BMO UK
High Income
Trust PLC
Annual Report and Financial
Statements 31 March 2022
Contents
Contents
Overview
Company Overview 1
Financial Highlights 2
Summary of Performance 3
Strategic Report
Chairman’s Statement 5
Purpose, Strategy and Business Model 9
Key Performance Indicators 11
Manager’s Review 12
Manager’s Investment Philosophy and Process 16
Classification of Investments 18
Investment Portfolio 19
Sustainability and ESG 21
Promoting the Success of the Company 25
Principal Risks and Uncertainties and Viability Statement 27
Principal Policies 30
Governance Report
Board of Directors 32
Report of the Directors 33
Corporate Governance Statement 41
Report of the Nomination Committee 44
Report of the Engagement and Remuneration Committee 45
Report of the Audit Committee 46
Directors’ Remuneration Report 50
Statement of Directors’ Responsibilities 53
Independent Auditor’s Report 54
Financial Report
Financial Statements 63
Notes to the Financial Statements 67
AIFMD Disclosures 83
Notice of Meeting
Notice of Annual General Meeting 84
Other Information
Capital Structure 88
Shareholder Information 89
How to Invest 90
Ten Year Record 91
Alternative Performance Measures (“APMs”) 93
Glossary of Terms 95
Corporate Information 97
Financial Calendar
Annual General Meeting 20 July 2022
First quarter's distribution paid (XD Date 7 July 2022) 5 August 2022
Second quarter’s distribution paid (XD Date 6 October 2022) 4 November 2022
Announcement of Interim Results December 2022
Third quarter’s distribution paid (XD Date 5 January 2023) 3 February 2023
Fourth quarter’s distribution paid (XD Date 6 April 2023) 5 May 2023
Announcement of Annual Results and Posting of Annual Report May 2023
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 independent 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 shares
in BMO UK High 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. If
you have sold or otherwise transferred only part of your holding of shares, you should retain these documents.
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Annual Report and Financial Statements 31 March 2022 | 1
Company Overview
BMO UK High Income Trust PLC (the ‘Company’) is an investment trust and its shares
are listed on the premium segment of the Official List of the Financial Conduct Authority
and traded on the London Stock Exchange.
Purpose
The purpose of the Company is to be a cost effective investment vehicle for investors
seeking income and capital returns from a portfolio invested predominantly in UK equities.
Investment Objective
The investment objective of the Company is to provide an attractive return to shareholders
each year in the form of dividends and/or capital repayments, together with prospects for
capital growth.
In pursuit of its objective, the Company invests predominantly in UK equities and
equity-related securities of companies across the market capitalisation spectrum.
Capital Structure
The Company has two classes of shares: Ordinary shares and B shares. The rights ofeach
class are identical, save in respect of the right to participate in distributions of dividends
and capital. The net asset value attributable to each class of shares is the same.
Only Ordinary shares are entitled to dividends paid by the Company. Bshares, instead of
receiving dividends, receive a capital repayment at the same time as, and in an amount
equal to, each dividend paid on the Ordinary shares.
Shares may be held and traded within units, each unit comprises three Ordinary shares
and one B share.
Visit our website at bmoukhighincome.com
Company Overview
The Company is registered in Scotland with company registration number SC314671
Legal Entity Identifier: 213800B7D5D7RVZZPV45
Forward-looking statements
This document may contain forward-looking statements with respect to the financial condition, results of operations and business of the
Company. Such statements involve risk and uncertainty because they relate to future events and circumstances that could cause actual results
to differ materially from those expressed or implied by forward-looking statements. The forward-looking statements are based on the Directors’
current view and on information known to them at the date of this document. Nothing should be construed as a profit forecast.
2 | BMO UK High Income Trust PLC
Financial Highlights
Financial Highlights
6.3%
Yield
(1)
on Ordinary Shares
Distribution yield
of 6.3% on Ordinary shares at 31 March 2022, compared to the yield
on the FTSE All-Share Index of 3.1%. Total distributions increased by 2.8% to 5.45p per
share compared to the prior year.
6.2%
Yield
(1)
on B shares
Distribution yield
of 6.2% on B shares at 31 March 2022, compared to the yield on the
FTSE All-Share Index of 3.1%. Total distributions increased by 2.8% to 5.45p per share
compared to the prior year.
+1.9%
NAV total return
(1)
Net asset value total return per share for the financial year was +1.9%, compared to
the Benchmark
(2)
total return of +13.0%.
+0.6%
Ordinary share price total return
(1)
Ordinary share price total return per share for the financial year was +0.6%,
compared to the Benchmark
(2)
total return of +13.0%.
+1.6%
B Share price total return
(1)
B share price total return per share for the financial year was +1.6%, compared to the
Benchmark
(2)
total return of +13.0%.
(1)
Yield and total return – See Alternative Performance Measures on pages93 and 94.
(2)
Benchmark – From launch on 1 March 2007, the Company’s benchmark index was the FTSE All-Share Capped 5% Index. Following shareholder approval at the Company’s
AGM on 5 July 2018, the benchmark was changed to the FTSE All-Share Index.
Investors are reminded that the value of investments and any income from them may go down as well as up and they may not receive back the
full amount invested. Tax benefits may vary as a result of statutory changes and their value will depend on individual circumstances.
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Annual Report and Financial Statements 31 March 2022 | 3
Summary of Performance
Total Return
(1)
Year to
31 March
2022
Year to
31 March
2021
Net asset value per Ordinary share, B share and unit
(2)
+1.9% +37.4%
Ordinary share price +0.6% +40.8%
B share price +1.6% +44.9%
Unit price -2.6% +40.6%
Benchmark
(3)
+13.0% +26.7%
Year to
31 March
2022
Year to
31 March
2021 % change
Revenue and Distributions
Distributions per Ordinary share and B share 5.45p 5.30p +2.8%
Distributions per unit 21.80p 21.20p +2.8%
Yield
(1)
– Ordinary share 6.3% 5.8%
Yield
(1)
– B share 6.2% 5.8%
Revenue reserve – per Ordinary share
(4)
3.41p 3.96p -13.9%
31 March
2022
31 March
2021 % change
Capital
Net assets £111.2m £115.0m -3.3%
Net asset value per Ordinary share and B share 95.97p 99.25p -3.3%
Net asset value per unit 383.88p 397.00p -3.3%
FTSE All-Share Index 4,187.78 3,831.05 +9.3%
Discount
(1)
Ordinary shares -9.3% -7.8%
B shares -8.3% -7.8%
Units -12.5% -8.1%
Gearing
(1)
Gearing 0.1% 7.2%
Ongoing Charges
(1)
as percentage of average shareholders’ funds 0.98% 1.04%
(1)
Total return, yield, discount, gearing and ongoing charges – see Alternative Performance Measures on pages 93 and 94.
(2)
A unit consists of three Ordinary shares and one B share.
(3)
Benchmark – see definition on page 2.
(4)
Calculated after deducting the fourth interim dividend (which was paid after the year end) from the revenue reserve at 31 March.
Sources: BMO Global Asset Management (”BMO GAM”) and Refinitiv Eikon.
Summary of Performance
4 | BMO UK High Income Trust PLC
Summary of Performance
Annual dividends and Capital repayments
Growth in payments to shareholders
over last ten financial years
1st interim
Pence per share
2nd interim 3rd interim 4th interim
Source: BMO GAM
0
1
2
3
4
5
6
2022202120202019201820172016201520142013
Distribution yield compared to the Benchmark Index
and Peer Group at 31March 2022
0
1
2
3
4
5
7
FTSE All-Share
Index – Yield
Ordinary shares
– Distribution Yield
6
UK Equity Income Sector –
AIC Peer Group – Yield
Yield %
Source: Refinitiv Eikon and AIC
B shares
– Distribution Yield
Cumulative Performance to 31March 2022
0
10
20
30
40
50
60
70
80
90
100
110
10 Years5 Years3 Years1 Year
Net Asset Value total return
Source: BMO GAM and Refinitiv Eikon
Ordinary share price total return B share price total return Benchmark - total return
1.9
0.6
1.6
13.0
10.2
9.3
10.4
16.8
11.2
11.5 10.9
24.9
80.3
80.6
70.0
100.1
%
Annual Report and Financial Statements 31 March 2022 | 5
Chairman’s Statement
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Performance
In the year to 31 March 2022 your Company produced a Net Asset Value
(‘NAV’) total return of +1.9%. This outcome was some way behind the
+13.0% total return from the FTSE All-Share Index, the benchmark index.
For the Ordinary shares, the share price total return for the year was
+0.6%, less than the NAV total return as the share price discount to
NAV widened from 7.8% at the start of the year to 9.3% at the end.
For the B shares, the equivalent return was +1.6% as the discount
change was from 7.8% to 8.3%.
As shown in the chart below the underperformance occurred in
the second half of the financial year – a period that saw strong
performances from a number of large sectors in which your Company
was either underweight or had no exposure to at all. Until then,
performance was comparable to the benchmark index.
Performance over one year (%)
Benchmark
Net Asset Value total return
120
115
110
105
100
95
90
85
31 March 2021
30 June 2021 30 September 2021 31 December 2021 31 March 2022
Rebased to 100 at 31 March 2021
Source: Refinitiv Eikon
In particular, following the invasion of Ukraine by Russian forces in
February 2022, the Oil & Gas and Mining sectors reacted very positively
to rising Oil & Gas prices and a surge in other commodity prices. The
investment portfolio has no exposure to the large integrated Oil
companies and is underweight in the Mining sectors. This decision is
entirely driven by the Fund Manager‘s view on quality, returns and
sustainable competitive advantage which are not met by these sectors.
We are in a most uncertain period with elevated levels of geopolitical
risk coinciding with high and rising levels of inflation across the G8
economies. The resurgence of inflation is being met by central banks
raising short term interest rates and contemplating tightening their
balance sheets. Both of these actions are designed to attempt to slow
the surge in inflation but are being introduced at a time of significant
uncertainty on a global basis.
Your Board has mentioned on a number of occasions that the
structure of the investment portfolio, with approximately 35 holdings,
is sufficiently differentiated from the benchmark that short term
performance is unlikely to be in line with the index – on both a positive
and negative basis. This has been demonstrated over the past two years
with periods of significant out and under performance being produced.
The Fund Manager has more detailed comments on performance and
portfolio construction in his report that follows on pages 12 to 15 and
performance is a matter I will return to later in this Statement.
Dividends and Capital Repayments
I am pleased to report that the revenue performance of your Company was
robust in the year and following a sharp reduction in revenue in the year
to 31 March 2021 there was a substantial recovery in the year to 31 March
2022. In fact the revenue earned increased in the year by 32% compared
with 2021. It is fair to say that the scale of the recovery exceeded the best
expectations held during the depths of lockdown in2020.
Chairman’s Statement
J M Evans Chairman
Strategic Report
This Strategic Report, which includes pages 5 to 31 and incorporates the Chairman's Statement has been
prepared in accordance with the Companies Act 2006.
“Ninth consecutive year of dividend/capital repayment increases and at 31March 2022
the Ordinary shares and B shares had yields of 6.3% and 6.2% respectively”
6 | BMO UK High Income Trust PLC
Chairman’s Statement
Your Board was happy to use some of the revenue reserve to not only
maintain but increase the dividend to Ordinary shareholders in the year
to 31 March 2021 and has done so again in the year to 31 March 2022.
Total distributions to shareholders increased by 2.8% to 5.45p per share
compared to the prior year. In order to pay this total dividend, £464,000
was drawn from the revenue reserve compared with £1,512,000 in
2021. After payment of the fourth interim dividend on 6 May 2022, the
revenue reserve is £2.9m, representing 3.41p per Ordinary share.
Your Company has now increased its distribution to shareholders in
each financial year since 2014. The total dividend/capital repayment for
the year to 31 March 2022 represented a yield of 6.3% and 6.2% based
on the Ordinary share price and B share price, which were 87p and 88p
respectively at 31 March 2022.
Discount to NAV
At the financial year end, the Company’s Ordinary share price and B
share price stood at a discount to net asset value of 9.3% and 8.3%
respectively. The average discount level at which the Company’s
Ordinary shares and B shares traded relative to net asset value in the
year was 6.9% and 5.2% respectively.
The Manager and Company Name
As reported in our Interim Report, on 8 November 2021, Columbia
Threadneedle Investments, part of Ameriprise Financial acquired BMO’s
EMEA asset management business. This included your Company’s
Manager, BMO Investment Business Limited. As part of the acquisition
agreement, permission was granted to use the BMO prefix for an
interim period. The Manager is now bringing its business under the
Columbia Threadneedle brand and will remove the BMO name in
July. Consequently, a change of name for your Company is necessary
and the Board has agreed that the simplest and clearest change for
shareholders is to CT UK High Income Trust PLC. CT is the mnemonic of
Columbia Threadneedle. A number of other Investment trusts previously
branded BMO and also funds managed by and branded as Columbia
Threadneedle will also be adopting the CT prefix. The CT brand will
receive considerable marketing support from the Manager and the
Savings plans will also change name from BMO to CT. Consequently, it
would appear that the proposed change of name is logical and sensible.
It is planned that these changes (which will include the renaming of the
Company
’
s website and the ticker codes for its shares on the London
Stock Exchange) will take effect towards the start of July and a further
communication to shareholders will be made in due course. There is
however no change to the personnel running the activities of your
Company in terms of both fund management and administration.
Management Fees
As set out in the Report of the Directors, the Engagement and
Remuneration Committee regularly reviews the Manager’s appointment
and the terms of its contract. The investment management fee for your
Company has been 0.65% per annum of its net asset value since 1 April
2018. The Investment Trust industry has seen consistent reductions in
fee levels for some time and your Board and Manager are committed
to ensuring that the fee basis for your Company is fair and competitive.
Reflecting this, it has been agreed that with effect from 1 April 2022 the
investment management fee for the Company will be reduced to 0.6%
per annum of the net asset value.
Responsible Investment
Environmental, Social and Governance (‘ESG’) engagement is an activity
in which your Manager has a long and respected record of achievement
and these considerations lie at the core of your Manager’s investment
process. Our approach to Responsible Investment is set out on pages
21 to 24 and illustrates the engagement the Manager has had with
investments within our portfolio.
Annual General Meeting (AGM)
There are a number of matters that are relevant to discuss concerning
the AGM which it is to be held at 12 noon on 20 July 2022 at Exchange
House, Primrose Street, London EC2A 2NY.
First, it is the current intention to hold a “traditional” meeting to which
all shareholders are invited and are most welcome to attend in person.
After two years of COVID related restrictions your Board is delighted to
be able to return to normal and looks forward to meeting shareholders
in person on 20 July 2022.
Second, two of the resolutions being put to the AGM in particular,
deserve further comment.
Continuation Vote
The Articles of Association of your Company require that a continuation
vote be held should the net asset value total return of the Ordinary
shares be less than that of the total return of the FTSE All-Share Index
over a stipulated five-year period.
The most recent five-year period ended on 31 March 2022 and the
relevant returns were +11.2% for the NAV total return and +25.8%
for the FTSE All-Share Index as illustrated graphically on page 7.
Consequently, Resolution 12 in the Notice of AGM is an ordinary
resolution for shareholders to approve that the Company continues
inexistence.
Annual Report and Financial Statements 31 March 2022 | 7
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Chairman’s Statement
Performance over five years (%)
FTSE All-Share Index total return
Net Asset Value total return
70
75
80
85
90
95
100
105
110
115
120
125
130
31 March 2017
31 March 2018 31 March 2019 31 March 2020 31 March 2021 31 March 2022
Rebased to 100 at 31 March 2017
Source: Refinitiv Eikon
Your Board closely reviews performance over a number of periods,
including that for the last five years and to monitor the requirement
for a Continuation Vote ('CV'). The performance deficit for the current
period is substantial and in order to recommend voting in favour of
the resolution the Board has t be confident that an improvement in
relative performance is both likely and probable.
In reaching its decision to recommend continuation, the Board
considered the following factors.
The five-year performance period since 31 March 2017 included a
period in which substantial changes were made to the investment
portfolio. Shareholders will recall that the remainder of the Corporate
Bond portfolio was sold and there was significant change made to the
structure of the equity portfolio. Consequently the “new” structure has
not been running for the full five-year period.
Performance has not been consistently below the benchmark for the
period and as mentioned earlier there have been periods of significant
outperformance, most notably in the 2021 financial year. As illustrated
above, with only seven months until the end of the performance
period remaining, the aggregate returns were comparable to the
benchmark for the relevant timeframe. Unfortunately, relative
performance in the later part of the financial year to 31 March 2022
has proved to be very disappointing for yourCompany.
The Board is supportive of the Investment Manager and its ability
to successfully deliver the investment strategy for Shareholders in
the future. The Board believes that the recent acquisition of the
Investment Manager by Columbia Threadneedle Investments will
also further broaden the resources available to the Fund Manager
particularly in terms of research and corporate access.
As from 1April 2022, a new and reduced fee rate for your Company
has been introduced and the Board is pleased to note the Manager’s
commitment to ensuring the Company remains competitive in terms
of fees and total expense ratios.
Finally, the Board is much encouraged by the revenue performance of
the Company. In particular, the underweight/nil positions in Banks and
Integrated Oils (which recently has harmed relative capital returns)
meant that the Company had no exposure to sectors of the Index
that either substantially reduced or passed their dividends altogether
in 2020/21. The buoyancy in the revenue account that has allowed
the Board to continue to increase distributions to Shareholders
against such a difficult background is down to the Manager’s
portfoliopositioning.
Despite the above, in reaching its decision to recommend continuation
of the Company and having engaged with Shareholders, the Board
did consider that it would be appropriate to make some changes to
the Company’s structure. Resolution 13 (which is a special resolution)
proposes that new Articles of Association be approved and adopted
in order that the performance measurement period for the Company
be changed from five years to three years. If approved this will mean
that the current performance period that commenced on 1April 2022
will end on 31 March 2025. A CV will be required to be held at the 2025
AGM if the net asset value total return for the Company for the three-
year period is below that of the FTSE All-Share Index. The Board does
not expect any change to the fund management process to be made
despite the shorter performance period.
Your Board has taken independent advice on the Continuation Vote
and proposed changes and would encourage Shareholders to vote
in favour of Resolution 12, that the Company continues in existence
and Resolution 13, that new Articles of Association be approved and
adopted, as the Directors intend to do with theirshareholdings.
Board Succession
In line with the long-term succession planning for your Board and also
to maintain the highest standards of corporate governance, Ishall
be retiring from the Board at the conclusion of the AGM on 20 July
2022. Iwas appointed to the Board in May 2013 and have completed
nineyears of service. I am delighted that Andrew Watkins, who has
been a Director of your Company since 2017 will be taking over the
Chair. Andrew is an experienced Chairman and has a deep knowledge
of Investment Trusts and is well qualified to Chair the Company.
Stephen Mitchell, a Director since 2020 will assume the role of Senior
Independent Director. A recruitment process has commenced to add
an additional non-executive Director to the Board and subject to
shareholders voting that the Company should continue in existence.
8 | BMO UK High Income Trust PLC
Chairman’s Statement
Outlook
Financial markets are facing the most difficult combination of
circumstances since the Global Financial crisis in 2008. The Russian
invasion of Ukraine and attached rhetoric has raised geopolitical risk
to levels not seen since the 1960’s. Inflation likewise is at recent high
levels as the supply shortages and bottlenecks caused by recovery
from COVID related lockdowns has been further fuelled by sharp
rises in commodity prices and the potential for shortages in certain
keycommodities.
Some comfort can be taken from the robust income performance that
the investment portfolio is showing. Many of the companies in the
investment portfolio are producing a strong profits performance as the
businesses are managed to best advantage in the face of rising costs.
Companies with good balance sheets and strong cash flows will be
best placed to deal with rising costs and interest rates. The investment
portfolio is well exposed to such investments and consequently
your Board considers the Company to be relatively well placed in an
uncertain world.
John M Evans
Chairman
30 May 2022
Annual Report and Financial Statements 31 March 2022 | 9
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Purpose, Strategy and Business Model
Purpose, Strategy and Business Model
Purpose and Strategy
The purpose of the Company is be a cost effective investment vehicle
for investors seeking income and capital returns from a portfolio
invested predominately in UK equities.
The investment objective is to provide an attractive return to shareholders
each year in the form of dividends and/or capital repayments, together
with prospects for capital growth. We do this by investing predominantly in
UK equities and equity related securities of companies across the market
capitalisation spectrum. Our wider strategy is to promote the Company as
a compelling investment choice through all available channels.
Business Model
BMO UK High Income Trust PLC is a closed-end listed investment company
and carries on business as an investment trust. As such, and as it has no
employees, the Directors believe that the optimum basis for meeting their
duty to promote the success of the Company and achieving its investment
objective in the best interests of shareholders is to work closely with its
appointed investment manager. The Board has contractually delegated
the management of the investment portfolio, and other services, to BMO
Investment Business Limited (the ‘Manager’) a wholly owned subsidiary
of BMO Global Asset Management (Europe) Limited. Both entities (together
‘BMO GAM’), are in turn now wholly owned by Columbia Threadneedle
Investments and ultimately by Ameriprise Financial, Inc. (‘Ameriprise’). Within
policies set and overseen by the Directors, the Manager has been given
overall responsibility for the management of the Company’s assets, gearing,
stock selection and risk management. Engagement on environmental, social
and governance (‘ESG’) matters is undertaken by BMO GAM.
As a listed closed-end investment company the Company is not
constrained by asset sales to meet redemptions and is well suited
to investors seeking longer term returns. Its share capital structure
provides the flexibility to take a long-term view and to remain invested
while taking advantage of illiquidity throughout normal and volatile
market conditions. Having the ability to borrow to invest is a significant
advantage over a number of other investment fund structures.
The Company's Board of non-executive Directors is responsible for
the overall stewardship and governance of the Company and how it
promotes the success of the Company is set out on pages 25 and 26.
The Board currently consists of three male and one female Directors
and their biographical details can be found on page 32. The Company
has no executive Directors or employees.
The Board remains responsible for decisions over corporate strategy;
corporate governance; risk and control assessment; setting policies
as detailed on pages 30 and 31, setting limits on gearing and asset
allocation and monitoring investment performance.
Alignment of Values and Culture
In addition to strong investment performance from our Manager,
we expect it to adhere to the very highest standards of Responsible
Investment and that its values, culture, expectations and aspirations
align with our own. As an original signatory to the United Nations
Principles for Responsible Investment (‘UNPRI’), BMO GAM has
achieved the maximum rating of A+ for key areas of its Responsible
Investment approach and active ownership in listed equities. A key
aspect of the change in ownership of BMO GAM is therefore the cultural
fit with Columbia Threadneedle Investments.
The Board considers the Manager’s culture and values as part of the
annual assessment of its performance and in determining whether
its reappointment is in the interests of shareholders. With Columbia
Threadneedle Investments, and as part of Ameriprise, the Manager
can be expected to continue its long-established culture of diversity,
collaboration and inclusion, all of which are anchored by shared
values and industry-leading employee engagement in keeping with
the Board’s own expectations and beliefs. The Board will continue
to monitor these attributes and achievements within the combined
organisations, recognising their importance and contribution towards
the wider aspirations of establishing a more sustainable financial
system. In alignment with this culture and our shared values, we aim to
pursue our strategy and objective through the consistent application of
the very highest standards of transparency, corporate governance and
business ethics.
Responsible Investment Impact
The Company's environmental, social and governance principles,
as set out on pages 21 to 24, are aligned towards the delivery of
sustainable investment performance over the longer term.
The direct impact of the Company’s activities is minimal as it has no
employees, premises, physical assets or operations, either as a producer
or a provider of goods and services, and it does not have customers in
the traditional sense. Consequently, it does not directly generate any
greenhouse gas or other emissions or pollution. The Company's indirect
impact occurs through the businesses in which it invests and the Board
seeks to positively influence this through the adoption of the Manager's
Responsible Investment approach.
The Manager
A summary of the terms of the management agreement is contained
in note 4 to the financial statements. The Manager also acts as the
Alternative Investment Fund Manager (‘AIFM’) under the Alternative
Investment Fund Managers Directive (‘AIFMD’) and provides ancillary
functions such as administration, accounting and company secretarial
services to the Company.
10 | BMO UK High Income Trust PLC
Purpose, Strategy and Business Model
Philip Webster is the Fund Manager appointed by BMO GAM and is a
senior member of the BMO GAM investment team with over 15 years’
experience in managing investment companies. He is supported
in carrying out research and in the selection of stocks by a team
of investment professionals. Details of the Manager‘s investment
philosophy and process are set out on pages 16 to 17.
Manager Evaluation
Investment performance and responsible ownership are fundamental
to delivering the investment objective for shareholders and therefore
an important responsibility of the independent non-executive
Board of Directors is the robust annual evaluation of the Manager.
This evaluation is an essential element of strong governance and
mitigation of risk. The process for the evaluation of our Manager for
the period under review, which was conducted by the Engagement and
Remuneration Committee, and the basis on which the reappointment
decision was made, is set out on page45.
