1.03
Welltec Intl 8.25% 21-15/10/2026 Energy 2,902 0.97
VPC Specialty Lending Invest Financials 2,848 0.95
Doric Nimrod Air Three Ltd Industrials 2,684 0.90
Channel Island Property Fund Real estate 2,550 0.86
17
Top forty investments 252,036 84.14
Coventry BDG SOC 24-11/12/2172 FRN Financials 2,514 0.84
RM Infrastructure Income Plc Financials 2,470 0.82
Albion Financing 8.75% 21-15/04/2027 Industrials 2,464 0.82
Quilter Plc 23-18/04/2033 FRN Financials 2,358 0.79
Tuon Oceanic Assets Ltd Industrials 2,332 0.78
Gaming Innovation 23-18/12/2026 FRN Information technology 2,199 0.73
Skill Bidco APS 23-02/03/2028 FRN Industrials 2,023 0.68
Greenfood AB 21-04/11/2025 FRN Consumer staples 1,925 0.64
Coburn Resources 12% 21-20/03/2026 Materials 1,830 0.61
Deutsche Bank AG 14-30/05/2049 FRN Financials 1,699 0.58
Top y investments 273,850 91.43
Bluewater Hold 12% 22-10/11/2026 Energy 1,504 0.50
MFG/MRH Motfue TL B6 1L GBP Consumer discretionary 1,500 0.50
UTB Partners Plc 12.95% 23-31/03/2034 Financials 1,485 0.50
Kent Global Plc 10% 21-28/06/2026 Energy 1,475 0.49
NewRiver REIT Plc Real estate 1,451 0.48
Eurobank Ergasia 22-06/12/2032 Frn Financials 1,447 0.48
Shamaran 12% 21-30/07/2025 Energy 1,389 0.46
Van Lanschot 24-01/04/2172 FRN Financials 1,365 0.46
Cruise Yacht Upp 11.875% 24-05/07/2028 Consumer discretionary 1,274 0.43
West Bromwich BS 18-20/08/2172 Financials 1,196 0.40
Top sixty investments 287,936 96.13
Palace Capital Plc Real Estate 1,118 0.37
Boparan Finance 7.625% 20-30/11/2025 Consumer Staples 971 0.32
REA Trading 13.50% 21-30/09/2027 Consumer Discretionary 848 0.28
TWMA Group Ltd 13% 24-08/02/2027 Industrials 796 0.27
N0r5ke Viking 21-05/05/2024 FRN Information Technology 788 0.26
Neptune Bidco AS 24-28/06/2028 FRN Financials 745 0.25
Harbour Energy Plc Energy 744 0.25
Cabonline GR 22-19/04/2026 FRN Information Technology 739 0.25
REA Holdings Plc 7.5% 16-30/06/2026 Consumer Staples 695 0.23
Marex Group 22-30/12/2170 FRN 647 0.22
Top seventy investments 296,027 98.83
Other investments (48) 3,502 1.17
Total investments 299,529 100.00
Investment Portfolio
As at 30 June 2024
Continued
1
Split into USD position (fair value of £8,543,000) and NOK position (fair value of £1,505,000).
Notes:
FRN – Floating Rate Note
PREF – Preference shares
REIT – Real Estate Investment Trust
SR - Senior
18
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Ten Largest Holdings
Valuation
30 June 2023
£’000
Purchases
£’000
Sales
£’000
Revaluation
gain/(loss)
£’000
Valuation
30 June 2024
£’000
Co-op Bank Holdco 23-22/05/2034 FRN
A bank-holding company that through its
subsidiaries, oers banking services in UK.
- 12,191 - 2,314 14,505
Galaxy Finco Ltd 9.25% 19-31/07/2027
A specialist provider of warranties for consumer
electric products.
12,346 - - 1,117 13,463
Shawbrook Group 22-08/06/2171 FRN
A holding company of Shawbrook Bank Limited,
a specialist lending and savings bank serving
consumers in the UK.
11,917 - - 1,461 13,378
Virgin Money 22-08/12/2170 FRN
A British banking company concentrating on UK
retail and small and medium enterprises regional
banking services.
10,811 - - 2,153 12,964
RL Finance No6 23-25/11/2171 FRN
A special purpose entity set up to raise capital whose
proceeds will be used for general business and
commercial activities of Royal London.
4,417 5,955 - 869 11,241
Aggregated Micro 8% 16-17/10/2036
A British company using small scale, established
technologies to convert wood and waste into energy
in the form of heat and electricity.
11,110 - (311) (433) 10,366
Frontline Plc
Engaged in seaborne transportation of crude oil and
oil products worldwide.
- 7,452 (642) 3,238 10,048
TVL Finance 10.25% 23-28/04/2028
A special purpose entity formed for the purpose
of issuing debt securities to repay existing credit
facilities, renance indebtedness and for acquisition
purposes of Travelodge Group.
4,884 4,136 - 359 9,379
Barclays Plc 22-15/12/2170 FRN
A global nancial services provider engaged in
retail banking, credit cards, wholesale banking,
investment banking, wealth management and
investment management services.
8,262 - - 937 9,199
Stonegate Pub 8.25% 20-31/07/2025
Operator of various formats ranging from high-
street pubs and traditional country inns to local
community pubs, student pubs and late-night bars
and venues in the UK.
8,326 - - 597 8,923
72,073 29,734 (953) 12,612 113,466
19
Principal Risks and Uncertainties
and Risk Mitigation
Risks are inherent in the investment process, but it
is important that their nature and magnitude are
understood so that risks can be identied and either
avoided or controlled. The Board has established a
detailed framework to manage the key risks that the
Company is exposed to, with associated policies and
processes devised to mitigate or control those risks.
Principal risks and mitigations are discussed regularly
at Board and Audit and Risk Committee meetings. At
the meeting held in May 2024, the Board discussed risk
appetite and considered whether principal risks were
increasing, decreasing or static during the course of
the year. The Board reviewed the impact of economic
uncertainty and heightened levels of ination and interest
rates post-COVID and as a result of the conicts in Europe
and the Middle East. The Board also considered any new
or emerging risks.
The principal risks and mitigating factors faced by the
Company are set out below.
Risk Description Controls
Dividend and
earnings risk
The earnings that underpin the amount of dividends
declared and future dividend growth are generated
by the Company’s underlying portfolio.
One or more of the following factors could adversely
aect the Company’s earnings and thereby, its
ability to declare a dividend:
▶
A persistent low interest rate environment.
▶
A contraction of available investment
opportunities suitable for the Company, given its
investment objective and its policy.
▶
The persistence of adverse market conditions
or government intervention during a macro-
economic crisis resulting in cuts to dividend
income.
▶
Adverse changes to the tax treatments applicable
to the Company’s stream of investments and
dividend income.
We are currently in a period of higher interest rates
which support the Company’s dividend payments,
nevertheless it is not clear how far or fast interest
rates will fall and there is still heightened economic
uncertainty that could impact the value of the
Company’s earnings.
The Board has engaged with CQS (UK) LLP
(the “Investment Manager”), to manage
the Company’s portfolio and therefore
depends upon the Investment Manager
to construct an appropriate portfolio
that will produce income allowing the
Company to meet its dividend target.
The Board monitors the implementation
of the investment strategy, by reviewing
the performance of the Investment
Manager on an ongoing basis and by
receiving a formal presentation from the
Investment Manager on a quarterly basis.
The Board receives and reviews detailed
income forecasts prepared by the
Investment Manager and BNP Paribas
S.A., Jersey Branch (“BNP Paribas” or
the “Administrator”) when the quarterly
dividends are declared.
The Company holds revenue reserves
of £16,185,000 and cash balance of
£12,350,000 as at 30 June 2024 which
could be used for the maintenance of the
Company’s dividend target in adverse
market conditions.
Decrease in risk for the year ended 30 June
2024 in comparison to previous year.
Increase in risk for the year ended 30 June
2024 in comparison to previous year.
Risk remains static
from previous year.
20
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Risk Description Controls
Market risk
leading to a loss
of share value
The Company’s assets consist principally of
listed xed interest securities and equities. Its
greatest risks are consequently market related,
with exposure to movements in the prices of the
Company’s investments and the loss that the
Company might suer through holding investments
in the face of negative market movements.
A downturn in capital markets could lead to a
loss in value of the Company’s shares, eroding
the premium and causing the shares to trade at a
discount.
Failure of investee companies to respond to the
transition to clean energy in an appropriate and
timely fashion could lead to a decline in their
protability and ultimately impact their ability to
deliver value.
The Board relies upon the research
capabilities of the Investment Manager
and the people it employs that can
use their expertise to build a portfolio,
utilising diversication, to mitigate
market risk to the extent possible.
The Board monitors the implementation
of the investment strategy, reviews the
performance of the Investment Manager
on an ongoing basis and receives a
formal presentation from the Investment
Manager on a quarterly basis. At this time,
the Board reviews the performance of the
Company’s investments, including both
realised and unrealised gains and losses.
The Investment Manager incorporates
sustainability factors into its investment
process.
There is continuing uncertainty regarding
the timing and extent of any interest rate
reductions in the UK, US and Europe, and
the economic outlook remains uncertain.
Key person risk Performance of the Company may be negatively
aected by a change in the fund management team
within the Investment Manager.
The lead fund manager is responsible
for day-to-day portfolio management.
The Investment Manager has put in place
succession and transition plans in the
event the lead fund manager is no longer
in this role for whatever reason.
In addition, an Investment Committee at
the Investment Manager also decides key
stock selection.
The Board monitors and reviews the
performance of the Investment Manager
on an ongoing basis and receives a
formal presentation from the Investment
Manager at each Board meeting.
The Management Engagement
Committee of the Company formally
reviews the performance of the
Investment Manager annually.
During this nancial year, the Investment
Manager of the Company, CQS (UK) LLP,
was acquired by Manulife Investment
Management. To date, the board have
had no indications that the change in
ownership will impact the management
team responsible for providing services to
the Company.
21
Risk Description Controls
Gearing risk
A fall in the value of the underlying investments
could adversely aect the Company’s level of
gearing and exacerbate the decline in value. It could
also result in a breach of loan covenants.
Gearing levels and compliance with
loan covenants are monitored by the
Administrator and the Investment
Manager on a monthly basis.
The Board reviews compliance with
the gearing levels and loan covenants
at regular Board meetings. For the year
ended 30 June 2024 and up until the date
of this report, the Company has complied
with all its loan covenants.
The Board sets the gearing limits. Gearing
will not exceed 25% of Shareholders’
funds at the time of borrowing.
Geopolitical risk The ongoing Russian/Ukraine war has exacerbated
inationary tensions post-pandemic. The more
recent outbreak of conict in the Middle East has
added to geo-political risks. Ination and energy
prices across Europe have stabilised for now but
upward pressure could re-emerge as a result of
European and Middle East conicts, and elections in
the US are adding to political uncertainty.
The Investment Manager has reviewed
the portfolio to understand the
susceptibility of investments to market
disruption and the results of this review
has been discussed with the Board.
The robustness of corporate business
models during this period of heightened
uncertainty is considered both in relation
to the current portfolio and as part of
investment decision-making.
Operational risk The Company relies upon the services provided by
third parties and is reliant on the control systems of
the Investment Manager and the Company’s other
service providers.
Failures at these third parties could adversely
impact the security and/or maintenance of, inter
alia, the Company’s assets, dealing and settlement
procedures and accounting records depend on the
eective operation of these systems.
The operating eectiveness of third party
service providers is regularly tested,
monitored and reported on at each Board
meeting. The Audit and Risk Committee
receives an International Standard for
Assurance Engagement (“ISAE”) 3402
report (report on the description of
controls placed in operation, their design
and operating eectiveness) on Fund
Administration.
The Investment Manager delivers a risk
based internal audit plan which covers
dierent areas of its operations that are
subject to internal audit, including front,
middle and infrastructure audits. Any
area of concern relevant to the Company
is discussed with the Audit and Risk
Committee when it meets.
Principal Risks and Uncertainties
and Risk Mitigation
Continued
22
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Risk Description Controls
Regulatory risk The breach of existing regulatory rules (in Jersey
and/or the UK) or failing to adopt changes in
regulatory rules in a timely manner, which could
lead to a suspension of the Company’s stock
exchange listing or nancial penalties.
The Company Secretary monitors
the Company’s compliance with the
Listing Rules of the UK Listing Authority.
Compliance with the Listing Rules is
reviewed on a quarterly basis.
The Company’s compliance oicer
monitors the regulatory rules applicable
to Jersey funds and the Board receives
a quarterly report from the compliance
oicer.
The Administrator is regulated by the
Jersey Financial Services Commission.
Cyber risk The Board notes that organisations across the
globe are experiencing more frequent and more
sophisticated cyber attacks and are mindful of the
heightened risk.
Conict in Europe heightens the risk of malpractice
in cyber systems generally.
A cyber attack at one of the Company’s key service
providers could result in loss of key data, loss of
availability of systems, a ransomware demand,
General Data Protection Regulation breaches and
reputational damage.
As well as reviewing controls reports
on the Company’s service providers,
the Board requests information on
cyber controls, cyber insurance and any
material cyber breaches from those key
service providers.
23
Risk Description Controls
Reduced
market demand
for our shares
The change to a high ination, high interest rate
environment over the past two years impacted
the relative attractiveness of investments and
shied patterns of investment. Ination is now
reducing and interest rates are expected to follow,
and market demand can be expected to adjust
accordingly.
There could be negative investor sentiment if
investments held are deemed unacceptable from
an ESG policy perspective, as investors attitudes
develop towards these issues.
Any reduction in the share price premium
or move to a discount is discussed with
the Investment Manager and Singer
Capital Markets (the “Broker”), with
a view to taking action, if considered
appropriate.
The Company has generally traded at
a premium to NAV and has done so for
almost all of this nancial year. We have
seen strong demand for our shares
throughout the year.
The Investment Manager and the Broker
hold regular Shareholder meetings
through which investor sentiment can
be gauged. Topics discussed include the
performance of the Company, market
liquidity, supply and demand conditions,
ESG and sustainability and the dividend
policy.
The Board has appointed an Investor
Relations company to assist in promoting
our shares, particularly amongst retail
investors.
The Board is available to investors at the
AGM and at meetings throughout the year
on request, to discuss any feedback on
the Company’s strategy or performance.
The Board regularly discusses with
the Investment Manager the impact of
climate change and other ESG topics
and any appropriate changes to the
Company’s strategy.
Principal Risks and Uncertainties
and Risk Mitigation
Continued
Emerging risks
During its discussions on principal risks and uncertainties,
the Board considered any risks that were not an
immediate, quantiable threat but could materialize
and could have signicant impact on the ability of the
Company to continue to meet its objectives. Areas
discussed include longer-term impacts of climate change
on the Company’s portfolio and returns, geopolitical
risk due to the conicts in Ukraine and the Middle East
and the impact of heightened economic uncertainty on
dierent sectors of the economy. This year the Board
also discussed emerging risks associated with more
widespread use of Articial Intelligence (“AI”) technology
and the increase in State sponsored cyber attacks. The
Board regularly discusses these with the Investment
Manager and receives feedback based on the Investment
Manager’s research and discussions with Shareholders
and the Broker.
24
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Stakeholder How the Board engages
Shareholders Shareholders provide the capital to allow the Company to be in existence and to
pursue its purpose and strategy. Accordingly, Shareholder support is essential to the
continued survival and success of the Company.
The Board recognises that it is important to maintain appropriate contact with major
Shareholders to understand their issues and concerns.
The Board engages with its Shareholders by:
1. publishing daily NAV announcements;
2. publishing monthly fact sheets on the Company’s website;
3. publishing half yearly and annual reports and accounts;
4. making themselves available to meet major Shareholders as requested;
5. obtaining Shareholder feedback received via the Investment Manager and the
Broker; and
6. making themselves available to questions from Shareholders at the AGM.
Service providers As a Company with no employees, the Board is reliant on third party service providers
to help the Company operate in a compliant and eicient manner.
The Board engages with its service providers by:
1. receiving detailed written and verbal reports at board meetings;
2. regular communication with representatives via telephone and email to discuss ad
hoc matters; and
3. undertaking an annual review via the Management Engagement Committee.
Stakeholders – Section 172
Statement and Principal Decisions
Through adopting the 2019 Association of Investment
Companies’ (“AIC”) Code of Corporate Governance Code
(the “AIC Code”), the Board acknowledges its duty to
comply with section 172 of the UK Companies Act 2006 to
act in a way that promotes the success of the Company
for the benet of its members as a whole, having regard
to (amongst other things):
a. consequences of any decision in the long-term;
b. the interests of the Company’s employees;
c. need to foster business relationships with suppliers,
customers and others;
d. impact on community and environment;
e. maintaining reputation; and
f. act fairly as between members of the Company.
Information on how the Board has engaged with its
stakeholders and promoted the success of the Company,
through the decisions it has taken during the year,
whilst having regard to the above, is outlined below. The
Company has no employees.
25
Stakeholder How the Board engages
The wider community and
the environment
As a responsible corporate citizen, the Company recognises that its operations have
an environmental footprint and impact on wider society.
The Board fully supports the growing importance placed on ESG factors when asking
the Company’s Investment Manager to deliver against the Company’s objectives.
The Board has requested that the Investment Manager take into account the broader
social, ethical and environmental issues of companies within the Company’s portfolio,
acknowledging that companies failing to manage these issues adequately run a
long term risk to the sustainability of their businesses. The Investment Manager has
stated that they view ESG factors as a key driver of nancing costs, valuations and
performance, while also being capable of acting as a lever to shape and inuence the
world for generations to come. The integration and assessment of ESG factors is a
crucial part of this commitment and a key factor in the Investment Manager’s decision-
making. Through embedding ESG into its investment process, the Investment Manager
seeks to enhance its ability to identify value, investment opportunities and critically,
to generate the best possible returns for its stakeholders. The Investment Manager is
a signatory to the United Nations Principles for Responsible Investment (“PRI”), fully
supporting all Principles for Responsible Investment.
In line with TCFD recommendations, the Investment Manager has prepared climate
related nancial disclosures which are available on the Company’s website under the
following link: https://ncim.co.uk/wp/wp-content/uploads/2024/06/CQS-New-City-
High-Yield-Fund-Limited_TCFD_20231231_R-105385.pdf.
Stakeholders – Section 172
Statement and Principal Decisions
Continued
Principal decisions
Review of dividend policy:
The Board recognises the importance Shareholders place
on the Company’s dividend policy and is cognisant of the
need to ensure the viability of the dividend.
It was agreed it was in the best interests of the Company
and Shareholders to marginally increase the fourth
interim dividend for the year.
Appointment of Investor Relations company:
During the year, the Board appointed TB Cardew to
support the Company in promoting its shares, with a
view to widening and diversifying share ownership and
maintaining the current strong demand for its shares.
26
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Strategic Review
Introduction
This review is part of a Strategic Report being presented
by the Company and is designed to provide information
primarily about the Company’s business and results
for the year ended 30 June 2024. It should be read in
conjunction with the Statement from the Chair on pages
10 to 13 and the Investment Manager’s Review on pages
14 to 15, which give a detailed review of the investment
activities for the year and look to the future.
Principal activity and status
The Company is a closed-ended investment company and
was incorporated with limited liability in Jersey under
the Companies (Jersey) Law 1991 on 17 January 2007,
with registered number 95691. In addition, the Company
constitutes and is regulated as a collective investment
fund under the Collective Investment Funds (Jersey) Law
1988.
The Company’s ordinary shares are listed on the Oicial
List maintained by the FCA and admitted to trading on the
Main Market of the London Stock Exchange (“LSE”).
Purpose and strategy
The Company’s purpose is stated on the inside front cover
of this report.
Investment policy
The Company invests predominantly in xed income
securities, including, but not limited to, preference
shares, loan stocks, corporate bonds (convertible and/or
redeemable) and government stocks. The Company also
invests in equities and other income yielding securities.
