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The North American Income Trust Plc

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The North American Income Trust Plc The North American Income Trust plc Leading US companies picked for their higher income potential Annual Report 31 January 2021 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser. If you have sold or otherwise transferred all your Ordinary shares in The North American Income Trust plc, please forward this document, together with the accompanying documents immediately to the purchaser or transferee, or to the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Visit our Website To find out more about The North American Income Trust plc, please visit www.northamericanincome.co.uk The North American Income Trust plc 1 Contents Overview Overview Headlines and Financial Calendar 2 Strategic Report Chairman’s Statement 5 Overview of Strategy 8 Results 15 Performance 16 Strategic Report Investment Manager’s Review 18 Manager’s ESG Engagement 20 Portfolio Ten Largest Investments 25 List of Investments 26 Geographical Analysis 28 Sector Analysis for Equity Portfolio 28 Portfolio Currency Graph (exchange rate US$ to £) 29 Investment Case Studies 30 Governance Your Board of Directors 32 Directors’ Report 33 Statement of Corporate Governance 37 Report of the Audit Committee 40 Directors’ Remuneration Report 43 Governance Financial Statements Statement of Directors’ Responsibilities 47 Independent Auditors’ Report to the Members of The North American Income Trust plc 48 Statement of Comprehensive Income 55 Statement of Financial Position 56 Statement of Changes in Equity 57 Statements Financial Statement of Cash Flows 58 Notes to the Financial Statement 59 Alternative Performance Measures 75 Corporate Information Information about the Manager 78 Investor Information 80 Alternative Investment Fund Managers Information Corporate Directive Disclosures (unaudited) 83 Glossary of Terms and Conditions 84 Notice of Annual General Meeting 86 Contacts 92 2 Annual Report 2021 Headlines and Financial Calendar Net asset value total returnAB Share price total returnAB Revenue return per share –5.7% –16.5% 11.79p 2020 +5.5% 2020 +11.5% 2020 11.42p Dividends per share Dividend yieldAC Ongoing chargesA 10.00p 4.3% 1.01% 2020 9.50p 2020 3.3% 2020 0.97% A Considered to be an Alternative Performance Measure. See pages 75 and 76 for more information. B Includes dividends reinvested. C Calculated as the dividend for the year divided by the year end share price. Net Assets Share price Dividends per share 9.50 10.00 288.9 290.0 275.5 280.4 8.50 264.7 262.5 268.0 7.80 246.4 260.0 234.0 7.20 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 At 31 January – pence At 31 January – pence Year ended 31 January – pence Comparative figures for 2017 to 2019 have been restated due to the sub-division of each existing Ordinary share of 25p into five Ordinary shares of 5p each on 10 June 2019. Dividends Rate xd date Record date Payment date 1st Interim dividend 2021 1.80p 16 July 2020 17 July 2020 7 August 2020 2nd Interim dividend 2021 1.80p 1 October 2020 2 October 2020 30 October 2020 3rd Interim dividend 2021 1.90p 4 February 2021 5 February 2021 26 February 2021 Proposed final dividend 2021 4.50p 6 May 2021 7 May 2021 4 June 2021 Total dividends 2021 10.00p 1st Interim dividend 2020 1.70p 18 July 2019 19 July 2019 2 August 2019 2nd Interim dividend 2020 1.70p 3 October 2019 4 October 2019 25 October 2019 3rd Interim dividend 2020 1.80p 30 January 2020 31 January 2020 21 February 2020 4th interim dividend 2020 4.30p 7 May 2020 11 May 2020 5 June 2020 Total dividends 2020 9.50p The North American Income Trust plc 3 Overview Financial Calendar Financial year end 31 January 2021 Strategic Report Annual General Meeting (Edinburgh) 1 June 2021 Payment dates of quarterly dividends June 2021 August 2021 October 2021 Portfolio February 2022 Highlights Governance 31 January 2021 31 January 2020 % change Total assets (as defined on page 85) £411,752,000 £432,913,000 –4.9 Equity shareholders’ funds £375,416,000 £413,948,000 –9.3 Share price (mid market) 234.00p 290.00p –19.3 Net asset value per Ordinary share 262.48p 288.91p –9.1 (Discount)/premium (difference between share price and net asset value)AB (10.9%) 0.4% Statements Financial Net (gearing)/cashA (7.4%) 0.9% Dividends and earnings Revenue return per share 11.79p 11.42p +3.2 Dividends per share 10.00p 9.50p +5.3 A Dividend yield (based on year end share price) 4.3% 3.3% Information Corporate Dividend coverA 1.18 1.20 Revenue reserves per share Prior to payment of third and fourth interim dividends 16.49p 14.38p After payment of third and fourth interim dividends 10.09p 8.28p Operating costs Ongoing chargesA 1.01% 0.97% A Considered to be an Alternative Performance Measure. See pages 75 and 76 for further information. B Including undistributed revenue. 