Investment Policy
The Company’s investment policy is set out on page30 and an
analysis of the investment portfolio is contained on pages 18 to 20.
Any material change to the investment policy of the Company will
only be made with shareholder approval.
Managing Risks and Opportunities
We seek to make effective use of our corporate structure and the
investment opportunities that lead to long-term growth in capital
and income for our shareholders. These opportunities do not come
without risks and so the performance of our Manager is monitored
at each Board meeting on a number of levels. In addition to
managing the investments, ancillary functions such as administration,
accounting, company secretarial and marketing are also carried out
by the Manager. At each Board meeting it reports on the Company's
investment portfolio, performance and recent portfolio activity,
market outlook, revenue and expense forecasts, internal control
procedures, any errors, marketing, shareholder and other stakeholder
issues including the prices of the Company’s shares relative to
NAV, together with accounting and regulatory updates. The Board
also considers compliance with the investment policy, investment
restrictions and compliance with borrowing covenants.
Shareholders can assess our financial performance from the Key
Performance Indicators (‘KPIs’) that are set out on page 11. The
Company’s principal risks and uncertainties that could threaten its
objective, strategy and performance, and how the Board manages
such risks, are set out in detail on pages 27 to 28. The risk of not
achieving the Company’s objective, or of consistently underperforming
its benchmark or competitors, may arise from any or all of
inappropriate investment strategy, poor market conditions, the use of
gearing, insufficient monitoring of costs and service provider issues.
In addition to monitoring our Manager’s performance, commitment,
available resources and its systems and controls, the Directors also review
the services provided by other principal suppliers. These include JPMorgan
Chase Bank, the custodian and JPMorgan Europe Limited, the depositary in
their duties towards the safeguarding of the Company's assets.
The principal policies that support our investment and business strategy
are set out on pages 30 and 31. The Chairman’s Statement on pages 5
to 8 and the Manager’s Review on pages 12 to 15, both of which form
part of this Strategic Report, provide a review of the Company’s returns
and market conditions during the financial year, the position of the
Company at the year end, and the outlook for the coming year.
In light of the Company's strategy, investment processes and control
environment (relating to both the oversight of its service providers
and the effectiveness of the risk mitigation activities), the Board
has set out its viability statement on page 29 and its reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five years.
Stakeholder Communication and Marketing
The Company fosters good working relationships with its key
stakeholders; such as the Manager, shareholders and other key
service providers. The Board works closely with the Manager to
ensure optimal delivery of the Company’s investment proposition
through all available channels and together we remain focused on
promoting the success of the Company. The Manager offers a range of
savings plans for retail investors which are a convenient and flexible
way to invest in the Company, details of which can be found in the
‘How to Invest’ section of this report on page90.
The Company welcomes the views of all shareholders and places
great importance on communication with them. In addition to the
annual and interim reports that are available for shareholders,
monthly fact sheets and additional information is included on the
Company's website at www.bmoukhighincome.com.
The Manager holds meetings with the Company’s larger shareholders
and reports back to the Board on these meetings. The Chairman and
other Directors are available to meet shareholders if required. In
addition, meetings are held regularly with current and prospective
shareholders and analysts covering the investment trust sector.
Under normal circumstances the Annual General Meeting of the Company
provides a forum, both formal and informal, for shareholders to meet
and discuss issues with the Directors and Manager of the Company.
Through the Manager, we also make sure the savings plan investors are
encouraged to vote at the AGM in addition to those who hold their shares
on the main shareholder register. Details of the proxy voting results on
each resolution are published on the Company’s website.
Annual Report and Financial Statements 31 March 2022 | 11
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Key Performance Indicators
Total return
(1)
performance to 31 March 2022
1 Year % 3 Years % 5 Years % 10 Years %
Net asset value per Ordinary share, B share and per unit 1.9% 10.2% 11.2% 80.3% This measures the Company’s share/unit
price and NAV total return, relative to the
benchmark.
Ordinary share price 0.6% 9.3% 11.5% 80.6%
B share price 1.6% 10.4% 10.9% 70.0%
Unit price -2.6% 7.5% 8.1% 75.8%
Benchmark
(2)
13.0% 16.8% 24.9% 100.1%
Source: BMO GAM and Refinitiv Eikon.
Distribution Yield
(1)
%
Fincancial year to 31 March
2022
%
2021
%
2020
%
Ordinary shares 6.3 5.8 7.5 This shows the Company’s distribution yield at the
year-end relative to the benchmark.
B shares 6.2 5.8 7.7
Yield-FTSE All-Share Index 3.1 2.9 5.5
Source: BMO GAM and Refinitiv Eikon.
Average discount
(1)
to NAV
During the finanial year to 31 March
Ordinary
shares
%
B shares
%
Units
%
2022 -6.9 -5.2 -7.4 This is the average difference between the share/unit
price and the NAV per share/unit during the financial
year.
2021 -9.7 -9.2 -10.2
2020 -8.5 -8.7 -9.7
Source: BMO GAM
Ongoing charges ratio
(1)
As at 31 March %
2022 0.98
This data shows whether the Company is being run efficiently. It measures the running costs
as a percentage of average net assets.
2021 1.04
2020 0.96
Source: BMO GAM
(1)
See Alternative Performance Measures on pages 93 and 94 for explanation.
(2)
Benchmark – see definition on page 2. (For the purposes of the continuation vote, the Company’s performance was measured against the total return of 25.8% from the
FTSE All-Share Index over the five years to 31 March 2022. Until 5 July 2018 the Company’s benchmark was the FTSE All-Share Capped 5% Index, when it changed to the FTSE
All-Share Index. Therefore the benchmark figures shown above represent a blended rate).
Key Performance Indicators
The Board recognises that it is the distribution level of the Ordinary shares and B shares together with
the longer term share price performance that is most important to the Company’s investors. Share price
performance is largely driven by the performance of the net asset value.
The Board assesses its performance in meeting the Company’s objective against the key performance
indicators (‘KPIs’) (also referred to as Alternative Performance Measures) set out below. Commentary is
provided in the Chairman’s Statement and the Manager’s Review with respect to the performance of the
Company during the current year.
12 | BMO UK High Income Trust PLC
Manager’s Review
In the Annual Report last year, I wrote that it was one of the toughest years
in my near two decades in the industry. 2022 didn’t have nearly the same
level of volatility, and with COVID headwinds abating, Iwas optimistic
about the year ahead. While I am still optimistic given valuations and the
quality of the investment portfolio, we face a new set of challenges with
the war in Ukraine, the rising cost of living and a slowdown in growth.
For the financial year to 31 March 2022, the net asset value (‘NAV’)
total return of the Company’s shares was 1.9% as compared to the
13.0% total return from the benchmark. As explained in the Chairman’s
Statement, the year to 31 March 2022 was also the last year of five, over
which the Company’s NAV total return is measured against the total
return of the FTSE All-Share index. This is illustrated below, and that
over the 5-year period, the NAV total return was 11.2% as compared to
the total return of the FTSE All-Share Index of 25.8%.
As the Fund Manager of the Company for the last five years, and
as we approach a continuation vote, it is timely to reflect on the
discrete years, and changes that the Company has been through.
While performance is the ultimate measurement of success or failure,
it should be evaluated over an appropriate time horizon. For a high-
income strategy, such as this, where the payment of an attractive
distribution is an integral part of the investment objective, then relative
performance alone does not tell the full story. The changes we have
made to the investment portfolio over the last five years have put the
Company in a much stronger position to weather these events and pay
a dividend. These changes helped to mitigate the worst of the fall in
dividends experienced in the financial year to 31 March 2021 and have
strengthened the resilience of the Company’s revenue, enabling the
Board to continue to increase the dividend to shareholders over the last
fiveyears and indeed, the last nine years.
Discrete Performance
Year to 31 March 2018 2019 2020 2021 2022
Full
5 years
NAV total return -2.5% 3.5% -21.4% 37.4% 1.9% 11.2%
FTSE All-Share Index TR 1.2% 6.4% -18.5% 26.7% 13.0% 25.8%
– Deficit/Surplus -3.7% -2.9% -2.9% 10.7% -11.1% -14.6%
Distribution per share 4.88p 5.04p 5.21p 5.30p 5.45p
While the investment portfolio has evolved, there have been some
structural changes that have also taken place. For those of you
that have been invested for the full five years, you will perhaps
remember the hybrid vehicle of predominately equities, with a fixed
incomecomponent.
We exited the remainder of the fixed income portfolio at the start
of 2018, focusing the mandate on a pure equity strategy; with
the main changes taking place within the equity portfolio. When I
assumed management of the investment portfolio it had 53 holdings
and followed what is typically called a traditional UK equity income
style strategy – i.e. value orientated and comprised most of the top
20market constituents.
With the support of the Board and the provision that the dividend
payment to Shareholders could not be reduced I undertook a
repositioning of the investment portfolio, taking over two years to
execute. This wasn’t an easy undertaking against the backdrop of
Brexit, and with the UK and value very out of favour. I was reticent
to rotate too heavily toward growth given the valuation gap, and
unwillingness to buy at the top of the cycle. The quantum of this
undertaking shouldn’t be underestimated. Of the 53 holdings
I inherited in 2017, only 13 remain. This level of change for the
investment portfolio was always going to take time to bed in
properly. This is not an excuse for the five-year performance, but
Ibelieve that our concentrated (35 names), differentiated strategy
will come to the fore over the longer term. Given the time it took to
implement these changes I feel a longer period of performance is
however needed to fully assess the strategy.
Performance
As illustrated in the preceding table, the early years of my tenure
were challenging. The Company gave up 3-4% of performance against
the benchmark each year. 2021 was the first year when we saw our
style bear fruit, and proof of how differentiated a strategy this has
become. The Chairman alluded to this in his report – we have built a
portfolio that will not behave like the index, or my peers who are in
the main, value investors.
Manager’s Review
Philip Webster, Fund Manager
" In tumultuous years, such as the one we have just been through, being truly
differentiated is a reminder of the benefits of active investment management"
Annual Report and Financial Statements 31 March 2022 | 13
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Manager’s Review
As most of you are aware, we have been transitioning away from the
low-growth mega-cap sectors. The breakdown of the portfolio is more
balanced today with the FTSE 100 accounting for 44% of investments
and the FTSE 250, 32%. These mid-cap 250 names are better quality,
have a sustainable competitive advantage and offer superior growth
over the medium term. A further 11% of investments are non-index/
AIM and around 13% is now in European names. Europe further
diversifies and differentiates the portfolio and taps into my skill set
as a pan-European investor. The strategy with the European holdings
is to own business models that provide a unique, or where I see, a
quality or valuation opportunity. The current holdings include ASML,
Richemont and Scout24. These are all high-quality growth assets that I
have initiated at attractivevaluations.
The performance in the financial year to 31March 2021 was very
broad-based with technology, or online plays particular beneficiaries
of the pandemic lockdown. We also benefitted from significant
declines from some of the UK’s largest sectors as dividends were cut
or suspended. In the case of Shell, the dividend was reduced for the
first time since WWII. We had continued to hold onto this performance
until around the summer of 2021 when the rotation towards value
commenced, coupled with a recovery in some sectors which had been
hardest hit by the pandemic.
The war in Ukraine has been another headwind to our performance
given our zero weighting to the oil and gas sector. I had felt that the
near 100% recovery we had seen in oil & gas, or the very strong rise
in mining, was already priced in. This, however, was not the case,
with oil spiking to new highs, inflation grabbing hold, and with a
sell-off in pandemic winning technology companies, we have been
hit by a near perfect short-term storm.
What now?
Having felt we were emerging from the bleak COVID lockdowns,
despite the new and contagious Omicron variant, we now face a new
set of challenges. Markets were rocked by the tragic and unjustified
invasion of Ukraine, inflation has spiked to a multi-decade high and
central banks are reacting by raising interest rates. The question we
are all trying to answer is how will the rising cost of living impact the
consumer and in turn global growth?
While we face many challenges, the backdrop isn’t all negative.
Employment levels and activity indicators, for now, remain robust.
Weare seeing low single-digit wage inflation and consumers have
built up significant savings during the pandemic. Demand also seems
to be holding firm, and consumers are also looking forward to their
first restriction-free summer for a few years, which may buoy travel
and leisure sectors.
Turning to markets, the FTSE All-Share reacted negatively to the start
of the Ukraine war. Having bottomed in early March, we have seen
it recover all the losses, trading back at pre-invasion levels. While
this may seem anomalous, this is more to do with the composition
of the index, and the mega-cap FTSE 100 sectors. Most of the
large sectors have been beneficiaries; oil & gas/mining have been
supported by strong commodity prices, pharmaceuticals and tobacco
by improving earnings trajectories and the defensive nature of their
earnings. Banks are the one sector the portfolio doesn’t own that has
been weak, although the largest index constituent, HSBC, has been
particularly strong, rising over 100% from the pandemic lows. This
has masked some of the weaker parts of the market. The FTSE 250,
which has a more domestic earnings bias, is down approximately 10%
since the onset of the war and to give you an idea of the disparity at
a stock specific level, in the first five months of 2022, British American
Tobacco is up 32% and Delivery Hero down 63%.
The table below illustrates the relative return of the top 20
constituents of the FTSE All-Share Index by weight, and why whenever
possible, I choose not to hold the traditional income mega-caps.
These behemoths often lack the qualities I seek in my investments,
struggle to deliver growth in earnings or dividends, and in a number
of cases are at the mercy of underlying commodity prices. I also
wanted to outline how extreme the year-to-date had been, the first
time in a decade that they have outperformed by double-digits. This
has been driven in the main by rising commodity prices and the
fallout from the war in Ukraine. While I have no insight into where
the oil price will settle, the share price growth we have seen from the
commodity sector is not sustainable over the medium-term.
Calendar Year
FTSE All-Share
Index Total
Return %
Top 20 – Weighted
Average Relative
Return
2022 (to 29 April) 0.95 13.12
2021 18.30 3.46
2020 -9.67 -1.92
2019 19.25 -3.93
2018 -9.41 3.41
2017 13.15 1.31
2016 16.85 5.61
2015 0.97 0.33
2014 1.29 -1.16
2013 20.88 -1.71
2012 12.35 -5.05
Source: BMO GAM
14 | BMO UK High Income Trust PLC
Manager’s Review
This polarisation makes the headline index irrelevant for the
Company, this is all about stock picking. For a Manager this should be
the perfect environment to set your portfolio up as fear dominates
the backdrop. Against this backdrop I have taken the opportunity to
initiate quality growth positions at valuations I haven’t seen since I
took over the investment management for the Company. This is the
market I have been waiting for when my style is out of favour even
ifwe are facing some shorter-term headwinds.
This is also a time where you can be contrarian. Several of the Company’s
technology holdings are offering what I believe is a once in a decade
opportunity to buy quality assets at heavily discounted valuations. Many
of you will have heard me say this before but in the space of a few
months these businesses have gone from being loved to hated.
Asos is one such name. Investors are reticent to own this given the
consumer backdrop, but this is a business that is quite focussed on
the 20-something consumer who they believe don’t face the same
inflationary pressures as the rest of the market due to rising interest
rates and energy bills. Asos have also had supply-chain issues and
shortages of the right inventory, in particular dresses, which they
have rectified for summer. While I can’t tell you how long this will
take to sort, I feel many of the headwinds are transitory in nature and
despite this backdrop they still believe they can grow the revenue
10-15% in 2022. For a market-leading business with very strong
positions in the UK and Europe and a US business with potential, you
are paying 14/11x P/E for 2023/24 expected earnings. This is not an
isolated example, there are several in the technology sector. It’s not a
very comfortable place to sit at the moment as there are pressures on
earnings but for the patient investor this is exactly the decision you
should be taking given the attractive valuations on offer.
Activity
We have been opportunistic on the recent deployment of capital
given the uncertainty caused by the war in Ukraine. We have
conducted calls with all our holdings that had exposure to either
Ukraine or Russia. The exposure has been minimal, less than 2% of
sales and less of profits in most cases.
In the majority of cases, they have ceased or are in the process
of selling operations in the region. We had announcements from
Imperial Tobacco, Asos, Compass Group and Wizz Air. Wizz Air have
diverted a fleet of five aircraft to other bases across the network
where they see higher levels of demand. Wizz Air has been one of
the harder hit names due to the conflict, indirectly through a rising oil
price. We cut our holding on the first day of trading post the invasion.
We have no insight into where the oil price will end up, but the risks
are for a higher-than-normal level until we find a more balanced
solution to our energy needs, most of which will mean a lower
dependence on Russian oil.
I have been adding to some of the global names in the investment
portfolio, where earnings are more diversified. This helps to mitigate
the earnings risk from an escalation of the crisis in Ukraine and the
direct impact a higher energy price will have across Europe. The US
is much more insulated, given the consumer focus of the growth, oil
independence and $3 trillion of excess lockdown savings. I added to
Diageo, Compass and Kerry Group, all of which provide this exposure.
I also initiated a position in Experian post a period of weakness.
Ihave wanted to own this for some time and felt this was a great
opportunity to own a quality asset at an attractive valuation. Experian
is the world’s leading provider of information and credit bureau
services. The group uses customer data and technology to help
businesses manage credit risk, originate new customers, collect bills
and prevent fraud. With information on 1.3bn consumers and 166m
businesses, they are well positioned to continue to grow in most
environments. They have a strong balance sheet and generate a lot of
cash flow, which should support investment and higher cash returns
in the future.
In February I also initiated a position in ASML, a new European
holding. ASML is the world market-leader in the manufacturing of
lithography machines. Their lithography technology is fundamental to
mass production of semiconductor chips. Their technology allows the
world’s top chipmakers to create microchips that are more powerful,
faster and more energy efficient. The chances are whatever device,
PC, tablet or phone you are reading this on will have a chip that is
manufactured with ASML’s machines. They have a monopoly position
in leading-edge technology, an orderbook that spans over a year, and
are ramping up production to meet the very high demand for these
critical components.
Towards the Company’s year end, Brewin Dolphin received a bid
approach from Royal Bank of Canada (RBC). The £1.6bn, £5.15
per share bid was at a 62% premium to the previous day’s share
price. Brewin was a top 10 position in the portfolio at 4.6% of NAV,
reflecting the qualities of the business model and the value we saw
in the asset. The acquisition price valued Brewin at 2.8% of its £55bn
of AUM, which we saw as a full and fair price.
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Manager’s Review
This is a reminder of how cheap UK assets are, especially if an
acquirer thinks they can make a return after paying such a substantial
premium. Given how cash rich private equity is, I wouldn’t be
surprised to see more M&A activity. Scout24, the German Rightmove,
has been the subject of speculation of a bid although no tangible
offer has yet been made and I would expect M&A to be a bigger focus
over the coming 12-18 months.
Gearing
We have gone from a position of being nearly fully geared with £13m
invested in December 2021, to being in a neutral position. As we
exited lockdowns and with a lot of value on offer, this stance made
a lot of sense but with a change in policy from central banks around
the interest rate cycle, and more recently the war in Ukraine, we no
longer felt this as a sensible stance.
Should we get more clarity on these issues, I can opportunistically
deploy this capital again, raising some of the positions that have
dipped below my minimum 2% threshold. This would also help to
add to our dividend income further, but for now we feel downside
protection is the sensible course of action.
Dividend
As stated at the outset of this report, capital performance is
onlypart of the story. The work we have done to reposition the
portfolio protected us from the worst of the dividend decline during
thepandemic.
The UK market saw a very strong dividend recovery from the
pandemic lows. Headline dividends rose 46.1% year-on-year to
£94.1bn, although this was boosted by £16.9bn of special dividends,
three times the normal level. If we strip out these special payments,
the underlying growth was a more modest 21.9% year-on-year.
Looking ahead, Link Asset Monitor are forecasting underlying dividend
growth – excluding special dividends – of 5% for calendar 2022.
While the Company benefitted from special dividends from Rio Tinto
and Berkeley Group in 2021, I’m encouraged by our initial conservative
forecasts for the year ahead. There are several dividends that have
not fully recovered from pre-pandemic levels, and several of the
investment portfolio’s larger names that have already announced
significantly higher returns for 2022. I do have to caveat this
statement given the backdrop of Ukraine, and the fact that special
dividends are unlikely to be of the same level as in the previous year.
Given the backdrop and volatility, quality business models with rock
solid balance sheets and high levels of dividend cover will protect you
if we do see a slowdown, or a recession.
Outlook
At this point in the year, and with a lot of uncertainty ahead, we are
seeing a very cautious outlook from management teams. There are
still supply chain constraints coupled with pent-up demand, but the
rising cost of living will weigh on the consumer.
Pricing is the topic of discussion and who has managed to pass
through inflation to mitigate the margin pressure. In the main,
the businesses that have a brand, IP or a sustainable competitive
advantage have a much stronger position and have to date managed
this exceptionally well. The focus has also shifted to high recurring
revenue stream business models, where the decision is non-
discretionary, for example software or healthcare where you have
nochoice.
That said, I did talk about Asos, and I do feel that the valuations on
some of the consumer names are pricing a lot of distress. This comes
back to simple ‘fear and greed’, when all are fearful that may well be
your opportunity, especially for the patient investor. This contrarian
stance in quality businesses will I believe be the right strategy to
adopt which is why I am opportunistically adding to these names
onweakness.
The investment portfolio has therefore faced a perfect storm of
events which I do not believe will recur in the coming years. I’m not
saying this is an easy path to walk in the short-term, but quality
business models, at current attractive valuations, will emerge in a
stronger competitive position.
Philip Webster
Fund Manager
BMO Investment Business Limited
30 May 2022
16 | BMO UK High Income Trust PLC
Manager’s Investment Philosophy and Process
We believe investment markets can be inefficient
and that share prices may not fully reflect the future
prospects and returns of companies. We believe it is
possible to identify significant deviations between
market prices and a conservative assessment of the
intrinsic value of a business.
By investing in such companies at attractive prices, superior
investment performance can be generated. In particular, we believe
those companies that can compound returns at sustainably high rates
over many years tend to be undervalued by the market. The valuations
of companies can also become attractive because of adverse market
reaction to short-term difficulties or simply because a sector has
become unfashionable. If companies are able to generate attractive
returns over long periods, there is evidence that the market eventually
rewards this success with higher valuations.
This philosophy leads naturally to long-term investment thinking and
the generation and preservation of value over the longer term. We
are not looking to trade shares, nor are we making short-term bets
on market movements, but instead are looking to the longer term.
Over time, we expect the high returns generated by our holdings
to be reflected in share prices, which will in turn benefit further
from valuation increases as the market recognises the level and
sustainability of those returns. As shareholders, we are part-owners of
businesses, and take our responsibilities seriously, engaging with the
company’s management and non-executives if necessary, and voting
on all resolutions at company meetings.
Manager’s Investment Philosophy
and Process
The Investment Process focuses on Three Aspects for Each Company
• Margin of safety
• Present value of
future cash flows
• Sustainable
superior returns
• ESG score embedded
in proprietary
valuation method
• Proven operators
• Responsible capital
allocators
• Aligned interests
• Appropriate
incentives
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• Understandable
• Durable competitive
advantages
• Attractive business model
• Strong sustainability
characteristics
m
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• Strong governance
Annual Report and Financial Statements 31 March 2022 | 17
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Manager’s Investment Philosophy and Process
Risk is often seen as the flipside of return. The standard economic and
business academic approach to risk measures it in terms of volatility.
Sharp upward moves in share prices are seen as just as “risky” as an
equivalent downward move. This is not really a measure that most
practical investors would find useful or familiar. We prefer an approach
which focuses on companies with attractive returns and relatively little
debt where we expect to be able to reduce the risk of a permanent
loss of capital.
We carry out detailed analysis of all the companies in which we invest,
looking in particular at three aspects: the Quality of the company;
its Management; and the Valuation of the shares. Amongst the
most important issues examined is a thorough assessment of the
sustainability of the company’s competitive position and returns it can
generate, and the ability of the management team and its alignment
with shareholders. Integral to our assessment of these factors is an
analysis of the Environmental, Social and Governance (‘ESG’) issues
that face the company and its responses to them which is fully
integrated into our process and valuation analysis. More detail is given
on pages 21 to 24. Our valuation approach focuses on discounted cash
flows, but is pragmatic enough to realise this does not work for all
companies in all sectors so other valuation methods are also used.
Before investing, we ascertain that the share price stands at a
reasonable discount to an assessment of the intrinsic value of the
business, giving us a margin of safety on the investment.
Our research is conducted in-house, which is peer reviewed by the
wider investment team prior to any purchase decision. This ensures
the benefit of shared knowledge and experience is brought to bear on
each investment. The progress of the company and its share price will
then be continually monitored with in-depth reviews and retesting of
the original investment thesis particularly if the company or its share
price don’t perform as initially expected.