Exposure to higher yielding securities may also be
obtained by investing in other closed-ended investment
companies and open-ended collective investment
schemes.
There are no dened limits on countries, size or sectors.
Therefore the Company may invest in companies
regardless of country, size or sector and accordingly, the
Company’s portfolio is constructed without reference to
the composition of any stock market index or benchmark.
The Company may, but is not obliged to, invest in
derivatives, nancial instruments, money market
instruments and currencies for the purpose of eicient
portfolio management.
There are no dened limits on listed securities and,
accordingly, the Company may invest up to 100% of total
assets in any particular type of listed security.
The Company may acquire securities that are unlisted or
unquoted at the time of investment, but which are about
to be convertible, at the option of the Company, into
securities which are listed or traded on a stock exchange.
The Company may continue to hold securities that cease
to be listed or traded if the Investment Manager considers
this appropriate. The Board has established a maximum
investment limit in this regard of 10% (calculated at the
time of any relevant investment) of the Company’s total
assets. In addition, the Company may invest up to 10%
(calculated at the time of any relevant investment) of its
total assets in other securities that are neither listed nor
traded at the time of investment.
The Company will not invest more than 10% (calculated
at the time of any relevant investment) of its total assets
in other collective investment undertakings (open-ended
or closed-ended).
The Board has established a maximum investment limit
whereby, at the time of investment, the Company may not
invest more than 5% of its total investments in the same
investee company.
The Company uses gearing and the Board has set
a current limit that gearing will not exceed 25% of
Shareholders’ funds at the time of borrowing. This limit is
reviewed from time to time by the Board.
The Investment Manager expects that the Company’s
assets will normally be fully invested. However, during
periods in which changes in economic circumstances,
market conditions or other factors so warrant, the
Company may reduce its exposure to securities and
increase its positions in cash, money market instruments
and derivative instruments in order to seek protection
from stock market falls or volatility.
Investment approach
Investments are typically made in securities which the
Investment Manager has identied as undervalued by
the market and which it believes will generate above
average income returns relative to their risk, thereby
27
Strategic Review
Continued
also generating the scope for capital appreciation. In
particular, the Investment Manager seeks to generate
capital growth by exploiting the opportunities presented
by the uctuating yield base of the market and from
redemptions, conversions, reconstructions and take-
overs.
Performance measurement and Key
Performance Indicators (“KPIs”)
The Board uses a number of performance measures to
monitor and assess the Company’s success in meeting its
objectives and to measure its progress and performance.
The KPIs are as follows:
Dividend yield and dividend cover
The Company pays four quarterly dividends each year
and accordingly, the Board reviews the Company’s
dividend yield and dividend cover on a quarterly basis.
For the year ended 30 June 2024, the Company’s dividend
yield was 8.62% (2023: 9.64%) based upon a share price of
52.20 pence (2023: 46.60 pence) (bid price) as at 30 June
2024 and its dividend cover was 1.00x (2023: 1.00x).
Revenue earnings and dividends per ordinary share
The Company has opted to follow the AIC Statement of
Recommended Practice (“SORP”) and in accordance with
the provisions of the AIC SORP, distinguishes its prots
derived from revenue and capital items. The Company
declares and pays its dividend out of only the revenue
prots of the Company. The revenue earnings, whether
generated this year or in previous years and held in
revenue reserves, represent the total available funds that
the Directors are able to make a dividend payment from.
The Board reviews revenue forecasts on a quarterly basis
in order to determine the quarterly dividend. In respect
of the current nancial year, the Company declared
dividends of 4.50 pence (2023: 4.49 pence) per ordinary
share out of revenue earnings per ordinary share of 4.50
pence (2023: 4.51 pence).
Ongoing charges
The ongoing charges ratio represents the Company’s
management fee and all other operating expenses
incurred by the Company expressed as a percentage of
the average Shareholders’ funds over the year. The Board
regularly reviews the ongoing charges and monitors all
Company expenses. The ongoing charges ratio for the
year ended 30 June 2024 was 1.18% (2023: 1.16%).
The Board measures the Company’s performance
by reviewing the KPIs against their expectations of
performance from their knowledge of the industry sector.
These KPIs fall within the denition of APMs under
guidance issued by the European Securities and Markets
Authority. Additional information explaining how these
are calculated is set out in the APMs section on pages 91
to 94.
Going concern
The Company does not have a xed winding-up date
and therefore, unless Shareholders vote to wind-up the
Company, Shareholders will only be able to realise their
investment through the secondary market.
At each AGM of the Company, Shareholders are given
the opportunity to vote on an ordinary resolution to
continue the Company as an investment company. If
any such resolution is not passed, the Board will put
forward proposals at an extraordinary general meeting
to liquidate or otherwise reconstruct or reorganise the
Company. Given the performance of the Company, input
from the Company’s major Shareholders and its Broker
and considering that 99% of the Shareholder’s votes at
the last AGM held on 30 November 2023, were in favour of
the continuation of the Company, the Board considers it
likely that Shareholders will vote in favour of continuation
at the forthcoming AGM.
The Company’s existing loan facility as detailed on
pages 74 to 75 is due to expire on 18 December 2024
aer which it is anticipated the Company will take
out a new facility on comparable terms. Aer making
enquiries of the Investment Manager and having
considered the Company’s investment objective, nature
of the investment portfolio, loan facility, expenditure
projections and impact of the current geo-political
and market uncertainty on the Company, the Directors
consider that the Company has adequate resources to
continue in operational existence for the foreseeable
future. For this reason, the Directors continue to adopt
the going concern basis in preparing the Financial
Statements, notwithstanding that the Company is subject
to an annual continuation vote as described above.
28
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
Viability Statement
In accordance with the provisions of the AIC Code, the
Directors have assessed the viability of the Company over
a period longer than the 12 months required by the ‘Going
concern’ provision. The Board conducted this viability
review for a period of three years. The Board continues to
consider that this period reects the long-term objectives
of the Company, being a Company with no xed life,
whilst taking into account the impact of uncertainties in
the markets.
The Directors do not expect there to be any signicant
changes to the current principal and emerging risks
facing the Company and believe that the Company has
suicient controls in place to mitigate those risks as
far as reasonably possible. Furthermore, the Directors
do not envisage any change in strategy which would
prevent the Company from operating over the three year
period. This is based on the assumption that there are
no signicant changes in market conditions or the tax
and regulatory environment that could not reasonably
have been foreseen. The Board also considers the annual
continuation vote should not be a factor to aect the
three year period given the strong demand seen for the
Company’s shares.
In making this statement the Board: (i) considered the
continuation vote to be proposed at the AGM which
the Board considers will be voted in favour of by
Shareholders; and (ii) carried out a robust assessment
of the principal and emerging risks facing the Company.
These risks and their mitigations are set out on pages 20
to 24.
The principal risks identied as most relevant to the
assessment of the viability of the Company were those
relating to potential under-performance of the portfolio
and its eect on the ability to pay dividends. When
assessing these risks the Directors have considered the
risks and uncertainties facing the Company in severe but
reasonable scenarios, taking into account the controls in
place and mitigating actions that could be taken.
When considering the risk of under-performance,
a series of stress tests was carried out including in
particular the eects of any substantial future falls in
investment value on the ability to re-pay and re-negotiate
borrowings, potential breaches of loan covenants and the
maintenance of dividend payments.
The Board considered the Company’s portfolio and
concluded that the diverse nature of investments held
contributes to the stability and liquidity along with
exibility to be able to react positively to market and
political forces beyond the Board’s control.
The Board also considered the impact of potential
regulatory changes and the control environment of
signicant third party providers, including the Investment
Manager.
The Scotiabank Europe Plc (“Scotiabank”) loan facility is
due to expire on 18 December 2024. It is anticipated a new
facility on comparable terms will be negotiated prior to
this date.
The Board carries out stress testing on a range of
downside scenarios to ensure that the Company can meet
its liabilities in full.
Based on the Company’s processes for monitoring
revenue and costs, with the use of frequent revenue
forecasts and the Investment Manager’s compliance with
the investment objective and policies, the Directors have
concluded that there is a reasonable expectation that the
Company will be able to continue in operation and meet
its liabilities as they fall due for a period of three years
from the date of approval of this Report.
29
Social, community, human rights, employee
responsibilities and environmental policy
The Directors recognise that their rst duty is to act in the
best nancial interests of the Company’s Shareholders
and to achieve good nancial returns against acceptable
levels of risk, in accordance with the objectives of
the Company. In asking the Company’s Investment
Manager to deliver against these objectives, they have
also requested that the Investment Manager take into
account the broader social, ethical and environmental
issues of companies within the Company’s portfolio,
acknowledging that companies failing to manage
these issues adequately run a long-term risk to the
sustainability of their businesses.
Greenhouse gas emissions
The Board recognises its impact on the environment,
including greenhouse gas emissions, through the
underlying portfolio companies which it invests in. The
Board requested that ESG factors be incorporated into
the Company’s investment strategy and further details on
ESG can be found on page 45.
Modern slavery
The Company would not fall into the scope of the UK
Modern Slavery Act 2015 (as the Company does not
have any turnover derived from goods and services) if it
was incorporated in the UK. Furthermore, as a closed-
ended investment company, the Company has a non-
complex structure, no employees and its supply chain is
considered to be low risk given that suppliers are typically
professional advisers based in either the Channel Islands
or the UK. Based on these factors, the Board determined
that it is not necessary for the Company to make a slavery
and human traicking statement.
By Order of the Board
Caroline Hitch
Chair
27 September 2024
Strategic Review
Continued
30
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Strategic Report
31
32
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
Directors’
Reports and
Governance
Reports
33
Statement of Directors’
Responsibilities in respect
of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual
Report and Financial Statements in accordance with
applicable laws and regulations. Company law requires
the Directors to prepare nancial statements for each
nancial year. Under this law, they have elected to
prepare the Financial Statements in accordance with the
International Financial Reporting Standards (“IFRS”) as
adopted by the European Union (“EU”) and applicable
law.
Under Companies (Jersey) Law 1991, the Directors must
not approve the Financial Statements unless they are
satised that they give a true and fair view of the state
of aairs of the Company and of its prot or loss for that
period. In preparing these Financial Statements, the
Directors are required to:
▶
select suitable accounting policies and then apply
them consistently;
▶
make judgements and estimates that are reasonable,
relevant and reliable;
▶
state whether applicable accounting standards have
been followed, subject to any material departures
disclosed and explained in the Financial Statements;
▶
assess the Company’s ability to continue as a going
concern, disclosing, as applicable, matters relating to
going concern; and
▶
use the going concern basis of accounting unless they
either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate
accounting records that are suicient to show and
explain the Company’s transactions and disclose with
reasonable accuracy at any time the nancial position
of the Company and enable them to ensure that the
Financial Statements comply with Companies (Jersey)
Law 1991. They are responsible for such internal
control as they determine is necessary to enable the
preparation of nancial statements that are free from
Caroline Hitch
Chair
34
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
material misstatement, whether due to fraud or error
and have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of
the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and nancial information
included on the Company’s website. The Financial
Statements are published on the www.ncim.co.uk
website, which is a website maintained by the Company’s
Investment Manager. Legislation in Jersey governing the
preparation and dissemination of Financial Statements
may dier from legislation in other jurisdictions.
Each of the Directors, whose names are listed on pages 36
to 38, conrms that, to the best of that Director’s
knowledge:
▶
the Financial Statements, prepared in accordance
with the IFRS as adopted by the EU, give a true and fair
and balanced view of the assets, liabilities, nancial
position and prot or loss of the Company;
▶
the Strategic Report and Directors’ Report include
a fair review of the development and performance
of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that the Company faces.
▶
the Annual Report and Financial Statements, taken
as a whole, is fair, balanced and understandable and
provides the information necessary for Shareholders
to assess the Company’s position and performance,
business model and strategy.
On behalf of the Board
Caroline Hitch
Chair
27 September 2024
35
Board of Directors and
Investment Manager
Appointed: March 2018
Skills: Caroline has extensive fund
management skills including specialist
xed income portfolios. She has a deep
understanding of investment risk and
risk management both as it applies to
individual assets and to overall portfolio
construction. She developed her skills
of investment trust board governance
through many years of managing
regulated funds, reporting to their boards
and then becoming a board member (and
now Chair) herself.
Experience: Caroline joined the board
aer working in the nancial services
industry since the early 1980s mostly with
the HSBC group. Her experience includes
Head of Wealth Portfolio Management
at HSBC Global Asset Management (UK)
Ltd. with investment responsibility for
their agship multi asset retail funds.
Prior roles included specialisation in
institutional xed income portfolio
management. She has worked in London,
Jersey, Monaco and Hong Kong. Caroline
is a UK resident.
Committee membership:
– Audit and Risk Committee
– Management Engagement Committee
– Nomination Committee
– Remuneration Committee
Remuneration: £45,000 per annum
Public company directorships: abrdn
Equity Income Trust plc
Shared Directorships with any other
Fund Directors: None
Appointed: July 2015
Skills: Duncan has a broad knowledge of
the nance sector gained from holding
senior leadership positions across a
number of International Banks and
Trust companies. Having also worked on
investment company boards, some of
which in the position of Chair, Duncan
has had exposure to equity raises and
discount management.
Experience: Duncan is a retired senior
banker with many years’ experience
of international banking, latterly as
Managing Director of Swiss Bank
Corporation/UBS in Jersey. Since leaving
Swiss Bank Corporation/UBS in the
late 1990s, Duncan has undertaken a
number of consultancy projects for
international banks, trust and investment
management companies, plus acted
on a number of investment company
boards. He has experience of stewardship
and investment in several investment
companies over twenty years and in
addition as a non-executive director of a
number of operating public and private
companies. Duncan is a Jersey resident.
Committee membership:
– Audit and Risk Committee
– Management Engagement Committee
– Nomination Committee
– Remuneration Committee
Remuneration: £32,500 per annum
Public company directorships: None
Shared Directorships with any other
Fund Directors: None
Duncan Baxter
Senior Independent
Non-Executive Director and
Chair of the Management
Engagement Committee
Caroline Hitch
Independent
Non-Executive Chair
36
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
Appointed: March 2016
Skills: Wendy is a Chartered Accountant
with signicant experience in tax, audit
and commercial accountancy matters
mainly focused on the investment fund
sector. Her extensive experience chairing
audit committees of public listed entities
gives her the requisite leadership skills
in addition to those of accounting and
governance.
Experience: Wendy began her career in
audit and assurance before specializing
in taxation, with a focus on nancial
services and in particular the investment
fund sector. She retired as partner in
charge of the PricewaterhouseCoopers CI
LLP (“PwC”) tax practice in June 2015 and
has since then served as non-executive
director and audit committee chair of
main market listed companies. Wendy is
a Jersey resident.
Committee membership:
– Audit and Risk Committee
– Management Engagement Committee
– Nomination Committee
– Remuneration Committee
Remuneration: £39,000 per annum
Public company directorships:
3i Infrastructure Plc (retired on 4 July
2024) and Jersey Electricity Plc
Shared Directorships with any other
Fund Directors: None
Appointed: October 2017
Skills: John’s 20-plus years’ career as
an investment company analyst, with
a particular focus upon the UK wealth
management sector, gives the Board an
important insight into the investment
requirements and processes of the
types of investor, whether private or
institutional, most likely to consider the
Company for inclusion in their portfolios.
He is also skilled in the assessment of
potential peer group funds, both in
terms of relative performance and other
quantitative data and in the increasing
focus upon governance and stewardship
matters as pre-requisites for investment.
Experience: John joined the Board
shortly aer working in the managed
funds sector since the mid-1990s, the
last ten years being spent as Head
of Investment Companies Research
at Brewin Dolphin Limited. He was a
member of the AIC Statistics’ Committee
from 2000 to 2017 and is a member of the
Citywire Investment Trust Performance
Awards Panel. He has a Master in
Business Administration from Edinburgh
University Business School and is a
Chartered Electrical Engineer dating to
his prior career as a Weapon Engineer
Oicer in the UK Royal Navy. John is
the Chair of the Investment Committee
of Durham Cathedral. He has written
four books about nancial history, the
most recent charting the history of The
Scottish American Investment Company
plc. John is a UK resident.
Committee membership:
– Audit and Risk Committee
– Management Engagement Committee
– Nomination Committee
– Remuneration Committee
Remuneration: £32,500 per annum
Public company directorships: Develop
North plc and Gabelli Merger Plus Trust
plc
Shared Directorships with any other
Fund Directors: None
John Newlands
Independent Non-Executive
Director and Chair of the
Remuneration Committee
Wendy Dorman
Independent Non-Executive
Director and Chair of the
Audit and Risk Committee
37
Board of Directors and
Investment Manager
Continued
Appointed: January 2017
Skills: Ian is a Chartered Fellow of the
Chartered Institute for Securities &
Investment and a Fellow (Chartered
Director) of the IoD. His extensive
governance experience on public and
private company boards as well as a long
career as a regulated person (CF3, CF2
and CF1 controlled functions) in the asset
management industry gives him a broad
and relevant skill set for the Board.
Experience: Ian has over 30 years’
experience within the nancial services
industry in London, Hong Kong and
Jersey with a strong career emphasis on
equity and equity derivative trading, risk
management, corporate governance and
board strategy. Ian is a Jersey resident.
Committee membership:
– Audit and Risk Committee
– Management Engagement Committee
– Nomination Committee
– Remuneration Committee
Remuneration: £32,500 per annum
Public company directorships:
Chairman of abrdn Asian Income Fund
Limited
Shared Directorships with any other
Fund Directors: None
Investment Manager
CQS (UK) LLP is appointed as Investment Manager to the
Company under an Investment Management Agreement dated
18 September 2019. Prior to this, the Company’s Investment
Manager was CQS Cayman Limited Partnership.
During the year, CQS (UK) LLP was acquired by Manulife
Investment Management, a leading international nancial
services group. There are no planned changes to the investment
management team, investment strategy or name of the
company.
Ian Francis has day-to-day responsibility for managing the
Company’s portfolio and is supported by the CQS (UK) LLP
team. He joined the NCIM team in 2007. He has over 40 years’
investment experience, primarily in the xed interest and
convertible spheres and his career has included Collins Stewart,
West LB Panmure, James Capel and Hoare Govett.
Alternative Investment Fund Managers
Directive (“AIFMD”)
The Company has appointed CQS (UK) LLP as the Company’s
alternative investment fund manager (“AIFM”). The AIFM
has received its approval from the FCA to act as AIFM of the
Company. The Company is therefore fully compliant. An
additional requirement of the AIFMD is for the Company to
appoint a depositary, which will oversee the custody and
cash arrangements and other AIFMD required depositary
responsibilities. The Board has appointed BNP Paribas to act as
the Company’s depositary.
Further AIFMD disclosures are shown on pages 101 to 102.
Ian Cadby
Independent Non-Executive
Director and Chair of the
Nomination Committee
38
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
Directors’ Report
The Directors present their report and the audited
Financial Statements for the year ended 30 June 2024.
Results and dividends
Details of the Company’s results and dividends are shown
on page 6 of this report.
Dividend policy
Subject to market conditions and the Company’s
performance, nancial position and nancial outlook,
it is the Directors’ intention to pay an attractive level of
dividend income to Shareholders on a quarterly basis.
The Company intends to continue to pay all dividends as
interim dividends. A resolution to approve this dividend
policy will be proposed at the next AGM.
Bank loan facility
The Company has a short-term unsecured loan facility
with Scotiabank. As at the year-end, the unsecured loan
facility had a limit of £45,000,000 of which £35,000,000
was drawn down.
The Company’s existing loan facility is due to expire on 18
December 2024 aer which it is anticipated the Company
will take out a new facility on comparable terms.
Share capital
As at 30 June 2024, there were 551,451,858 (2023:
524,601,858) ordinary shares in issue. During the year
ended 30 June 2024, the Company issued 26,850,000
(2023: 47,950,000) ordinary shares. Full details of these
transactions are shown in note 13 of the ‘notes to the
Financial Statements’.