4 Annual Report 2021 Strategic Report The North American Income Trust plc was launched in 1902. The objective of the Company is to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominately of S&P 500 US equities. The North American Income Trust plc 5 Chairman’s Statement Overview In 2012, the Edinburgh US Tracker Trust became The North reserves, which will represent approximately 10.1p per share. American Income Trust. Its objective was to produce dividend This will provide flexibility for future years. Strategic Report growth without depleting capital. This has been achieved with the establishment of a satisfactory dividend record: 1.88p per share Portfolio in 2012 has increased to 10.0p which is recommended for the As of 31 January 2021, the portfolio consisted of 39 equity year to 31 January 2021. The capital has been preserved in real holdings and 7 corporate bonds, with equities representing terms over that period. The Managers’ approach has proved to 96.5% of total assets. be successful and is now well established. Total revenue from equity holdings in the portfolio for the Performance financial year was £15.6 million (2020 - £16.3 million). Most of Portfolio The US financial markets showed remarkable resilience during the Company’s equity holdings continued their established 2020 despite the ravages of Covid-19, thanks to the size and record of dividend growth. 73% of the equity holdings raised strength of the US economy and historic levels of government their dividends over the past year, with a weighted average stimulus. By the Company's year end, the US equity markets had increase of 7.4%. Only two companies within the portfolio made broadly recovered from the severe declines seen at the start of dividend cuts during the year. the pandemic. During the 12-month period ended 31 January 2021, the NAIT does not have a benchmark; the Russell 1000 Value Index is Company received premiums totalling £5.4 million (2020 - £4.0 Governance used as the Trust’s primary reference index to provide context, million) in exchange for entering into stock option transactions. while the S&P 500 Index is also monitored by the Board as most This option income, the generation of which remains consistent of the portfolios’ holdings are drawn from its constituents. The with the Manager’s company-focused investment process, total return performance per share compared to this has been represented 25.0% of total income (2020 – 19.1%). As the variable: underperforming in the last two years but Company’s exposure to corporate bonds has decreased over outperforming over the three years prior to that. Over the 12- recent years, interest income from investments was lower and represented 2.5% of total income (2020 – 2.7%). Bond income month period to 31 January 2021, the Company’s net asset value (NAV) total return per share was -5.7% in sterling terms. This and option premiums will remain secondary sources of income Statements Financial underperformed the -0.1% return in sterling terms from the in the belief that dividends must remain the overwhelming Russell 1000 Value Index and the 12.6% return from the more source of income available for distribution. Further details of the growth-orientated S&P 500 index. portfolio are shown on pages 25 to 28. While the capital return has underperformed the primary Market & Economic Review reference index, for the year ended 31 January 2021, the revenue North American equity indices saw mixed performance in sterling terms during the 12-month period ended 31 January return per Ordinary share rose by 3.2% from 11.42p to 11.79p, which compares to the 11.2% decline in the earnings of the 2021. Large-cap value stocks recorded negative returns, Information Corporate Russell 1000 Value Index. The Board is recommending a final significantly lagging their large-cap growth counterparts, which dividend per share of 4.5p, which will take the total for dividends posted notable gains. In February and March 2020, investors’ for the year to 10.0p, an increase of 5.3% from the previous year. fears surrounding the impact of the worldwide spread of the The proposed final dividend is payable on 4 June 2021, to Covid-19 pandemic on the global economy sent a shockwave shareholders on the register on 7 May 2021.
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