Like all investors, we are having to make assessments about the future
and take decisions in the face of uncertainty. There is a real possibility
of being wrong. We believe that we can mitigate this risk by following
this long-term philosophy, emphasising a number of factors: thorough
analysis; peer review; the need for a margin of safety on purchase;
continual monitoring; and diversification of the investment portfolio.
Reasons to sell can be driven by positive or negative factors – positive,
if the value of the company has risen to our assessment of its value, or
negative, if the assessment of the company’s long-term value deteriorates
significantly. An investment may also be sold if, for example, a similar, but
cheaper alternative can be found or if the size of the investment position
has become larger than is preferred for risk purposes.
Philip Webster
Fund Manager
30 May 2022
Implementation of the Investment Process
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18 | BMO UK High Income Trust PLC
Classification of Investments
The following table and chart shows, at 31 March 2022, the percentage weightings by sector of the investment portfolio in comparison to the FTSE All-
Share Index.
Investment Portfolio by Sector
Sector % Total investments % FTSE All-Share Index
Financials 29.7 22.6
Consumer Discretionary 27.7 10.8
Consumer Staples 16.2 14.6
Health Care 6.3 10.9
Real Estate 6.1 3.3
Basic Materials 5.8 8.8
Technology 4.5 1.4
Industrials 3.7 12.0
Utilities – 3.6
Energy – 9.9
Telecommunications – 2.1
Total 100.0 100.0
0510 15 20 25 30
Telecommunications
Energy
Utilities
Industrials
Technology
Basic Materials
Real Estate
Health Care
Consumer Staples
Consumer Discretionary
Financials
FTSE All-Share Index %
Total Investments %
%
Investment Portfolio analysis by Index as at 31 March 2022
Source: BMO GAM
% of Investment
Portfolio
FTSE 100 44.4%
FTSE 250 31.8%
Overseas 13.3%
Non-Index 8.1%
AIM 2.4%
100.0%
Classification of Investments
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Investment Portfolio
At 31 March 2022
Company
Market Value
31 March 2022
£’000
% of
Total Investments
British American Tobacco (Consumer Staples – Tobacco)
British American Tobacco is involved in the manufacture, marketing and selling of cigarettes and other
tobacco products. It is also at the forefront of developing alternatives to traditional tobacco products. 8,284 7.4
GlaxoSmithKline (Health Care – Pharmaceuticals & Biotechnology)
GlaxoSmithKline is a global manufacturer and marketer of pharmaceutical products. 6,953 6.2
Compass Group (Consumer Discretionary – Consumer Services)
Compass Group is a multinational contract foodservice company. 6,645 6.0
Rio Tinto (Basic Materials – Industrial Metals And Mining)
Rio Tinto is a diversified international mining company. 6,427 5.8
RELX (Consumer Discretionary – Media)
RELX is a multinational information and analytics company. 5,898 5.3
Brewin Dolphin (Financials – Investment Banking & Brokerage Services)
Brewin Dolphin is a British investment management and financial planning company. 5,852 5.3
Beazley (Financials – Non Life Insurance)
Beazley is a specialist insurer. 4,851 4.4
Cairn Homes (Consumer Discretionary – Household Goods & Home Construction)
Cairn Homes is an Irish house-builder and developer. 4,825 4.3
Compagnie Financière Richemont (Consumer Discretionary – Personal Goods)
Compagnie Financière Richmont is a luxury goods group. 3,851 3.5
Londonmetric Property (Real Estate – Real Estate Investment Trusts)
Londonmetric Property is a real estate investment trust. 3,723 3.3
Ten largest investments 57,309 51.5
Investment Portfolio
20 | BMO UK High Income Trust PLC
Investment Portfolio
At 31 March 2022
Company Sector – Sub Sector
Market Value
31 March 2022
£’000
% of
Total
Investments
Diageo Consumer Staples – Beverages 3,719 3.3
Kerry Group Consumer Staples – Food Producers 3,668 3.3
Close Brothers Group Financials – Banks 3,517 3.2
Intermediate Capital Group Financials – Investment Banking & Brokerage Services 3,463 3.1
Berkeley Group Consumer Discretionary – Household Goods &
Home Construction 3,428 3.1
Phoenix Group Holdings Financials – Life Insurance 3,147 2.8
Deutsche Boerse Financials – Investment Banking & Brokerage Services 3,070 2.8
Neinor Homes Real Estate – Real Estate Investment And Services 3,067 2.7
Vistry Group Consumer Discretionary – Household Goods &
Home Construction 3,025 2.7
Burford Capital Financials – Finance And Credit Services 2,528 2.3
Twenty largest investments 89,941 80.8
ASML Holding Technology – Technology Hardware & Equipment 2,406 2.2
Imperial Brands Consumer Staples – Tobacco 2,367 2.2
Jupiter Fund Management Financials – Investment Banking & Brokerage Services 2,292 2.1
Legal & General Group Financials – Life Insurance 2,158 1.9
Prudential Financials – Life Insurance 2,116 1.9
Melrose Industries Industrials – General Industrials 2,021 1.8
Experian Industrials – Industrial Support Services 1,588 1.4
Scout24 Technology – Software And Computer Services 1,327 1.2
Just Eat Takeaway.com Technology – Software And Computer Services 1,268 1.1
ASOS Consumer Discretionary – Retailers 1,124 1.0
Thirty largest investments 108,608 97.6
Delivery Hero Consumer Discretionary – Consumer Services 1,095 1.0
Wizz Air Holdings Consumer Discretionary – Travel & Leisure 915 0.8
THG PLC Consumer Staples – Personal Care, Drug And Grocery Stores 494 0.4
Investors Securities Company Limited N/A (subsidiary undertaking) 250 0.2
Total investments 111,362 100.0
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Sustainability and ESG
Our Approach
Environmental, Social and Governance (‘ESG’) issues are the three
central factors in measuring sustainability and can present both
opportunities and threats to the long-term investment performance
the Company aims to deliver to shareholders. The Board is therefore
committed to taking a responsible approach to ESG matters, for
which there are two strands. Firstly there are the Company’s own
responsibilities on matters such as governance and secondly, the
impact it has through the investments that are made on its behalf by
its Manager.
The Company’s compliance with the UK Code of Corporate Governance
and the AIC Code of Corporate Governance is detailed in the Corporate
Governance Statement on pages 41 to 43. In addition, the Principal
Policies statement on pages 30 and 31 includes the Company’s policies
towards board diversity and tenure, integrity and business ethics and
prevention of the facilitation of tax evasion.
The Board recognises that the most material way in which the
Company can have an impact is through responsible ownership of its
investments. The Manager engages actively with the management of
investee companies to encourage that high standards of ESG practice
are adopted. The Manager has long been at the forefront of the
investment industry in its consideration of these issues and has one
of the longest established and largest teams focused solely on ESG.
Responsible Ownership
Engaging actively with companies on significant ESG matters, to
reduce risk, improve performance, encourage best practice and
underpin long-term investor value forms a fundamental part of the
Manager’s approach towards responsible investment. Engagement in
the first instance rather than simply divesting or excluding investment
opportunities is also part of this approach.
The Manager’s Corporate Governance Guidelines set out its
expectations of the management of investee companies in terms
of good corporate governance. This includes the affirmation of
responsibility for reviewing internal business ethics policies and
ensuring that there is an effective mechanism for the internal reporting
of wrongdoing, whether within the investee company itself, or
involving other parties, such as suppliers, customers, contractors or
business partners.
The Manager is also a signatory to the United Nations Principles for
Responsible Investment (‘UNPRI’) under which signatories contribute
to the development of a more sustainable global financial system.
As a signatory the Manager aims to incorporate ESG factors into its
investment processes.
ESG and the Investment Process
The Manager’s Responsible Investment team works closely with the
Fund Manager to ensure that those performing the work on individual
investment opportunities for the Company are well informed in what
to look for in relation to the ESG aspects of their analysis. Specialism
within the Responsible Investment team allows the fund managers to
talk to those who understand the key ESG issues relating to a
particular sector. Where possible, internal research is cross-referenced
against external sources, for example MSCI ESG research. The
Responsible Investment team once again over the last year hosted
many internal seminars and workshops for the investment teams,
covering new developments across a wide range of topics to ensure
that the fund managers were aware of the key issues. The investment
process was further developed in the last year, to incorporate the
assessment of sustainability issues, while scores for the E, S and
G performance elements of potential investments are taken into
account in the derivation of the fair value of existing and potential new
holdings for the Company. ESG analysis is therefore a key part of our
quality scoring of companies and overall risk assessment. In relation
to sustainability, the fund management team will note if individual
investments are aligned explicitly with any of the UN Sustainable
Development Goals. Details of these goals can be found at
www.un.org/sustainabledevelopment/sustainable-development-goals/
The Fund Manager and Responsible Investment team’s research work is
used to: initiate discussions with companies; clarify the Fund Manager’s
understanding of the issues involved; create a dialogue; and encourage
higher standards where appropriate. In this, the Manager may
occasionally join with other major investors in order to be a yet more
powerful force to drive change.
Sustainability and ESG
As stewards of more than £110 million of net assets, we support positive change and the Company
benefits from the Manager’s leadership in this field.
22 | BMO UK High Income Trust PLC
Sustainability and ESG
Portfolio case study
Cairn Homes
Cairn Homes is Ireland’s premier housebuilder and over the last 5years
has been on a journey of delivery and change. Their approach to
housebuilding is considered and responsible: building high-quality
energy efficient housing, creating communities; and striving to improve
the built environment. They have signed up to the BITC low carbon
pledge and are committing to setting science-based targets on scope 3
emissions based on lifecycle assessment.
They have already embarked on several of these targets through light
gauge steel, forest stewardship council (FSC) certified timber from
responsibly managed sources. Offsite construction is also being used
which can be produced faster while using less water and waste. They
also have a soil management strategy to reduce and reuse onsite
material which has saved 140k kg of CO2 through lower journeys and
better use of the natural infrastructure.
There is plenty more that can be done to improve the sustainability of
the home we buy and through its lifetime.
Engagement
During the year ended 31 March 2022, the Responsible Investment
team engaged 53 times with management in the Company’s
investment portfolio, across 6 countries. The most common topics for
discussion were corporate governance and labour standards. Analysis
of this engagement follows.
2022 engagement analysis
Corporate Governance 35%
Labour Standards 28%
Public Health 11%
Environmental Standards 9%
Climate Change 9%
Human Rights 8%
Source: BMO Investment Business Limited
Annual Report and Financial Statements 31 March 2022 | 23
Sustainability and ESG
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Engagement examples in the reporting period
Kerry Group (Food Producer) 2021 was a year during which the company underwent significant change. We believe that
the strategic shift towards the taste and nutrition space is an encouraging step and welcomed
the divestment of some of its food business. Our constructive engagement continued in
several areas, including climate change and environmental impact. While the company has
set science-based targets, we set out our expectations for identification and management of
climate-related physical risks. The year saw the company achieving several milestones, including
improvements in waste management and packaging, where 92% of waste volumes were
diverted from landfill, and the commitment to make all plastic packaging reusable, recyclable, or
compostable by 2025. We encouraged the assessment of biodiversity impacts and dependencies
along the value chain and related engagement with suppliers. We also engaged the company
on executive compensation, urging restraint and that pay outcomes fully reflect stakeholders’
experience of the Covid-19 pandemic.
RELX (Media) We met the company to share our concerns relating to the time commitments of the chair of
the Audit Committee who also serves as the CFO of a larger US company. We were advised that
the company had conducted an independent board evaluation, whereby the performance of
the Director and the Audit Committee was viewed as strong. We also noted that this Director
is the only financial expert on the Board in a non-executive role. The company appreciated our
concerns and has noted that additional financial expertise will be an important criterion during
the next board refreshment process. We will continue to review progress in this area.
Voting on portfolio investments
As noted previously, the Manager’s Corporate Governance Guidelines
set out expectations of the boards of investee companies in terms
of good corporate governance. The Board expects to be informed by
the Manager of any sensitive voting issues involving the Company’s
investments. In the absence of explicit instructions from the Board,
the Manager is empowered to exercise discretion in the use of the
Company’s voting rights and reports to the Board on its voting record.
The Manager will vote on all investee companyresolutions.
The Manager is a signatory of the UK Stewardship Code. Its statement of
compliance can be found on the Manager’s website at bmogam.com.
We expect the Company’s shares to be voted on all holdings where
possible. During the financial year, the Manager voted at 37 meetings
of investee companies held by the Company. The Manager did not
support management’s recommendations on at least one resolution
at approximately 30% of all meetings. With respect to all items
voted, the Manager supported over 95.6% of all management
resolutions. One of the most contentious voting issues remained
remuneration. Either by voting against or abstaining, the Manager did
not support 37% of all management resolutions relating to pay, often
due to either poor disclosure or a misalignment of pay with long-
termperformance.
24 | BMO UK High Income Trust PLC
Sustainability and ESG
Climate Change
Of all the ESG issues the Manager considers, climate change is one of
the most important both in terms of the scale of potential impact and
in how widespread this impact could be across sectors and regions. The
Company expects the Manager to incorporate considerations around
climate change risks and opportunities in its investment processes.
As an investment trust company, the Company is not required to
report against the recommendations of the Task Force on Climate-
related Financial Disclosures unlike other premium listed “trading”
companies. However, below, the Company is disclosing the carbon
footprint of its investments. This measures the amount of greenhouse
gas emissions produced by each investee company, per US$1m of
revenue they generate. This is then aggregated for the Company as a
whole, using the portfolio weights of the companies, and compared
with the benchmark.
The carbon footprint is a measure of the carbon intensity of the
companies the Company invests in. Whilst it does not provide a full
picture of climate risks – since it does not, for instance, capture the
innovation that companies may be undertaking to find solutions – it
is a valuable starting point both for analysis and for shareholder
dialogue. The chart highlights that the Company’s portfolio of
investments is significantly less carbon intensive than its benchmark.
2022
50
100
150
Tons CO2e/sales $m
2020
BMO UK High Income Trust
FTSE All-Share
Source: BMO Investment Business Limited
0
2021
2022
Last year, the ongoing Covid-19 pandemic and extreme weather
events reinforced the importance of creating a more resilient future.
Climate change, biodiversity loss and human rights are all issues that
require urgent action and it is these areas that engagement focused
on in 2021. It is these areas that will continue to be of focus in 2022.
Climate related engagement activity focuses on the phase-out of
unabated coal generation by 2030 for developed markets, and 2050
for developing markets, both of which are essential to achieve the
Paris Agreement goals. The Manager will hold companies to account
on net zero pledges, engaging with all portfolio companies, to ensure
the thorough implementation of net zero strategies.
Effective supply chain management practices are essential to
ensuring the protection of human rights and in 2022 the Manager
will engage with corporates on implementing due diligence across
supply chains, as part of efforts to protect human rights, and enhance
business continuity and general supply chain management practices.
Furthermore, with an over-reliance on social audit firms to assess
supplier compliance, the Manager’s Responsible Investment team will
focus on ensuring audit quality, and for companies in apparel, retail
and service sectors, on appropriately fulfilling their human rights and
labour standards obligations.
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Promoting the Success of the Company
Section 172 Statement
Under section 172 of the Companies Act 2006, the Directors have a
duty to act in the way they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of its
members as a whole, and in doing so, have regard (amongst other
matters) to:
• the likely consequences of any decision in the long term;
• the interests of the Company’s shareholders;
• the need to foster the Company’s business relationships with
suppliers, customers and others;
• the impact of the Company’s operations on the community and
environment;
• the desirability of the Company maintaining a reputation for high
standards of business conduct, and
• the need to act fairly as between members of the Company.
As explained on page 9, the Company is an externally managed
investment company and has no employees or premises.
The Board believes that the optimum basis for meeting its duty to
promote the success of the Company is by appointing and managing
third parties with the requisite performance records, resources,
infrastructure, experience and control environments to deliver the
services required to achieve the investment objective and successfully
operate the Company. By developing strong and constructive working
relationships with these parties, the Board seeks to ensure high
standards of business conduct are adhered to at all times and service
levels are enhanced whenever possible. This combined with the
careful management of costs is for the benefit of all shareholders
who are also key stakeholders.
As set out on page 9, the Board’s principal working relationship is
with the Manager which is responsible for the management of the
Company’s assets in line with the investment objective and policy set
by the Board. The Manager also provides administrative functions to
the Company and acts as the AIFM.
The Board works closely with the Manager and oversees the
various matters which have been delegated to it, and to ensure
the Company’s daily operations run smoothly for the benefit of all
shareholders. The portfolio activities undertaken by our Manager are
set out in the Manager’s Review on pages 12 to 15.
While the Company’s direct impact on the community and
environment is limited, its indirect ESG impact occurs through
the businesses in which it invests. The Board gives effect to this
through the Manager’s Responsible Investment approach which
is set out on pages 21 to 24. The Board is very supportive of the
Manager's approach, which focuses on engagement with the investee
companies on ESG issues and how these link with the United Nations
Sustainable Development Goals (‘SDGs’). Further information on the
annual evaluation of the Manager, to ensure its continued appointment
remains in the best interests of shareholders, is set out on page 45.
In addition to the Company’s shareholders, Manager and bankers,
other key stakeholders include its service providers such as the
custodian and depositary, broker and registrar. The Board receives
regular reports from the Company’s key service providers on an ongoing
basis and evaluates them to ensure expectations on service delivery
aremet.
The Board places great importance on communication with
shareholders and further information is set out on page 10.
The Company’s stakeholders are always considered when the Board
makes decisions and examples include:
• Dividends/capital repayments.
The Board recognises that the distribution levels on the Company’s
shares are important to shareholders. As a consequence of the
COVID-19 pandemic, there was a significant reduction in the level of
dividends being paid by UK companies which has in turn impacted the
Company’s revenue earnings. However, prudent stewardship in prior
years combined with careful stock selection had allowed the Company
to build up a revenue reserve. This can be used, as and when required,
to supplement revenue earnings to pay dividends in years when there
is a shortfall in revenue income. This was again the case in the current
year, and to assist the Board’s decision making process, the Manager
provided the Board with estimates of dividend income for the years to
31 March 2022 and 2023 and the estimated impact upon the revenue
reserve, some of which was utilised. Following the payment of the
fourth interim dividend and capital repayment with respect to the
financial year to 31 March 2022, total dividends/capital repayments will
total 5.45p per share. This represents an increase of 2.8% compared to
the prior year and at 31 March 2022 represented a yield of 6.3% and
6.2% on the Ordinary shares and B shares respectively, as compared to
the yield on the FTSE All-Share Index of 3.1% atthattime.
Promoting the Success of the Company
26 | BMO UK High Income Trust PLC
Promoting the Success of the Company
• Costs
One of the Company’s KPIs is cost efficiency and the Board
monitors costs closely and strives to keep these as competitive
as possible for the benefit of our shareholders. As set out in the
Chairman’s Statement, it has been agreed that with effect from
1April 2022 the investment management fee will be reduced
from 0.65% to 0.60% per annum of the net asset value which will
help our ongoing charges.
• Board succession plan
The Board is committed to ensuring that its composition is
compliant with best corporate governance practice under the UK
Code of Corporate Governance, including guidance on tenure. The
Board has continued to progress its succession plan and following
recruitment during 2020, Julia Le Blan retired following the AGM
on 27July 2021, having served on the Board for 10years.
John Evans will retire following the conclusion of the forthcoming
AGM on 20 July 2022, and subject to shareholders voting to
continue the Company, a recruitment process will be completed to
appoint a new non-executive Director.
• Investment Portfolio
Following the changes made to the investment policy in July
2017 the Manager has continued to focus on the delivery
of thesechanges which the Board believes will provide an
attractive, relevant and ultimately differentiated income strategy
for our shareholders over the longer term. This has included the
repositioning of the investment portfolio to provide a better
balance between capital and dividends and reducing exposure to
the mega-cap companies. This should enhance the investment
portfolio’s longer termpotential and the Board believes that this
will help the Board and Manager seek to deliver for shareholders
during these current uncertain times.
• Continuation measurement period
As explained in the Chairman’s Statement, the Board is proposing
to reduce the period stipulated in the Company’s Articles of
Association over which the Company’s performance against the
FTSE All-Share Index is measured. It is proposed to reduce the
current five year performance period to three years and therefore
should the net asset value total return of the Ordinary shares
not be equal to or greater than the total return performance of
the FTSE All-Share Index for the three years to 31 March 2025,
a continuation vote would be held at the 2025 Annual General
Meeting. The Board does not expect any change to the fund
management process despite the shorter performance period but
should the performance hurdle not be met this change would
allow shareholders an opportunity to consider the life of the
Company sooner than otherwise would have been the case.
• Online shareholder meetings
In July 2021, the Company held an online event at which the
Fund Manager gave a presentation to shareholders and savings
plan investors who were then invited to participate by asking
questions to the Board and Fund Manager. This took place three
weeks before the Annual General Meeting which, with the
possibility of restrictions given COVID-19, was restricted to the
formal business of the meeting. This then allowed sufficient time
for shareholders and savings plan investors to submit their votes
on the resolutions proposed for the AGM, after engagement with
the Board at the online event. Voting at the AGM was taken on a
poll and the results on each resolution, which were all strongly in
favour, were published on the Company’s website.
• Institutional shareholders, wealth managers and IFAs
The Manager has a team dedicated to fostering good relations
with institutional shareholders, wealth managers and
independent financial advisers and keeping investors regularly
informed, with the aim of promoting the Company’s investment
proposition and improving the rating of the Company’s share
prices. This team organises meetings with these parties as well
as preparing webinars, interviews and videos which are shared
through various media channels. The team gathers feedback
and answers any queries in relation to the Company and its
investment strategy. Feedback from these activities is reported
regularly to the Board.
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Principal Risks and Uncertainties and Viability Statement
Principal Risks and Uncertainties and
Viability Statement
Most of the Company’s principal risks and uncertainties that could threaten
its objective, strategy, future performance, liquidity and solvency are
market related and comparable to those of other investment companies
investing primarily in listed securities.
A summary of the Company’s risk management and internal controls
arrangements is included within the Report of the Audit Committee on
pages 46 to 49. By means of the procedures set out in that summary, the
Board has established an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company. Any emerging risks
that are identified and that are considered to be of significance would
be included on the Company’s risk register with any mitigations. These
significant risks, emerging risks and other risks are regularly reviewed by
the Audit Committee and the Board. Consideration has been given to the
impact from Coronavirus (COVID-19) and is referred to in Financial Risk.
They have also regularly reviewed the effectiveness of the Company’s risk
management and internal control systems for theperiod.
As explained in the Chairman’s Statement on page 6, BMO GAM
(EMEA) has been acquired by Ameriprise and its business is to be
merged with Columbia Threadneedle Investments. The Board looks
favourably upon this transaction and expects there to be little
change for your Company. Nevertheless, an acquisition such as this
may introduce some uncertainty, until the integration of systems is
fully implemented. Therefore the Board is treating this aspect as an
emerging risk that it will monitor closely.
The principal risks and uncertainties faced by the Company, and the
Board’s mitigation approach, are described below.
Note 21 to the financial statements provides detailed explanations
of the risks associated with the Company’s financial instruments and
their management.
Principal Risks and Uncertainties Mitigation
Financial Risk
The Company’s assets consist mainly of listed equity securities
and its principal financial risks are therefore market related
and include market risk (comprising currency risk, interest rate
risk and other price risk), liquidity risk and credit risk.
Since early 2020 there has been increased uncertainty in
markets due to the effect of COVID-19 and more recently the
war in Ukraine, which has led to volatility in the Company’s
NAV.
Climate change is likely to have an impact on some of our
investee companies in the coming years potentially affecting
their operating models for example, supply chains and
energy costs.
Increase in overall risk given the war in Ukraine
and continuing economic and market uncertainty
The Board regularly considers the composition and diversification of the
Investment Portfolio and considers individual stock performance together with
purchases and sales of investments. Investments and markets are discussed in
detail at each meeting with the Manager.
Engagement on environmental, social and governance matters is undertaken by
the Manager.
The Board has, in particular, considered the impact of market volatility during the
COVID-19 pandemic and the war in Ukraine and is discussed in the Chairman’s
Statement and Manager’s Review. As a closed-end investment trust, the
Company is not constrained by asset sales to meet redemptions and is well
suited to investors seeking longer term returns and to remain invested through
volatile market conditions.
An explanation of these risks and the way in which they are managed are
contained in note 21 to the financial statements.
Investment and strategic risk
Incorrect strategy, asset allocation, stock selection,
inappropriate capital structure, insufficient monitoring of
costs, failure to maintain an appropriate level of discount/
premium and the use of gearing could all lead to poor
returns for shareholders including impacting the capacity to
paydividends.
No change in
overall risk
The Company’s objective and investment policy and performance against peers
and the benchmark are considered by the Board at each meeting and strategic
issues are considered regularly. The Investment Portfolio is diversified and
comprises listed securities and its composition is reviewed regularly with the
Board. BMO GAM's Investment Risk team provides oversight on investment risk
management.