Acquisition of own shares
At the 2023 AGM, held on 30 November 2023, the
Directors were granted authority to repurchase ordinary
shares (being equal to 14.99% of the aggregate number
of ordinary shares in issue at the date of the AGM) for
cancellation, or to be held as treasury shares. This
authority, which has not been used, will expire at the
upcoming AGM. The Directors intend to seek annual
renewal of this authority from Shareholders.
Directors’ shareholdings
The Directors who held oice at the year-end and their
interests in the ordinary shares of the Company were as
follows:
At 30 June 2024 At 30 June 2023
D A H Baxter 195,127 195,127
I Cadby 25,000 25,000
W Dorman 206,781 149,529
C Hitch
1
211,500 211,500
J E Newlands 10,000 10,000
1
Inclusive of 41,500 shares held by Ms Hitch’s mother
On 3 June 2024, Ms Wendy Dorman purchased additional
57,252 ordinary shares.
There were no other changes in the ordinary share
holdings of the Directors between 1 July 2024 and 27
September 2024.
Substantial interests in share capital
During the year ended 30 June 2024, the Company had
not been notied in accordance with Chapter 5 of the UK
Listing Authority’s Disclosure Guidance and Transparency
Rules (which covers the acquisition and disposal of major
shareholdings and voting rights), of Shareholders that
had an interest of greater than 5% in the Company’s
issued share capital.
Investment management
As part of its strategy for achieving its objectives, the
Board has delegated the management of the investment
portfolio to the Investment Manager, CQS (UK) LLP, with
Ian Francis as the lead fund manager. Further details are
provided in note 23 to the Financial Statements.
At each Board meeting, the Board receives a presentation
from the Investment Manager which includes a review
of investment performance, portfolio activity and
market outlook. The stock selection emphasis adopted
by the Investment Manager is on each holding’s unique
characteristics rather than any benchmark weightings.
39
Appointment of the Investment Manager
The Board considers the arrangements for the provision of
investment management and other services to the Company
on an ongoing basis and a formal review is conducted
annually by the Management Engagement Committee. As
part of the annual review the Management Engagement
Committee considers the continuity of the team, the
investment process and the results achieved to date.
The Board believes that the continuing appointment of CQS
(UK) LLP as AIFM and Investment Manager as set out on
page 38 is in the interests of Shareholders as a whole.
Administration services
BNP Paribas was appointed as the Company Secretary,
Administrator, Custodian, Banker and Depository on 28
November 2019.
Independent Auditor
Following a tender process in 2023, PwC has been
appointed as the Company’s auditor eective 5 July 2023.
A resolution to re-appoint PwC as the Company’s auditor
will be proposed at the Company’s 2024 AGM.
Delegation of responsibilities and
matters reserved for the Board
The Board has delegated the exercise of voting rights
attaching to the Company’s investments to the
Investment Manager. All other matters are reserved for
the approval of the Board.
The Board has a schedule of matters reserved to it for
decision and the requirement for Board approval on
these matters is communicated directly to the Investment
Manager. Such matters include strategy, borrowings,
treasury and dividend policy. Full and timely information
is provided to the Board to enable the Directors to
function eectively and to discharge their responsibilities.
The Board also reviews the Financial Statements,
performance and revenue budgets.
Exercise of voting powers
The Investment Manager, in the absence of explicit
instruction from the Board, is empowered to exercise
discretion in the use of the Company’s voting rights in
respect of investee companies. The underlying aim of
exercising such voting rights is to protect the return from
an investment.
Disclosures required under Listing Rules
(“UKLR”) 6.6.1R
The FCA’s UKLR 6.6.1R requires that the Company
includes certain information relating to arrangements
made between a controlling shareholder and the
Company, waivers of Directors’ fees and long-term
incentive schemes in force. The Directors conrm that
there are no disclosures to be made in this regard.
Events aer reporting date
The Board has evaluated material subsequent events for
the Company occurred during the period from 1 July 2024
through to 27 September 2024 and their eect on the
Financial Statements. A list of these events is disclosed in
note 25.
Disclosure of information to the Auditor
The Directors conrm that, so far as each of them is
aware, there is no relevant audit information of which
the Company’s Auditor is unaware and the Directors have
taken all the steps that they might have taken as Directors
in order to make themselves aware of any relevant audit
information and to establish that the Company’s Auditor
is aware of that information.
Statement regarding Annual Report
and Financial Statements
Following a detailed review of the Annual Report and
Financial Statements by the Audit and Risk Committee, the
Directors consider that taken as a whole it is fair, balanced
and understandable and provides the information
necessary for Shareholders to assess the Company’s
performance, business model and strategy. In reaching this
conclusion, the Directors have assumed that the reader
of the Annual Report and Financial Statements has a
reasonable level of knowledge of the investment industry
in general and investment companies in particular.
By Order of the Board
Caroline Hitch
Chair
27 September 2024
Directors’ Report
Continued
40
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
The Board and Committees
Values and culture
The Board conducts itself with the core values of
integrity, transparency, acceptance of challenge and
accountability. It achieves this through a collaborative
culture and a sense of shared endeavour. The Board
is focused on meeting objectives for investors and all
other stakeholders of the Company in a sustainable and
responsible way.
The Board
The Board currently consists of a non-executive Chair
and four non-executive Directors. The Board considers
all of the Directors as independent of the Investment
Manager and free from any business or other relationship
that could materially interfere with the exercise of their
independent judgement.
The dates on which the Directors were appointed are
contained within their biographies shown on pages 36 to
38. In accordance with the AIC Code, all Directors submit
themselves for re-election on an annual basis.
New Directors receive an induction from the Company
Secretary on joining the Board and all Directors receive
other relevant training as necessary. Directors’ and
Oicers’ liability insurance cover is maintained by the
Company on behalf of the Directors. There is no notice
period and no provision for compensation upon early
termination of appointment.
The Company has neither executive Directors nor
employees. A management agreement between the
Company and its Investment Manager sets out the
matters over which the Investment Manager has authority
and the limits beyond which Board approval must be
sought. All other matters, including strategy, investment
and dividend policies, gearing and corporate governance
procedures, are reserved for the approval of the Board.
Duncan Baxter is the Company’s Senior Independent
Director. He is available to Shareholders if they have
concerns where contact through the normal channels of
the Chair or the Investment Manager is inappropriate.
All committees’ terms of reference, the schedule
of matters reserved for the Board, the roles and
responsibilities of the Chair and the roles and
responsibilities of the Senior Independent Director are
available on the Company’s website.
Director attendance
Directors have attended Board and Committee meetings
during the year ended 30 June 2024 as follows:
Quarterly
Board
meetings
Ad Hoc Board
Meeting
1
Audit and Risk
Committee
meetings
Management
Engagement
Committee
meetings
Nomination
Committee
meetings
Remuneration
Committee
meetings
C Hitch (Chair) 4/4 5/6 3/3 1/1 1/1 1/1
D A H Baxter 4/4 5/6 3/3 1/1 1/1 1/1
W Dorman 4/4 5/6 3/3 1/1 1/1 1/1
I Cadby
2
3/4 6/6 2/3 0/1 0/1 0/1
J E Newlands 4/4 6/6 3/3 1/1 1/1 1/1
1
Ad hoc board meetings are sometimes called at short notice and only require the attendance of Jersey based
directors, where possible the UK based directors attend via telephone but do not count towards the quorum.
2
Mr Cadby did not attend the Board meeting held on 23 May 2024 due to a family bereavement.
41
Nomination Committee
The Nomination Committee, chaired by Ian Cadby,
operates within clearly dened terms of reference,
comprises the full Board and is convened for the purpose
of considering the appointment of additional Directors
as and when considered appropriate. In considering
appointments to the Board, the Nomination Committee
takes into account the ongoing requirements of the
Company and the need to have a balance of skills and
experience within the Board.
Board evaluation
In 2024, the Directors completed a questionnaire-
based Board evaluation which covered the Board’s
composition and skills, strategy setting, oversight of risk
and performance, and its stakeholder management.
The Board scored highly in all areas although noted that
despite being 40% female, including the Chair, there is
potential to improve other areas of diversity. Both the
Nomination Committee and the Board recognise the
importance of diversity and will consider this in respect of
any new appointments.
Diversity and inclusion
The Board believes in the benets of having a diverse
range of skills and backgrounds and the need to have a
balance of experience, independence, diversity (including
gender and ethnicity) and knowledge of the Company on
its Board and are endeavouring to meet diversity targets.
The below tables set out the Board’s composition as
at 30 June 2024, in terms of gender identity and ethnic
background. The below text compares this against the
targets prescribed by UKLR 6.6.6R (9)(a).
Number of Board members Percentage of the Board Senior positions on the Board (Senior
Independent Director and Chair)
Men: 3 60% Duncan Baxter – Senior Independent Non-
Executive Director
Women: 2 40% Caroline Hitch – Chair of the Board
Wendy Dorman – Chair of the Audit and Risk
Committee
Number
of Board
members
Percentage
of the Board
Senior positions on the Board (Senior
Independent Director and Chair)
White British or other White
(including minority-white groups)
5 100% Duncan Baxter – Senior Independent Non-
Executive Director
Caroline Hitch – Chair of the Board
Wendy Dorman – Chair of the Audit and Risk
Committee
Mixed/Multiple Ethnic Groups Nil N/A N/A
Asian/Asian British Nil N/A N/A
Black/African/Caribbean/Black British Nil N/A N/A
Other ethnic group, including Arab Nil N/A N/A
Not specied/ prefer not to say Nil N/A N/A
The Board and Committees
Continued
42
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
At present none of the Board members are from minority
ethnic backgrounds which is below the target of one as
prescribed by UKLR 6.6.6R (9)(a). The Board are mindful
of this and alongside knowledge and expertise, this will
form a key consideration when the Board next recruits.
The Nomination Committee is building diversity targets
into its succession plans.
Director re-election and tenure
It is the intention of the Board that each Director will
retire aer no longer than nine years in their role and the
Board has adopted a policy whereby all Directors will be
put up for re-election every year in line with the AIC Code.
Accordingly, all Directors will be put forward for re-
election at the forthcoming AGM, except for Mr Duncan
Baxter.
Mr Baxter is expected to retire at the Company’s next AGM
to be held in 3 December 2024 as he has reached nine
years of service. The Board is very grateful to Mr Baxter for
his contribution to the Company during his tenure.
Succession planning
A key duty of the Nomination Committee is to ensure
plans are in place for orderly succession to the Board.
The Board has adopted a succession plan scheduled to
allow for an orderly refreshment of the Board, with the
intention that no director serves longer than nine years,
other than in exceptional circumstances. Our succession
planning takes into account gender and ethnic diversity
targets.
In anticipation of the retirement of Mr Baxter in 2024, the
Committee commenced a recruitment process in May
2024 to identify candidates for Board succession. The
Board engaged Thomas and Dessain, a recruitment rm
in Jersey to manage the process. Thomas and Dessain has
no other connections to the Company or any individual
Director.
Management Engagement Committee
The Management Engagement Committee, chaired by
Duncan Baxter, operates within clearly dened terms
of reference, comprises the full Board, reviews the
appropriateness of the Investment Manager’s continuing
appointment together with the terms and conditions
thereof and reviews the terms and quality of service
received from other service providers.
The Board ensures the Company adheres to independent
requirements in all agreements and service contracts.
Remuneration Committee
The Remuneration Committee determines and agrees
with the Board the policy for the remuneration of all
Directors. It is chaired by John Newlands.
Audit and Risk Committee
The composition and role of the Audit and Risk
Committee is described on page 46.
Relations with Shareholders
The Directors place a great deal of importance on
communication with Shareholders. The Annual Report
and Financial Statements are widely distributed to
other parties who have an interest in the Company’s
performance. The Directors obtain regular feedback
from the Investment Manager and Broker regarding
shareholder engagement and will make themselves
available to shareholders upon request. Shareholders
and investors may obtain up to date information on the
Company through the Investment Manager’s website.
The Company responds to letters from Shareholders
on a wide range of issues and invites questions at the
Company’s Annual General Meeting.
A regular dialogue is maintained with the Company’s
institutional Shareholders. The Company Secretary is
available to answer general Shareholder queries at any
time throughout the year.
By Order of the Board
Caroline Hitch
Chair
27 September 2024
43
Statement of Compliance
with the AIC Code
Introduction
The Company is listed on the Equity Shares
(Commercial Companies) segment of the LSE and is
therefore required to report on how the principles of
the UK Code have been applied. Being an investment
company, a number of the provisions of the UK
Corporate Governance Code (the “UK Code”) are not
applicable as the Company has no executive directors
or internal operations.
The Board has considered the principles and
provisions of the AIC Code. The AIC Code addresses all
the principles and provisions set out in the UK Code,
as well as setting out additional provisions on issues
that are of specic relevance to the Company.
The Board considers that reporting against the
principles and provisions of the AIC Code provides
more relevant information to stakeholders. The AIC
Code is available on the AIC’s website
www.theaic.co.uk.
The Company has complied with all the principles and
provisions of the AIC Code during the year ended 30
June 2024.
Set out below is where stakeholders can nd further
information within the Annual Report about how the
Company has complied with the various Principles
and Provisions of the AIC Code.
1. Board leadership and purpose
Purpose 27
Strategy 27
Values and culture 41
Shareholder engagement 25
Stakeholder engagement 25 to 26
2. Division of responsibilities
Director independence 41
Board meetings 41
Relationship with Investment Manager 40
Management Engagement Committee 43
3. Composition, succession and evaluation
Nomination Committee 42 to 43
Director re-election 43
Use of an external search agency 43
Board evaluation 42
4. Audit, risk and internal control
Audit and Risk Committee 46 to 48
Emerging and principal risks 20 to 24
Risk management and internal control
systems 47 to 48
Going concern statement 28
Viability statement 29
5. Remuneration
Directors’ remuneration report 49
Page
44
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
Environmental, Social and
Governance (“ESG”) Statement
Introduction
The Company is a Jersey domiciled and UK LSE listed
investment company whose objective is to provide
investors with a high gross dividend yield and the
potential for capital growth by mainly investing in
high yielding xed interest securities. The Board fully
supports the growing importance placed on ESG factors
when asking the Company’s Investment Manager to
deliver against the Company’s objectives. The Board
has requested that the Investment Manager take into
account the broader social, ethical and environmental
issues of companies within the Company’s portfolio,
acknowledging that companies failing to manage
these issues adequately run a long-term risk to the
sustainability of their businesses.
CQS (UK) LLP Responsible Investment Policy
incorporating our ESG Statement
CQS (UK) LLP views ESG factors as signicant drivers
inuencing nancing costs, risk assessment valuations
and performance. The assessment, integration and
engagement of ESG factors are a crucial part of
the Investment Manager’s responsible investment
commitment. By embedding responsible investment
into its investment process, the Investment Manager
seeks to enhance its ability to identify value, investment
opportunity, risk and, critically, to generate the best
possible returns and outcomes for its clients.
The Investment Manager is a signatory to the United
Nations PRI, the UK Stewardship Code, the Net Zero Asset
Managers’ initiative and the Institutional Investors Group
on Climate Change.
The TCFD is a global initiative to promote consistent
and transparent reporting of climate-related risks and
opportunities by companies and nancial institutions. As of
2024, the Investment Manager publishes annual product-
level TCFD reporting for the Company, which enables
investors to make informed choices based on consistent
and comparable information about the climate impact
of the Company. Please nd the latest product-level TCFD
reporting for the Company here: https://ncim.co.uk/wp/
wp-content/uploads/2024/06/CQS-New-City-High-Yield-
Fund-Limited_TCFD_20231231_R-105385.pdf
Following the publication of the inaugural ISSB
Standards—IFRS S1 and IFRS S2—the Financial Stability
Board has asked the IFRS Foundation to take over the
monitoring of the progress on companies’ climate-related
disclosures from the TCFD.
At the time of writing, 34.4% of the Company’s portfolio is
covered by Morgan Stanley Capital International (“MSCI”)
for their ESG rating service. MSCI has a minimum 50%
threshold for xed interest portfolios before the Investment
Manager is able to provide a meaningful MSCI ESG fund
rating for the portfolio.
The Investment Manager monitors this closely and engages
to try and further increase the percentage of the portfolio
covered.
The Investment Manager has a three-pronged approach
to engagement - Targeted Engagement Programmes
which map key objectives for priority companies to the UN
Sustainable Development Goals, day-to-day engagement
as part of the research process and collaborative
engagements. Key engagements are monitored and
discussed at quarterly engagement group meetings and
cover environmental, social and governance topics.
An example of this engagement for the Company over
the reporting period was the Investment Manager’s
participation in the 2023 Carbon Disclosure Project
(“CDP”) non-disclosure campaign. The campaign was
a collaboration of 287 nancial institutions directly
engaging with 1,590 of the highest impact companies not
currently disclosing environmental data through CDP. The
Investment Manager led on four engagements and co-
signed all other letters as part of the campaign. As a result
of the campaign, 317 companies in the campaign made
disclosures on at least one of the key environmental issues
including climate, water and forests.
CQS (UK) LLP has published its Responsible Investment
Policy and a link to that policy is found here:
https://www.cqs.com/documents/cqs-responsible-
investment-policy-february-2023.pdf
45
Report of the Audit
and Risk Committee
Membership and meetings
The Audit and Risk Committee (“the Committee”) is
chaired by Wendy Dorman and comprises the full Board.
Committee members are considered to have recent and
relevant nancial experience. The terms of reference of
the Committee are reviewed and re-assessed for their
adequacy on an annual basis.
The AIC Code requires audit committees who include
the Chair of the Board as a member of the Committee
to explain why this is felt to be appropriate. The Chair,
Caroline Hitch, is a member of the Committee. Caroline
was considered independent of the Company on her
appointment to the Board in March 2018 and the
Committee is satised that she remains independent and
objective. Her membership of the Committee is deemed
appropriate given the size and nature of the Company.
The Committee does not believe it compromises the
integrity of the Committee or the Board.
The Committee held three scheduled meetings during the
year, as well as a number of ad hoc meetings. Meetings
were attended, by invitation, by the Investment Manager,
external auditor and members of the client service team
of the Administrator.
As part of the annual Board evaluation, a review of the
work of the Committee was carried out during the year
and it was evaluated to be operating eectively.
Role of the Audit and Risk Committee
A summary of the Committee’s main audit review
functions is shown below:
▶
to review and monitor the internal control systems and
risk management systems on which the Company is
reliant;
▶
to consider any changes to the principal risks facing
the Company, including changes to the probability and
likelihood of a risk materialising, taking into account
mitigations in place, and considering and tracking
emerging risks that could impact over time;
▶
to consider annually whether there is a need for the
Company to have its own internal audit function;
▶
to monitor the integrity of the half-yearly and annual
Financial Statements of the Company by reviewing
and challenging where necessary, the actions and
judgements of the Investment Manager, the Company
Secretary and the Administrator;
▶
to advise the Board on whether the annual report
and accounts, taken as a whole, is fair, balanced
and understandable and provides the information
necessary for Shareholders to assess the Company’s
strategy, business model, position and performance;
▶
to meet with the external Auditor to review their
proposed audit programme of work and their ndings.
The Committee shall also uses this as an opportunity
to assess the eectiveness of the audit process;
▶
to make recommendations in relation to the
appointment of the external Auditor and to approve
the remuneration and terms of engagement of the
external Auditor;
▶
to monitor and review annually the external Auditor’s
independence, objectivity, eectiveness, resources and
qualication; and
▶
to consider and approve all non-audit services. No
non-audit services are pre-approved.
Annual Report and Financial Statements
The Board is ultimately responsible for the Annual Report
and Financial Statements. The Committee advises the
Board on the form and content of the Annual Report and
Financial Statements, any issues which may arise and any
specic areas which require judgement.
The Company has adopted and reports against the AIC
Code. The Committee oversaw the work performed by
the Company Secretary in ensuring that the Company
is in compliance with the principles and provisions of
the AIC Code, which is reported on in the Statement of
Compliance with the AIC Code section on page 44.
The valuation of investments was a key area of focus
given their signicance to the Financial Statements as a
whole. Following discussion with the Investment Manager
and external auditor, the Committee gained comfort
over the valuation as included in the Annual Report and
Financial Statements.
46
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
The Committee reviewed and considered the Annual
Report and Financial Statements to be fair, balanced and
understandable and recommended the Board’s approval.
During the year, the Financial Reporting Council
carried out a review of the Annual Report and Financial
Statements of the Company for the year ended 30 June
2023 and reported to the Board that they found nothing
of concern or that required further investigation.
External auditor
Following a tender process in 2023, PwC was appointed
as the Company’s auditor eective 5 July 2023 and this is
the second year of their appointment.
In the May 2024 Committee meeting, PwC presented their
plan for the audit of the Financial Statements for the year
ended 30 June 2024 and this was discussed with and
agreed by the Committee. Following the prior year audit,
the Committee evaluated the audit process and were
satised with the eiciency and quality of the audit.
At the conclusion of the audit, PwC discussed with the
Committee their audit ndings and recommendations.
PwC did not highlight any issues to the Committee which
would cause it to qualify its audit report. PwC issued an
unmodied audit report which is included on pages 52 to
58.
As part of the review of auditor independence and
eectiveness, PwC has conrmed that it is independent
of the Company and has complied with relevant auditing
standards. In evaluating PwC, the Committee has taken
into consideration the standing, skills and experience of
the rm and the audit team. The Committee, from direct
observation and enquiry of the Investment Manager
and the Administrator, are satised that PwC provided
eective independent challenge in carrying out its
responsibilities. The Committee chair, Wendy Dorman
was a former tax partner with PwC. She retired from the
partnership in 2015 and has no residual connection with
the rm. No non-audit services were provided to the
Company by PwC during the year.
Following professional guidelines, the audit engagement
partner rotates aer a maximum of ve years. The
current audit engagement partner is Mike Byrne and it
is his second year as audit engagement partner for the
Company.
Signicant risks related to the Financial
Statements
The main area of accounting risk considered by the
Committee during the year in relation to the Company’s
Financial Statements was the valuation of investments
held by the Company.
The valuation of investments is undertaken in accordance
with the accounting policies as set out in note 1. Details of
the fair value hierarchy are set out in note 22.
In order to address this risk, the Company has appointed
an Investment Manager and Custodian with clearly
dened contracts and any breaches of these, or any law
or regulation which the Company is required to comply
with, are reported to the Board. The portfolio holdings
and their pricing are reviewed on a daily basis and
veried by the Investment Manager.
A full portfolio analysis is prepared for each Board
meeting, including a detailed movement of the top 60
holdings, which is actively commented on and discussed
by the Directors.
Internal controls
The Committee, on behalf of the Board, is responsible
for reviewing the Company’s system of internal control
and its eectiveness. There is an ongoing process for
identifying, evaluating and managing the signicant risks
faced by the Company. This process has been in place for
the year under review and up to the date of approval of
this Annual Report and is regularly reviewed by the Board
and accords with Financial Reporting Council’s Guidance.
The signicant principal and emerging risks faced by the
Company, together with mitigating controls, are set out
on pages 20 to 24.
47
The key components designed to provide eective
internal control are outlined below:
▶
the Administrator together with the Investment
Manager prepare forecasts and management accounts
which allow the Board to assess the Company’s
activities and nancial position, and review its
performance;
▶
the Board and Investment Manager have agreed
clearly dened investment criteria, specied levels of
authority and exposure limits. Reports on these issues,
including performance statistics and investment
valuations, are regularly submitted to the Board and
there are meetings with the Investment Manager as
appropriate;
▶
the Administrator carried out compliance checks
throughout the year in accordance with a Compliance
Monitoring Plan approved annually by the Board;
▶
as a matter of course the Investment Manager’s
compliance department continually reviews the
Investment Manager’s operations and reports to the
Board on an annual basis and by exception;
▶
written agreements are in place which specically
dene the roles and responsibilities of the Investment
Manager, Company Secretary, Administrator and other
third party service providers;
▶
the Board has considered the need for an internal audit
function but because of the compliance and internal
control systems in place at the Investment Manager,
the Company Secretary and the Administrator, has
decided to place reliance on the Investment Manager’s,
the Company Secretary’s and the Administrator’s
systems and internal audit procedures.
In February 2024, the Board held a strategy and due
diligence meeting at the oices of the Investment
Manager. This provided an opportunity to discuss
the portfolio and strategy in depth and consider the
implications of current market conditions for our
Company. Discussions were held with various members of
the Investment Manager’s team and with our Broker who
updated the Board on developments in the market and in
our sector. In addition, sustainability and TCFD reporting
was discussed with the Investment Manager’s team.
During the year, the Directors carried out an annual
assessment of internal controls for each of their key
service providers and considered documentation from
each. The Committee assessed the control environment
as suiciently robust to mitigate to an acceptable level
the principal risks of the Company, with a particular focus
on operational risks including cyber and fraud.
The Directors received and reviewed the BNP Paribas’
internal controls framework for the year and were pleased
to note that no signicant issues were identied. The
Administrator conrmed that their internal controls were
reviewed on an ongoing basis which was overseen by
the Group’s internal audit team. The Administrator has
established an IT Governance framework that is based on
a set of Level 2 procedures and IT operations.
Internal control systems are designed to meet the
Company’s particular needs and the risks to which it is
exposed. Accordingly, the internal control systems are
designed to manage rather than eliminate the risk of
failure to achieve business objectives and by their nature
can only provide reasonable and not absolute assurance
against misstatement and loss.
Wendy Dorman
Chair of the Audit and Risk Committee
27 September 2024
Report of the Audit
and Risk Committee
Continued
48
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Directors’ Reports and Governance Reports
Remuneration Committee
The Remuneration Committee, which is chaired by John
Newlands, operates within clearly dened terms of
reference. The Committee comprises the full Board.
The remuneration of the Directors has been set in order
to attract individuals of a calibre appropriate to the future
development of the Company. The Company’s policy
on Directors’ remuneration, together with details of the
remuneration of each Director, is shown below.
Policy on Directors’ remuneration
The Company’s Articles of Association limit the aggregate
fees payable to the Board to a total of £250,000 per
annum. Subject to this overall limit, it is the Company’s
policy that the remuneration of non-executive Directors
should reect the experience of the Board as a whole, be
fair and comparable to that of other relevant investment
companies that are similar in size and have similar
investment objectives and structures. Furthermore,
the level of remuneration should be suicient to attract
and retain the Directors needed to oversee properly
the Company and to reect the specic circumstances
of the Company, the duties and responsibilities of the
Directors and the value and amount of time committed
to the Company’s aairs. It is intended that this policy
will continue for the year ending 30 June 2025 and
subsequent years.
On 25 May 2023, the Board approved an increased level
of remuneration for the Directors with eect from 1 July
2023 as follows:
▶
Chair £45,000
▶
Audit Chair £39,000
▶
Other £32,500
No element of the Directors’ remuneration is performance
related.
No Director past or present has any entitlement to
pensions and the Company has not awarded any share
options or long-term performance incentives to any of the
Directors.
It is the Board’s policy that Directors do not have service
contracts, but new Directors are provided with a letter of
appointment.
Directors’ emoluments
The Directors who served in the year received the
following fees:
2024
£
2023
£
C Hitch (Chair) 45,000 42,500
D A H Baxter 32,500 30,000
I Cadby 32,500 30,000
W Dorman (Audit and
Risk Committee Chair)
39,000 36,500
J E Newlands 32,500 30,000
Total 181,500 169,000
The amounts paid by the Company to the Directors were for services as
non-executive Directors.
Voting at AGM
An ordinary resolution for the approval of this Directors’
Remuneration Report will be put to an advisory
shareholder vote at the forthcoming AGM.
Approval
The Directors’ Remuneration Report on page 49 was
approved by the Board of Directors and signed on its
behalf.
By order of the Board
Caroline Hitch
Chair
27 September 2024
Directors’ Remuneration Report
49
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Independent Auditor’s Report
50
Independent Auditor’s
Report to the members
of CQS New City High
Yield Fund Limited
51
Independent Auditor’s Report
to the members of CQS New City High Yield Fund Limited
Report on the audit of the nancial statements
Our opinion
In our opinion, the nancial statements give a true and
fair view of the nancial position of CQS New City High
Yield Fund Limited (the “company”) as at 30 June 2024,
and of its nancial performance and its cash ows for
the year then ended in accordance with International
Financial Reporting Standards as adopted by the
European Union and have been properly prepared in
accordance with the requirements of the Companies
(Jersey) Law 1991.
What we have audited
The company’s nancial statements comprise:
▶
the statement of nancial position as at 30 June 2024;
▶
the statement of comprehensive income for the year
then ended;
▶
the statement of changes in equity for the year then
ended;
▶
the cash ow statement for the year then ended; and
▶
the notes to the nancial statements, comprising
material accounting policy information and other
explanatory information.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (“ISAs”). Our responsibilities under
those standards are further described in the Auditor’s
responsibilities for the audit of the nancial statements
section of our report.
We believe that the audit evidence we have obtained
is suicient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the company in accordance with
the ethical requirements that are relevant to our audit
of the nancial statements of the company, as required
by the Crown Dependencies’ Audit Rules and Guidance.
We have fullled our other ethical responsibilities in
accordance with these requirements.
Our audit approach
Overview
Audit scope
▶
The company is an investment company,
incorporated and based in Jersey, with ordinary
shares listed on the Main Market of the London Stock
Exchange.
▶
We conducted our audit of the nancial statements
using information provided by BNP Paribas S.A.,
Jersey Branch (the “administrator’) and CQS (UK)
LLP (the “manager”).
▶
Our audit work was performed in Jersey. We tailored
the scope of our risk-based audit considering the
types of investments held by the company, the
accounting processes and controls, and the industry
in which the company operates.
Key audit matters
▶
Valuation and ownership of nancial assets at fair
value through prot or loss.
▶
Investment income recognition.
Materiality
▶
Overall materiality: £2,734,000 (2023: £2,404,000)
based on 1% of net asset value.
▶
Performance materiality: £2,050,000 (2023:
£1,202,000).
The scope of our audit
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
nancial statements. In particular, we considered where
the directors made subjective judgements; for example, in
respect of signicant accounting estimates that involved
making assumptions and considering future events that
are inherently uncertain. As in all of our audits, we also
addressed the risk of management override of internal
controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk
of material misstatement due to fraud.
HEAD_3rd lineto the members of CQS New City High Yield
Fund Limited
Independent Auditor’s Report
52
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Independent Auditor’s Report
Key audit matters
Key audit matters are those matters that, in the auditor’s professional judgement, were of most signicance in the
audit of the nancial statements of the current period and include the most signicant assessed risks of material
misstatement (whether or not due to fraud) identied by the auditor, including those which had the greatest eect on:
the overall audit strategy; the allocation of resources in the audit; and directing the eorts of the engagement team.
These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of
our audit of the nancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
This is not a complete list of all risks identied by our audit.
Key audit matter How our audit addressed the key audit matter
Valuation and ownership of nancial assets at fair value
through prot or loss
Refer to Note 1 (Accounting policies), Note 9 (Financial
assets at fair value through prot or loss), and Note 22
(Fair value hierarchy) to the nancial statements.
We focused on the valuation and ownership of nancial
assets at fair value through prot or loss (“investments”)
because investments represent the principal element
of the net asset value as disclosed on the statement of
nancial position in the nancial statements.
The valuation of investments drives several key
performance indicators, such as net asset value, which
is of signicant interest to investors. Items classied as
being level 1 or level 2 in the fair value hierarchy together
comprise 99.8% of the investment portfolio.
The nature of level 1 and level 2 investment valuations
is not deemed to be complex as they are based primarily
on quoted prices from independent pricing sources.
However, the magnitude of the amounts involved means
that there is potential for material misstatement.
If the investments recorded were found not to represent
what was owned by the company, this could have a
signicant impact on the nancial statements.
We understood and evaluated the design and
implementation of controls over the valuation of
investments at the administrator for the level 1 and level
2 investments.
We assessed the accounting policy for valuation of
investments for compliance with applicable accounting
standards and assessed whether investments had been
accounted for in accordance with the stated accounting
policy.
We used independent third-party pricing sources
to recalculate the valuation of all level 1 and level 2
positions within the investment portfolio and compared
it to the valuation performed by management.
For 100% of the investment portfolio, we obtained
an independent third-party conrmation from the
company’s custodian and compared it to the company’s
records of investment ownership.
We have no matters to report.
HEAD_1st line HEAD_2nd line
53
Independent Auditor’s Report
to the members of CQS New City High Yield Fund Limited
Continued
Report on the audit of the nancial statements
Continued
Investment Income recognition
Refer to Note 1 (Accounting Policies) and Note 2
(Investment Income) to the nancial statements.
Investment income is earned primarily through interest
generated from xed interest securities and dividend
income recognised in the year. The calculation and
recognition of income receipts and accrued income is
not considered to be complex.
We identied the accuracy, occurrence and
completeness of income from xed interest securities
and dividend income to be a key audit matter, because
the incomplete or inaccurate recognition of income
could have a material impact on the company’s nancial
performance for the year.
We assessed the accounting policy for income
recognition for compliance with applicable accounting
standards and assessed whether income had been
accounted for in accordance with the stated accounting
policy.
For a sample of xed interest securities, we traced the
rates of interest to independent sources and recalculated
the income recognised by the company.
For a sample of equity dividends, we traced the dividend
per share to independent sources and recalculated the
income recognised by the company.
We traced a sample of income receipts to bank
statements for income received, and the accrued income
listing for items accrued at the year-end.
To address the risk of incomplete income recognition,
using the investment ledger of investments held by the
company throughout the year ended 30 June 2024, for
a sample of investments, we reconciled the income
recognised by the company to independent information
on the income declared by each investment within the
sample, based on the holding at the ex-dates, including
testing accrued income as at 30 June 2024.
We have no matters to report.
HEAD_1st line HEAD_2nd line HEAD_3rd line
54
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Independent Auditor’s Report
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on
the nancial statements as a whole, taking into account
the structure of the company, the accounting processes
and controls, the industry in which the company operates,
and we considered the risk of climate change and the
potential impact thereof on our audit approach.
Materiality
The scope of our audit was inuenced by our application
of materiality. We set certain quantitative thresholds
for materiality. These, together with qualitative
considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit
procedures on the individual nancial statement line
items and disclosures and in evaluating the eect of
misstatements, both individually and in aggregate on the
nancial statements as a whole.
Based on our professional judgement, we determined
materiality for the nancial statements as a whole as
follows:
Overall materiality £2,734,000 (2023:
£2,404,000).
How we determined it 1% of net asset value
Rationale for benchmark
applied
We believe that net assets
is the most appropriate
benchmark because
this is a key metric of
interest to investors.
It is also a generally
accepted measure used
for companies in this
industry.
We use performance materiality to reduce to an
appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements exceeds
overall materiality. Specically, we use performance
materiality in determining the scope of our audit and
the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality
was 75% (2023: 50%) of overall materiality, amounting to
£2,050,000 (2023: £1,202,000) for the company nancial
statements.
In determining the performance materiality, we
considered a number of factors – the history of
misstatements, risk assessment and aggregation risk
and the eectiveness of controls - and concluded that
an amount at the upper end of our normal range was
appropriate.
We agreed with the Audit and Risk Committee that we
would report to them misstatements identied during
our audit above £136,000 (2023: £120,000) as well as
misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Reporting on other information
The other information comprises all the information
included in the Annual Report & Financial Statements
(the “Annual Report”) but does not include the nancial
statements and our auditor’s report thereon. The directors
are responsible for the other information.
Our opinion on the nancial statements does not cover
the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the nancial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the nancial statements
or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
HEAD_1st line HEAD_2nd line
55
Independent Auditor’s Report
to the members of CQS New City High Yield Fund Limited
Continued
Report on the audit of the nancial statements
Continued
Responsibilities for the nancial statements
and the audit
Responsibilities of the directors for the nancial
statements
As explained more fully in the Statement of Directors’
Responsibilities in respect of the Annual Report and
Financial Statements, the directors are responsible for the
preparation of the nancial statements that give a true
and fair view in accordance with International Financial
Reporting Standards as adopted by the European Union,
the requirements of Jersey law and for such internal
control as the directors determine is necessary to enable
the preparation of nancial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the nancial statements, the directors
are responsible for assessing the company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting unless the directors either
intend to liquidate the company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the nancial
statements
Our objectives are to obtain reasonable assurance about
whether the nancial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in
aggregate, they could reasonably be expected to inuence
the economic decisions of users taken on the basis of
these nancial statements.
Our audit testing might include testing complete
populations of certain transactions and balances, possibly
using data auditing techniques. However, it typically
involves selecting a limited number of items for testing,
rather than testing complete populations. We will oen
seek to target particular items for testing based on their
size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the
population from which the sample is selected.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional
scepticism throughout the audit. We also:
▶
Identify and assess the risks of material misstatement
of the nancial statements, whether due to fraud
or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence
that is suicient and appropriate to provide a basis
for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or
the override of internal control.
▶
Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the eectiveness
of the company’s internal control.
▶
Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the directors.
▶
Conclude on the appropriateness of the directors’ use
of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that
may cast signicant doubt on the company’s ability
to continue as a going concern over a period of at
least twelve months from the date of approval of the
nancial statements. If we conclude that a material
uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in
the nancial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events
or conditions may cause the company to cease to
continue as a going concern.
▶
Evaluate the overall presentation, structure and
content of the nancial statements, including the
disclosures, and whether the nancial statements
represent the underlying transactions and events in a
manner that achieves fair presentation.
HEAD_1st line HEAD_2nd line HEAD_3rd line
56
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Independent Auditor’s Report
We communicate with those charged with governance
regarding, among other matters, the planned scope
and timing of the audit and signicant audit ndings,
including any signicant deciencies in internal control
that we identify during our audit.
We also provide those charged with governance with
a statement that we have complied with relevant
ethical requirements regarding independence, and to
communicate with them all relationships and other
matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of
most signicance in the audit of the nancial statements
of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in
our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public
interest benets of such communication.
Use of this report
This report, including the opinions, has been prepared for
and only for the members as a body in accordance with
Article 113A of the Companies (Jersey) Law 1991 and for
no other purpose. We do not, in giving these opinions,
accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by
our prior consent in writing.
Report on other legal and regulatory
requirements
Company Law exception reporting
Under the Companies (Jersey) Law 1991 we are required
to report to you if, in our opinion:
▶
we have not received all the information and
explanations we require for our audit;
▶
proper accounting records have not been kept; or
▶
the nancial statements are not in agreement with the
accounting records.
We have no exceptions to report arising from this
responsibility.
Corporate governance statement
The Listing Rules require us to review the directors’
statements in relation to going concern, longer-term
viability and that part of the corporate governance
statement relating to the company’s compliance with
the provisions of the UK Corporate Governance Code
specied for our review. Our additional responsibilities
with respect to the corporate governance statement as
other information are described in the Reporting on other
information section of this report.
The company has reported compliance against the 2019
AIC Code of Corporate Governance (the “Code”) which has
been endorsed by the UK Financial Reporting Council as
being consistent with the UK Corporate Governance Code
for the purposes of meeting the company’s obligations,
as an investment company, under the Listing Rules of the
FCA.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of
the corporate governance statement, included within the
Strategic Report, is materially consistent with the nancial
statements and our knowledge obtained during the audit,
and we have nothing material to add or draw attention to
in relation to:
▶
The directors’ conrmation that they have carried out a
robust assessment of the emerging and principal risks;
▶
The disclosures in the Annual Report that describe
those principal risks, what procedures are in place
to identify emerging risks and an explanation of how
these are being managed or mitigated;
▶
The directors’ statement in the nancial statements
about whether they considered it appropriate to
adopt the going concern basis of accounting in
preparing them, and their identication of any material
uncertainties to the company’s ability to continue to
do so over a period of at least twelve months from the
date of approval of the nancial statements;
▶
The directors’ explanation as to their assessment of
the company’s prospects, the period this assessment
covers and why the period is appropriate; and
HEAD_1st line HEAD_2nd line
57
Independent Auditor’s Report
to the members of CQS New City High Yield Fund Limited
Continued
Report on the audit of the nancial statements
Continued
▶
The directors’ statement as to whether they have a
reasonable expectation that the company will be able
to continue in operation and meet its liabilities as they
fall due over the period of its assessment, including any
related disclosures drawing attention to any necessary
qualications or assumptions.