Market intelligence is maintained via the Company’s broker and the effectiveness
of the marketing strategy together with the level of discount to NAV at which the
Company’s shares trade are also reviewed at each meeting. The Manager also
meets with major shareholders.
The Board regularly considers ongoing charges combined with underlying dividend
income from portfolio companies and the consequent dividend paying capacity of
the Company.
28 | BMO UK High Income Trust PLC
Principal Risks and Uncertainties and Viability Statement
Principal Risks and Uncertainties Mitigation
Regulatory
Breach of regulatory rules could lead to the suspension of the
Company’s stock exchange listing, financial penalties, or a
qualified audit report. Breach of section 1158 of the Corporation
Tax Act 2010 could lead to the Company being subject to tax on
capital gains. Changes to tax regulations could alter the market
competitiveness of the Company’s B shares.
No change in
overall risk
The Board liaises with advisors to ensure compliance with laws or regulations.
The Manager and its Business Risk department provide regular reports to
the Board and Audit Committee on their monitoring and oversight of such
rules and are reviewed by the Board. This includes the conditions to maintain
investment trust status including the income distribution requirement.
The Board has access to the Manager’s Head of Business Risk and requires
any significant issues directly relevant to the Company to be reported
immediately.
Operational
Failure of the Manager’s systems or disruption to its business,
or that of an outsourced or third party service provider,
could lead to an inability to provide accurate reporting and
monitoring or a misappropriation of assets leading to a
potential breach of the Company’s investment mandate or
loss of shareholders’ confidence.
This risk includes failures or disruption as a consequence of
external events such as the COVID-19 pandemic.
External cyber attacks could cause such failure or could lead
to the loss or sabotage of data.
No change in overall risk but due to the impact of
COVID-19 on working practices and the eventual
integration with Columbia Threadneedle’s
systems this risk remains heightened
The Board has considered the acquisition of BMO GAM (EMEA) by Columbia
Threadneedle Investments during the year and has met with senior management
to discuss this. Comfort was taken from its long-term financial strength and
resources and commitment towards BMO GAM's investment trust business.
The Board meets regularly with the management of the Manager and its
Business Risk team to review internal control and risk reports which includes
oversight of its own third party service providers. The Manager’s appointment
is reviewed annually and the contract can be terminated with six months’
notice. The Manager has a business continuity plan in place to ensure that it
is able to respond quickly and effectively to an unplanned event that could
affect the continuity of its business.
The Manager has outsourced trade processing, valuation and middle office
tasks and systems to State Street Bank and Trust Company (‘State Street’)
and supervision of such third party service providers, including SS&C who
administer the BMO savings plans, has been maintained by the Manager. This
includes the review of IT security and heightened cyber threats.
Following the easing of government COVID-19 related restrictions, the Manager
has moved from a remote ‘working from home’ arrangement to a hybrid model
with staff also returning to work in office locations. Throughout the pandemic the
Manager has continued to serve clients and keep operations running effectively
and in compliance with its regulatory obligations. These arrangements have and
continue to operate without incident or interruption. The Manager also closely
monitors the performance of its technology platform to ensure it is functioning
within acceptable service levels. The Company’s other third party service providers
have also implemented similar arrangements to ensure no disruption to their
service. Having considered these arrangements and reviewed the service levels
over the last year, the Board is confident that the Company continues to operate
as normal and expected service levels will bemaintained.
Custody risk
Safe custody of the Company’s assets may be compromised
through control failures by the custodian.
No change in overall risk but due to the impact
of COVID-19 on working practices this risk
remains heightened
The Board receives quarterly reports from the Depositary confirming safe
custody of the Company’s assets and cash and holdings are reconciled to the
Custodian’s records. The Custodian’s internal controls reports are also reviewed
by the Manager and key points reported to the Audit Committee. The Board
also receives periodic updates from the custodian on its own cyber-security
controls.
The Depositary is specifically liable for loss of any of the Company’s assets
that constitute financial instruments under the AIFMD.
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Principal Risks and Uncertainties and Viability Statement
Viability assessment and statement
In accordance with the UK Corporate Governance Code, the Board
is required to assess the future prospects for the Company, and has
considered that a number of characteristics of its business model
and strategy were relevant to this assessment:
• The Board looks to long-term outperformance rather than short-
term opportunities.
• The Company’s investment objective, strategy and policy, which
are subject to regular Board monitoring, mean that the Company
is invested mainly in liquid listed securities and that the level of
borrowing is restricted.
• The Company is a closed-end investment trust, whose shares
are not subject to redemptions by shareholders.
• Subject to shareholder continuation votes, in the event that the
net asset value total return performance of the Company is less
than that of the FTSE All-Share Index over the relevant period,
the Company’s business model and strategy is not timelimited.
The first such resolution will be proposed at the forthcoming
AGM on 20 July 2022.
Also relevant were a number of aspects of the Company’s
operational arrangements:
• The Company retains title to all assets held by the Custodian
under the terms of a formal agreement with the Custodian and
Depositary.
• The borrowing facilities, which remain available until September
2022, are also subject to formal agreements, including financial
covenants with which the Company complied in full during the year.
• Revenue and expenditure forecasts are reviewed by the
Directors at each Board Meeting.
• Cash is held with banks approved and regularly reviewed by the
Manager.
• The operational robustness of key service providers and the
effectiveness of business continuity plans in place in particular
given the impact of COVID-19.
• That alternative service providers could be engaged at relatively
short notice if necessary.
In considering the viability of the Company, the Directors carried out a
robust assessment of the principal risks and uncertainties which could
threaten the Company’s objective and strategy, future performance,
liquidity and solvency. This included the impact of COVID-19 and the
war in Ukraine and the impact of a significant fall in equity markets
on the Company’s investment portfolio. These risks, their mitigations
and the processes for monitoring them are set out on pages 27
and 28on Principal Risks and Uncertainties, on pages 46 to 49 in
the Report of the Audit Committee and in Note 21 of the financial
statements.
The Directors have also considered:
• The level of ongoing charges incurred by the Company which are
modest and predictable and total 0.98% of average net assets,
• Future revenue and expenditure projections,
• The Company’s borrowing and liquidity in the context of the
fixed rate loan which is due to mature in September 2022 and
that the Board does not anticipate any difficulty either extending
or replacing this with an appropriate level of borrowing,
• Its ability to meet liquidity requirements given the Company’s
investment portfolio consists mainly of readily realisable
listed equity securities which can be realised to meet liquidity
requirements if required,
• The ability to undertake share buybacks if required,
• Whether the Company’s objective and policy continue to be
relevant to investors,
• The effect of significant future falls in investment values and
the ability to maintain dividends and capital repayments,
particularly given the impact of the COVID-19 pandemic and its
impact on the global economy and
• The resolution that the Company continues in existence which
will be proposed at the forthcoming AGM and that they have a
reasonable expectation that this resolution will be supported by
the Company’s shareholders.
These matters were assessed over a five year period to May 2027,
and the Board will continue to assess viability over five year rolling
periods. As part of this assessment the Board considered a number
of stress tests and scenarios which considered the impact of severe
stock market volatility on shareholders’ funds over a five year
period. The results demonstrated the impact on the Company’s net
assets and its expenses and its ability to meet its liabilities over that
period. A rolling five year period represents the horizon over which
the Directors believe they can form a reasonable expectation of the
Company’s prospects, balancing the Company’s financial flexibility
and scope with the current outlook for longer-term economic
conditions affecting the Company and its shareholders.
Based on their assessment, and in the context of the Company’s
business model, strategy and operational arrangements set
out above, the Directors have a reasonable expectation that
the Company will be able to continue in operation and meet its
liabilities as they fall due over the five year period to May 2027.
30 | BMO UK High Income Trust PLC
Principal Policies
Investment Policy
In pursuit of its objective, the Company invests predominantly in UK
equities and equity-related securities of companies across the market
capitalisation spectrum.
The objective will be to achieve a total return in excess of that of the
FTSE All-Share Index. The Manager will approach investment portfolio
construction with the aim of maintaining a diversified portfolio with
approximately 40 holdings at any given time. No single investment in
the portfolio may exceed 10per cent of the Company’s gross assets at
the time of purchase. In addition, the Manager expects few individual
holdings to exceed fiveper cent of the Company’s gross assets at the time
of purchase. There are no maximum levels set for exposures to sectors.
Income may be enhanced from the investment portfolio by writing
call options, but only where the portfolio has an existing holding and
the holding is greater than the amount of stock subject to the call
option. The percentage of the portfolio that may be used to generate
call premium is limited to 5per cent by value at any one time. The
Company may use derivatives for efficient portfolio management
from time to time.
The Company has the power under its Articles of Association
to borrow an amount up to 100per cent of the Company’s
Adjusted Capital and Reserves. The Directors currently intend
that the aggregate borrowings of the Company will be limited to
approximately 20per cent of the Company’s gross assets immediately
following drawdown of any new borrowings. The Directors will
however retain flexibility to increase or decrease the level of gearing
to take account of changing market circumstances and in pursuit of
the Company’s investment objectives.
As required by the Listing Rules, the Company has a policy to invest no
more than 15per cent of gross assets in other listed investment companies.
The Company’s Benchmark
The Company’s benchmark is the FTSE All-Share Index. From launch
on 1March 2007, the Company’s benchmark was the FTSE All-Share
Capped 5% Index but in order to simplify the measurement of the
Company’s performance, at the Company's Annual General Meeting
on 5 July 2018 shareholders approved the proposal to change the
Company’s benchmark to the FTSE All-Share Index. The FTSE All-Share
Capped 5% Index was the index referred to in the Company’s
Articles of Association (the “Articles”) as the index against which the
Company’s performance was measured over the relevant five year
period. Accordingly the FTSE All-Share Index is also now referenced in
the Investment Policy set out above.
Gearing Policy
As explained in the Investment Policy, the Company has the flexibility
to borrow and the Board has set a gearing limit. The Board receives
recommendations on gearing levels from the Manager and it is
responsible for setting the gearing range within which the Manager
may operate.
The Company’s borrowing facilities are described in more detail in the
notes to the financial statements and at 31 March 2022 borrowings
totalling £7. 5 million had been drawn down.
Dividend/Capital Repayment Policy
Within the Company’s investment objective is the aim to provide
an attractive return to shareholders in the form of dividends and/or
capital repayments.
In determining dividend payments, the Board takes account of income
forecasts, brought forward revenue reserves, prevailing inflation rates,
the Company’s dividend payment record and the Corporation Tax rules
governing investment trust status. Dividends can also be paid from
capital reserves where the balance on this reserve is positive. At the
same time as dividend payments are made to Ordinary shareholders,
capital repayments of the same amount are made to B Shareholders
from the special capital reserve. Risks to the dividend policy have been
considered as part of the Principal Risks and Uncertainties and Viability
statement on pages 27 to 29 and include financial risks leading to a
deterioration in the level of income received by the Company or a
significant change to the Company’s regulatory environment.
Dividends/capital repayments are currently paid quarterly in August,
November, February and May.
In the financial year to 31 March 2023 the Board is strongly minded to
try and maintain the annual level of dividend/capital repayment.
Buy-backs/Discount Policy
Share buy-backs help reduce the volatility of the discount and
enhance the net asset value per share for continuing shareholders.
While the Directors will at all times retain discretion over whether
or not to repurchase shares, it will be the Company’s policy, in the
absence of unforeseen or extreme circumstances and subject to the
aim of maintaining the Ordinary share: B share ratio within the range
Principal Policies
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Principal Policies
(72.5% : 27.5% and 77.5% : 22.5%), to repurchase shares of either
class when there are net sellers and the market price stands at a
discount to net asset value of 5per cent or more. The Board may, if
it considers it to be in the best interests of the Company, amend this
ratio from time to time. However, the Board will always be mindful of
any impact on the level of revenue available for the Ordinary shares.
Shares will not be bought back at a premium to net asset value.
Shares which are bought back by the Company may be cancelled or
may be held in treasury. There is no limit on the amount of shares the
Company can hold in treasury. Shares held in treasury may be resold
at a price not less than the net asset value per Share.
Prevention of the Facilitation of Tax Evasion
The Board is fully committed to complying with the UK’s Criminal
Finances Act 2017, designed to prevent tax evasion and the facilitation
of tax evasion in the jurisdictions in which the Company operates. The
policy is based upon a risk assessment undertaken by the Board and
professional advice is sought as and when deemed necessary.
Taxation
The policy towards taxation is one of full commitment to complying
with applicable legislation and statutory guidelines.
The Company has received approval from HMRC as an investment
trust under Section 1158 of the Corporation Tax Act 2010
(“Section1158”) and has since continued to comply with the
eligibility conditions such that it does not suffer UK Corporation Tax on
capital gains. The Manager ensures that the Company submits correct
taxation returns annually to HMRC; settles promptly any taxationdue;
and claims back, where possible, taxes suffered in excess of taxation
treaty rates on non-UK divided receipts.
Board Diversity and Tenure
The Board is composed solely of non-executive Directors and its
approach to the appointment of non-executive Directors is based
on its belief in the benefits of having a diverse range of experience,
skills, length of service and backgrounds, including gender. The
Board is conscious of the diversity targets set out in the FCA Listing
Rules and the Board complies with the UK Corporate Governance
Code and AIC Code in appointing appropriately diverse, independent
non-executive Directors who set the operational and moral standards
of the Company. The Board will always appoint the best person for
the job and will not discriminate on the grounds of gender, race,
ethnicity, socio-economic background, religion, sexual orientation,
age or physical ability.
The Board is committed to maintaining the highest levels of
corporate governance in terms of independence and once the Board's
succession plan is complete would normally expect the Directors to
serve for a nine-year term, however this may be adjusted for reasons
of flexibility and continuity.
Integrity and Business Ethics
The Board applies a strict anti-bribery and anti-corruption policy
insofar as it applies to any directors or employee of the Manager or
any other organisation with which the Company conducts business.
The Board also ensures that adequate procedures are in place and
followed in respect of third-party appointments, acceptance of gifts,
hospitality and similar matters.
The Strategic Report, contained on pages5 to 31, has been approved
by the Board of Directors.
By order of the Board
For BMO Investment Business Limited
Company Secretary
6th Floor
Quartermile 4
7a Nightingale Way
Edinburgh EH3 9EG
30 May 2022
32 | BMO UK High Income Trust PLC
Board of Directors
John Evans, Chairman of the Board and
Nomination Committee
Appointed on 8 May 2013 and as Chairman on
9 July 2019.
Experience and contribution: He has worked
in the investment management industry
for over 40 years. He retired from Aberforth
Partners, a specialist investment management
firm, in 2011 having been one of its founding
partners in 1990.
Other appointments: John is a non-executive
director and Chairman of Securities Trust
of Scotland plc and JPMorgan Mid Cap
Investment Trust plc.
Andrew Watkins, Senior Independent
Director
Appointed on 29 June 2017 and as Senior
Independent Director on 27 July 2020.
Experience and contribution: He has worked
in the financial services industry for over 40
years and was head of Client Relations for
Investment Trusts at Invesco Perpetual from
2004 until his retirement in June 2017.
Other appointments: Andrew is currently a
non-executive director and chairman of Ashoka
India Equity Investment Trust plc and a non-
executive director of Chelverton UK Dividend
Trust PLC, Baillie Gifford European Growth Trust
plc and Consistent Unit Trust Management Ltd.
Helen Galbraith (nee Driver), Audit
Committee Chairman
Appointed on 6 May 2020 and as Chairman of
the Audit Committee on 27 July 2021.
Experience and contribution: Helen has
over 20 years’ experience in the Insurance
and Asset Management industry as Head of
Investor Relations at Aviva plc, Head of Global
Equities at Aviva Investors and managing UK
equities as Investment Director at Standard
Life Investments. Helen is the founder of
Moneyready, an online financial education
platform for young people.
Other appointments: Helen is currently a
non-executive director of Schroder UK Mid Cap
Fund PLC and Orwell Housing Association and
a Director at Orwell Homes.
Stephen Mitchell, Engagement and
Remuneration Committee Chairman
Appointed on 6 May 2020 and as Chairman of
the Engagement and Remuneration Committee
on 2 December 2020.
Experience and contribution: He has worked
in investments for 40 years, most recently as a
global equity specialist, previously on Japanese
and Asia-Pacific equities. He worked at Flemings
then JPMorgan Asset Management and Private
Bank for 24 years, subsequently at Caledonia
Investment Trust running a global equity income
fund and then Jupiter Asset Management.
Latterly he also covered investment strategy and
multi-asset allocation.
Other appointments: Stephen is currently a
Trustee of National Trust for Scotland and chair
of its investment committee, and a member
of the investment committee at Westminster
Almshouses.
Board of Directors
All Directors are members of the Engagement and Remuneration Committee and Nomination Committee.
All Directors with the exception of John Evans are members of the Audit Committee.
No Director holds a directorship elsewhere in common with other members of the Board.
Annual Report and Financial Statements 31 March 2022 | 33
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Report of the Directors
Statement Regarding Annual Report and Financial
Statements
The Directors consider that, following a detailed review and
advice from the Audit Committee, the Annual Report and Financial
Statements for the year to 31 March 2022, 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. The Audit Committee reviewed the
draft Annual Report and Financial Statements for the purpose of
this assessment and in reaching this conclusion, the Directors
have assumed that the reader of the Annual Report and Financial
Statements would have a reasonable level of knowledge of the
investment industry in general and investment trusts in particular. The
outlook for the Company can be found on pages 8 and 15. Principal
risks and uncertainties can be found on pages 27 and 28 with further
information in note21 to the financial statements. There are no
instances where the Company is required to make disclosures in
respect of Listing Rule 9.8.4R.
Results and Dividends
The results for the year are set out in the financial statements on
pages 63 to 82. The return to shareholders was £2,384,000.
The Company has paid quarterly interim dividends in the year ended
31 March 2022 as follows:
Interim Dividend Payments
Payment date
Rate per
Ordinary share
Fourth interim for 2021 7 May 2021 1.43p
First interim for 2022 6 August 2021 1.29p
Second interim for 2022 5 November 2021 1.29p
Third interim for 2022 4 February 2022 1.32p
Dividend payments in the prior year ended 31 March 2021 are set out
in note 9 to the financial statements.
A fourth interim dividend of 1.55p per Ordinary share was paid on 6
May 2022 to Ordinary shareholders on the register at close of business
on 8 April 2022. This dividend, together with the first three interim
dividends paid during the year (two of 1.29p per Ordinary share
and one of 1.32p per Ordinary share), make a total dividend (for the
financial year to 31March 2022) of 5.45p per Ordinary share. This
represents an increase of 2.8% over the 5.30p per Ordinary share paid
in respect of the previous financial year.
At the same time as dividend payments are made to Ordinary
shareholders, capital repayments of the same amount are made to
Bshareholders from the special capital reserve.
As set out in the Company’s dividend/capital repayment policy on
page 30, payments are made quarterly and the Company does not
currently pay a final dividend that would require formal shareholder
approval at the AGM. This enables the fourth interim dividend/capital
repayment to be made in May and earlier than would be possible
if classed as a final dividend/capital repayment and subject to
shareholder approval at the AGM in July.
As an alternative, the Board proposes to seek formal shareholder
approval at the AGM, and in future years, to continue quarterly
payments (Resolution 7).
Principal Activity and Status
The Company is registered as a Public Limited Company in terms of
the Companies Act 2006 (number: SC314671) and is an investment
company under section 833 of the Companies Act 2006.
The Company carries on business as an investment trust and has been
approved as such by HM Revenue & Customs (‘HMRC’), subject to it
continuing to meet the relevant eligibility conditions and ongoing
requirements. As a result, it is not liable to corporation tax on capital
gains. The Company intends to conduct its affairs so as to enable it to
comply with the requirements.
The Company is required to comply with company law, the rules of
the Financial Conduct Authority, and other legislation and regulations
including UK-adopted International Accounting Standards and its own
Articles of Association.
The Company is a member of the Association of Investment
Companies (the ‘AIC’).
Report of the Directors
The Directors submit the Annual Report and Financial Statements of the Company for the year to
31March2022. The Directors’ biographies, Corporate Governance Statement, the Report of the
Nomination Committee, the Report of the Engagement and Remuneration Committee, the Report of
the Audit Committee and the Directors’ Remuneration Report form part of this Report of the Directors.
34 | BMO UK High Income Trust PLC
Report of the Directors
Subsidiary Company
The Company has a 100 per cent interest in Investors Securities
Company Limited (number: SC140578), a company which deals in
investments. In the year to 31 March 2022, Investors Securities
Company Limited made a profit before taxation of £nil (2021: £nil).
Investors Securities Company Limited did not trade during the year
to 31 March 2022 and it has not been consolidated in the financial
statements in accordance with section 405 of the Companies Act 2006
on grounds of materiality.
Accounting and Going Concern
Shareholders will be asked to approve the adoption of the Annual
Report and Financial Statements at the AGM (Resolution 1).
The financial statements start on page 63 and the unqualified
Independent Auditor’s Report on the financial statements is on
pages54 to 62. The significant accounting policies of the Company are
set out in note 1 to the financial statements.
In assessing the going concern basis of accounting, the Directors have
had regard to the guidance issued by the Financial Reporting Council
and have undertaken a rigorous review of the Company’s ability to
continue as a going concern and specifically in the context of the
COVID-19 pandemic.
Most of the Company's principal risks and uncertainties are market
related and comparable to other investment companies investing
primarily in listed securities. An explanation of these risks and how they
are managed is set out on pages 27 and 28. The Board has, in particular,
considered the impact of increased market volatility during the COVID-19
pandemic but does not believe the Company's ability to continue as a
going concern is affected.
The Company’s investment objective and policy, which is described
on pages 9 and 30 and which is subject to regular Board monitoring
processes, is designed to ensure that the Company is invested mainly
in liquid, listed securities. The value of these investments exceeds the
Company’s liabilities by a significant margin. The Company retains title
to all assets held by its custodian, and has agreements relating to its
borrowing facilities with which it has complied during the year. Cash is
held only with banks approved and regularly reviewed by the Manager.
As part of the going concern review, the Directors noted that
borrowing facilities of a £7.5 million fixed term loan and a £7.5
million revolving credit facility are committed to the Company until
28September 2022 and that they do not anticipate any difficulty
either extending or replacing this with an appropriate level of
borrowing. Further details are set out in note 16 to the financial
statements.
Note 21 to the financial statements sets out the financial risk profile of
the Company and indicates the effect on the assets and liabilities of
falls (and rises) in the value of securities and market rates of interest.
As explained in the Chairman’s Statement, an ordinary resolution
(Resolution 12) will be proposed at the Annual General Meeting
on 20July 2022 to seek approval from shareholders that the
Company continues in existence and the Directors have a
reasonable expectation that this will be supported by the
Company’sshareholders.
The Directors believe, having assessed the principal risks and other
matters, including the COVID-19 pandemic and in light of the controls
and review processes noted above and bearing in mind the nature
of the Company’s business and assets and revenue and expenditure
projections, that the Company has adequate resources to continue
in operational existence for a period of at least twelve months from
the date of approval of the financial statements. For these reasons,
they continue to adopt the going concern basis in preparing the
financialstatements.
The Company’s longer term viability is considered in the ‘Viability
assessment and statement’ on page 29.
The Company does not have a fixed life. However, in the event that
the net asset value total return performance of the Company is less
than that of the FTSE All-Share Index over the relevant five year
period, in accordance with the Company’s articles of association,
shareholders will be given the opportunity to vote on whether the
Company should continue in existence, by ordinary resolution at the
Company’s Annual General Meeting. The current five year period for
this purpose ran from 1 April 2017 to 31 March 2022 and as the net
asset value total return performance of the Company was less than
that of the FTSE All-Share Index an ordinary resolution (Resolution12)
will be proposed at the forthcoming Annual General Meeting on
20July2022.
Statement of Disclosure of Information to the Auditor
Each of the Directors confirm that, so far as he or she is aware, there
is no information relevant to the preparation of the Annual Report
and Financial Statements of which the Company’s auditor is unaware,
and each Director has taken all the steps that he or she ought to have
taken as a Director in order to make himself or herself aware of any
relevant audit information and to establish that the Company’s auditor
is aware of that information.
Annual Report and Financial Statements 31 March 2022 | 35
Report of the Directors
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Re-appointment of Auditor
Deloitte LLP was re-appointed as the Company’s auditor at the Annual
General Meeting on 27 July 2021 and it has expressed its willingness
to continue in office as the Company’s auditor. A resolution proposing
its re-appointment and authorising the Directors to determine its
remuneration will be submitted at the Annual General Meeting
(Resolution 6).
Further information in relation to the re-appointment can be found
on page 49.
Capital Structure and Voting Rights
The Company’s capital structure is explained in the ‘Capital Structure’
section on page 88 of this Annual Report and details of the share
capital, including voting rights, are set out in note 17 to the financial
statements. Details of voting rights are also set out in the Notes to
the Notice of Annual General Meeting.