Our review of the directors’ statement regarding the
longer-term viability of the company was substantially
less in scope than an audit and only consisted of
making inquiries and considering the directors’ process
supporting their statements; checking that the statements
are in alignment with the relevant provisions of the Code;
and considering whether the statement is consistent
with the nancial statements and our knowledge and
understanding of the company and its environment
obtained in the course of the audit.
In addition, based on the work undertaken as part of
our audit, we have concluded that each of the following
elements of the corporate governance statement is
materially consistent with the nancial statements and
our knowledge obtained during the audit:
▶
The directors’ statement that they consider the
Annual Report, taken as a whole, is fair, balanced
and understandable, and provides the information
necessary for the members to assess the company’s
position, performance, business model and strategy;
▶
The section of the Annual Report that describes the
review of eectiveness of risk management and
internal control systems; and
▶
The section of the Annual Report describing the work of
the Audit and Risk Committee.
We have nothing to report in respect of our responsibility
to report when the directors’ statement relating to the
company’s compliance with the Code does not properly
disclose a departure from a relevant provision of the
Code specied under the Listing Rules for review by the
auditors.
Michael Byrne
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognized Auditor
Jersey, Channel Islands
27 September 2024
HEAD_1st line HEAD_2nd line HEAD_3rd line
58
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Independent Auditor’s Report
59
60
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
Financial
Statements
61
Statement of Comprehensive Income
For the year ended 30 June 2024
Notes
Year ended 30 June 2024 Year ended 30 June 2023
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Net capital gains/(losses)
Gains/(losses) on nancial assets
at fair value 9 – 20,585 20,585 – (17,988) (17,988)
Foreign exchange gain/(loss)
1
– 46 46 – (252) (252)
Revenue
Investment income 2 28,582 – 28,582 26,229 – 26,229
Total Income 28,582 20,631 49,213 26,229 (18,240) 7,989
Expenses
Investment management fee 3 (1,663) (554) (2,217) (1,591) (530) (2,121)
Other expenses 4 (942) (72) (1,014) (647) (89) (736)
Total expenses (2,605) (626) (3,231) (2,238) (619) (2,857)
Prot/(loss) before nance
income/(costs) and taxation
25,977 20,005 45,982 23,991 (18,859) 5,132
Finance income/(costs)
Interest income 256 – 256 124 – 124
Interest expense 5 (1,854) (618) (2,472) (1,167) (389) (1,556)
Prot/(loss) before taxation 24,379 19,387 43,766 22,948 (19,248) 3,700
Irrecoverable withholding tax 6 (350) – (350) (505) – (505)
Prot/(loss) aer taxation and
total comprehensive income/
(loss) 24,029
19,387
43,416 22,443 (19,248) 3,195
Basic and diluted earnings/
(losses) per ordinary share
(pence) 8 4.50p 3.63p 8.13p 4.51p (3.87)p 0.64p
1
Excludes foreign exchange gains and losses on nancial assets at fair value through prot or loss which are presented within losses on nancial
assets at fair value.
The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in
accordance with IFRS as adopted by the EU (refer to note 1). The supplementary revenue return and capital return
columns are both prepared under guidance published by the AIC.
There is no other comprehensive income as all income is recorded in the Statement of Comprehensive Income above.
All revenue and capital items in the above statement are derived from continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes on pages 66 to 87 are an integral part of these Financial Statements.
For the year ended 30 June 2024Statement of Comprehensive Income
62
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
Statement of Financial Position
As at 30 June 2024
Notes
As at
30 June
2024
£’000
As at
30 June
2023
£’000
Non-current assets
Financial assets at fair value through prot or loss 9 299,529 266,011
Current assets
Debtors and other receivables 10 4,905 7,010
Cash and cash equivalents 12,350 6,597
17,255 13,607
Total assets 316,784 279,618
Current liabilities
Bank loan 11 (35,000) (35,000)
Creditors and other payables 12 (8,321) (4,187)
Total liabilities (43,321) (39,187)
Net asset value 273,463 240,431
Stated capital and reserves
Stated capital account 13 258,364 244,884
Special distributable reserve 50,385 50,385
Capital reserve (51,471) (70,858)
Revenue reserve 16,185 16,020
Equity Shareholders’ funds 273,463 240,431
Net asset value per ordinary share (pence) 15 49.59p 45.83p
The Financial Statements on pages 62 to 87 were approved by the Board of Directors and authorised for issue on
27 September 2024 and were signed on its behalf by:
Caroline Hitch
Chair
27 September 2024
The accompanying notes on pages 66 to 87 are an integral part of these Financial Statements.
As at 30 June 2024Statement of Financial Position
63
Statement of Changes in Equity
For the year ended 30 June 2024
Notes
Stated
capital
account
1
£’000
Special
distributable
reserve
2
£’000
Capital
reserve
1
£’000
Revenue
reserve
3
£’000
Total
£’000
At 1 July 2023 244,884 50,385 (70,858) 16,020 240,431
Total comprehensive income for the
year:
Prot for the year – – 19,387 24,029 43,416
Transactions with owners recognised
directly in equity:
Dividends paid 7 – – – (23,864) (23,864)
Net proceeds from issue of shares 13 13,480 – – – 13,480
At 30 June 2024 258,364 50,385 (51,471) 16,185 273,463
For the year ended 30 June 2023
Notes
Stated
capital
account
1
£’000
Special
distributable
reserve
2
£’000
Capital
reserve
1
£’000
Revenue
reserve
3
£’000
Total
£’000
At 1 July 2022 220,649 50,385 (51,610) 15,562 234,986
Total comprehensive income for the
year:
Prot/(loss) for the year – – (19,248) 22,443 3,195
Transactions with owners recognised
directly in equity:
Dividends paid 7 – – – (21,985) (21,985)
Net proceeds from issue of shares 13 24,235 – – – 24,235
At 30 June 2023 244,884 50,385 (70,858) 16,020 240,431
1
Following a change in Companies (Jersey) Law 1991 eective 27 June 2008, dividends can be paid out of any capital account of the Company
subject to certain solvency restrictions. However, it is the Company’s policy to account for revenue items and pay dividends, drawing where
necessary from a separate revenue reserve.
2
The balance on the special distributable reserve of £50,385,000 (2023: £50,385,000) is treated as distributable prots available to be used for
all purposes permitted by Jersey Company Law including the buying back of ordinary shares, the payment of dividends and the payment of
preliminary expenses.
3
The balance on the revenue reserve of £16,185,000 (2023: £16,020,000) is available for paying dividends.
The accompanying notes on pages 66 to 87 are an integral part of these Financial Statements.
For the year ended 30 June 2024Statement of Changes in Equity
64
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
Cash Flow Statement
For the year ended 30 June 2024
Notes
Year
ended
30 June
2024
£’000
Year
ended
30 June
2023
£’000
Operating activities
Prot before taxation
1
43,766 3,700
Adjustments to reconcile prot before taxation to net cash ows:
Realised (gains)/losses on nancial assets at fair value through prot or loss 9 (847) 1,273
Unrealised (gains)/losses on nancial assets at fair value through prot or loss 9 (19,738) 16,715
Eective interest adjustment 9 (294) (243)
Foreign exchange (gain)/loss (46) 252
Interest expense 2,472 1,432
Purchase of nancial assets at fair value through prot or loss
2
(80,303) (77,242)
Proceeds from sale of nancial assets at fair value through prot or loss
3
74,346 57,170
Changes in working capital
Decrease/(increase) in other receivables 2,307 (3,191)
(Decrease)/increase in other payables (2,722) 657
Irrecoverable withholding tax paid (350) (505)
Net cash generated from operating activities 18,591 18
Financing activities
Dividends paid 7 (23,864) (21,985)
Drawdown of bank loan 11 – 2,000
Interest paid on loan facility (2,500) (1,404)
Proceeds from issuance of ordinary shares
4
13 13,480 24,235
Net cash (used in)/generated from nancing activities (12,884) 2,846
Increase in cash and cash equivalents 5,707 2,864
Cash and cash equivalents at the start of the year 6,597 3,985
Exchange gain/(loss) 46 (252)
Cash and cash equivalents at the end of the year 12,350 6,597
1
Included within prot before taxation is dividend income of £5,818,000 (2023: £4,964,000) and interest income of £22,764,000 (2023: £21,265,000).
2
Amounts due to brokers as at 30 June 2024 relating to purchases of nancial assets at fair value through prot amounted to £7,788,000
(2023: £904,000).
3
Amounts due from brokers as at 30 June 2024 relating to sales of nancial assets at fair value through prot amounted to £202,000 (2023: £nil).
4
Amounts due on new share issuance not yet received as at 30 June 2024 amounted to £nil (2023: £nil).
The accompanying notes on pages 66 to 87 are an integral part of these Financial Statements.
For the year ended 30 June 2024Cash Flow Statement
65
Notes to the Financial Statements
1. ACCOUNTING POLICIES
(a) Basis of accounting
These Financial Statements have been prepared
in accordance with IFRS as adopted by the EU and
in accordance with the guidance set out in the
SORP: Financial Statements of Investment Trust
Companies and Venture Capital Trusts issued by the AIC
in November 2014 and updated most recently in July 2022
with consequential amendments. Notwithstanding
that the Company is not an investment trust company,
given the purpose of the Company and certain similar
characteristics, the Company has chosen to follow the
guidance set out in the SORP where it is consistent with
the requirements of IFRS.
The functional and reporting currency of the Company
is pound sterling because that is the primary economic
environment in which the Company operates. The
Financial Statements and notes are presented in pound
sterling and are rounded to the nearest thousand except
where otherwise indicated.
The Financial Statements have been prepared on the
historical cost basis, except that investments are stated at
fair value and categorised as nancial assets at fair value
through prot or loss.
Going concern
At each AGM of the Company, Shareholders are given
the opportunity to vote on an ordinary resolution to
continue the Company as an investment company. If
any such resolution is not passed, the Board will put
forward proposals at an extraordinary general meeting
to liquidate or otherwise reconstruct or reorganise the
Company. Given the performance of the Company, input
from the Company’s major Shareholders and its Broker
and considering that 99% of the Shareholder’s votes at
the last AGM held on 30 November 2023, were in favour of
the continuation of the Company, the Board considers it
likely that Shareholders will vote in favour of continuation
at the forthcoming AGM.
The Company’s existing loan facility as detailed on
pages 74 to 75, is of an amount of up to £45,000,000
and is due to mature on 18 December 2024 aer which
it is anticipated the Company will take out a new
facility on comparable terms. Aer making enquiries
of the Investment Manager and having considered
the Company’s investment objective, nature of the
investment portfolio, loan facility, expenditure projections
and the impact of the current geo-political and market
uncertainty on the Company, the Directors consider
that the Company has adequate resources to continue
in operational existence for the foreseeable future. For
this reason the Directors continue to adopt the going
concern basis in preparing the Financial Statements,
notwithstanding that the Company is subject to an annual
continuation vote as described above.
Accounting developments
Standards and amendments to existing standards eective
in current year
The following new standards, amendments and
interpretations to existing standards have been issued
and are eective in the current year and the Directors
believe that the application of these amendments and
interpretations do not signicantly impact the Company’s
Financial Statements:
Standards
Eective for periods
beginning on or aer
▶
IFRS 17 Insurance Contracts 1 January 2023
▶
Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 1 January 2023
▶
Denition of Accounting Estimates – Amendments to IAS 8 1 January 2023
▶
Deferred Tax related to Assets and Liabilities arising from a Single Transaction –
Amendments to IAS 12
1 January 2023
▶
International Tax Reform–Pillar Two Model Rules – Amendments to IAS 12 27 May 2023
Notes to the Financial Statements
66
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
Standards and amendments becoming eective in future periods
The following standards, amendments and interpretations to existing standards become eective in future accounting
periods and have not been early adopted by the Company, as the Directors believe that these amendments do not
signicantly impact the Company’s Financial Statements:
Standards
Eective for periods
beginning on or aer
▶
Non-current Liabilities with Covenants and Classication of Liabilities as Current or
Non-current – Amendments to IAS 1
1 January 2024
▶
Lease Liability in a Sale and Leaseback – Amendments to IFRS 16 1 January 2024
▶
Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7 1 January 2024
▶
Lack of Exchangeability – Amendments to IAS 21 1 January 2025
▶
IFRS 18 Presentation and Disclosure in Financial Statements 1 January 2027
▶
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial
Information and IFRS S2** Climate-related Disclosures
To be determined
▶
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture –
Amendments to IFRS 10 and IAS 28
Optional
Critical accounting estimates and judgements
The preparation of the Financial Statements necessarily
requires the exercise of judgement both in application
of accounting policies which are set out below and in
the selection of assumptions used in the calculation of
estimates. These estimates and judgements are reviewed
on an ongoing basis and are continually evaluated based
on historical experience and other factors. However,
actual results may dier from these estimates.
The valuation of nancial assets involves estimation and
judgements. The major part of the Company’s nancial
assets is its nancial assets held at fair value through
prot or loss which are valued by reference to listed and
quoted bid prices, however some of these nancial assets
are thinly traded. Such nancial assets are best valued
by reference to current market price quotes provided by
independent brokers. The Directors may overlay such
prices with situation specic adjustments including
(a) taking a second independent opinion on a specic
investment, or (ii) reducing the value to a net present
value, to reect the likely time to be taken to realise a
stock which the Company is actively looking to sell. The
outturn is reected in the valuations of investments as set
out in note 22 to the Financial Statements.
Financial assets which are not listed or where trading in
the securities of an investee company is suspended or
are unquoted are valued by the Manulife | CQS Valuation
Committee which recommends a valuation methodology
which is presented and discussed at each Valuation
Committee, the minutes of which are available to the
Company’s Directors, Auditors, Administrators and
Depositaries. The methodologies used for hard-to-value
investments may include matrix pricing, discounted cash
ows, benchmark pricing and/or model-based pricing.
There were no other signicant accounting estimates or
signicant judgements in the current or previous year.
A summary of the principal accounting policies which
have been applied to all periods presented in these
Financial Statements is set out below.
(b) Financial assets
Financial assets which comprise equity shares,
convertible bonds and xed income securities, are
classied as held at fair value through prot or loss as the
Company’s business model is not to hold these nancial
assets for the sole purposes of collecting contractual cash
ows. In making this assessment, the Directors have given
regard to the investment strategy of the Company, the fact
that the performance of the portfolio is evaluated on a fair
value basis and the fact that the Investment Manager is
remunerated on a percentage of total assets.
HEAD_1st line HEAD_2nd line
67
Notes to the Financial Statements
Continued
Purchases or sales of nancial assets are recognised/
derecognised on the date the Company trades the
investments. On initial recognition investments are
measured at fair value and classied as fair value through
prot or loss with any subsequent gain or loss, including
any gain or loss arising from a change in exchange rates,
recognised in the Statement of Comprehensive Income.
Financial assets held at fair value through prot or loss
are valued in accordance with the policies described in
the critical accounting estimates and judgements section
above.
Financial assets also include the Company’s cash and cash
equivalents (comprising of cash held in current accounts
and overdra balances) and debtors and other receivables
which are held at amortised cost using eective interest
rate, less any impairment.
(c) Financial liabilities
Financial liabilities include amounts due to brokers, bank
loan, interest on bank loan and other creditors which
are held at amortised cost using the eective interest
rate method. Financial liabilities are recognised initially
at fair value, net of transaction costs incurred and are
subsequently carried at amortised cost using the eective
interest rate method. Financial liabilities are derecognised
when the obligation specied in the contract is
discharged, cancelled or expires.
(d) Investment income
Dividends receivable on equity shares (including
preference shares) are recognised as income on the date
that the related investments are marked ex-dividend.
Dividends receivable on equity shares where no ex-
dividend date is quoted are recognised as income when
the Company’s right to receive payment is established.
Dividends from overseas companies are shown gross
of any non-recoverable withholding taxes which are
disclosed separately in the Statement of Comprehensive
Income.
Fixed returns on non-equity shares and debt securities
(including preference shares) are recognised on a time
apportioned basis so as to reect the eective interest
rate on those instruments. Other returns on non-equity
shares are recognised when the right to the return is
established.
Where the Company has elected to receive its dividends in
the form of additional shares rather than cash, an amount
equal to the cash dividend is recognised as income. Any
excess in the value of the shares received over the amount
of the cash dividend is recognised in the capital reserve.
(e) Expenses, including nance charges
All expenses are accounted for on an accruals basis.
Expenses are charged through the revenue account except
as follows:
▶
expenses which are incidental to the acquisition of an
investment are charged to the capital account;
▶
expenses which are incidental to the disposal of an
investment charged to the capital account;
▶
the Company charges 25% of investment management
fees and interest costs to capital, in line with the
Board’s expected long term return in the form of capital
gains and income respectively from the investment
portfolio of the Company. For further details refer to
notes 3 and 5; and
▶
expenses incurred in connection with the maintenance
or enhancement of the value of the investments or for
the long term benet of the Company are charged to
capital.
(f) Foreign currencies
Transactions denominated in foreign currencies are
recorded in the functional currency at actual exchange
rates at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the period
end are reported in sterling at the rates of exchange
prevailing at the period end. Exchange gains and losses
on investments held at fair value through prot or loss
are included in ‘Gains/(losses) on nancial assets at fair
value’. Exchange gains and losses on other balances are
disclosed separately in the Statement of Comprehensive
Income.
HEAD_1st line HEAD_2nd line
68
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
(g) Reserves
(i) Capital reserve. Following a change in Jersey
Company law eective 27 June 2008, dividends can
be paid out of any capital account of the Company
subject to certain solvency restrictions. It is the
Company’s policy however to account for revenue
items and pay dividends through a separate revenue
reserve. The following are accounted for in the capital
reserve:
▶
gains and losses on the realisation of investments;
▶
realised and unrealised exchange dierences of a
capital nature;
▶
expenses and nance costs charged in accordance
with the policies above; and
▶
increases and decreases in the valuation of
investments held at the period end.
(ii) Special distributable reserve. This reserve is treated
as distributable prots available to be used for all
purposes permitted by Jersey company law including
the buying back of ordinary shares, the payment of
dividends (see note 7) and the payment of preliminary
expenses.
(iii) Revenue reserve. The net prot/(loss) and total
comprehensive income/(loss) arising in the revenue
column of the Statement of Comprehensive Income
is added to or deducted from this reserve and is
available for paying dividends.
(h) Share capital
Ordinary shares
The Company’s ordinary shares are classied as equity
based on the substance of the contractual arrangements
and in accordance with the denition of equity
instruments under International Accounting Standard
(“IAS”) 32. The proceeds from the issue of ordinary shares
are recognised in the Statement of Changes in Equity, net
of issue costs.
Treasury shares
When the Company purchases its ordinary shares to be
held in treasury, the amount of the consideration paid,
which includes directly attributable costs is recognised
as a deduction from the stated capital account. When
these shares are sold subsequently, the amount received
is recognised as an increase in equity and the resulting
surplus or decit on the transaction is transferred to or
from the stated capital account.
(i) Segmental information
The Company, holds a wide variety of dierent
investments in a wide range of issues locating in dierent
geographies and operating in dierent sectors. However,
resources are allocated and the business is managed by
the chief operating decision-makers, the Directors, on an
aggregated basis. Strategic and nancial management
decisions are determined centrally by the Directors
and, on this basis, the Company operates as a single
investment management business and no segmental
reporting is provided.