At 31 March 2022 there were 102,067,144 ordinary shares of 0.1p
each listed of which 16,894,491 were held in treasury and 32,076,703
Bshares of 0.1p each listed of which 1,367,953 were held in treasury.
At 31 March 2022, the total listed share capital of the Company was
represented 76.1 per cent by Ordinary shares and 23.9 per cent by
Bshares.
There are no significant restrictions concerning the transfer of
securities in the Company (other than certain restrictions imposed by
laws and regulations such as insider trading laws); no agreements
known to the Company concerning restrictions on the transfer of
securities in the Company or on voting rights; and no special rights
with regard to control attached to securities. There are no significant
agreements which the Company is a party to that might be affected
by a change of control of the Company following a takeover bid.
Substantial Interests in Share Capital
At 31 March 2022 the Company had received notification of the
following holdings of voting rights (under the FCA’s Disclosure
Guidance and Transparency Rules):
Ordinary Shares
Number
held
Percentage
held*
1607 Capital Partners, LLC 8,500,000 10.0
D. C. Thomson & Company Limited 7,944,869 9.3
Thomson Leng Provident Fund 3,800,000 4.5
* Based on 85,172,653 Ordinary Shares in issue as at 31 March 2022.
B Shares
Number
held
Percentage
held*
D. C. Thomson & Company Limited 2,241,623 7.3
* Based on 30,708,750 B Shares in issue as at 31March 2022.
The Company has not received any other notification of any changes
in these voting rights and no new holdings have been notified since
31 March 2022 up to the date of this report.
Manager's Savings Plans
Approximately 41% of the Company’s share capital is held through
the Manager's savings plans. The Manager does not have discretion
to exercise any voting rights in respect of the shares held through
the savings plans. Instead the nominee company holding these
shares votes in line with any voting directions received from the
underlying planholders. Where no instruction is received from any
underlying planholder, the voting rights attached to their shares will
not beexercised.
Borrowings
The Company has drawn down a £7.5 million unsecured term loan from
Scotiabank Europe plc with a term to 28 September 2022 at a fixed interest
rate of 2.58% per annum. The Company also has a £7.5 million unsecured
multicurrency revolving credit facility with Scotiabank (Ireland) Designated
Activity Company of which £nil was drawn down at the year-end. Further
information is included in note 16 to the financial statements.
Directors’ Remuneration report
The Directors’ Remuneration Report, which can be found on pages 50
to 52, provides detailed information on the remuneration arrangements
for the Directors of the Company including the Directors’ Remuneration
Policy. Shareholders will be asked to approve the Annual Report on
Directors’ Remuneration (Resolution 2) at the AGM on 20 July 2022.
At the Annual General Meeting held on 27July 2020, shareholders
approved the Directors’ Remuneration Policy and it is intended that this
policy will continue for the three year period ending at the AGM in 2023,
when shareholders will next be asked for their approval. There have been
no material changes to the policy since approved by shareholders at the
AGM held on 27July 2020.
Director re-elections
Biographical details of the Directors, all of whom are non-executive, can
be found on page 32 and are incorporated into this report by reference.
All of the Directors held office throughout the year under review.
36 | BMO UK High Income Trust PLC
Report of the Directors
JuliaLeBlan retired from the Board following the AGM on 27 July 2021 and
John Evans is not standing for re-election and will therefore retire at the
conclusion of the forthcoming Annual General Meeting. As explained in
more detail under the Corporate Governance Statement on pages 41 to
43, the Board has agreed that all Directors will retire annually. Accordingly,
Helen Galbraith, Stephen Mitchell and AndrewWatkins will retire at
the AGM and, being eligible, offer themselves for re-election. The
skills and experience each Director brings to the Board for the long-term
sustainable success of the Company are set outbelow.
• Resolution 3 relates to the re-election of Helen Galbraith who was
appointed on 6 May 2020 and has over 20 years‘ experience in the
Insurance and Asset Management industry. She also has relevant
accounting experience and is a Chartered Financial Analyst.
• Resolution 4 relates to the re-election of Stephen Mitchell who
was appointed on 6 May 2020 and has worked in investments for
over 40 years most recently as a global equity specialist.
• Resolution 5 relates to the re-election of Andrew Watkins who
was appointed on 29 June 2017 and has extensive experience and
knowledge of investment trusts and the sector having been Head
of Client Relations for Investment Trusts at Invesco Perpetual until
his retirement in 2017.
The Board believes that longer serving Directors should not be
prevented from forming part of an independent majority, which is
consistent with the view expressed within the AIC Code. The Board
believes that a Director’s tenure does not necessarily reduce his or
her contribution or ability to act independently and, following formal
performance evaluations, the Board believes that each Director is
independent in character and judgement, that they perform their
duties at all times in an independent manner and that there are
no relationships or circumstances which are likely to affect the
judgement of any Director. The Board believes that continuity and
experience add significantly to the strength of the Board. For these
reasons and those set out on page 44, the tenure of John Evans, who
in May 2022 had served on the Board for nine years, is not considered to
compromise his independence. John Evans will retire at the conclusion of
the forthcoming AGM. Additional information on diversity and tenure is
set out on pages 31 and 44.
The Directors believe that the Board has an appropriate balance of
skills, experience, independence and knowledge of the Company
to enable it to provide effective strategic leadership and proper
governance of the Company. The Chairman and the Board confirms
that, following formal performance evaluations, the performance
of each of the Directors continues to be effective and demonstrates
commitment to the role and having considered the Directors’ other
time commitments and Board positions are satisfied that each
Director has the capacity to be fully engaged with the Company’s
business. The Chairman and the Board therefore believes that it is
in the interests of shareholders that each of those Directors seeking
re-election is re-elected.
There are no service contracts in existence between the Company
and any Directors but each of the Directors has been issued with,
and accepted, the terms of a letter of appointment that sets out
the main terms of his or her appointment. Amongst other things,
the letter includes confirmation that the Directors have a sufficient
understanding of the Company and the sector in which it operates,
and sufficient time available to discharge their duties effectively
taking into account their other commitments. These letters are
available for inspection upon request at the Company’s registered
office during normal business hours and will be available for
inspection at the Annual General Meeting.
Directors’ Interests and Deeds of Indemnity
There were no contracts of significance to which the Company was a
party and in which a Director is, or was, materially interested during
the year.
The Company has entered into deeds of indemnity in favour of each
of the Directors. The deeds give each Director the benefit of an
indemnity to the extent permitted by the Companies Act 2006 against
liabilities incurred by each of them in the execution of their duties
and the exercise of their powers. A copy of each deed of indemnity
is available for inspection at the Company’s registered office during
normal business hours and will be available for inspection at the
Annual General Meeting. The Company also maintains directors’ and
officers’ liability insurance.
Conflicts of Interest
Under the Companies Act 2006 a Director must avoid a situation
where he or she has, or could have, a direct or indirect interest that
conflicts, or possibly may conflict, with the Company’s interests.
The requirement is very broad and could apply, for example, if a
Director becomes a Director of another company or a trustee of
another organisation. The Companies Act 2006 allows Directors of
public companies to authorise conflicts and potential conflicts, where
appropriate, where the Articles of Association contain a provision to
this effect. The Company’s Articles of Association give the Directors
authority to approve such situations.
Annual Report and Financial Statements 31 March 2022 | 37
Report of the Directors
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The Board therefore has procedures in place for the authorisation and
review of potential conflicts relating to the Directors. The Company
maintains a register of Directors’ conflicts of interest which have
been disclosed and approved by the other Directors. Other than
authorisation of Directors’ other directorships, no authorisations have
been sought. This register is kept up-to-date and the Directors are
required to disclose to the Company Secretary any changes to conflicts
or any potential new conflicts.
Safe Custody of Assets
The Company’s listed investments are held in safe custody by
JPMorgan Chase Bank (the ‘Custodian’). Operational matters with the
Custodian are carried out on the Company’s behalf by the Manager
in accordance with the provisions of the investment management
agreement. The Custodian is paid a variable fee dependent on the
number of trades and location of the securities held.
Depositary
JPMorgan Europe Limited (the ‘Depositary’) acts as the Company’s
depositary in accordance with the AIFMD. The Depositary’s
responsibilities, which are set out in an Investor Disclosure Document
on the Company’s website, include, but are not limited to, cash
monitoring, ensuring the proper segregation and safe keeping of
the Company’s financial instruments that are held by the custodian
and monitoring the Company’s compliance with investment limits
and leverage requirements. The Depositary receives for its services a
fee of one basis point per annum on the value of the Company's net
assets, payable monthly in arrears.
Although the Depositary has delegated the safekeeping of all assets
held within the Company’s investment portfolio to the Custodian,
in the event of loss of those assets that constitute financial
instruments under the AIFMD, the Depositary will be obliged to return
to the Company financial instruments of an identical type, or the
corresponding amount of money, unless it can demonstrate that the
loss has arisen as a result of an external event beyond its reasonable
control, the consequences of which would have been unavoidable
despite all reasonable efforts to the contrary.
Management and Management Fees
The Manager provides management, secretarial and administrative
services to the Company. Details of the contract between the Company
and BMO Investment Business Limited in respect of management
services provided are given in note 4 to the financial statements. BMO
Investment Business Limited is the Company’s AIFM, for which it does
not receive any additional remuneration.
Since the end of the year, the Engagement and Remuneration
Committee has reviewed the appropriateness of the Manager’s
appointment. In carrying out its review the Committee considered
the past investment performance of the Company and the ability
of the Manager to produce satisfactory investment performance
in the future. It also considered the length of the notice period
of the investment management contract and fees payable to the
Manager, together with the standard of other services provided
which include company secretarial, accounting services and
marketing. Following this review, which included a comparison
against the terms of appointment of investment managers for similar
investment companies, it is the Directors’ opinion that the continuing
appointment of the Manager on the terms agreed is in the best
interests of shareholders asawhole.
As set out in the Chairman’s Statement on page 6, a change to the
investment management fee has been agreed between the Board
and the Investment Manager. With effect from 1 April 2022 the
investment management fee wil be reduced from 0.65 per cent.
per annum to 0.60 per cent. per annum on the net asset value of
theCompany.
Other Companies Act 2006 Disclosures
• The rules for appointment and replacement of Directors are
contained in the Articles of Association of the Company. In respect
of retiral by rotation, the Articles of Association provide that
each Director is required to retire at the third Annual General
Meeting after the Annual General Meeting at which last elected.
As mentioned earlier in this Report, the Board has agreed that all
Directors will retire annually.
• Amendment of the Articles of Association and powers to issue
and buy back shares require shareholder authority.
• There are no agreements between the Company and the Directors
providing for compensation for loss of office that occurs because
of a takeover bid.
Future Developments of the Company
The future success of the Company in pursuit of its investment objective
is dependent primarily on the performance of its investments and the
outlook for the Company is set out in the Chairman’s Statement on
page8 and the Manager’s Report on page15.
38 | BMO UK High Income Trust PLC
Report of the Directors
Environmental, Social and Governance
Details of the Company's Environmental, Social and Governance policies
including voting on portfolio investments is set out on pages 21 to 24.
The Company seeks to conduct its affairs responsibly and
environmental factors are, where appropriate, taken into consideration
with regard to investment decisions taken on behalf of the Company.
Modern Slavery Act 2015
As an investment company with no employees or customers and
which does not provide goods or services in the normal course
of business, the Company considers that it does not fall within
the scope of the Modern Slavery Act 2015 and it is not, therefore,
obliged to make a human trafficking statement. The Company's
own supply chain which consists predominantly of professional
advisers and service providers in the financial services industry,
which is highly regulated, is considered to be low risk in relation
to this matter. A statement by the Manager under the Act has been
published on its website at www.bmogam.com
Financial Instruments
The Company’s financial instruments comprise its investment
portfolio, cash balances, bank debt, debtors and creditors that arise
directly from its operations such as sales and purchases awaiting
settlement and accrued income. The financial risk management
objectives and policies arising from its financial instruments and
the exposure of the Company to risk are disclosed in note 21 to the
financial statements.
Annual General Meeting
The Company is required by law to hold an Annual General Meeting
(‘AGM’) and it will be held at Exchange House, Primrose Street,
London, EC2A2NY on 20 July 2022 at 12noon. The Notice of Annual
General Meeting is set out on pages 84 to 87.
Philip Webster, the Fund Manager will give a presentation at the
AGM and there will also be an opportunity to ask questions. If you
are unable to attend the AGM, you may submit any questions you
may have with regard to the resolutions proposed at the AGM or
the performance of the Company, in advance of the meeting to the
following email address: UKHITCoSec@bmogam.com. The Fund
Manager’s presentation will be available to view on the Company’s
website, bmoukhighincome.com, following the meeting.
The AGM is currently proposed to be held in person and voting on
all resolutions will be conducted by way of a poll. Shareholders are
encouraged to exercise their votes either through the Registrar’s
online portal or by completing and returning their Form of Proxy or
Form of Direction. The results of the poll will be announced via a
regulatory announcement and posted on the Company’s website at
bmoukhighincome.com after the meeting. Any changes to the AGM
arrangements will be announced via a regulatory announcement and
will be included on the Company’s website.
Resolutions 8 to 13 are explainedbelow.
Directors’ Authority to Allot Shares (Resolutions 8 and 9)
The Directors are seeking authority to allot Ordinary shares and B shares.
Resolution 8 will, if passed, authorise the Directors to allot new
Ordinary shares up to an aggregate nominal amount of £4,258
consisting of 4,258,000 Ordinary shares and new B shares up to an
aggregate nominal amount of £1,535 consisting of 1,535,000 B shares,
being approximately 5per cent of the total issued Ordinary shares and
B shares (excluding treasury shares) as at 30 May 2022. This authority
therefore authorises the Directors to allot up to 5,793,000 shares in
aggregate representing approximately 5 per cent of the total share
capital in issue (excluding treasury shares).
Resolution 9 will, if passed, authorise the Directors to allot new
Ordinary shares up to an aggregate nominal amount of £4,258 and
new B shares up to an aggregate nominal amount of £1,535, being
4.2per cent and 4.8 per cent of the total issued Ordinary shares and
B shares respectively (including treasury shares) as at 30 May 2022,
for cash without first offering such shares to existing shareholders
pro rata to their existing holdings. This authority therefore authorises
the Directors to allot up to 5,793,000 shares in aggregate for cash on
a non pre-emptive basis representing 4.3 per cent of the total share
capital in issue (including treasury shares). These authorities will
continue until the earlier of 30 September 2023 and the conclusion of
the Company’s next Annual General Meeting.
The Directors have no current intention to exercise these authorities
and will only allot new shares pursuant to these authorities if they
believe it is advantageous to the Company’s shareholders to do so
and will not result in a dilution of net asset value per share. The
Directors consider that the authorisations proposed in Resolutions 8
and 9 are necessary to retain flexibility, although they do not intend
to exercise the powers conferred by these authorisations at the
presenttime.
Annual Report and Financial Statements 31 March 2022 | 39
Report of the Directors
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Directors’ Authority to Buy Back Shares (Resolution 10)
At the Annual General Meeting held on 27 July 2021 shareholders
gave the Company authority to make market puchases of up to 14.99
per cent of each of the issued Ordinary shares and issued B shares
(in each case, excluding shares held in treasury). During the year to
31March 2022 the Company did not purchase any Ordinary shares or B
shares through the market.
The current authority of the Company to make market purchases of up
to 14.99 per cent of each of the issued Ordinary shares and issuedB
shares (in each case, excluding shares held in treasury) expires at the
end of the Annual General Meeting and Resolution 10, as set out
in the notice of the Annual General Meeting, seeks renewal of that
authority. The renewed authority to make market purchases will be in
respect of a maximum of 14.99 per cent of each of the issued Ordinary
shares and issued B shares of the Company on the date of the passing
of the resolution. The price paid for shares will not be less than the
nominal value of 0.1p per share nor more than the higher of (a) 5per
cent above the average of the middle market values (as derived from
the Daily Official List of the London Stock Exchange) of those shares
for the five business days before the shares are purchased and (b)
the higher of the last independent trade and the highest current
independent bid on the London Stock Exchange. This power will only
be exercised if, in the opinion of the Directors, a purchase will result
in an increase in net asset value per share and is in the interests of
the shareholders. Any shares purchased under this authority will be
purchased with cash and will either be held in treasury or cancelled.
This authority will expire on the earlier of 30 September 2023 and the
conclusion of the next Annual General Meeting of the Company.
There were 115,881,403 Ordinary shares and B shares in issue (excluding
treasury shares) as at 30 May 2022; of which 73.5 per cent represents
Ordinary shares and 26.5 per cent represents B shares. At that date,
the Company held 16.6 per cent of the total Ordinary share capital in
treasury and 4.3 per cent of the total B share capital in treasury.
The Company therefore in aggregate holds 18,262,444 shares in
treasury representing 15.8 per cent of the total share capital in issue
(excluding treasury shares).
Treasury Shares (Resolution 11)
The Board continues to believe that the effective use of treasury
shares assists the liquidity in the Company’s securities and
management of the discount by addressing imbalances between
demand and supply for the Company’s securities.
Resolution 11, if passed, will enable the Company to sell shares
from treasury without having first to make a pro rata offer to existing
shareholders. This authority will be limited to shares representing
approximately 8.3 per cent and 9.6 per cent of the Company’s issued
Ordinary share capital and B share capital respectively (including
treasury shares) as at the date of passing of the resolution. The
sale of shares from treasury is to be at a price not less than the net
asset value per share of the Ordinary shares (in the case of a sale of
Ordinary shares) or B shares (in the case of a sale of B shares).
Continuation Vote (Resolution 12)
In accordance with the Company’s Articles of Association, the Company
has no fixed winding up date but, in the event that the prescribed
performance criterion is not satisfied in respect of any five year period,
the Directors are required to put an ordinary resolution to shareholders
at the next Annual General Meeting allowing shareholders to vote on
whether the Company should continue in existence. As explained in
the Chairman’s Statement on pages 5 to 8 the total return net asset
value per share of the Ordinary shares was less than the total return
performance of the FTSE All-Share index over the 5 years to 31 March
2022 and accordingly such an ordinary resolution will be proposed at
this year’s Annual General Meeting. In the event that this resolution is
not passed, the Directors would then be required to convene a general
meeting of the Company within three months at which proposals would
be put to shareholders to wind up the Company and proposals may
also be put to shareholders to reconstruct the Company, provided that
the proposals provide for any shareholder to realise their investment
in the Company. The Board believes that it is in the best interests of
shareholders for the Company to continue and encourages shareholders
to vote in favour of the resolution, as they intend to do in respect of
their ownshareholdings.
Amendments to the Articles of Association (Resolution 13)
The Board propose to reduce the period stipulated in the Company’s
Articles of Association over which the Company’s performance against
the FTSE All-Share Index is measured. It is proposed to reduce the
current five year performance period to three years and therefore
should the net asset value total return of the Ordinary shares not be
equal to or greater than the total return performance of the FTSE All-
Share Index for the three years to 31 March 2025 a continuation vote
would be held at the 2025 Annual General Meeting. The Board does
not expect any change to the fund management process despite the
shorter performance period but should the performance hurdle not be
met this change would allow shareholders an opportunity to consider
the life of the Company sooner than otherwise would have been the
case. This resolution will be proposed as a special resolution and, in
practical terms, its implementation will be subject to shareholders
voting to continue the Company as proposed in Resolution 12.
Recommendation
The Directors consider that the passing of the resolutions to be
proposed at the Annual General Meeting are in the best interests
of the Company and are most likely to promote the success of the
Company for the benefit of its shareholders as a whole. Accordingly,
they unanimously recommend that all shareholders vote in favour
of those resolutions in advance of the Annual General Meeting.
The Directors intend to vote in favour of each of the resolutions in
respect of their own beneficial holdings of 49,675 Ordinary shares
and 5,000 Bshares, representing approximately 0.05per cent. of the
issued share capital of the Company as at the date of this document.
Information on shareholder voting rights is set out in the Notes to the
Annual General Meeting.
Individual Savings Accounts
The Company’s shares are qualifying investments for Individual
Savings Accounts. It is the current intention of the Directors that
the Company will continue to conduct its affairs to satisfy this
requirement.
By order of the Board
For BMO Investment Business Limited
Company Secretary
Quartermile 4
7a Nightingale Way
Edinburgh EH3 9EG
30 May 2022
40 | BMO UK High Income Trust PLC
Report of the Directors
Annual Report and Financial Statements 31 March 2022 | 41
Corporate Governance Statement
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
The biographical details of the Directors responsible for the governance
of your Company are set out on page 32. Committee membership is also
included and the respective terms of reference and biographies are also
available on the Company’s website bmoukhighincome.com.
In maintaining the confidence and trust of the Company’s shareholders,
the Board sets out to adhere to the highest standards of corporate
governance, business and ethics transparency and it remains committed
to doing so. As the Board believes that good governance creates value,
it expects the companies in which it invests to apply high standards.
Governance Overview
The Board has established an Audit Committee, Engagement and
Remuneration Committee and Nomination Committee. The role and
responsibilities of these committees are set out in their respective
reports, which follow, and their terms of reference are also available
on the Company’s website. With the exception of the Audit Committee
(where John Evans ceased to be a member with effect from 9 July
2019), each of the committees comprises all of the directors.
As set out in the Strategic Report, the Board has appointed the
Manager to manage the investment portfolio as well as to carry out
the day to day management and administrative functions. Reporting
from the Manager is set out on pages 12 to 20 and in the Report of
the Audit Committee in respect of internal controls on pages 47 to 48.
The Board's appointment of the Manager, its evaluation and alignment
with the values of the Board can be found on pages 9 and 10.
The Board has direct access to company secretarial advice and services
of the Manager which, through the Company Secretary, is responsible
for ensuring that Board and committee procedures are followed
and applicable laws, regulations and best practice requirements are
complied with. The proceedings at all Board and committee meetings
are fully recorded through a process that allows any Director’s concerns
to be recorded by the Company Secretary in the minutes.
Compliance with the UK Corporate Governance Code (the
‘UK Code’)
The Board has considered and support the principles and recommendations
of the UK Code published in 2018, which can be found at www.frc.org.uk.
The Board believes that it has applied the principles and complied with its
provisions during the year under review and up to the date of this report
except as set out below. The UK Code includes provisions relating to:
• the role of the Chief Executive;
• executive directors’ remuneration;
• the need for an internal audit function; and
• workforce engagement
The Board considers these provisions as not being relevant to the
position of the Company, being an externally managed investment
company with a Board that has no executive Directors, is composed
solely of non-executives and has no employees. Therefore, with
the exception of the need for an internal audit function, which is
addressed on page 48, we have not reported further in respect of
these provisions.
None of the directors standing for re-election at the forthcoming AGM
has served in excess of nine years.
The Board also adheres to the principles and recommendations of
the AIC Code of Corporate Governance (the “AIC Code”) which can be
found on www.theaic.co.uk.
Company Purpose
The Company’s purpose, values and culture and the basis on which
it aims to generate value over the longer term is set out within the
Purpose, Strategy and Business Model on pages 9 to 10. How the Board
seeks to promote the success of the Company is set out on pages 25 to26.
Board Leadership
The Board consists solely of non-executive Directors and John Evans is
the Chairman. The Board is responsible for the effective stewardship
of the Company’s affairs and has in place a schedule of matters that it
has reserved for its decision, which is reviewed periodically.
The Board currently meets at least five times a year and at each
meeting the Board reviews the Company’s investment performance
and considers financial analyses and other reports of an operational
nature. The Board monitors compliance with the Company’s objectives
and is responsible for setting investment and gearing limits within
which the Manager has discretion to act, and thus supervises the
management of the investment portfolio which is contractually
delegated to the Manager.
A management agreement between the Company and its Manager,
BMO Investment Business Limited, sets out the matters over which
the 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 of Directors.
Corporate Governance Statement
42 | BMO UK High Income Trust PLC
Corporate Governance Statement
Division of Board Responsibilities
As an externally managed investment company, all the Directors
are non-executive and there are no employees. The Chairman, is
responsible for the leadership and management of the Board and
promotes a culture of openness, challenge and debate. The Chairman
sets the agenda for all Board meetings under a regular programme of
matters in conjunction with the Company Secretary. There is a strong
working relationship with the Manager and the Fund Manager and
related personnel attend the meetings throughout the year and report
to the Board. Discussions are held in a constructive and supportive
manner with appropriate challenge and strategic guidance and advice
from the Board whenever necessary consistent with the culture
andvalues.
AndrewWatkins is the Senior Independent Director and he acts as an
experienced sounding board for the Chairman or as an intermediary
for other Directors and shareholders. He also leads the annual
evaluation of the Chairman.
In order to enable them to discharge their responsibilities, all Directors
have full and timely access to relevant information. Directors, may at
the expense of the Company, seek independent professional advice
on any matter that concerns them in the furtherance of their duties.
No such advice was taken during the year under review. The Company
maintains appropriate directors’ and officers’ liability insurance.