HEAD_1st line HEAD_2nd line
69
Notes to the Financial Statements
Continued
2. INVESTMENT INCOME
2024
£’000
2023
£’000
Income from nancial assets at fair value through prot or loss
1
Dividend income 5,818 4,964
Interest on xed income securities
2
22,764 21,265
Total income 28,582 26,229
1
All investment income arises on nancial assets valued at fair value through prot or loss.
2
Fixed income securities include xed and oating rate securities, convertible securities and preference shares.
3. INVESTMENT MANAGEMENT FEE
2024
Revenue
£’000
2024
Capital
£’000
2024
Total
£’000
2023
Revenue
£’000
2023
Capital
£’000
2023
Total
£’000
Investment management fee 1,663 554 2,217 1,591 530 2,121
The Company’s investment manager is CQS (UK) LLP.
As per the Investment Management Agreement dated 18 September 2019, the management fee is charged at a rate of
0.80% 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 £200,000,000, 0.70% per annum of
total assets in excess of £200,000,000 and up to and including £300,000,000 and 0.60% per annum thereaer. The
management fee is paid monthly in arrears.
The contract between the Company and the Investment Manager may be terminated by either party giving not less than
12 months’ notice of termination.
During the year ended 30 June 2024, investment management fees of £2,217,000 (2023: £2,121,000) were incurred, of
which £375,000 (2023: £176,000) was payable at the year-end. Investment management fees have been allocated 75%
to revenue and 25% to capital. The Board has resolved to amend the apportionment ratio to 60% to revenue and 40%
to capital with eect from 1 July 2024 to better reect the purpose and expected future performance of the Company.
HEAD_1st line HEAD_2nd line
70
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
4. OTHER EXPENSES
2024
Revenue
£’000
2024
Capital
£’000
2024
Total
£’000
2023
Revenue
£’000
2023
Capital
£’000
2023
Total
£’000
Secretarial and administration fees 214 – 214 206 – 206
Directors’ fees 182 – 182 169 – 169
Auditors’ remuneration for audit services
1
52 – 52 51 – 51
Broker fees 30 – 30 30 – 30
Printing 34 – 34 18 – 18
Bank and custody (rebate)/charges 66 – 66 (53) – (53)
Registrars’ fees 33 – 33 33 – 33
Depositary fees 45 – 45 45 – 45
Legal and professional fees 175 – 175 44 – 44
Other 111 72 183 104 89 193
942 72 1,014 647 89 736
Directors’ fees
For the year ended 30 June 2024, Directors’ remuneration were as follows:
Chair £45,000
Audit Chair £39,000
Other £32,500
Directors’ fees of £nil (2023: £7,500) were payable as at 30 June 2024.
No pension contributions were payable in respect of any of the Directors and the Company does not have any
employees.
1
Non-audit fees paid to the auditor
There were no non-audit fees paid to the auditor during the years ended 30 June 2024 and 30 June 2023.
5. INTEREST EXPENSE
2024
Revenue
£’000
2024
Capital
£’000
2024
Total
£’000
2023
Revenue
£’000
2023
Capital
£’000
2023
Total
£’000
Interest expense 1,854 618 2,472 1,167 389 1,556
Interest expense and similar charges have been allocated 75% to revenue and 25% to capital as explained in note 1(e).
The Board has resolved to amend the apportionment ratio to 60% to revenue and 40% to capital with eect from 1 July
2024 to better reect the purpose and expected future performance of the Company.
HEAD_1st line HEAD_2nd line
71
Notes to the Financial Statements
Continued
6. IRRECOVERABLE WITHHOLDING TAX
The taxation charge for the year is comprised of:
2024
Revenue
£’000
2024
Capital
£’000
2024
Total
£’000
2023
Revenue
£’000
2023
Capital
£’000
2023
Total
£’000
Irrecoverable withholding tax suered 350 – 350 505 – 505
The taxation on prot diers from the theoretical expense that would apply on the Company’s prot before taxation
using the applicable tax rate in Jersey of 0% for the year ended 30 June 2024 (2023: 0%) as follows:
2024
£’000
2023
£’000
Prot on ordinary activities before taxation 43,766 3,700
Theoretical tax expense at 0% (2023: 0%) – –
Eects of:
Foreign withholding tax 350 505
Current year revenue tax charge 350 505
7. DIVIDENDS
2024
£’000
2023
£’000
Amounts recognised as distributions to equity holders in the year:
Dividends in respect of the year ended 30 June 2023
– Fourth interim dividend of 1.49p (2022: 1.48p) per ordinary share 7,817 7,054
Dividends in respect of the year ended 30 June 2024
– First interim dividend of 1.00p (2023: 1.00p) per ordinary share 5,263 4,815
– Second interim dividend of 1.00p (2023: 1.00p) per ordinary share 5,360 4,963
– Third interim dividend of 1.00p (2023: 1.00p) per ordinary share 5,424 5,153
23,864 21,985
A fourth interim dividend in respect of the year ended 30 June 2024 of 1.50p per ordinary share was paid on 30 August
2024 to Shareholders on the register on 2 August 2024, having an ex-dividend date of 1 August 2024.
In accordance with IFRS, dividends paid to the Company’s Shareholders are recognised when they become payable on
the ex-dividend date, consequently the fourth interim dividend has not been included as a liability in these Financial
Statements and will be recognised in the period in which it becomes payable.
HEAD_1st line HEAD_2nd line
72
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
8. BASIC AND DILUTED EARNINGS/(LOSSES) PER ORDINARY SHARE (PENCE)
2024
Revenue
pence
2024
Capital
pence
2024
Total
pence
2023
Revenue
pence
2023
Capital
pence
2023
Total
pence
Basic and diluted earnings/(losses) per
ordinary share (pence) 4.50p 3.63p 8.13p 4.51p (3.87p) 0.64p
The revenue earnings per ordinary share is based on the net prot aer taxation of £24,029,000 (2023: £22,443,000)
and the capital return per ordinary share is based on a net capital gain of £19,387,000 (2023: net capital loss of
£19,248,000). Both the revenue and capital earnings per ordinary share is based on a weighted average of 533,873,033
(2023: 497,695,146) ordinary shares in issue throughout the year.
Total earnings per ordinary share reects both revenue earnings and capital returns per ordinary share. The Company
has not issued any instruments that could potentially dilute basic earnings per ordinary share in the future. Therefore,
the Company’s basic earnings per ordinary share is equivalent to its diluted earnings per ordinary share.
There have been no transactions involving the Company’s ordinary shares between 1 July 2024 and 27 September 2024
other than those disclosed in note 25, which were issued at a premium to the 30 June 2024 NAV.
9. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
All nancial assets are valued at fair value through prot or loss. Gains or losses arising from changes in the fair value of
investments are included in the Statement of Comprehensive Income.
2024
£’000
2023
£’000
Equity shares
1
50,226 45,763
Fixed income securities
2
249,303 220,248
299,529 266,011
1
Equity shares include investment funds.
2
Fixed income securities include xed and oating rate securities, convertible securities and preference shares.
2024
£’000
2023
£’000
Opening valuation 266,011 263,393
Purchases at cost 87,187 77,533
Sales proceeds (74,548) (57,170)
Realised gains/(losses) on sales 847 (1,273)
Eective interest adjustment 294 243
Unrealised gains/(losses) 19,738 (16,715)
Closing valuation 299,529 266,011
HEAD_1st line HEAD_2nd line
73
Notes to the Financial Statements
Continued
Losses on investments
2024
£’000
2023
£’000
Realised gains/(losses)
1
847 (1,273)
Unrealised gains/(losses)
2
19,738 (16,715)
20,585 (17,988)
1
Realised gains/(losses) on nancial assets at fair value through prot or loss is made up of gains of £6,250,000 (2023: 6,030,000) and losses of
£5,403,000 (2023: 7,303,000).
2
Unrealised losses on nancial assets at fair value through prot or loss is made up of gains of £34,325,000 (2023: 8,225,000) and losses of
£14,587,000 (2023: 24,940,000).
10. DEBTORS AND OTHER RECEIVABLES
2024
£’000
2023
£’000
Accrued income 4,679 7,000
Amounts due from brokers 202 –
Prepayments and other debtors 24 10
4,905 7,010
11. BANK LOAN
2024
£’000
2023
£’000
Bank loan facility- opening balance 35,000 33,000
Drawdowns – 2,000
Bank loan facility – closing balance 35,000 35,000
The Company had a short-term unsecured loan facility with Scotiabank up to a limit of £45,000,000 which expired on
17 December 2023. On 20 December 2023, the Company entered into an Amendment and Restatement Agreement with
Scotiabank to renew the loan facility, under the following terms:
▶
the Agreement contains an option to increase the facility by a further £5,000,000 – no commitment fees are payable
on the £5,000,000 until this option is exercised;
▶
the loan facility is due to expire on 18 December 2024;
▶
the interest on the loan is a margin of 2.00% per annum plus the daily non-cumulative compounded Reference Rate
(RFR); and
▶
the commitment fees payable is 0.675% per annum on the daily available commitment.
As at 30 June 2024, the drawn down amount of the facility was £35,000,000 (2023: £35,000,000).
HEAD_1st line HEAD_2nd line
74
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
For the year ended 30 June 2024 and up until the date of this report, the Company has complied with all covenants of
the loan facility, which are as follows:
▶
the borrower shall not permit the adjusted asset coverage to be less than 4 to 1;
▶
the borrower shall not permit the NAV to be less than £95,000,000 at any time; and
▶
the borrower shall maintain an additional adjusted asset coverage of at least 1.5 to 1 at all times.
The bank loan facility is a nancial liability held at amortised cost.
12. CREDITORS AND OTHER PAYABLES
2024
£’000
2023
£’000
Amounts due to brokers 7,788 904
Interest on bank loan facility 28 56
Other creditors 505 3,227
8,321 4,187
13. STATED CAPITAL ACCOUNT
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
Number of
ordinary
shares
Amount
received
£’000
Share
Issue
Costs
£’000
Share
capital
£’000
Total as at 1 July 2023 524,601,858 244,884
1,750,000 ordinary shares of no par value allotted on
29 September 2023 at 49.00p
1,750,000 858 (6) 852
1,500,000 ordinary shares of no par value allotted on
1 November 2023 at 48.15p
1,500,000 722 (5) 717
1,500,000 ordinary shares of no par value allotted on
24 November 2023 at 48.80p
1,500,000 732 (5) 727
500,000 ordinary shares of no par value allotted on
30 November 2023 at 49.00p
500,000 245 (2) 243
750,000 ordinary shares of no par value allotted on
7 December 2023 at 49.00p
750,000 368 (3) 365
500,000 ordinary shares of no par value allotted on
14 December 2023 at 49.10p
500,000 245 (1) 244
HEAD_1st line HEAD_2nd line
75
Notes to the Financial Statements
Continued
500,000 ordinary shares of no par value allotted on
20 December 2023 at 49.90p
500,000 250 (2) 248
750,000 ordinary shares of no par value allotted on
21 December 2023 at 50.00p
750,000 375 (3) 372
500,000 ordinary shares of no par value allotted on
22 December 2023 at 50.00p
500,000 250 (2) 248
2,700,000 ordinary shares of no par value allotted on
4 January 2024 at 50.20p
2,700,000 1,355 (10) 1,345
500,000 ordinary shares of no par value allotted on
9 January 2024 at 50.40p
500,000 252 (2) 250
800,000 ordinary shares of no par value allotted on
30 January 2024 at 50.00p
800,000 400 (3) 397
500,000 ordinary shares of no par value allotted on
3 April 2024 at 51.80p
500,000 259 (2) 257
2,500,000 ordinary shares of no par value allotted on
5 April 2024 at 51.60p
2,500,000 1,290 (10) 1,280
2,000,000 ordinary shares of no par value allotted on
8 April 2024 at 51.60p
2,000,000 1,032 (8) 1,024
500,000 ordinary shares of no par value allotted on
9 April 2024 at 51.60p
500,000 258 (2) 256
4,850,000 ordinary shares of no par value allotted on
9 May 2024 at 51.20p
4,850,000 2,483 (19) 2,464
500,000 ordinary shares of no par value allotted on
17 May 2024 at 51.60p
500,000 258 (2) 256
2,000,000 ordinary shares of no par value allotted on
7 June 2024 at 52.00p
2,000,000 1,040 (8) 1,032
1,250,000 ordinary shares of no par value allotted on
17 June 2024 at 52.00p
1,250,000 650 (5) 645
500,000 ordinary shares of no par value allotted on
18 June 2024 at 52.00p
500,000 260 (2) 258
Total as at 30 June 2024 551,451,858 13,582 (102) 258,364
The balance of shares le in Treasury at the year-end was nil (2023: nil shares).
On 7 May 2024, a block listing facility for 34,000,000 new shares was approved by the UK Listing Authority. This facility is
used for the purposes of satisfying market demand.
Because the criteria in paragraphs 16c and 16d of IAS 32 Financial Instruments: Presentation have been met, the stated
capital of the Company is classied as equity even though there is an annual continuation vote.
Ordinary shares issued are accounted for based on the associated trade date.
HEAD_1st line HEAD_2nd line
76
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
14. RESERVES
The capital of the Company is managed in accordance with its investment policy, in pursuit of its investment objective,
which is detailed on page 27.
On 24 May 2007, the Royal Court of the Island of Jersey conrmed that the amount standing to the credit of the
Company’s stated capital account be reduced by 75% and was used to create the special distributable reserve in the
Company’s accounts. This reserve is treated as distributable prots available to be used for all purposes permitted
by Jersey company law including the buying back of ordinary shares, the payment of dividends and the payment of
preliminary expenses.
Capital management policies and procedures
The Board denes capital as nancial resources available to the Company. The Company’s capital as at 30 June 2024
comprises its stated capital, special distributable reserve, capital reserve and revenue reserve at a total of £273,463,000
(2023: £240,431,000).
The Company’s capital management objectives are:
▶
to ensure that the Company will be able to continue as a going concern; and
▶
to maximise the capital return to its equity Shareholders through an appropriate balance of equity capital and debt.
The Board normally seeks to limit gearing to 25% of Shareholders’ funds at the time of borrowing. The Board monitors
and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes the nature and
planned level of gearing, which takes account of the Investment Manager’s views on the market and the extent to
which revenue in excess of that which is required to be distributed should be retained. The Company has no externally
imposed capital requirements.
The capital of the Company is managed in accordance with its investment policy detailed in the Strategic Review on
page 27.
15. NET ASSET VALUE PER ORDINARY SHARE
The NAV per ordinary share and the NAV attributable to the ordinary shares at the year-end calculated in accordance
with their entitlements in the Articles of Association were as follows:
2024 2023
NAV (£’000) 273,463 240,431
NAV per ordinary share (pence) 49.59p 45.83p
NAV per ordinary share has been calculated based on the share capital in issue as at year end. The issued share capital
as at 30 June 2024 comprised of 551,451,858 (2023: 524,601,858) ordinary shares.
HEAD_1st line HEAD_2nd line
77
Notes to the Financial Statements
Continued
16. FINANCIAL INSTRUMENTS
The Company’s nancial instruments comprise its investment portfolio, cash balances, bank loan and debtors and
creditors that arise directly from its operations. As an investment company, the Company holds a portfolio of nancial
assets and nancial liabilities in pursuit of its investment objective. The Company uses exible borrowings for short
term purposes and to seek to enhance the returns to Shareholders, when considered appropriate by the Investment
Manager.
Financial assets at fair value through prot or loss (see note 9) are held at fair value. For listed securities trading
actively, fair value is considered to be equivalent to the most recently available bid price. Where listed securities are
not trading actively, independent broker quotes are referenced to estimate fair value. For unlisted securities, fair value
is determined by the Board using valuation techniques based on unobservable inputs, mainly using broker quotes.
The fair value of other receivables, cash and cash equivalents and other payables is represented by their carrying value
in the Statement of Financial Position shown on page 63. These are short term nancial assets and liabilities whose
carrying value approximate fair value.
The main risks that the Company faces arising from its nancial instruments are:
(i) market price risk, being the risk that the fair value or future cash ows of a nancial instrument will uctuate
because of changes in market prices and comprises currency risk, interest rate risk and other price risk;
(ii) interest rate risk, being the risk that the future cash ows of a nancial instrument will uctuate because of changes
in market interest rates;
(iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales
and income will uctuate because of movements in currency exchange rates;
(iv) credit risk, being the risk that a counterparty to a nancial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company; and
(v) liquidity risk, being the risk that the bank may demand repayment of the loan and/or that the Company may not be
able to liquidate quickly its investments.
The Company held the following categories of nancial instruments as at 30 June 2024, all of which are held at
amortised cost, other than nancial assets at fair value through prot or loss, which are held at fair value. The Directors
are of the opinion that for the nancial instruments held at amortised cost, the carrying value approximates their fair
value.
2024
£’000
2023
£’000
Financial assets
Financial assets at fair value through prot or loss 299,529 266,011
Cash and cash equivalents 12,350 6,597
Accrued income 4,679 7,000
Amount due from brokers 202 –
Financial liabilities
Amount due to brokers (7,788) (904)
Bank loan (35,000) (35,000)
Interest on bank loan facility (28) (56)
Other creditors (505) (3,227)
HEAD_1st line HEAD_2nd line
78
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
17. MARKET PRICE RISK
Market price risk (including other price risk) arises mainly from uncertainty about future prices of nancial instruments
held. It represents the potential loss the Company might suer through holding market positions in the face of price
movements. To mitigate the risk the Investment Manager’s investment strategy is:
▶
to select investments for their fundamental value. Stock selection is based on disciplined accounting, thorough
market and sector analysis, with the emphasis on investments that will redeem in full at the end of their maturity
date.
▶
to ensure that an appropriate spread of investments is held in the portfolio in order to reduce both the statistical risk
and the risk arising from factors specic to a country or sector.
▶
to monitor market prices throughout the year and report to the Board, which meets regularly in order to consider
investment strategy.
Investment and portfolio performance are discussed in the Investment Manager’s Review and further information on
the investment portfolio is set out on pages 16 to 19. These pages do not form part of the audited Financial Statements.
If the investment portfolio valuation fell 7.5% (2023: fall of 7.5%) at 30 June 2024, the impact on the prot or loss and
the NAV would have been negative £22,465,000 (2023: negative £19,951,000). Due to the eect of gearing, the impact
on the NAV per ordinary share would have been a decrease of 8.2% (2023: decrease of 8.3%). If the investment portfolio
valuation rose by the same amount, the eect would have been equal and opposite. The calculations are based on the
portfolio valuation at the Statement of Financial Position date and is not representative of the period as a whole and
may not be reective of future market conditions.
The Directors believe 7.5% is a relevant percentage based on average market volatility in recent years.
18. INTEREST RATE RISK
The Company’s nancial assets and liabilities, with the exception of cash and cash equivalents (see below), that are
subject to interest rate risk are detailed below.
2024 2024 2024 2023 2023 2023
£’000
Weighted
average
interest
rate (%)
Weighted
average
period for
which the
rate is xed
(years) £’000
Weighted
average
interest
rate (%)
Weighted
average
period for
which the
rate is xed
(years)
Financial assets:
Fixed rate instruments & convertible
securities
137,867 7.47 3.92 144,383 7.35 4.09
Floating rate notes 111,200 6.34 n/a 75,637 5.08 n/a
Preference shares 236 0.00 n/a 228 0.00 n/a
Financial liabilities:
Bank Loan 35,000 6.90 n/a 35,000 6.38 n/a
HEAD_1st line HEAD_2nd line
79
Notes to the Financial Statements
Continued
Financial assets
Fixed, oating rate and preference share yields and their prices, are determined by market perception as to the
appropriate level of yields given the economic background. Key determinants include economic growth prospects,
ination, the Government’s scal position, short term interest rates and international market comparisons. The
Investment Manager takes all these factors into account when making any investment decisions as well as considering
the nancial standing of the potential investee company.