Under the Articles of Association of the Company, the number of
Directors on the Board may be no less than two and no more than
seven. Directors may be appointed by the Company by ordinary
resolution or by the Board. Any Director appointed by the Board would
hold office only until the next general meeting and then be eligible for
re-election by shareholders. The Board has agreed that all Directors will
retire annually and, if appropriate, seek re-election.
Full details of the duties of Directors are provided at the time of
appointment. New Directors receive an induction from the Manager
on joining the Board, and all Directors are encouraged to attend
relevant training courses and seminars and receive regular updates on
the industry and changes to regulations from the Company Secretary
and other parties, including the AIC. All of the Directors consider that
they have sufficient time to discharge their duties.
All Directors are considered by the Board to be independent of the
Company’s Manager and the Board believes that each Director is
independent in character and judgement and that they perform
their duties at all times in an independent manner and that there
are no relationships or circumstances which are likely to affect the
judgement of any Director.
Directors’ attendance during the year ended 31 March 2022
Board of
Directors
Audit
Committee
Engagement
and
Remuneration
Committee
Nomination
Committee
No. of meetings 5 2 1 2
J M Evans 5 n/a 1 2
H M Galbraith 5 2 1 2
J Le Blan
(1)
2 1 1 1
S J Mitchell 5 2 1 2
A K Watkins 5 2 1 2
(1)
Retired on 27 July 2021
During the year, additional meetings were also held to approve matters such as the
interim dividends and capital repayments.
Composition and Succession
The composition of the Board and Committees together with the
experience of the members is set out on page 32. The Company’s
diversity policy is set out on page 31.
John Evans has now served on the Board for more than nine years and
will retire following the conclusion of the forthcoming Annual General
Meeting. Subject to shareholders supporting the resolution to continue
the Company at the forthcoming AGM, the Nomination Committee will
then complete a recruitment process to appoint a new non-executive
director. This forms part of the Board’s succession plan which has enabled
the retirement of the longer serving Directors while balancing the need to
ensure an adequate level of continuity and experience on the Board.
Board Evaluation and Effectiveness
During the year the performance of the Board and Committees,
including the performance of each individual Director, was evaluated
through a formal assessment process, led by the Chairman. The
performance of the Chairman was evaluated by the other Directors
under the leadership of the Senior Independent Director. This process
involved discussions with individual Directors, individual feedback
from the Chairman to each of the Directors and discussion of the
points arising amongst the Directors.
Following this process, it was concluded that the performance of
each Director and the Chairman continues to be effective and each
remain committed to the Company and that the Board oversees the
management of the Company effectively and has the requisite skills
and expertise to safeguard shareholders’ interests.
The conclusion from the assessment process was also that the
Audit Committee, Nomination Committee and Engagement and
Remuneration Committees were operating effectively, with the right
balance of membership, experience and skills.
Annual Report and Financial Statements 31 March 2022 | 43
Corporate Governance Statement
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Audit, Risk Management and Internal Control
The Board has a well established and effective Audit Committee,
the report of which is set out on pages 46 to 49. The report includes
how the Board oversees the risk management and internal control
framework and determines the nature and extent of the principal
risks the Company is willing to take in order to achieve its long-
term strategic objectives. In the current year this also included the
assessment of the operational risks posed by COVID-19 and the
implementation of contingency plans by the Manager and other third
party service providers. Details of the principal risks and uncertainties
are set out on pages 27 to 28 and further information on the
Company’s risk management and internal control framework can be
found on pages 46 to 48.
The rationale for the Company not having established its own internal
audit function is also explained.
The report of the Audit Committee explains how the independence
and effectiveness of the external auditor is assessed and how the
Board satisfies itself on the integrity of financial statements. The
report also covers the process under which the Board satisfied itself
that the Annual Report and Financial Statements, taken as a whole,
presents a fair balanced and understandable assessment of the
Company’s position and prospects.
Relations with Shareholders and Stakeholders
Communication with the Company’s key stakeholders, who are its
shareholders, the Manager, bankers and other key service providers is
set out on page 10.
Remuneration
Information on the remuneration arrangements for the non-executive
Directors of the Company can be found in the Directors' Remuneration
Report on pages 50 to 52 and in note 6 to the financial statements.
The remuneration policy is explained on page 50 and that, as non-
executive Directors, their fees are set at a level commensurate with
the skills and experience necessary for the effective stewardship
of the Company and the contribution towards the delivery of the
investment objective. While there are no executive Directors and
no employees, shareholders should expect that the fees paid to the
Manager are aligned with the Company’s purpose, values and the
successful delivery of its long-term strategy.
Share Capital and Companies Act 2006 Disclosures
Details of the Company’s capital structure is set out on page 88 and
details of substantial interests in the Company’s share capital and other
Companies Act 2006 Disclosures are included on pages 35 and 37.
By order of the Board
For BMO Investment Business Limited
Company Secretary
Quartermile 4
7a Nightingale Way
Edinburgh EH3 9EG
30 May 2022
44 | BMO UK High Income Trust PLC
Report of the Nomination Committee
Composition of the Committee
The Committee comprises the full Board and is chaired by
John Evans and its terms of reference can be found on the
website at bmoukhighincome.com
Role of the Committee
The primary role of the Nomination Committee is to review and
make recommendations with regard to Board structure, size and
composition and it takes into account the ongoing requirements of
the Company and the need to have a balance of skills, experience,
diversity including gender, race, ethnicity, socio-economic background,
religion, sexual orientation, age or physical ability, independence and
knowledge of the Company within the Board and ensuring succession
planning is carefully managed.
The Committee met on two occasions during the year and considered
and reviewed the following matters:
• the size of the Board and its composition, particularly in terms of
succession planning and the experience and skills of individual
Directors and diversity of the Board as a whole;
• tenure;
• the criteria for future Board appointments and the methods of
recruitment, selection and appointment; and
• future retirement of Directors.
Diversity and Tenure
The Company’s Board diversity and tenure policy is shown on page 31
and recruitment searches are open to a diverse range of candidates.
Other than the diversity targets set out in the Listing Rules, the
Directors have not set any measurable objectives in relation to
diversity of the Board and will always appoint the best person
for the role.
The Board believes that a Director’s tenure does not necessarily
reduce his or her contribution or ability to act independently and that
continuity and experience can add significantly to the strength of
investment trust boards where the characteristics and relationships
tend to differ from those of other companies. However, the Board is
committed to maintaining the highest levels of corporate governance
in terms of independence and would normally expect the Directors to
serve for a nine-year term, however this may be adjusted for reasons
of flexibility and continuity.
Appointments and Succession Planning
Appointments of all new non-executive Directors are made on a
formal basis, normally using professional search consultants, with
the Nomination Committee agreeing the selection criteria and the
method of recruitment, selection and appointment.
A succession plan, to allow for the retirement of the longer serving
Directors, has been in progress over the last few years. The emphasis
has been on ensuring the highest level of skills, knowledge and
experience of the Board and when recruiting a new Director
consideration is given to the current skills and experience of the
Board and the remaining tenure of each Director. This assists in
identifying the desired attributes of the new Director and ensures
that the Board continues to comprise individuals with appropriate and
complementary skills and experience and continuity.
Having served on the Board for 10 years Julia Le Blan retired following
the conclusion of the Annual General Meeting held on 27July 2021.
On her retirement, Helen Galbraith became the Chair of the Audit
Committee, with the previous year since her appointment to the
Board, having provided a period of overlap regarding this role.
The Chairman, John Evans who has now served on the Board for more
than nine years will retire following the conclusion of the forthcoming
Annual General Meeting to be held on 20 July 2022. It is intended
that Andrew Watkins will become Chairman when John Evans retires
and subject to shareholders voting that the Company should continue
in existence, the Nomination Committee will then complete a
recruitment process to appoint a new non-executive Director.
Committee Evaluation
The activities of the Committee were considered as part of the Board
appraisal process completed in accordance with standard governance
arrangements as summarised on page 42. The conclusion from the
process was that the Committee was operating effectively, with the
right balance of experience and skills.
John M Evans
Chairman of the Nomination Committee
30 May 2022
Report of the Nomination Committee
Annual Report and Financial Statements 31 March 2022 | 45
Report of the Engagement and Remuneration Committee
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Composition of the Committee
The Committee comprises the full Board and is chaired by
StephenMitchell. Its terms of reference can be found on the website at
bmoukhighincome.com
Role of the Committee
The Committee meets at least annually and its role is to review the
terms and conditions of the Manager’s appointment and the services
it and other key suppliers provide and the fees charged, and also to
review the remuneration of Directors.
The Committee met on one occasion during the year.
Manager Evaluation Process and Re-appointment
Since the end of the year, the Committee has reviewed the
appropriateness of the Manager’s appointment. In carrying out its
review the Committee considered the past investment performance
of the Company and the skills, experience and depth of the Manager’s
team involved in managing the Company’s assets and its ability to
produce satisfactory investment performance in the future.
Its performance is considered by the Board at every meeting, with a
formal evaluation by the Committee each year. For the purposes of its
ongoing monitoring, the Board receives reports from the Manager on
investment activity, attribution, gearing, risk and performance. This
enables it to assess the sources of positive and negative contribution
to returns in terms of gearing and stock selection. While shorter term
data is important, the assessment of the Manager’s performance is
considered over a five year period, looking at comparisons against the
benchmark and a peer group of other UK Equity Income investment
companies. The period of five years matches the period between
shareholder continuation votes, in the event that the NAV total return
performance of the Company is less than that of the FTSE All-Share
Index over the relevant five year period. This allows the Board to
assess the management of the investment portfolio against the
Company’s investment objective on an ongoing basis together with
performance against the Company’s key performance indicators.
As set out in the Chairman’s Statement, the most recent five-year
performance period ended on 31 March 2022 and as the NAV total
return (+11.2%) was less than the total return for the FTSE All-Share
Index (+25.8%) over this period a Resolution that the Company
continues in existence will be put to shareholders at the AGM on
20July 2022.
The annual evaluation that took place in May 2022 included a
presentation from the Fund Manager and the Manager's Head
of Investment Trusts. This included reporting on the investment
performance over the last five year period and the reasons for
the periods of both over and underperformance and its ability to
successfully deliver the investment strategy for shareholders. The
Manager also reported on the strength of its current business,
progress of the integration of its business with that of Columbia
Threadneedle Investments, the resources and opportunities that
can be expected as part of the enlarged business and the continued
support of the investment trust business.
The Committee also considered the length of the notice period of the
investment management contract and fees payable to the Manager,
together with the standard of other services provided which include
ESG, marketing, company secretarial and accounting services.
As set out in the Chairman’s statement on page 6, a change to the
investment management fee has been agreed between the Board
and the Investment Manager and with effect from 1April 2022 the
investment management fee will be reduced to 0.60% per annum on
the net asset value of the Company.
Following this review, it was the Committee’s view that the continuing
appointment of the Manager on the terms agreed was in the
best interests of shareholders as a whole. The Board ratified this
recommendation.
Review of Directors’ Fees
The Company Secretary, BMO Investment Business Limited, provides
information on comparative levels of Directors’ fees in advance of the
Committee considering the level of Directors’ fees. Following a review
for the forthcoming year to 31March 2023 the Committee concluded
the amount paid to Directors should remain unchanged.
Committee Evaluation
The activities of the Committee were considered as part of the Board
appraisal process completed in accordance with standard governance
arrangements as summarised on page 42. The conclusion from the
process was that the Committee was operating effectively, with the
right balance of experience and skills.
Stephen J Mitchell
Chairman of the Engagement and Remuneration Committee
30 May 2022
Report of the Engagement and
Remuneration Committee
46 | BMO UK High Income Trust PLC
Report of the Audit Committee
Composition of the Committee
The Board recognises the requirement for the Audit Committee as a
whole to have competence relevant to the sector in which the Company
operates and at least one member with recent and relevant experience.
Following the retirement of Julia Le Blan on 27 July 2021, the Audit
Committee is chaired by Helen Galbraith who is a Chartered Financial
Analyst and has recent and relevant financial experience. The Audit
Committee operates within clearly defined terms of reference and
comprises the full Board, with the exception of John Evans who is
Chairman of the Board. These directors have a combination of relevant
financial, investment and business experience and specifically with
respect to the investment trust sector and accordingly have sufficient
experience to discharge their responsibilities. Details of the members
can be found on page 32 and the Committee’s terms of reference are
available on the Company’s website bmoukhighincome.com.
The performance of the Committee was evaluated as part of the
Board appraisal process.
Role of the Committee
The duties of the Audit Committee include ensuring the integrity of the
financial reporting and financial statements of the Company, reviewing
the annual and interim financial statements, the risk management
and internal controls processes, and the terms of appointment and
remuneration of the auditor, Deloitte LLP (‘Deloitte’), including its
independence and objectivity. It also provides a forum through which
the auditor reports to the Board of Directors and meets twice yearly
including at least two meetings with Deloitte.
The Audit Committee met on two occasions during the year and the
attendance of each of the members is set out on page 42. In the due
course of its duties, the committee had direct access to Deloitte and
senior members of the Manager’s Fund Management, Investment
Trust and Business Risk teams. Amongst other things, the Audit
Committee considered and reviewed the following matters and
reported thereon to the Board:
• the annual and half-yearly results announcements, and annual
and half-yearly reports and financial statements;
• the accounting policies of the Company and the allocation of
management expenses and interest costs between capital and
revenue;
• the principal and emerging risks and uncertainties faced by the
Company and the effectiveness of the Company’s internal control
and risk management environment;
• consideration of the assumptions underlying the Board’s
statement on viability;
• the effectiveness of the external audit process and the
independence and objectivity of Deloitte as auditor, it‘s re-
appointment, remuneration and terms of engagement;
• the policy on the engagement of Deloitte to supply non-audit
services and approval of any such services;
• the implications of proposed new accounting standards and
regulatory changes;
• the need for the Company to have its own internal audit function;
• the ISAE/AAF and SSAE16 reports or their equivalent from the
Manager, the Custodian and other significant third party service
providers;
• whether the Annual Report and Financial Statements as a whole
is fair, balanced and understandable;
• the operational arrangements and performance of the Manager
and other third party service providers in terms of business
continuity during the COVID-19 pandemic; and
• the acquisition of BMO GAM by Columbia Threadneedle
Investments and the expected integration of its systems, risk
management and internal control infrastructure.
During the preparation of both the half-yearly report for the six
month period ended 30 September 2021 and the annual report and
financial statements for the year ended 31 March 2022, the Committee
has considered the impact of the COVID-19 pandemic upon the
risks, operations and accounting basis of the Company. As noted
within Principal Risks and Uncertainties and Viability Statement on
pages27 and 28 the Directors have reviewed the risk register of the
Company and agreed that the overall risk from some of its principal
risks remain heightened as a consequence of the pandemic. At the
onset of the pandemic the Manager implemented ‘working from
home’ arrangements for its staff and the Company’s other third party
service providers also implemented similar arrangements to ensure
no disruption to their service. Following the easing of government
COVID-19 related restrictions, the Manager has moved to a hybrid model
with staff also returning to work in office locations. The Committee
continues to monitor this and is confident that the Company continues
to operate as normal with service levelsmaintained.
With regard to the change of ownership of BMO GAM that took effect
on 8 November 2021, the Audit Committee has received confirmation
that the existing systems and controls are unchanged and have
Report of the Audit Committee
Annual Report and Financial Statements 31 March 2022 | 47
Report of the Audit Committee
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continued to operate effectively throughout the year under review
and thereafter without any material change to the date of this report.
The merger of BMO GAM and Columbia Threadneedle Investments will
entail the progressive integration of the two entities, which the Audit
Committee will monitor closely from a risk management and internal
control perspective.
The Board retains ultimate responsibility for all aspects relating to
external financial statements and other significant published financial
information as is noted in the Statement of Directors’ Responsibilities
on page 53.
Risk Management
The Board has established an ongoing process designed to meet the
particular needs of the Company in managing the risks to which it is
exposed, consistent with the related guidance issued by the Financial
Reporting Council.
The Manager’s Business Risk department provides regular control
reports to the Audit Committee and the Board covering risk and
compliance and any significant issues of direct relevance to the
Company are required to be reported to the Audit Committee and
Board immediately.
For the management of risk, a key risk summary is produced to help
identify the risks to which the Company is exposed, the controls
in place and the actions being taken to mitigate them. The Audit
Committee and Board has a robust process for considering the
resulting risk control assessment and reviews the significance of the
risks and reasons for any changes.
The Company’s principal risks and uncertainties and their mitigations
are set out on pages 27 and 28 with additional information provided
in note 21 to the financial statements. The integration of these risks
into the consideration of the Viability Statement on page 29 was also
fully considered and the Audit Committee concluded that the Board’s
Statement was soundly based. The period of five years was also agreed
as remaining appropriate for the reasons given in the Statement.
Internal Controls
The Board has overall responsibility for the Company’s system of risk
management and internal control, for reviewing its effectiveness and
ensuring that risk management and internal control processes are
embedded in the Manager's daily operations.
The Audit Committee has reviewed and reported to the Board on
these controls which aim to ensure that the assets of the Company are
safeguarded, proper accounting records are maintained, and the financial
information used within the business and for publication is reliable.
Control of the risks identified, including financial, operational,
compliance and overall risk management is exercised by the Audit
Committee and the Board through regular reports provided by the
Manager. The reports cover investment performance, performance
attribution, compliance with agreed and regulatory investment
restrictions, financial analyses, revenue estimates, performance of the
third party administrators of the Manager’s savings plans and other
relevant issues.
At each Board meeting, the Board monitors the investment performance
of the Company in comparison to its objective and relevant equity
market indices. The Board also reviews the Company’s activities since
the last Board meeting to ensure that the Manager adheres to the
agreed investment policy and approved investments guidelines and, if
appropriate, approves changes to such policy and guidelines.
The system of risk management and internal control is designed to
manage, rather than eliminate the risk of failure to achieve business
objectives and, by their nature, can only provide reasonable, but not
absolute, assurance against material misstatement, loss, or fraud.
Further to the review by the Audit Committee, the Board has assessed
the effectiveness of the Company’s internal control systems.
The assessment included a review of the Manager's risk management
infrastructure and the Report on Internal Controls in accordance with
ISAE 3402 and AAF 01/20 for the year to 31 October 2021 (the ‘ISAE/AAF
Report’) that has been prepared for its clients. The Audit Committee also
received confirmation from the Manager that subsequent to this date,
there had been no material changes to the control environment. The
ISAE/AAF Report contained an unqualified opinion from independent
reporting accountants KPMG LLP, and sets out BMO GAM’s control
environment and procedures with respect to the management of its
clients’ investments and maintenance of their financial records. The
effectiveness of these controls is monitored by the Manager's Group
Audit and Compliance Committee, which receives regular reports from
BMO's Corporate Audit department. Procedures are also in place to
capture and evaluate any failings and weaknesses within the Manager's
control environment and those extending to any outsourced service
providers to ensure that action would be taken to remedy any significant
issues identified and which would be reported to the Board. Any errors or
breaches relating to the Company are reported at each Audit Committee
and Board Meeting by the Manager, including those relating to the
administration of the Manager’s savings plans and related complaint
levels. No failings or weaknesses that were material to the overall control
environment and financial statements in respect of the Company were
identified in the year under review nor to the date of this report.
48 | BMO UK High Income Trust PLC
Report of the Audit Committee
The Audit Committee also reviewed appropriate reports on the
internal controls of other significant service providers, such as the
Custodian and Registrar and was satisfied that there were no
material exceptions.
The review procedures have been in place throughout the full
financial year and up to the date of approval of the financial
statements, and the Board is satisfied with their effectiveness.
Through the reviews and reporting arrangements set out above and
by direct enquiry of the Manager and other relevant parties, the Audit
Commitee and the Board have satisfied themselves that there were
no material control failures or exceptions affecting the Company‘s
operations during the financial year or to the date of this report.
The Audit Committee has reviewed the need for an internal audit
function. Based on review, observation and enquiry, the Audit
Committee has concluded that the systems and procedures employed
by the Manager, provide sufficient assurance that a sound system
of internal control, which safeguards shareholders’ investment and
the Company’s assets, is maintained and the Board has concurred. In
addition, the Company’s financial statements are audited by an external
auditor. An internal audit function, specific to the Company, is therefore
considered unnecessary but this decision will be kept under review.
Significant Matters Considered by the Audit Committee in Relation to the Financial Statements
Matter Action
Valuation of Investment Portfolio
Possibility of incorrect valuation of the investment
portfolio, including failure to assess stock liquidity
appropriately.
The Company’s accounting policy is stated in note 1 to the financial statements.
The Board reviews the full portfolio valuation at each Board meeting and receives
quarterly monitoring and control reports from the Manager and Depositary. The
Committee reviewed the Manager's ISAE/AAF Report for the year ended 31 October
2021, which is reported on by independent external accountants and which details
the systems, processes and controls around the daily pricing of equity securities. The
Manager has provided further assurance that controls have operated satisfactorily
since that date.
Misappropriation of Assets
Misappropriation or non-existence of the Company’s
investments or cash balances could have a material
impact on its net asset value per share.
The Audit Committee reviewed the Manager's ISAE/AAF Report, as referred to
overleaf, which is reported on by independent external accountants and which
details the controls around the reconciliation of the Manager’s records to those of
the custodian. The Audit Committee also reviewed the custodian’s semi-annual
internal control report, which is reported on by independent external accountants,
and which provides details regarding its control environment. The Depositary has
issued reports confirming, amongst other matters, the safe custody of the Company’s
assets for the period to 31 March 2022.
Income Recognition
Incomplete or inaccurate income recognition, including
allocation between revenue and capital, could have an
adverse effect on the Company’s net asset value and
earnings per share and its level of dividend cover.
The Audit Committee reviewed the Manager's ISAE/AAF Report, as previously
referred to, which details the systems, processes and controls around the recording
of investment income. It also compared the final level of income received for
the year to the budget which was set at the start of the year and discussed the
accounting treatment of all special dividends received with the Manager.
Investment Trust Tax Status
As an investment trust company, the Company is
exempt from taxation arising on capital gains.
Breach of Section 1158 of the Corporation Tax Act 2010
could lead to the Company being subject to tax on
capital gains.
The Audit Committee reviewed the Company’s ongoing compliance with the
investment trust conditions set out in section 1158 of the Corporation Tax Act 2010. In
particular, the Audit Committee ensured that the retained revenue after tax for the
year was less than 15 per cent of the Company’s total income.
The Audit Committee read and discussed this Annual Report and Financial Statements and concluded that it is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Company’s performance objective and strategy.
Annual Report and Financial Statements 31 March 2022 | 49
Report of the Audit Committee
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External Audit Process and Significant Matters Considered
by the Audit Committee
In carrying out its responsibilities, the Audit Committee has
considered the planning arrangements, scope, materiality levels and
conclusions of the year end 31March 2022 external audit. The table
on page 48 describes the significant matters considered by the Audit
Committee in relation to the financial statements for the year and how
these were addressed.
The Audit Committee met in May 2022 to discuss the draft Annual
Report and Financial Statements, with representatives of Deloitte and
the Manager in attendance and Deloitte presented their year-end report
to the Audit Committee. At the conclusion of the audit Deloitte did not
report any audit differences in excess of their reporting threshold of
£0.06million, nor any differences below that level which would warrant
disclosure on qualitative grounds. In addition Deloitte did not highlight
any other issues to the Audit Committee which would cause it to qualify
its audit report nor did it highlight any fundamental internal control
weaknesses. Deloitte issued an unqualified audit report which is included
on pages 54 to 62.
Non-audit Services
The Committee regards the continued independence of the auditor to
be a matter of the highest priority. The Company’s policy with regard
to the provision of non-audit services by the external auditor ensures
that no engagement will be permitted if:
• the provision of the services would contravene any regulation or
ethical standard;
• the auditor is not considered to be expert providers of the non-
audit services;
• the provision of such services by the auditor creates a conflict of
interest for either the Board or the Manager; and
• the services are considered to be likely to inhibit the auditor’s
independence or objectivity as auditor.
In particular, the Committee has a policy, that the accumulated costs
of all non-audit services sought from the auditor in any one year
should not exceed 30% of the likely audit fees for that year and not
exceed 70% of the average audit fee for the previous three years.
In relation to the provision of non-audit services by the Auditor it has
been agreed that all non-audit work to be carried out by the Auditor
must be approved in advance by the Audit Committee and any special
projects must also be approved in advance. Deloitte did not receive
any fees for non-audit services during the year (2021: £nil).
Auditor Assessment, Independence and Re-appointment
The Audit Committee reviews the re-appointment of the auditor
every year and has been satisfied with the effectiveness of Deloitte’s
performance on the audit just completed.
As part of the review of auditor independence and effectiveness,
Deloitte has confirmed that it is independent of the Company and
has complied with relevant auditing standards. In evaluating Deloitte,
the Audit Committee has taken into consideration the standing, skills
and experience of the firm and the audit team. The Audit Committee,
from direct observation and enquiry of the Manager, remains satisfied
that Deloitte continues to provide effective independent challenge in
carrying out its responsibilities.