Interest rates on xed income instruments are xed at the time of purchase, as the xed coupon payments are known,
as are the nal redemption proceeds. Consequentially, if a xed income instrument is held until its redemption date,
the total return achieved is unaltered from its purchase date. However, over the life of a xed income instrument
the market price at any given time will depend on the market environment at that time. Therefore, a xed income
instrument sold before its redemption date is likely to have a dierent price to its purchase level and a prot or loss
may be incurred.
Interest rates on oating rate instruments vary throughout the life of the instrument based on movements in the
applicable underlying base rate. Consequentially, the total return achieved on these positions changes throughout the
life of position. In addition, over the life of the nancial instrument, the market price of such instruments will depend
on the market environment at that time. Therefore, a oating rate instrument sold before its redemption date is likely to
have a dierent price to its purchase level and a prot or loss may be incurred.
Cash and cash equivalents
When the Company retains cash balances they are held in oating rate deposit accounts. As at 30 June 2024,
cash and cash equivalents included cash amount of £5,975,000 (2023: £2,987,000) held in sterling and £6,375,000
(2023: £3,610,000) in a range of other currencies The benchmark rate which determines the interest payments received
on sterling interest bearing cash balances is the UK bank base rate, which was 5.25% (2023: 5.00%) at 30 June 2024.
Financial liabilities
The Company has borrowed in sterling at a variable rate of interest based on the UK bank base rate. The impact of a
1% increase (or decrease) in the bank base rate would be a NAV loss (or gain) of £350,000 (2023: £350,000). The impact
is linear – in other words, a 2% increase (or decrease) in the bank base rate would result in twice the NAV loss (or gain)
as 1%. The calculations are based on borrowings as at the respective Statement of Financial Position dates and are not
representative of the year as a whole.
At year-end, the Company held a bank loan of £35,000,000 from Scotiabank, details of which are contained in note 11 on
pages 74 to 75.
HEAD_1st line HEAD_2nd line
80
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
19. FOREIGN CURRENCY RISK
The Company invests in overseas securities and may hold foreign currency cash balances which give rise to currency
risks. It is not the Company’s policy to hedge this risk on a continuing basis, but it may do so from time to time.
Foreign currency exposure at 30 June 2024 and 30 June 2023 was as follows:
2024
Investments
£’000
2024
Cash
£’000
2024
Accrued
Income
£’000
2024
Total
£’000
2023
Investments
£’000
2023
Cash
£’000
2023
Accrued
Income
£’000
2023
Total
£’000
Euro 35,223 1,215 492 36,930 30,838 1,168 331 32,337
Australian dollar – 2 – 2 193 5 – 198
US dollar 47,104 5,139 824 53,067 50,770 2,298 1,011 54,079
Norwegian krone 3,044 2 16 3,062 929 51 17 997
Canadian dollar 236 9 – 245 228 4 – 232
Swedish krona 3,044 2 60 3,106 4,507 84 72 4,663
Swiss Franc – 6 – 6 – – – –
88,651 6,375 1,392 96,418 87,465 3,610 1,431 92,506
If the value of sterling had weakened against each of the currencies in the portfolio by 5% (2023: 5%), the impact on the
prot or loss and the NAV would have been positive £4,288,000 (2023: positive £4,679,000).
If the value of sterling had strengthened by the same amount the impact on the prot or loss and the NAV would have
been negative £4,739,000 (2023: negative £4,233,000).
The calculations are based on the portfolio valuation and accrued income balances at the Statement of Financial
Position date are not representative of the period as a whole and may not be reective of future market conditions.
The Directors believe 5% is relevant based on the average market volatility in exchange rates in recent years.
20. CREDIT RISK
Credit risk is the risk that a counterparty to a nancial instrument will fail to discharge an obligation or commitment
that it has entered into with the Company. The Investment Manager has in place a monitoring procedure in respect of
counterparty risk which is reviewed on an ongoing basis. The carrying amounts of nancial assets best represents the
maximum risk exposure at the Statement of Financial Position date.
At the reporting date, the Company’s nancial assets exposed to credit risk amounted to the following:
2024
£’000
2023
£’000
Fixed income securities
1
249,303 220,248
Cash and cash equivalents 12,350 6,597
Accrued income 4,679 7,000
Amount due from brokers 202 –
266,534 233,845
1
Fixed income securities include xed and oating rate securities, convertible securities and preference shares.
HEAD_1st line HEAD_2nd line
81
Notes to the Financial Statements
Continued
Credit risk on xed income securities and convertible bonds instruments is considered to be part of market price. The
credit ratings for the xed income securities held by the Company as at 30 June have been listed below:
Rating of xed income securities
2024
%
2023
%
BB 2.4 –
BB- 5.8 9.1
B+ 2.3 3.9
B 4.6 3.9
B- 3.4 2.6
BBB 1.1 1.3
CCC 1.1 2.6
CCC+ 2.3 3.9
C- – 1.3
Not rated 77.0 71.4
100.0 100.0
Source: 2024: S&P, 2023: S&P
The percentage above represents the value of xed income securities of £249,303,000 (2023: £220,248,000) included in
the Statement of Financial Position which are exposed to credit and counterparty risk by credit rating.
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled
transactions is considered to be small due to the short settlement period involved and the acceptable credit quality of
the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.
The Company’s cash and most of the assets are held by the Administrator. The Company holds a residual cash balance
with The Hong Kong and Shanghai Banking Corporation (“HSBC”) of £11,000 (2023: £11,000). The rating agency
Moody’s assigns a rating of A1 to HSBC and Aa3 to BNP Paribas.
There were no contingencies or guarantees outstanding at the Statement of Financial Position date.
21. LIQUIDITY RISK
Market liquidity risk
The Company’s nancial instruments include investments which are not traded in an organised public market and
which generally may be illiquid. As a result, the Company may not be able to liquidate these investments within a short
time frame.
The Company’s listed securities are considered to be readily realisable.
HEAD_1st line HEAD_2nd line
82
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
Funding liquidity risk
The following are the remaining contractual maturities of nancial liabilities at the reporting date. The amounts are
gross and undiscounted and include contractual interest payments.
30 June 2024
Carrying
amount
£000
Contractual
cash ows
0-1 year
£000
Bank loan 35,000 (37,520)
Creditors and other payables 8,321 (8,321)
43,321 (45,841)
30 June 2023
Carrying
amount
£000
Contractual
cash ows
0-1 year
£000
Bank loan 35,000 (37,232)
Creditors and other payables 4,187 (4,187)
39,187 (41,419)
The table above illustrates the contractual undiscounted cash ows relating to the nancial liabilities of the Company.
As disclosed in note 11, the Company has availed of a short-term unsecured bank loan facility of £45,000,000 with
Scotiabank, out of which, £35,000,000 has been drawn-down and is outstanding as at 30 June 2024. In addition to this,
the Company maintains suicient cash and readily realisable securities to pay accounts payable, accrued expenses and
any repayment on its bank facility.
The interest payments on the bank loan in the table above reect market forward interest rates available at the
reporting date and these amounts may change as market interest rates change.
The Company’s liquidity risk is managed on an ongoing basis by the Investment Manager in accordance with policies
and procedures in place as described in the Directors’ Report. The Company’s overall liquidity risks are monitored on a
quarterly basis by the Board.
HEAD_1st line HEAD_2nd line
83
Notes to the Financial Statements
Continued
22. FAIR VALUE HIERARCHY
IFRS 13 Fair Value Measurement requires an analysis of investments valued at fair value based on the reliability and
signicance 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 signicant to the fair value measurement for the individual
investment 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.
Transfers in and out of the levels are deemed to have occurred at the start of the reporting period.
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 by the investment manager using a generally acceptable valuation technique
reviewed by the Board taking into account, where appropriate, latest dealing prices, broker statements, valuation
information and other relevant factors.
Financial assets at fair value
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Fixed income securities
1
237 249,002 64 249,303
Equity shares
2
49,771 – 455 50,226
As at 30 June 2024 50,008 249,002 519 299,529
Financial assets at fair value
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Fixed income securities
1
228 219,970 50 220,248
Equity shares
2
42,088 3,621 54 45,763
As at 30 June 2023 42,316 223,591 104 266,011
1
Fixed income securities include xed and oating rate securities, convertible securities and preference shares.
2
Equity shares include investment funds.
Transfer between Level 1 and Level 2
Croma Security Solutions Gro of £583,000 (2023: £420,000) and Channel Island Property Fund of £2,550,000
(2023: £2,880,000) were transferred from Level 2 to Level 1 because they are quoted in active markets.
If the market value of the Level 3 investments fell by 5% (2023: 5%), the impact on the prot or loss and the NAV would
have been negative £26,000 (2023: negative £5,000). If the value of the Level 3 investments rose by the same amount,
the eect would have been equal and opposite.
HEAD_1st line HEAD_2nd line
84
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
IFRS 13 requires disclosure, by class of nancial instrument, if the eect of changing one or more input to reasonably
possible alternative assumptions would result in a signicant change to the fair value measurement. The information
used in determination of the fair value of Level 3 investments is chosen with reference to the specic underlying
circumstances and position of the investee company. On that basis the Board believes that the impact of changing one
or more of the inputs to reasonably possible alternative assumptions would not change the fair value signicantly. 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.
Level 3 Financial Assets
2024
£’000
2023
£’000
Opening valuation 104 4,299
Additions 551 1,231
Sales (362) (204)
Unrealised gains 2,632 1,949
Realised losses (2,734) (7,292)
Transfers out of Level 3 (8) –
Transfers into Level 3 336 121
Closing valuation 519 104
Transfers into Level 3
Secured Income Fund PLC of £16,000 (2023: £321,000) was transferred out of Level 2 to Level 3 because its shares were
delisted during the year.
New Look Plc Shareholder T/L 09/11/2025 of £2,000 (2023: £5,000) and Telford Oshore 12% 19-31/12/2060 of £11,000
(2023: £10,000) were transferred out of Level 2 to Level 3 due to a signicant reduction in observable market inputs.
Transfers out of Level 3
Oro Negro Drilling 7.5% 14-24/01/2019 DFLT £9,000 (2023: £8,000) was transferred out of Level 3 to Level 2 since it has
been priced through broker quotes.
HEAD_1st line HEAD_2nd line
85
Notes to the Financial Statements
Continued
Quantitative information of signicant unobservable inputs – Level 3
The following tables summarise the signicant unobservable inputs the Company used to value its signicant
investments categorised within Level 3 as at 30 June 2024 and 30 June 2023:
30 June 2024
Description
Fair value as
at 30 June
2024
£000
Valuation
technique
Signicant
Unobservable
inputs
Range/
input
Weighted
Average
Cabonline Group Holding Ab 381 Recent
transaction
Restructuring
Price
5.23 N/A
R.E.A Holdings Plc CW 15/07/2025 59 Black
Scholes
model
Volatility 40.6 N/A
ORO SG 12% 19-20/12/2025 DFLT 50 Vendor
Pricing
Unadjusted
Broker Quote
1 N/A
Secured Income Fund Plc 16 Vendor
Pricing
Unadjusted
Broker Quote
1 N/A
Telford Oshore 12% 19-31/12/2060 11 Vendor
Pricing
Unadjusted
Broker Quote
6 N/A
New Look Plc Shareholder T/L 09/11/2025 2 Vendor
Pricing
Unadjusted
Broker Quote
2.5 N/A
Total 519
30 June 2023
Description
Fair value as
at 30 June
2023
£000
Valuation
technique
Signicant
Unobservable
inputs
Range/
input
Weighted
Average
R.E.A Holdings Plc CW 15/07/2025 54 Black
Scholes
model
Volatility 50.1 N/A
ORO SG 12% 19-20/12/2025 DFLT 42 Vendor
Pricing
Unadjusted
Broker Quote
1 N/A
ORO NEGRO DRIL 7.5% 14-24/01/2019
DFLT
8 Vendor
Pricing
Unadjusted
Broker Quote
1 N/A
Total 104
The remaining 24 investments (2023: 22) classied as Level 3 have not been included in the above analysis as they have
fair value of £nil as at 30 June 2024 and 30 June 2023.
HEAD_1st line HEAD_2nd line
86
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Financial Statements
23. TRANSACTION WITH THE INVESTMENT MANAGER AND RELATED PARTIES
All transactions with related parties are carried out at an arm’s length basis.
There are no transactions with the Board other than aggregated remuneration for services as Directors as disclosed in
note 4 to the Financial Statements. The benecial interests of the Directors in the shares of the Company are disclosed
on page 39. There are no outstanding balances to the Directors at the year end.
Details of the fee arrangement with the Investment Manager are disclosed in note 3.
24. CONTROLLING PARTY
In the Directors’ opinion, the Company has no ultimate controlling party.
25. SUBSEQUENT EVENTS
The Board has evaluated subsequent events for the Company through to 27 September 2024, 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. There were no other subsequent events other than those discussed within the
Annual Report and Financial Statements or detailed below.
Dividend declaration
The fourth interim dividend of 1.50 pence per ordinary share was announced on 23 July 2024 and paid on 30 August
2024 to Shareholders on the register on 2 August 2024, having an ex-dividend date of 1 August 2024.
Share issuance
Between 1 July 2024 and 27 September 2024, the Company has undertaken a further eight issues of ordinary shares
issuing, in total, an additional 16,200,000 ordinary shares of no par value for total consideration of £8,345,000. As at the
date of this report, the issued share capital of the Company was 567,651,858 ordinary shares of no par value.
HEAD_1st line HEAD_2nd line
87
88
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
Supplemental
Information
and Annual
General Meeting
89
Glossary of Terms and Denitions
Alternative Performance
Measures (“APMs”)
Alternative performance measures are numerical measures of the Company’s current,
historical or future performance, nancial position or cash ows, other than nancial
measures dened or specied in the applicable nancial framework. The Company’s
applicable nancial framework includes IFRS and the AIC SORP.
Net Asset Value or NAV and
NAV per ordinary share
The value of total assets less total liabilities. Liabilities for this purpose include current
and long-term liabilities. To calculate the NAV per ordinary share, the NAV divided by the
number of shares in issue.
Reference rate (“RFR”) The SONIA (Sterling Overnight Index Average) reference rate displayed in the relevant
screen of any authorised distributor of that reference rate.
Shareholder Investor who holds shares in the Company.
90
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
Alternative Performance Measures
In accordance with European Securities and Markets Authority Guidelines on APMs the Board has considered what
APMs are included in the Annual Report and Financial Statements which require further clarication.
The Company uses the following APMs (as described below) to present a measure of protability which is aligned with
the requirements of our investors and potential investors, to draw out meaningful data around revenues and earnings
and to provide additional information not required for disclosure under accounting standards:
▶
NAV total return
▶
Ordinary share price total return
▶
Revenue earnings per ordinary share
▶
Annual dividends per ordinary share
▶
Dividend cover
▶
Revenue reserve per ordinary share
▶
Dividend yield
▶
Premium
▶
Gearing
▶
Ongoing charges ratio
All APMs relate to past performance. The following tables detail the methodology of the Company’s APMs.
NAV and ordinary share price total return
The return to Shareholders is calculated on a per ordinary share basis by adding dividends paid and declared in the
period to the increase or decrease in the share price (bid) or NAV. The dividends are assumed to have been reinvested in
the form of ordinary shares or net assets.
2024
Annual
dividend per
ordinary share NAV
Share
price (bid)
30 June 2023 4.49p 45.83 46.60
30 June 2024 4.50p 49.59 52.20
Capital return 8.20% 12.02%
Eect of dividend reinvestment 10.87% 10.71%
Total return 19.07% 22.73%
2023
Annual
dividend per
ordinary share NAV
Share
price (bid)
30 June 2022 4.48p 49.30 51.20
30 June 2023 4.49p 45.83 46.60
Capital return (7.04)% (8.98)%
Eect of dividend reinvestment 9.08% 8.30%
Total return 2.04% (0.68)%
91
Alternative Performance Measures
Continued
Revenue earnings per ordinary share
Revenue earnings (which includes dividends paid out during the year) divided by the weighted average number of
ordinary shares in issue during the nancial year.
2024 2023
Revenue earnings a £24,029,000 £22,443,000
Weighted average number of ordinary shares in issue b 533,873,033 497,695,146
Revenue earnings per ordinary share (a/b)*100 4.50p 4.51p
Annual dividend per ordinary share
The total amount of dividends declared for every issued ordinary share over the Company’s nancial year.
Dividend History Rate xd date Record date Payment date
First interim 2024 1.00p 26 October 2023 27 October 2023 30 November 2023
Second interim 2024 1.00p 25 January 2024 26 January 2024 28 February 2024
Third interim 2024 1.00p 2 May 2024 3 May 2024 31 May 2024
Fourth interim 2024 1.50p 1 August 2024 2 August 2024 30 August 2024
Annual dividend per ordinary share 4.50p
First interim 2023 1.00p 27 October 2022 28 October 2022 25 November 2022
Second interim 2023 1.00p 26 January 2023 27 January 2023 28 February 2023
Third interim 2023 1.00p 27 April 2023 28 April 2023 26 May 2023
Fourth interim 2023 1.49p 28 July 2023 29 July 2023 31 August 2023
Annual dividend per ordinary share 4.49p
Dividend cover
Revenue earnings per ordinary share divided by the annual dividend per ordinary share expressed as a ratio.
2024 2023
Revenue earnings per ordinary share a 4.50p 4.51p
Annual dividend per ordinary share b 4.50p 4.49p
Dividend cover a/b 1.00x 1.00x
92
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
Revenue reserves per ordinary share
Revenue reserve (which includes dividends paid out during the year) divided by the number of ordinary shares at the
Statement of Financial Position date.
2024 2023
Revenue reserve a £16,185,100 £16,020,000
Ordinary shares in issue b 551,451,858 524,601,858
Revenue reserves per ordinary share (a/b)*100 2.93p 3.05p
Dividend yield
The annual dividend per ordinary share expressed as a percentage of the share price (bid price).
2024 2023
Annual dividend per ordinary share a 4.50p 4.49p
Share price (bid price) b 52.20p 46.60p
Dividend yield (a/b)*100 8.62% 9.64%
Premium
The amount by which the market price per ordinary share of an investment company is higher or lower than the NAV
per ordinary share. The discount or premium is expressed as a percentage of the NAV per ordinary share.
2024 2023
Share price (bid price) a 52.20p 46.60p
NAV per ordinary share b 49.59p 45.83p
Premium (a-b)/b 5.26% 1.68%
Gearing
The level of borrowing that the Company has undertaken. Represented by total assets (being total assets less current
liabilities (excluding borrowings)) less all cash, expressed as a percentage of Shareholders’ funds (being the NAV of the
Company) minus 100.
2024
£’000
2023
£’000
Total assets 316,784 279,618
Current liabilities (excluding borrowings) (8,321) (4,187)
Cash and cash equivalents (12,350) (6,597)
Total a 296,113 268,834
NAV b 273,463 240,431
Gearing ((a/b)-1)*100 8.28% 11.81%
93
Alternative Performance Measures
Continued
Ongoing charges ratio
A measure of all operating costs incurred in the reporting period, calculated as a percentage of average net assets
in that year. Operating costs exclude costs suered within underlying investee funds, costs of buying and selling
investments, interest costs, taxation and the costs of buying back or issuing ordinary shares.
2024 2023
Average NAV a 252,603,178 239,062,011
Operating expenses per Statement of Comprehensive Income 3,231,000 2,857,000
Ineligible expenses (245,000) (79,000)
Operating expenses b 2,986,000 2,778,000
Ongoing charges gure
(calculated using the AIC methodology) (b/a)*100 1.18% 1.16%
94
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
Explanation of AGM Resolutions
Resolution 1: Annual Financial Statements and Directors’ and Auditor’s Reports
The Directors are required to lay before the AGM copies of the Company’s most recent Annual Financial Statements and
the Directors’ Report and Auditor’s Report in respect of the nancial year. Shareholders will be given an opportunity at
the meeting to ask questions on these items before being invited to receive them.
Resolution 2: Remuneration Report
As a Jersey domiciled Company, the Directors are not required to present the Company’s remuneration policy to
Shareholders at the AGM. In line with best practice, however, the Directors present the Board’s remuneration report as
contained in the Company’s Annual Financial Statements to Shareholders for approval.
Resolution 3: Dividend Policy
To approve the Company’s dividend policy as detailed on page 39.
Resolutions 4 to 7: Re-election and appointment of Directors
In accordance with the recommendations of the AIC Code of Corporate Governance (the “AIC Code”), all Directors apart
from Duncan Baxter, who is due to retire at the AGM, put themselves forward for re-election.
Resolution 8: Re-appointment and remuneration of the Auditor
Shareholders are requested to approve the reappointment of the Company’s Auditor, PricewaterhouseCoopers
CI LLP, each year and are asked to give Directors the authority to determine the Auditor’s remuneration.
PricewaterhouseCoopers CI LLP has expressed its willingness to continue as Auditor of the Company.
Resolution 9: Continuation Vote
In accordance with the Articles of Association (the “Existing Articles”) this resolution proposes to continue the
Company as an investment company. In the event that the resolution is not passed the Board would put forward further
proposals at an extraordinary general meeting to liquidate or reconstruct the Company.
Resolution 10 and 11: Directors’ Authority to Allot Shares
Under the Articles the Directors are required to seek a disapplication of pre-emption rights from Shareholders before
issuing new shares on a non pre-emptive basis. In order to continue with its programme of new share issues, your
Board is therefore also proposing that the annual disapplication of pre-emption rights authority is given to the Directors
so that they may continue to issue shares as and when appropriate is renewed.
Accordingly, Resolutions 10 and 11 authorise the Board to allot on a non-pre-emptive basis:
(a) (pursuant to Resolution 10) up to 10% of the issued ordinary share capital of the Company; and
(b) (pursuant to Resolution 11) up to a further 10% of the issued ordinary share capital of the Company.
If both Resolution 10 and Resolution 11 are passed, Shareholders will be granting the Directors the authority to allot a
total of up to 20% of the existing issued ordinary share capital of the Company in aggregate on a non pre-emptive basis.
If Resolution 10 is passed but Resolution 11 is not passed, Shareholders will only be granting Directors the authority to
allot up to 10% of the existing issued ordinary share capital of the Company on a non pre-emptive basis.
95
Explanation of AGM Resolutions
Continued
New ordinary shares will not be issued at a price less than the prevailing NAV per ordinary share, aer taking into
account any costs incurred by the Company in connection with such issue. Any issues of new ordinary shares will be
carried out in accordance with the UK Listing Rules.
Each of the authorities granted pursuant to Resolution 10 and Resolution 11 shall expire on the earlier of eighteen
month from the date of the resolution or at the conclusion of the next Annual General Meeting.
Resolution 12: Directors’ Authority to Buy Back Shares
The current authority of the Company to make purchases of up to approximately 14.99% of its issued capital expires at
the end of the Annual General Meeting and Resolution 12 seeks renewal of such authority until the next Annual General
Meeting (or the expiry of een months from the date of the passing of the resolution, if earlier). The maximum and
minimum prices to be paid for shares are set out in Resolution 12. This power will be exercised only if, in the opinion of
the Directors, a repurchase would result in an increase in NAV per ordinary share and would be in the best interests of
Shareholders as a whole. Any shares purchased under this authority will either be held in treasury or cancelled.
Resolution 13: Amendment to Articles of Association
Resolution 13 seeks Shareholder approval to adopt new Articles of Association (the “New Articles”) in order to update
the Company’s current Articles of Association (“the Existing Articles”). The proposed amendments being introduced in
the New Articles are driven by a desire to modernise the Company’s Articles of Association in line with developments
in market and industry practice, and enable the Company to promote eicient, cost eective and modern methods of
engagement with Shareholders.
This summary is intended only to highlight the principal amendments which are likely to be of interest to
shareholders. It is not intended to be comprehensive and cannot be relied upon to identify amendments or issues
which may be of interest to all shareholders. This summary is not a substitute for reviewing the full terms of
the New Articles. A copy of the New Articles, together with a blackline showing amendments from the Existing
Articles, will be available for inspection on the Company’s website at www.ncim.co.uk and on the national
storage mechanism, from the date of the AGM Notice until the close of the AGM, and will also be available for
inspection at the venue of the AGM, being IFC 1, The Esplanade, St Helier, Jersey, JE1 4BP, from 15 minutes before
and up until the close of the AGM.
Set out below is a summary of the principal amendments included in the New Articles:
▶
introducing a new mechanism for the Company to request information from Shareholders relating to their tax
residency, to the extent required by the Company to comply with its international tax reporting obligations
under Foreign Account Tax Compliance Act (FATCA), Common Reporting Standard (CRS) (or other obligations as
applicable), and provide the Company with powers to remove non-compliant Shareholders from its register;
▶
reducing the period before which shareholders who have not claimed or cashed dividends forfeit their shares from
twelve (12) years to ten (10) years;
▶
removing the requirement to advertise in leading newspapers when dealing with untraced shareholders, and
permit the Company to engage a professional asset reunication company or other tracing agent to locate untraced
shareholders;
▶
permit the Company to apply the proceeds of sale of shares of untraced shareholders that have been forfeited to the
business of the Company, investments or to charitable or good causes that the Board may decide;
96
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
▶
updating and modernising the provisions dealing with how dividends are paid to permit the Board to determine
the most appropriate method of payment to Shareholders (including payment by bank transfer or other electronic
means);
▶
amendments in response to the requirements of AIFM Regulations and all applicable rules and regulations
implementing AIFMD;
▶
amendments to the provisions on dividends and distributions on a winding up to ensure that all dividends shall be
declared and paid, and all distributions on a winding up calculated, pro rata to the number of Shares held by each
Shareholder rather than by reference to the amounts paid up on the Shares;
▶
modernising the appointment and retirement of Directors, including providing for all Directors to tender themselves
for re-election at every AGM (down from the current 3-year requirement), in accordance with good corporate
governance);
▶
minor updating and further modernisation changes, including to execution of documents electronically, removing
the requirement for a Company Seal and putting it at the Directors’ discretion, explicitly providing for electronic
attendance and voting at general meetings and for Directors to attend Directors’ meetings by video or a similar form
of communication, and electronic communication with Shareholders (including in the provisions of electronic copies
of the Company’s accounts to Shareholders, unless Shareholders request the Company deliver such documents by
post); and
▶
a small number of additional, non-substantive amendments have also been proposed to update references to
applicable law and regulation.
97
Notice of Annual General Meeting
Notice is hereby given that the eighteenth Annual General
Meeting of CQS New City High Yield Fund Limited (the
“Company”) will be held at 11.00 a.m. at IFC1, The
Esplanade, St. Helier, Jersey, JE1 4BP on 3 December 2024
for the following purposes:
To consider and, if thought t, pass resolutions 1 to 9 as
ordinary resolutions and resolutions 10 to 13 as special
resolutions:
Ordinary Business
1. To receive and adopt the Annual Financial Statements
of the Company and the reports of the Directors and
Auditor for the year ended 30 June 2024.
2. To approve the Directors’ Remuneration Report for
the year ended 30 June 2024.
3. To approve the Company’s Dividend Policy.
4. That Caroline Hitch be re-elected as a Director of the
Company.
5. That Wendy Dorman be re-elected as a Director of the
Company.
6. That John Newlands be re-elected as a Director of the
Company.
7. That Ian Cadby be re-elected as a Director of the
Company.
8. To re-appoint PwC as Independent Auditor and
that the Directors be authorised to determine their
remuneration.
9. That, pursuant to Article 164 of the Company’s
Articles of Association, the Company shall continue
as an investment fund until the conclusion of the next
Annual General Meeting of the Company.
Special Business
10. That, the Company be authorised to issue equity
securities (as dened in Article 16.2 of the Company’s
Articles of Association) for cash, as if the provisions
of Article 16.2 did not apply to any such issue,
including by way of a sale of ordinary shares held by
the Company as treasury shares, in such amount as
represents up to 10% of the Company’s issued share
capital as at the date of the passing of this resolution,
provided that such authorisation shall expire (unless
and to the extent previously revoked, varied or
renewed by the Company in general meeting by
Special Resolution) at the earlier of the conclusion of
the next annual general meeting of the Company or
eighteen months from the date of this resolution but
so that this power shall enable the Company to make
oers or agreements before such expiry which would
or might require equity securities to be issued aer
such expiry and the directors of the Company may
issue equity securities in pursuance of any such oer
or agreement as if such expiry had not occurred.
11. That, in addition to any authority granted under
Resolution 10 above, the Company be authorised to
issue equity securities for cash, as if the provisions
of Article 16.2 did not apply to any such issue,
including by way of a sale of ordinary shares held by
the Company as treasury shares, in such amount as
represents up to 10% of the Company’s issued share
capital as at the date of the passing of this resolution,
provided that such authorisation shall expire (unless
and to the extent previously revoked, varied or
renewed by the Company in general meeting by
Special Resolution) at the earlier of the conclusion of
the next annual general meeting of the Company or
eighteen months from the date of this resolution but
so that this power shall enable the Company to make
oers or agreements before such expiry which would
or might require equity securities to be issued aer
such expiry and the directors of the Company may
issue equity securities in pursuance of any such oer
or agreement as if such expiry had not occurred.
98
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
12. That, pursuant to Article 57 of the Companies
(Jersey) Law 1991, the Company be generally and
unconditionally authorised to make one or more
market purchases of ordinary shares of no par value
in the capital of the Company (ordinary shares)
provided that:
(i) the maximum aggregate number of ordinary
shares authorised to be purchased shall be equal
to 14.99% of the total issued share capital of the
Company on the date at which the resolution is
passed;
(ii) the minimum price which may be paid for an
ordinary share is 1p;
(iii) the maximum price which may be paid for an
ordinary share is an amount equal to the higher
of:
(a) 105% of the average of the middle market
quotations for an ordinary share as derived
from the Daily Oicial List of the LSE for the
ve business days immediately preceding
the day on which the ordinary share is
purchased; and
(b) the higher of (1) the price of the last
independent trade in ordinary shares and
(2) the highest current independent bid for
ordinary shares on the LSE’s Main Market;
(iv) any ordinary shares to be purchased may
be cancelled or held as treasury shares in
accordance with the Companies (Jersey) Law,
1991, provided that the Company shall not
hold as treasury shares more than 10% of the
aggregate number of ordinary shares in issue at
any one time;
(v) this authority expires at the conclusion of the
next Annual General Meeting of the Company
aer the passing of this resolution or een
months from the date of the passing of this
resolution, whichever is earlier;
(vi) the Company may make a contract to purchase
ordinary shares under this authority before the
expiry of the authority which will or may be
executed wholly or partly aer the expiry of the
authority and may make a purchase of ordinary
shares in pursuance of any such contract; and
(vii) the Directors provide a statement of solvency
in accordance with Articles 55 and 57 of the
Companies (Jersey) Law, 1991.
13. That, with eect from the conclusion of the meeting
the dra articles of association produced to the
meeting and signed by the chair of the meeting for
the purposes of identication be adopted as the
articles of association of the Company in substitution
for, and to the exclusion of, the Company’s existing
articles of association.
The Company requests that any Shareholders wishing
to attend the Annual General Meeting to advise the
Company Secretary by email or in writing as detailed in
note 3 below.
By Order of the Board
BNP Paribas S.A., Jersey Branch
Company Secretary
27 September 2024
99
Notice of Annual General Meeting
Continued
Notes:
1. Information about this meeting is available from the
Company’s website; www.ncim.co.uk
2. As a member who is entitled to attend and vote at
this meeting you are entitled to appoint one or more
proxies to exercise all or any of your rights to attend,
speak and vote on your behalf. Such a proxy need
not also be a member of the Company. You may
appoint more than one proxy provided each proxy
is appointed to exercise rights attached to dierent
shares. You may not appoint more than one proxy to
exercise the rights attached to any one share.
3. Any Shareholder wishing to attend the Annual
General Meeting can advise the company of their
intention to do so by writing to the Company
Secretary at BNP Paribas S.A., Jersey Branch, IFC 1,
The Esplanade, St Helier, Jersey, JE1 4BP or by email
at jersey.bp2s.ncyf.cosec@bnpparibas.com.
4. A form of proxy is enclosed for use at the meeting. To
be valid, the proxy card and any power of attorney
or other authority, if any, under which it is signed,
or a certied copy thereof must be lodged with the
Company’s registrar, Computershare Investor Services
(Jersey) Limited, c/o The Pavilions, Bridgewater Road,
Bristol BS99 6ZY at least 48 hours before the meeting.
5. Completion of the proxy card will not prevent a
Shareholder from attending the meeting and voting
in person.
6. Pursuant to Article 40 of the Companies
(Uncerticated Securities) (Jersey) Order 1999, the
Company has specied that only those Shareholders
registered on the register of members of the Company
as at 6.00 pm on 29 November 2024, or in the event
that the meeting is adjourned, on the register of
members 48 hours before the time of the meeting,
shall be entitled to attend and vote at the meeting
in respect of the number of shares registered in their
name at that relevant time. Changes to entries on the
register of members aer 6.00 pm on 22 November
2024, or in the event that the meeting is adjourned
to a later time, on the register of members 48 hours
before the time of any adjourned meeting, shall be
disregarded in determining the rights of any person to
attend and vote at the meeting.
Electronic receipt of proxies
7. To appoint one or more proxies or give an instruction
to a proxy (whether previously appointed or
otherwise) via the CREST system, CREST messages
must be received by the Company’s agent (ID number
3RA50) no later than the 29 November 2024 at 11am.
For this purpose, the time of receipt will be taken
to be the time (as determined by the timestamp
generated by the CREST system) from which the
issuer’s agent is able to retrieve the message. The
Company may treat as invalid a proxy appointment
sent by CREST in the circumstances set out in
Regulation 35(5)(a) of the Uncerticated Securities
Regulations 2001 or the relevant provisions of the
Companies (Uncerticated Securities) (Jersey) Order
1999. Instructions on how to vote through CREST can
be found on the website www.euroclear.com.
100
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
Report of the Investment Manager
Relating to Matters under the Alternative Investment
Fund Managers’ Directive (unaudited)
Risk management systems
The Company’s Annual Report and Pre-investment Disclosure Document sets out the risks to which the Company is
exposed. The UK Investment Manager employs risk management disciplines which monitor the Company’s portfolio
and to quantify and manage the associated market and other risks. A permanent independent department has been
established by the UK Investment Manager to perform the risk management function. The risk management and
performance analysis team (“RMPA”) is led by the Chief Risk Oicer and is functionally and hierarchically separate from
the operating units of the portfolio managers of the Company.
RMPA is a dedicated control function over the operating units of the Investment Manager and is not involved in the
performance activities of the Company. RMPA has designed, documented and implemented eective risk management
policies, processes and procedures in order to identify, quantify, analyse, monitor, report on and manage all material
risks relevant to the Company’s investment strategy. The systems include third party vendor applications such as
Tradar, Sungard Front Arena and MSCI Risk Metrics, complemented with a number of proprietary applications.
Material changes to information required to be made available to investors of the Company
No material changes.
Assets of the Company subject to special arrangements arising from their illiquid nature
There are no assets of the Company which are subject to special arrangements arising from their illiquid nature.
Remuneration
The AIFM has adopted a remuneration policy which meets the requirements of the Directive and has been in place for
the current nancial year of the Company. The variable remuneration period of the AIFM ended on 31 December 2023
and therefore does not coincide with the nancial year of the Company. The remuneration process is overseen by the
remuneration committee (comprised predominately of independent non-executive parties). An internal working group
encompassing senior management is responsible for gathering relevant information (both quantitative and qualitative)
to evaluate the performance (both short and long term) of individuals, teams and the AIFM as a whole, against external
market benchmarks and to utilise this to develop proposals for xed and variable remuneration for all sta. The
remuneration committee receives these proposals and the supporting information and is responsible for independently
reviewing and scrutinising the proposals and evidence provided in line with the AIFM’s stated objectives and developing
its nal recommendations for delivery to the governing body of the AIFM and other entities associated with the AIFM.
The variable remuneration of all sta in excess of a threshold, which includes those individuals categorised as
remuneration code sta (“code sta”), is subject to the following:
▶
deferred payment of up to 50% of the variable remuneration for a period of 3 years,
▶
deferred remuneration is linked to funds managed by the AIFM,
▶
the breaching of certain covenants may lead to forfeiture of deferred remuneration, and
▶
a claw-back provision of deferred remuneration in certain circumstances including future performance issues by the
individuals.
The below information provides the total remuneration paid by the AIFM (and any delegates) for the year ended 31
December 2023. This has been presented in line with the information available to the Company. There is no allocation
made by the AIFM to each AIF and as such the disclosure reects the remuneration paid to individuals who are partly or
fully involved in the AIF, as well as sta of any delegate to which the rm has delegated portfolio management and/or
risk management responsibilities in relation to the AIF.
HEAD_1st line HEAD_2nd line
Fund Managers’ Directive (unaudited)Relating to Matters under the Alternative
Investment
Report of the Investment Manager
101
Report of the Investment Manager
Continued
Of the total AIFM remuneration paid of $43.6m for the year ended 31 December 2023 to 164 individuals (full time
equivalent), $26.2m has been paid as xed remuneration determined with the remainder being paid as variable
remuneration.
The AIFM has assessed the members of sta whom it determines to be code sta in accordance with the requirements
of SYSC 19.B of the FCA Handbook (the AIFM Remuneration Code). There are 12 individuals (full time equivalent) who
meet this denition and these individuals have collectively been compensated $14.1m.
Not all individuals are directly remunerated by the AIFM due to the structure of the AIFM entity, however in the
interests of meeting the underlying requirement of this disclosure all sta involved have been assessed as if directly
remunerated by the AIFM.
102
CQS New City High Yield Fund Limited Annual Report & Financial Statements
|
Supplemental Information and Annual General Meeting
Corporate Information
Registered Number
95691
Registered Oice
CQS New City High Yield Fund Limited
IFC1
The Esplanade
St Helier
Jersey JE1 4BP
Directors
Caroline Hitch (Chair)
Duncan A H Baxter
Ian Cadby
Wendy Dorman (Audit and Risk Committee Chair)
John E Newlands
Investment Manager
CQS (UK) LLP
1 Strand
London
WC2N 5HR
AIFM
CQS (UK) LLP
1 Strand
London
WC2N 5HR
Company Secretary, Administrator,
Custodian, Banker and Depositary
BNP Paribas S.A., Jersey Branch
IFC1
The Esplanade
St Helier
Jersey JE1 4BP
Registrars
Computershare Investor Services (Jersey) Limited
13 Castle Street
St. Helier, Jersey JE1 1ES
Channel Islands
Financial Adviser and Corporate Broker
Singer Capital Markets
1 Bartholomew Lane
London
EC2N 2AX
Independent Auditor
PricewaterhouseCoopers CI LLP
37 Esplanade, St Helier
Jersey, Channel Islands
JE1 4XA
Jersey Legal Advisors
Ogier
Ogier House, The Esplanade
St. Helier
Jersey, JE4 9WG
Channel Islands
UK Legal Advisors
Dentons LLP
One Fleet Place,
London EC4M 7WS
Investor Relations Adviser
TB Cardew
29 Lincoln’s Inn Fields
London WC2A 3EG
Website
www.ncim.co.uk
ISIN
JE 00B1LZS514
Shareholder Information
Net Asset Value/Share Price
The net asset value of the Company’s ordinary shares
may be obtained by contacting Manulife | CQS on 020
7201 6900 or by email at clientservice@cqsm.com or
alternatively by visiting the Company’s web site at
www.ncim.co.uk.
Corporate Information
CQS
NEW CITY
HIGH YIELD FUND LIMITED