Following professional guidelines, the audit partner rotates after
five years. Andrew Partridge, the current senior statutory auditor
was engaged for the first time during the year ended 31 March 2018
and therefore this will be his last year on the engagement. The
Audit Committee also considered the evaluation of Deloitte’s audit
performance through the Audit Quality Review performed by the
Financial Reporting Council. Deloitte's fee for the audit (excluding VAT)
was £31,500 (2021: £30,000). On the basis of this assessment, the
Audit Committee has recommended the re-appointment of Deloitte to
the Board.
Helen Galbraith
Chairman of the Audit Committee
30 May 2022
50 | BMO UK High Income Trust PLC
Directors' Remuneration Report
Full details of the Company’s policy with regards to Directors’ fees,
and fees paid during the year ended 31 March 2022, are shown
below. This shows all major decisions on Directors’ remuneration, and
any substantial changes made during the year relating to Directors’
remuneration, including the context in which any changes occurred.
Under company law, the auditor is required to audit certain disclosures
provided. Where disclosures have been audited they are indicated as
such. The auditor’s opinion is included in its report on pages 54 to 62.
The Board consists solely of independent non-executive Directors. The
Company has no executive Directors or employees. The Engagement
and Remuneration Committee is responsible for determining the level
of Directors’ fees and its report is set out on page 45.
Directors’ Remuneration Policy
The Company’s policy is that the remuneration of non-executive
Directors should be set at a level commensurate with the skills and
experience necessary for the effective stewardship of the Company and
the expected contribution of the Board as a whole, their responsibilities,
duties and time commitment required and be fair and comparable to
that of other investment trusts that are similar in size and have similar
investment objectives. The policy also provides for the Company’s
reimbursement of all reasonable travel and associated expenses
incurred by the Directors in attending Board and Committee meetings,
including those treated as a benefit in kind subject to tax and national
insurance.
The Company has not received any direct communications from its
shareholders in respect of the levels of Directors’ remuneration. It is
intended that the policy will continue for the three year period ending
at the AGM in 2023.
The fees for the non-executive Directors are determined within the
limits set out in the Company’s Articles of Association. The present
limit is £175,000 per annum in aggregate and may not be changed
without seeking shareholder approval at a general meeting. Directors
are not eligible for bonuses, pension benefits, share options, long-
term incentive schemes or otherbenefits.
The non-executive Directors are engaged under letters of appointment and
do not have service contracts. Each Director has a letter of appointment
setting out the terms and conditions of his or her appointment and such
letters are available for inspection at the Company’s registered office during
business hours.
The dates on which each Director was appointed to the Board are set out
under their biographies on page 32. The terms of appointment provide
that a Director shall retire and be subject to re-election at the first Annual
General Meeting after his or her appointment. Directors are thereafter
obliged to retire periodically and, if they wish, to offer themselves for re-
election by shareholders, at least every three years after that. However,
in accordance with the recommendations of the UK Code and the AIC
Code the Board has agreed that all Directors will retire annually and, if
appropriate, seek re-election. All the Directors were last re-elected at the
AGM held on 27 July 2021 and with the exception of JohnEvans will stand
for re-election at the AGM on 20 July 2022. There is no notice period and
no provision for compensation upon termination ofappointment.
Voting at Annual General Meeting on Directors‘
Remuneration Policy
The Directors’ Remuneration Policy was last approved by shareholders
at the Company’s Annual General Meeting, held on 27 July 2020.
97.0per cent of votes were in favour of the resolution and 3.0 per cent
of votes were against.
Annual Statement
As Chairman of the Engagement and Remuneration Committee,
I confirm that effective 1 April 2021 the amount paid to Directors
increased by £4,500 per annum for both the Chairman and Audit
Committee Chairman and by £2,500 per annum for each of the
otherDirectors.
Future Policy Table
Following a review of the level of Directors’ fees for the forthcoming
year, in comparison to comparable investment trusts, the Engagement
and Remuneration Committee concluded that the amount paid to
Directors should remain unchanged.
Based on this, Directors’ fees for the forthcoming financial year would
be as follows:
31 March
2023
£
31 March
2022*
£
Chairman 39,000 39,000
Audit Committee Chairman 32,500 32,500
Director 26,000 26,000
* Actual Directors’ fees for the year ended 31 March 2022
Directors’ Remuneration Report
Annual Report and Financial Statements 31 March 2022 | 51
Directors' Remuneration Report
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Annual Report on Directors’ Remuneration
Directors’ Emoluments for the Year (audited)
The Directors who served during the financial year received the following amounts for services as non-executive Directors for the years ended
31March 2022 and 2021 and can expect to receive the fees indicated for 2023 as well as reimbursement for expenses necessarily incurred. No
other forms of remuneration were paid during the year.
Fees for services to the Company (audited)
Fees
(audited)
Taxable Benefits
(1)
(audited)
Total
(audited)
Anticipated
Fees
(2)
Director
31 March
2022
£
31 March
2021
£ % change
31 March
2022
£
31 March
2021
£ % change
31 March
2022
£
31 March
2021
£ % change
31 March
2023
£
J M Evans (Chairman) 39,000 34,500 +13.0 1,387 468 +196.4 40,387 34,968 +15.5 11,870
H M Galbraith
(3)
30,461 21,230 +43.5 – – – 30,461 21,230 +43.5 32,500
J Le Blan
(4)
10,529 28,000 -62.4 – – – 10,529 28,000 -62.4 n/a
S J Mitchell
(3)
26,000 21,230 +22.5 – – – 26,000 21,230 +22.5 26,000
A K Watkins 26,000 23,500 +10.6 – – – 26,000 23,500 +10.6 35,043
J P Williams
(5)
n/a 7,613 n/a n/a – n/a n/a 7,613 n/a n/a
Total 131,990 136,073 -3.0 1,387 468 +196.4 133,377 136,541 -2.3 105,413
(1)
Comprises amounts reimbursed for expenses incurred in carrying out business for the Company, which have been grossed up to include PAYE and NI contributions
(2)
Fees expected to be payable to the Directors during the year ended 31 March 2023. Taxable benefits are also anticipated but are not currently quantifiable. (The anticipated
fees reflect that JMEvans will retire following the forthcoming AGM and A K Watkins will then become the Chairman)
(3)
Appointed as a non-executive director on 6 May 2020.
(4)
Retired as a non-executive director on 27 July 2021.
(5)
Retired as a non-executive director on 27 July 2020.
Relative Importance of Spend on Pay
The table below shows the actual expenditure during the year in
relation to Directors’ remuneration (excluding taxable benefits), other
expenses and shareholder distributions:
31 March
2022
£
31 March
2021
£
Change
%
Aggregate Directors’ Remuneration 131,990 136,073 -3.0
Management fee and other expenses 1,130,000 1,050,000 +7.6
Distributions paid to Shareholders 6,176,000 6,070,000 +1.7
Aggregate cost of shares repurchased – 763,000 -100.0
Directors’ Shareholdings (audited)
The Directors who held office at the year end and their interests
in the shares of the Company at 31 March 2022 (all of which were
beneficially held) were as follows:
31 March 2022 1 April 2021
Director
Ordinary
Shares B Shares
Ordinary
Shares B Shares
J M Evans (Chairman) 15,000 5,000 15,000 5,000
H M Galbraith 12,000 – 12,000 –
S J Mitchell 12,675 – 12,675 –
A K Watkins 10,000 – 10,000 –
There have been no changes in any of the Directors’ interests in the
shares of the Company between 31 March 2022 and 30May 2022.
52 | BMO UK High Income Trust PLC
Directors' Remuneration Report
Company Performance
The Board is responsible for the Company’s investment strategy and
performance, whilst the management of the investment portfolio is
delegated to the Manager.
An explanation of the performance of the Company is given in the
Chairman’s Statement and Manager’s Review.
The graph below compares, for the required ten year period
to 31March 2022, the total return (assuming all dividends and
capital repayments are reinvested) to Ordinary shareholders and B
shareholders compared to the total return on the FTSE All-Share Index.
This index was chosen for comparison purposes, as it represents a
comparable broad equity market index; however it should be noted
that up to 25 per cent. of the Company’s assets were held in higher
yielding securities during part of this period.
Share Price Total Return and the FTSE All-Share Index Total
Return Performance Graph (rebased to 100 at 31 March 2012)
BMO UK High Income Trust – Ordinary Share price total return
BMO UK High Income Trust – B Share price total return
FTSE All-Share Index total return
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
90
100
110
120
130
140
150
160
170
180
190
20
0
210
Source: Refinitiv Eikon
Voting at Annual General Meeting on Annual
Remuneration Report
At the Company’s last Annual General Meeting, held on 27 July 2021,
shareholders approved the Directors’ Remuneration Report in respect
of the year ended 31 March 2021. 97.8 per cent of votes were in favour
of the resolution and 2.2 per cent were against.
An ordinary resolution for the approval of this Annual Report
on Directors’ Remuneration will be put to shareholders at the
forthcoming Annual General Meeting (Resolution 2).
On behalf of the Board
Stephen J Mitchell
Director
30 May 2022
Annual Report and Financial Statements 31 March 2022 | 53
Statement of Directors’ Responsibilities
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Statement of Directors’ Responsibilities in Relation to the
Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable United Kingdom
law and UK-adopted International Accounting Standards. The Directors
are also required to prepare a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance Statement.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have elected
to prepare the financial statements in accordance with UK-adopted
International Accounting Standards.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit 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 accounting estimates that are reasonable
and prudent;
• state whether they have been prepared in accordance with
UK-adopted International Accounting Standards, 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 related 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 sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Annual Report and Financial Statements is published on the
bmoukhighincome.com website which is maintained by BMO GAM. The
work carried out by the Auditor does not involve consideration of the
maintenance and integrity of the Company’s website and, accordingly,
the Auditor accepts no responsibility for any changes that may have
occurred to the financial statements since they were initially presented
on the website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statements under the Disclosure Guidance
and Transparency Rules in respect of the Annual Report
and Financial Statements
Each of the Directors listed on page 32 confirms that to the best of
their knowledge:
• the financial statements, prepared in accordance with UK-adopted
International Accounting Standards, give a true and fair view
of the assets, liabilities, financial position and return of the
Company;
• the Strategic Report and the Report of the Directors 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 they face; and
• taken as a whole, the annual report and financial statements are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the performance, strategy
and business model of the Company.
On behalf of the Board
John M Evans
Chairman
30 May 2022
Statement of Directors’ Responsibilities
54 | BMO UK High Income Trust PLC
Independent Auditor's Report
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of BMO UK High Income Trust PLC (the ‘Company’):
• give a true and fair view of the state of the Company’s affairs as at 31 March 2022 and of its profit for the year then ended;
• have been properly prepared in accordance with UK-adopted international accounting standards and the Statement of
Recommended Practice issued by the Association of Investment Companies in April 2021 “Financial Statements of Investment Trust
Companies and Venture Capital Trusts”; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the Statement of Comprehensive Income;
• the Statement of Financial Position;
• the Cash Flow Statement;
• the Statement of Changes in Equity; and
• the related notes 1 to 23.
The financial reporting framework that has been applied in their preparation is applicable law, UK-adopted international accounting standards
and the Statement of Recommended Practice issued by the Association of Investment Companies in April 2021 “Financial Statements of
Investment Trust Companies and Venture Capital Trusts”.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We confirm that we have not provided any non-audit services prohibited by
the FRC’s Ethical Standard to the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independent Auditor’s Report
to the members of BMO UK High Income Trust PLC
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2. Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was valuation and ownership of quoted
investments.
Materiality The materiality that we used in the current year was £1.11m which was determined on the basis of 1% of
net assets at 31 March 2022.
Scoping Audit work to respond to the risks of material misstatement was performed directly by the audit
engagement team.
Significant changes in
our approach
There have been no significant changes in our audit approach for the current year.
3. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors’ assessment of the Company’s ability to continue to adopt the going concern basis of accounting included:
• assessing the Directors’ considerations regarding whether they consider it appropriate to adopt the going concern basis of accounting,
including their expectation that the continuation vote will be approved by shareholders;
• assessing the relevance and reliability of underlying data and key assumptions, such as cash flows and liquidity assumptions used in the
prepared forecasts;
• evaluated plans for future actions in relation to their going concern assessment;
• assessing market altering factors such as COVID-19 by looking at the operational impact; and
• assessing the appropriateness of the going concern disclosures in the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at least twelve months from
when the financial statements are authorised for issue.
In relation to the reporting on how the Company has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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4. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
5.1. Valuation and Ownership of quoted investments
Key audit matter
description
The quoted investments of the Company £111.1m (2021: £123.0m) make up 100% of net assets £111.2m (2021:
£115.0m) as at 31 March 2022.
Please see accounting policy 1 (investments) and note 11 to the financial statements.
Quoted investments are valued at the closing bid price at the year end.
The financial reporting process is outsourced to BMO Investment Business Limited (“the Manager”), who have
in turn delegated certain accounting responsibilities to State Street Bank and Trust Company (“State Street”),
who maintain the underlying accounting records for investment transactions and related balances. The
safeguarding of the assets has been outsourced to JP Morgan Chase Bank (“JP Morgan”).
There is a risk that the quoted investments may not be valued correctly or may not represent the property of
the Company.
How the scope of our audit
responded to the key audit
matter
We have performed the following procedures to test the valuation and ownership of investments at 31 March
2022:
• obtained an understanding of relevant controls at the Manager (“BMO”) and the Administrator (“State
Street”) over the ownership and valuation of quoted investments and tested relevant controls;
• agreed 100% of the Company’s quoted investment portfolio at the year end to confirmations received
directly from the custodian (“JP Morgan”); and
• agreed 100% of the bid prices of quoted investments on the investment ledger at year end to closing bid
prices published by an independent pricing source.
In addition, we have:
• tested the recording of a sample of purchases and sales of quoted investments by agreeing the
transactions to supporting documentation and tracing the cash movements to bank statements; and
• assessed the completeness and appropriateness of disclosures in relation to fair value measurements.
Key observations Based on the work performed we concluded that the valuation and ownership of quoted investments is
appropriate.
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5. Our application of materiality
5.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality £1.11m (2021: £1.15m)
Basis for determining
materiality
1% of net assets (2021: 1% of net assets).
Rationale for the benchmark
applied
Net assets has been selected as it is considered the most relevant benchmark for investors and is the key
driver of shareholder value.
Net Asset Value
Materiality
Net Asset Value £111m
Materiality £1.11m
Audit Committee
reporting threshold
£0.06m
5.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 70% of materiality for the
2022 audit (2021: 70%). In determining performance materiality, we considered the following factors:
i. the quality of the control environment:
ii. management have expressed willingness to investigate and correct any known misstatements, if applicable; and
iii. there have been no uncorrected misstatements noted in audits during prior years.
5.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £55,000 (2021: £57,000), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the audit committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.
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6. An overview of the scope of our audit
6.1. Scoping
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material
misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team. As described in
Note 1 to the financial statements, the Company does not prepare group accounts and as such our audit was scoped for the Company only.
6.2. Our consideration of the control environment
The financial reporting process is outsourced to BMO Investment Business Limited (“the Manager”), who have in turn delegated certain accounting
responsibilities to State Street (Global Fund Accounting), who maintain the underlying accounting records for investment transactions and
relatedbalances.
As part of our audit, we assessed the controls in place at the Manager and also the relevant controls in place at State Street (Global Fund
Accounting). We have reviewed the Service Organisation Reports to assess the control environments in place and the extent relevant to our audit.
As part of this, we relied upon the controls report of the administrator and adopted a controls reliance approach with respect to valuation and
ownership of investments.
6.3. Our consideration of the control environment
In planning our audit, we have considered the potential impact of climate change on the business and its financial statements. The Company
continues to develop its assessment of the potential impacts of environmental, social and governance (“ESG”) related risks, including climate
change, as outlined on page 24. As a part of our audit, we held discussions to understand the process of identifying climate-related risks, the
determination of mitigating actions and the impact on the Company’s financial statements. We performed our own qualitative risk assessment
of the potential impact of climate change on the account balances and classes of transactions.We have read the annual report to consider
whether they are materially consistent with the financial statements and our knowledge obtained in the audit.
7. Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. 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 in this regard.
8. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial 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.
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9. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial 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 (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
10. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
10.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Company’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management and the audit committee about their own identification and assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Company’s documentation of their policies and procedures relating to:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
• the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• the matters discussed among the audit engagement team regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud in the valuation and ownership of quoted investments. In common with all audits under ISAs (UK), we are also
required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Company operates in, focusing on provisions of those laws
and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and
regulations we considered in this context included the UK Companies Act, Listing Rules and UK tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the Company’s ability to operate or to avoid a material penalty. This included the requirements of the United
Kingdom’s Financial Conduct Authority (FCA).
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10.2 Audit response to risks identified
As a result of performing the above, we identified the valuation and ownership of quoted investments as a key audit matter related to the
potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures
we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
• enquiring of management and the audit committee concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due
to fraud;
• reading minutes of meetings of those charged with governance; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the
business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, and remained alert
to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
11. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not
identified any material misstatements in the strategic report or the directors’ report.
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12. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement 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 specified for our review.
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 financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified;
• the directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period
is appropriate;
• the directors’ statement on fair, balanced and understandable;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems; and
• the section describing the work of the audit committee.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 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; or
• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us;
or
• the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
13.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been
made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
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14. Other matters which we are required to address
14.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the members of the Company on 29 June 2017 to audit the
financial statements for the year ending 31 March 2018 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 5 years, covering the years ending 31 March 2018 to 31 March 2022.
14.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
15. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Andrew Partridge (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Glasgow, United Kingdom
30 May 2022
Statement of Comprehensive Income
Annual Report and Financial Statements 31 March 2022 | 63
For the year to 31 March
Notes
Revenue
Year to
31 March
2022
£’000
Capital
Year to
31 March
2022
£’000
Total
Year to
31 March
2022
£’000
Revenue
Year to
31 March
2021
£’000
Capital
Year to
31 March
2021
£’000
Total
Year to
31 March
2021
£’000
Capital (losses)/gains on investments
11 (Losses)/gains on investments held at fair value through profit or loss – (1,087) (1,087) – 29,988 29,988
Exchange gains/(losses) – 5 5 – (35) (35)
Revenue
2 Income 5,013 – 5,013 3,788 – 3,788
Total income 5,013 (1,082) 3,931 3,788 29,953 33,741
Expenditure
4 Investment management fee (227) (529) (756) (212) (494) (706)
5 Other expenses (506) – (506) (480) – (480)
Total expenditure (733) (529) (1,262) (692) (494) (1,186)
Profit/(loss) before finance costs and tax 4,280 (1,611) 2,669 3,096 29,459 32,555
Finance costs
7 Interest on bank loans (78) (183) (261) (69) (160) (229)
Total finance costs (78) (183) (261) (69) (160) (229)
Profit/(loss) before tax 4,202 (1,794) 2,408 3,027 29,299 32,326
8 Taxation (24) – (24) (7) – (7)
Profit/(loss) and total comprehensive income/(expense) for the year 4,178 (1,794) 2,384 3,020 29,299 32,319
10 Earnings per share 3.61p (1.55)p 2.06p 2.59p 25.16p 27.75p
The total column of this statement represents the Company’s Income Statement and Statement of Comprehensive Income, prepared in
accordance with UK-adopted International Accounting Standards. The supplementary revenue return and capital return columns are both
prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes on pages 67 to 82 are an integral part of these financial statements.
Statement of Comprehensive Income
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Statement of Financial Position
64 | BMO UK High Income Trust PLC
Statement of Financial Position
As at 31 March
Notes
2022
£’000
2021
£’000
Non-current assets
11 Investments held at fair value through profit or loss 111,362 123,249
Current assets
13 Receivables 3,210 990
14 Cash and cash equivalents 4,686 2,310
7,896 3,300
Total assets 119,258 126,549
Current liabilities
15 Payables (543) (542)
16 Bank loan (7,500) (3,500)
(8,043) (4,042)
Non-current liabilities
16 Bank loan – (7,500)
– (7,500)
Total liabilities (8,043) (11,542)
Net assets 111,215 115,007
Equity attributable to equity shareholders
17 Share capital 134 134
18 Share premium 153 153
Capital redemption reserve 5 5
Buy back reserve 80,394 80,394
Special capital reserve 11,704 13,340
Capital reserves 14,598 16,392
Revenue reserve 4,227 4,589
Equity shareholders’ funds 111,215 115,007
19 Net asset value per Ordinary share 95.97p 99.25p
19 Net asset value per B share 95.97p 99.25p
Company Number: SC314671
Approved by the Board and authorised for issue on 30 May 2022 and signed on its behalf by:
John M Evans, Director
The accompanying notes on pages 67 to 82 are an integral part of these financial statements.
Cash Flow Statement
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For the year to 31 March
Notes
Year to
31 March
2022
£’000
Year to
31 March
2021
£’000
Cash flows from operating activities
Profit before taxation 2,408 32,326
Adjustments for:
11 Losses/(gains) on investments held at fair value through profit or loss 1,087 (29,988)
Exchange (gains)/losses (5) 35
2 Interest income (5) (1)
Interest received 5 1
2 Dividend income (5,008) (3,787)
Dividend income received 4,935 3,638
(Increase)/decrease in receivables (5) 8
Increase in payables 2 33
Finance costs 261 229
Overseas tax suffered (49) (21)
Cash flows from operating activities 3,626 2,473
Cash flows from investing activities
11 Purchases of investments (10,594) (19,430)
Sales of investments 19,264 18,849
Cash flows from investing activities 8,670 (581)
Cash flows before financing activities 12,296 1,892
Cash flows from financing activities
9 Dividends paid on Ordinary shares (4,540) (4,465)
9 Capital returns paid on B shares (1,636) (1,605)
17 Shares purchased for treasury – (763)
Interest on bank loans (249) (217)
(Repayment)/drawdown of loan (3,500) 3,500
Cash flows from financing activities (9,925) (3,550)
Net increase/(decrease) in cash and cash equivalents 2,371 (1,658)
Cash and cash equivalents at the beginning of the year 2,310 4,003
Effect of movement in foreign exchange 5 (35)
Cash and cash equivalents at the end of the year 4,686 2,310
Represented by:
Cash at bank 77 161
Short term deposits 4,609 2,149
4,686 2,310
The accompanying notes on pages 67 to 82 are an integral part of these financial statements.
Cash Flow Statement
66 | BMO UK High Income Trust PLC
Statement of Changes in Equity
For the year to 31 March 2022
Notes
Share
Capital
£’000
Share
Premium
£’000
Capital
Redemption
Reserve
£’000
Buy back
Reserve
£’000
Special
Capital
Reserve
£’000
Capital
Reserve –
investments
sold
£’000
Capital
Reserve –
investments
held
£’000
Revenue
Reserve
£’000
Total
£’000
Balance as at 31 March 2021 134 153 5 80,394 13,340 3,083 13,309 4,589 115,007
Movement during the year ended
31 March 2022
Profit/(loss) for the year – – – – – 4,918 (6,712) 4,178 2,384
Total comprehensive income for
the year – – – – – 4,918 (6,712) 4,178 2,384
Transactions with owners of the
Company recognised directly in
equity
9 Dividends paid on Ordinary shares – – – – – – – (4,540) (4,540)
9 Capital returns paid on B shares – – – – (1,636) – – – (1,636)
Balance as at 31 March 2022 134 153 5 80,394 11,704 8,001 6,597 4,227 111,215
For the year to 31 March 2021
Notes
Share
Capital
£’000
Share
Premium
£’000
Capital
Redemption
Reserve
£’000
Buy back
Reserve
£’000
Special
Capital
Reserve
£’000
Capital
Reserve –
investments
sold
£’000
Capital
Reserve –
investments
held
£’000
Revenue
Reserve
£’000
Total
£’000
Balance as at 31 March 2020 134 153 5 81,157 14,945 1,819 (14,726) 6,034 89,521
Movement during the year ended
31 March 2021
Profit for the year – – – – – 1,264 28,035 3,020 32,319
Total comprehensive income for
the year – – – – – 1,264 28,035 3,020 32,319
Transactions with owners of the
Company recognised directly in
equity
17 Shares bought back for treasury – – – (763) – – – – (763)
9 Dividends paid on Ordinary shares – – – – – – – (4,465) (4,465)
9 Capital returns paid on B shares – – – – (1,605) – – – (1,605)
Balance as at 31 March 2021 134 153 5 80,394 13,340 3,083 13,309 4,589 115,007
The accompanying notes on pages 67 to 82 are an integral part of these financial statements.
Statement of Changes in Equity
Annual Report and Financial Statements 31 March 2022 | 67
Notes to the Financial Statements
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1. Accounting policies
A summary of the principal accounting policies is set out below.
Basis of Preparation
The financial statements of the Company have been prepared on a going concern basis and in accordance with the Companies Act 2006 and UK-
adopted International Accounting Standards.
The Company’s subsidiary undertaking Investors Securities Company Limited has not been consolidated in the financial statements as it is
exempt in accordance with section 405(2) of the Companies Act 2006 on grounds of materiality. Investors Securities Company Limited has been
classified at fair value through profit or loss in the Statement of Financial Position.
Where presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts issued by the Association of
Investment Companies (“AIC”) is consistent with the requirements of UK-adopted International Accounting Standards, the Directors have sought
to prepare the financial statements on a basis compliant with the recommendations of the SORP.
The notes and financial statements are presented in pounds sterling (functional and presentational currency) because that is the currency of the
primary economic environment in which the Company operates. They are rounded to the nearest thousand except where otherwise indicated.
The Board confirms that no significant accounting judgements or estimates have been applied to the financial statements and therefore there is
not a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council
(including that due to COVID-19). After making enquiries, and bearing in mind the nature of the Company’s business and assets, and that
the Directors have a reasonable expectation that shareholders will support the resolution, that the Company continues in existence, at the
forthcoming AGM, the Directors consider that the Company has adequate resources to continue in operational existence for a period of at
least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in
preparing the financial statements. Further detail is included in the Report of the Directors on page34.
The accounting policies adopted are consistent with those of the previous financial year, and no new standards have been adopted in the
current year.
Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary
information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented
alongside the Statement of Comprehensive Income. The net revenue return is the measure the Directors believe appropriate in assessing the
Company’s compliance with certain requirements set out in section 1158 Corporation Tax Act 2010.
Investments
Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery
within the timeframe established by the market concerned, and are initially measured at fair value.
Investments are classified as fair value through profit or loss. As the entity’s business is investing in financial assets with a view to profiting from
their total return in the form of interest, dividends or increases in fair value, listed equities are designated as fair value through profit or loss on
initial recognition.
Notes to the Financial Statements
68 | BMO UK High Income Trust PLC
Notes to the Financial Statements
1. Accounting policies (continued)
Financial assets designated as at fair value through profit or loss are measured at subsequent reporting dates at fair value, which is either the
bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Unlisted investments,
including the subsidiary, are valued at fair value by the Directors on the basis of all information available to them at the time of valuation.
Where securities are designated upon initial recognition as fair value through profit or loss, gains and losses arising from changes in fair value
are included in net profit or loss for the period as a capital item. On derecognition any gain or loss arising is transferred from the Capital reserve
– Investments Held to Capital reserve – Investments Sold.
Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The
classification of financial instruments depends on the lowest significant applicable input, as follows:
Level 1 – quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 – other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or
indirectly.
Level 3 – techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. The
Company’s investment in its subsidiary is included in Level 3 and is valued at its equity value.
Receivables
Receivables do not carry any interest and are short term in nature and are accordingly stated at their nominal value as reduced by appropriate
allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash in banks and short term deposits that are held to maturity are carried at cost. Cash and cash equivalents consist of cash in hand and short
term deposits in banks with an original maturity of three months or less.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Financial liabilities
and equity instruments are initially recorded at the proceeds received, net of issue costs.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income
using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period
in which they arise.
Payables
Payables are not interest bearing and are stated at their nominal value.
Annual Report and Financial Statements 31 March 2022 | 69
Notes to the Financial Statements
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1. Accounting policies (continued)
Reserves
(a) Share premium – the surplus of net proceeds received from the issue of new shares over the par value of such shares is credited to this
account. The majority of the balance of this account which arose as a result of the issue of new shares at launch was subsequently cancelled
by the Court of Session to create the Buyback reserve and Special capital reserve. These reserves are explained below. To the extent that
the consideration received exceeds the value at which the shares were initially bought into treasury, the gain arising on the resale of shares
from treasury will be credited to the share premium account. The share premium account is non-distributable.
(b) Capital redemption reserve – the nominal value of any of the shares bought back for cancellation is added to this reserve. This reserve is
non-distributable.
(c) Buyback reserve – created from the Court cancellation of the share premium account which had arisen from premiums paid on the A Shares.
Available as distributable profits to be used for the buy back of Shares. The cost of any shares bought back is deducted from this reserve.
The cost of any Shares resold from treasury is added back to this reserve. (The A Shares were subsequently renamed Ordinary Shares).
(d) Special capital reserve – created from the Court cancellation of the share premium account which had arisen from premiums paid on the B
Shares. Available for paying capital returns on the B Shares.
(e) Capital reserves
Capital reserve – investments sold – gains and losses on realisation of investments are dealt with in this reserve together with the
proportion of management fees, interest and taxation allocated to capital. This reserve also includes dividends of a capital nature.
Capital reserve – investments held – increases and decreases in the valuation of investments held are accounted for in this reserve,
together with unrealised exchange differences on forward foreign currency contracts.
The Company’s Articles of Association allow distributions to be made from realised capital reserves where the balance on this reserve is
positive.
(f) Revenue reserve – the net profit/(loss) arising in the revenue column of the Statement of Comprehensive Income is added to or deducted
from this reserve. Available for paying dividends on the Ordinary shares.
Income
Dividends 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 brought into account when the Company’s right to receive
payment is established.
Special dividends of a non-capital nature are recognised through the revenue column of the Statement of Comprehensive Income. 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.
Interest income from fixed interest securities is accrued on a time apportioned basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the
financial asset to that asset’s net carrying amount. Other investment income and deposit interest are included on an accruals basis.
70 | BMO UK High Income Trust PLC
Notes to the Financial Statements
1. Accounting policies (continued)
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Statement of
Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes
items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet
liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Investment trusts which have approval under section 1158 Corporation Tax Act 2010 are not liable for taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred
tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity.
Expenses and interest
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of Comprehensive
Income except where incurred in connection with the maintenance or enhancement of the value of the Company’s investment portfolio taking
account of the expected long term split of returns as follows:
– Interest payable on the bank loans is recognised on an effective yield basis and allocated 30per cent to revenue and 70per cent to capital.
– Management fees have been allocated 30per cent to revenue and 70per cent to capital.
Foreign currency
Transactions denominated in foreign currencies are expressed in pounds sterling at actual exchange rates as at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year
end. Non-monetary non current assets held at fair value through profit and loss and denominated in foreign currencies are reported at the rates
of exchange prevailing when the fair value was assessed. Any gain or loss arising from a change in exchange rates subsequent to the date
of the transaction is included as an exchange gain or loss in either the capital or revenue column of the Statement of Comprehensive Income
depending on whether the gain or loss is of a capital or revenue nature respectively.
Rates of exchange at 31 March 2022 2021
Euro 1.1834 1.1739
Swiss Franc 1.2117 1.2985
Annual Report and Financial Statements 31 March 2022 | 71
Notes to the Financial Statements
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2. Income
2022
£’000
2021
£’000
Income from investments
UK dividend income 3,920 3,379
UK dividend income – special dividends 656 86
Overseas dividend income 305 220
Property income distributions 127 102
5,008 3,787
Other income
Interest on cash and cash equivalents 5 1
Total income 5,013 3,788
Total income comprises:
Dividends 5,008 3,787
Interest on cash and cash equivalents 5 1
Total income 5,013 3,788
Income from investments:
Listed 5,008 3,787
3. Operating segments
The Board has considered the requirements of IFRS 8 ‘Operating Segments’. The Board is of the view that the Company is engaged in a single
segment of business, of investing in equity and that therefore the Company has only a single operating segment. The Board of Directors, as a
whole, has been identified as constituting the chief operating decision maker of the Company. The key measure of performance used by the
Board to assess the Company’s performance is the total return on the Company’s net asset value as calculated under UK-adopted International
Accounting Standards and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in
the financial statements.
4. Investment management fee
2022 2021
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Management fee 227 529 756 212 494 706
The Company’s investment manager is BMO Investment Business Limited. The contract between the Company and BMO Investment Business
Limited may be terminated at any date by either party giving six months’ notice of termination. In the event of the Company terminating the
contract by giving less than six months’ notice, BMO Investment Business Limited is entitled to compensation calculated as a proportion of the
fees payable by the Company in respect of the previous financial year.
With effect from 1April 2018 until 31 March 2022 the investment management fee was 0.65per cent per annum on the net asset value of the
Company. As set out in the Report of the Directors, with effect from 1 April 2022 the investment management fee will be reduced to 0.60 per
cent per annum on the net asset value of the Company.
The investment management fee for the quarter ended 31March 2022 of £178,000 (2021: £184,000) is due to the Company’s investment
manager at the year end.
72 | BMO UK High Income Trust PLC
Notes to the Financial Statements
5. Other expenses (including irrecoverable VAT thereon)
2022
£’000
2021
£’000
Auditor’s remuneration:
– for audit services 38 36
Broker and professional fees 49 52
Custody and depository 20 18
Directors’ fees for services to the Company (Note 6) 132 136
Marketing 88 57
Printing and postage 41 40
Registrar’s fees 33 35
Revolving credit facility committment fee 20 32
Subscription and listing fees 46 43
Sundry expenses 39 31
Total other expenses 506 480
6. Directors’ fees
The emoluments of the Chairman, the highest paid Director, were at the rate of £39,000 per annum (2021: £34,500).
Other Directors’ emoluments amounted to £26,000 (2021: £23,500) each per annum, with the chairman of the Audit Committee receiving an
additional £6,500 (2021: £4,500) per annum. Full details are provided in the Directors’ Remuneration Report on pages50 to 52.
7. Finance costs
2022
Revenue
£’000
2022
Capital
£’000
2022
Total
£’000
2021
Revenue
£’000
2021
Capital
£’000
2021
Total
£’000
Finance costs attributable to term loan 62 146 208 62 143 205
Finance costs attributable to revolving credit facility 16 37 53 7 17 24
Total finance costs 78 183 261 69 160 229
Finance costs have been allocated 30 per cent to revenue and 70 per cent to capital in accordance with the Company‘s accounting policies.
8a. Tax on ordinary activities
2022
Revenue
£’000
2022
Capital
£’000
2022
Total
£’000
2021
Revenue
£’000
2021
Capital
£’000
2021
Total
£’000
Overseas taxation 24 – 24 7 – 7
Total taxation charge (see note 8(b)) 24 – 24 7 – 7
Annual Report and Financial Statements 31 March 2022 | 73
Notes to the Financial Statements
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8b. Factors affecting tax charge for current year
A reconciliation of the current tax charge for the current year is set out below:
2022
Revenue
£’000
2022
Capital
£’000
2022
Total
£’000
2021
Revenue
£’000
2021
Capital
£’000
2021
Total
£’000
Profit/(loss) before tax 4,202 (1,794) 2,408 3,027 29,299 32,326
Profit/(loss) multiplied by the effective
rate of corporation tax of 19.0% (2021: 19.0%) 798 (341) 457 575 5,567 6,142
Effects of:
Non taxable dividend income (927) – (927) (701) – (701)
Expenses not utilised in the year 129 135 264 126 124 250
Overseas taxation suffered 24 – 24 7 – 7
Non taxable capital losses/(gains) – 206 206 – (5,691) (5,691)
Total taxation (see note 8(a)) 24 – 24 7 – 7
The deferred tax asset of £3,400,000 (2021: £2,320,000) in respect of unutilised expenses at 31March 2022 has not been recognised as it
is uncertain that there will be taxable profits from which the future reversal of the deferred tax asset could be deducted. The deferred tax
asset has been calculated at the prospective UK corporation tax rate of 25% which takes effect from 1 April 2023 (2021: 19% standard rate of
corporation tax).
9. Dividends and capital repayments
Payment
date
2022
Revenue
£’000
2022
Capital
£’000
2022
Total
£’000
2021
Revenue
£’000
2021
Capital
£’000
2021
Total
£’000
Amounts recognised as distributions to shareholders in the year:
For the year ended 31 March 2021
Fourth interim dividend at 1.43p (2020: 1.34p) per Ordinary share 7-May-21 1,218 – 1,218 1,151 – 1,151
Fourth capital repayment at 1.43p (2020: 1.34p) per B share 7-May-21 – 439 439 – 414 414
For the year ended 31 March 2022
First interim dividend at 1.29p (2021: 1.29p) per Ordinary share 6-Aug-21 1,099 – 1,099 1,108 – 1,108
First capital repayment at 1.29p (2021: 1.29p) per B share 6-Aug-21 – 396 396 – 398 398
Second interim dividend at 1.29p (2021: 1.29p) per Ordinary share 5-Nov-21 1,099 – 1,099 1,107 – 1,107
Second capital repayment at 1.29p (2021: 1.29p) per B share 5-Nov-21 – 396 396 – 397 397
Third interim dividend at 1.32p (2021: 1.29p) per Ordinary share 4-Feb-22 1,124 – 1,124 1,099 – 1,099
Third capital repayment at 1.32p (2021: 1.29p) per B share 4-Feb-22 – 405 405 – 396 396
4,540 1,636 6,176 4,465 1,605 6,070
Amounts relating to the year but not paid at the year end:
Fourth interim dividend at 1.55p (2021: 1.43p) per Ordinary share 6-May-22 1,320 – 1,320 1,218 – 1,218
Fourth capital repayment at 1.55p (2021: 1.43p) per B share 6-May-22 – 476 476 – 439 439
1,320 476 1,796 1,218 439 1,657
As shown in the preceding table, the Directors have declared a fourth interim dividend and capital repayment in respect of the year ended
31March 2022 of 1.55p per share, which was paid on 6May 2022 to shareholders on the register on 8April 2022. Although these payments
relate to the year ended 31March 2022, under UK-adopted International Accounting Standards they will be accounted for in the period during
which they are paid.
74 | BMO UK High Income Trust PLC
Notes to the Financial Statements
9. Dividends and capital repayments (continued)
The dividends paid and payable in respect of the financial year ended 31 March 2022, which form the basis of the retention test under Chapter 4,
Part 24 of the Corporation Taxes Act 2010 are as follows:
2022
£’000
Revenue available for distribution by way of dividends for the year 4,178
First of four interims for the year ended 31 March 2022 of 1.29p per share (1,099)
Second of four interims for the year ended 31 March 2022 of 1.29p per share (1,099)
Third of four interims for the year ended 31 March 2022 of 1.32p per share (1,124)
Fourth of four interims for the year ended 31 March 2022 of 1.55p per share* (1,320)
Transferred from revenue reserve (464)
*based on 85,172,653 Ordinary shares in issue at the record date of 8April 2022.
10. Earnings per share
The Company’s earnings per share are based on the profit for the year of £2,384,000 (year to 31March 2021: £32,319,000) and on 85,172,653
Ordinary shares (2021: 85,648,406) and 30,708,750 B shares (2021: 30,802,860), being the weighted average number of shares in issue of each
share class during the year.
The Company’s revenue earnings per share are based on the revenue profit for the year of £4,178,000 (year to 31March 2021: £3,020,000) and on
the weighted average number of shares in issue as above.
The Company’s capital earnings per share are based on the capital loss for the year of £1,794,000 (year to 31March 2021 profit: £29,299,000) and
on the weighted average number of shares in issue as above.
Annual Report and Financial Statements 31 March 2022 | 75
Notes to the Financial Statements
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11. Investments held at fair value through profit or loss
2022
£’000
2021
£’000
Listed securities 111,112 122,999
Subsidiary undertaking 250 250
111,362 123,249
Listed/
Quoted
(Level 1)
£’000
Subsidiary/
Unlisted
(Level 3)*
£’000
Total
£’000
Cost brought forward 109,690 250 109,940
Gains brought forward 13,309 – 13,309
Fair value of investments at 31 March 2021 122,999 250 123,249
Purchases at cost 10,594 – 10,594
Sales proceeds (21,394) – (21,394)
Gains on investments sold in year 5,625 – 5,625
Losses on investments held at year end (6,712) – (6,712)
Fair value of investments at 31 March 2022 111,112 250 111,362
Cost at 31 March 2022 104,515 250 104,765
Gains at 31 March 2022 6,597 – 6,597
Fair value of investments at 31 March 2022 111,112 250 111,362
* Level 3 is the investment in the subsidiary undertaking, Investors Securities Company Limited, which is valued at its net asset value and for which observable market data is
not applicable.
2022
£’000
2021
£’000
Equity investments 111,362 123,249
Gains on investments sold in year 5,625 1,953
(Losses)/gains on investments held at year end (6,712) 28,035
Total (losses)/gains in year (1,087) 29,988
The Company incurred transaction costs of £31,500 (2021: £44,000) on the purchase of assets and £8,900 (2021: £10,200) on the sale of assets in
theyear.
Gains on investments sold in the year represents the difference between the net proceeds of sale and the book cost of the investments sold.
Investments sold during the year have been revalued over time since their original purchase, and until they were sold any unrealised gains/
losses were included in the fair value of the investments.
Losses on investments held at year end represents the decrease in the difference between the book cost of investments held and their market
value at 31March 2022 compared with the difference between the book cost of investments held and their market value at 31March 2021.
76 | BMO UK High Income Trust PLC
Notes to the Financial Statements
12. Significant interests
As at 31March 2022, the Company’s subsidiary undertaking which deals in investments is:
Name
Country of
incorporation
or Registration
Class of
Capital
Share
Capital and
Reserves
£’000
Profit for
the year
£’000
% of
Class
held
% of
Equity
held
Valuation
at 31.03.22
and 31.03.21
£’000
Investors Securities Company Limited Scotland Ordinary 250 – 100 100 250
The registered office of Investors Securities Company Limited is 6th Floor, Quartermile 4, 7a Nightingale Way, Edinburgh EH3 9EG.
At 31March 2022, no investments were held by the dealing subsidiary and it did not trade during the year. The accounts of this subsidiary have
not been consolidated with those of the Company as, in the opinion of the Directors, it is not material.
13. Receivables
2022
£’000
2021
£’000
Income receivable from shares and securities 936 863
Due from brokers in settlement of sales of investments 2,130 –
Withholding tax recoverable 111 86
Sundry debtors and prepayments 33 41
3,210 990
14. Cash and cash equivalents
All cash balances in the current and prior year were held in cash, current accounts or in banks on short term deposits with an original maturity of
three months or less at the year end.
15. Payables
2022
£’000
2021
£’000
Loan from subsidiary undertaking repayable on demand 250 250
Investment management fee payable to the manager 178 184
Loan Interest 2 3
Accrued expenses 113 105
543 542
Annual Report and Financial Statements 31 March 2022 | 77
Notes to the Financial Statements
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16. Bank loans
2022
£’000
2021
£’000
£7.5 million multicurrency revolving credit facility – 3,500
The Company has a £7.5million unsecured multicurrency revolving credit facility ("RCF") with Scotiabank (Ireland) Designated Activity Company
available until 28 September 2022. None of the RCF was drawn down at 31 March 2022 (2021: £3.5 million was drawn down).
2022
£’000
2021
£’000
£7.5 million term loan maturing 28 September 2022 7,500 7,500
The Company has a £7.5million unsecured term loan from Scotiabank Europe plc until 28September 2022 and at a fixed interest rate of 2.58per
cent per annum. Arrangement and legal fees of £60,000 were incurred and are being amortised over the term of these facilities.
The loan agreements contain certain financial covenants with which the Company must comply. These include a financial covenant with respect
to the ratio of the Adjusted Net Asset Value (as defined in the loan agreements) to the level of debt and also that the Net Asset Value does not
fall below £65million. The Company complied with the required financial covenants throughout the period since drawdown.
The fair value of the £7.5million term loan, calculated using a discounted cashflow technique, is not materially different from the value reflected
in the Statement of Financial Position.
17. Share capital
Allotted, issued and fully paid
Listed Held in Treasury In Issue
Number £ Number £ Number £
Ordinary Shares of 0.1p each
Balance at 1 April 2021 102,067,144 102,067 (16,894,491) (16,894) 85,172,653 85,173
Balance at 31 March 2022 102,067,144 102,067 (16,894,491) (16,894) 85,172,653 85,173
B shares of 0.1 pence each
Balance at 1 April 2021 32,076,703 32,077 (1,367,953) (1,368) 30,708,750 30,709
Balance at 31 March 2022 32,076,703 32,077 (1,367,953) (1,368) 30,708,750 30,709
Total at 31 March 2022 134,143,847 134,144 (18,262,444) (18,262) 115,881,403 115,882
During the year the Company bought back nil Ordinary Shares (2021: 750,000 Ordinary shares) to hold in treasury at a cost of £nil (2021: £634,000)
and nil B Shares (2021: 150,000 B Shares) to hold in treasury at a cost of £nil (2021: £129,000).
At 31March 2022 the Company held 16,894,491 Ordinary Shares (2021: 16,894,491 Ordinary shares) and 1,367,953 B Shares (2021: 1,367,953 BShares)
intreasury.
78 | BMO UK High Income Trust PLC
Notes to the Financial Statements
17. Share capital (continued)
Shareholder entitlements
The Company has two classes of shares: Ordinary Shares and B Shares. The rights of each class of shares are identical, save in respect of the
right to participate in dividends and capital repayments. Ordinary Shares are entitled to all dividends paid by the Company and no dividends
may be paid to B Shareholders. B Shareholders are entitled to capital repayments from the Company at an amount per share equal to, but
not exceeding, any dividend paid per share to Ordinary Shareholders. The capital repayments are paid out of the special capital reserve and
accordingly will only be able to be paid for so long as the amount of the special capital reserve remains sufficient. If and when this reserve is
exhausted, the Articles of Association provide that all the Ordinary shares and all the B Shares automatically convert into Ordinary shares with
identical rights.
The net asset value attributable to each class of share is the same. Apart from voting rights entitlements at separate class meetings, every
Ordinary Share and every B Share carries equal voting rights. Upon a winding up or reconstruction of the Company, each Ordinary Share and each
B Share shall have an equal right to share in the residual assets of the Company.
18. Share premium account and reserves
In 2007, the Court of Session confirmed the cancellation of the entire amount originally standing to the credit of the share premium account
and the creation of two distinct reserves, the first reserve relating to that part of the cancelled share premium account arising from premiums
paid on the A Shares (the “buy back reserve”) and the second reserve relating to that part of the cancelled share premium account arising from
premiums paid on the B Shares (the “special capital reserve”).
The Company will apply these two reserves as follows:
• the buy back reserve will be available as distributable profits to be used for the buy back of both Ordinary shares and B shares; and
• the special capital reserve will be used for the purpose of paying capital repayments on the B Shares.
Capital management
The Company’s capital is represented by the issued share capital, share premium account, capital redemption reserve, buy back reserve, special
capital reserve, capital reserve – investments sold, capital reserve – investments held and revenue reserve. Details of the movement through
each reserve are shown in the Statement of Changes in Equity. The Company is not subject to any externally imposed capital requirements.
The capital of the Company is managed in accordance with its investment policy, in pursuit of its investment objective, both of which are
detailed in the Purpose, Strategy and Business Model and Principal Policies and the Report of the Directors. In order to maintain an optimal
capital structure through varying market conditions the Company has the ability to:
– issue and buyback share capital within limits set by the shareholders in general meeting;
– borrow money in the short and long term;
– pay dividends to Ordinary shareholders out of current year revenue earnings as well as out of the brought forward revenue reserve; and
– pay capital repayments to B shareholders out of the special capital reserve.
The Company has the power under its Articles to borrow an amount up to 100per cent of the Company’s Adjusted Capital and Reserves. The
Directors currently intend that the aggregate borrowings of the Company will be limited to approximately 20per cent of the Company’s gross
assets immediately following drawdown of any new borrowings. The Directors will, however, retain flexibility to increase or decrease the level
of gearing to take account of changing market circumstances and in pursuit of the Company’s investment objectives.
Annual Report and Financial Statements 31 March 2022 | 79
Notes to the Financial Statements
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
19. Net asset value per share
2022 2021
Net assets attributable at the year end £111,215,000 £115,007,000
Equity shares in issue at the year end
(1)
115,881,403 115,881,403
Net asset value per Ordinary/B share 95.97p 99.25p
(1)
Consisting of 85,172,653 Ordinary Shares and 30,708,750 B Shares (2021: 85,172,653 Ordinary Shares and 30,708,750 B Shares), being the number of shares in issue at the year
end.
The Company’s shares may also be traded as units, each unit consisting of three Ordinary Shares and one B Share. The basic net asset value per
unit as at 31March 2022 was therefore 383.88p (2021: 397.00p).
The Company’s treasury net asset value per share, incorporating the 16,894,491 Ordinary shares and 1,367,9 53 B Shares held in treasury at the year
end (2021: 16,894,491 Ordinary Shares and 1,367,953 B Shares), was 95.97p (2021: 99.25p). The Company’s treasury net asset value per unit at the
end of the year was 383.88p (2021: 397.00p). The Company’s current policy is to only re-sell shares held in treasury at a price not less than the net
asset value per share.
20. Changes in liabilities arising from financing activities
2022
£’000
2021
£’000
Opening liabilities from financing activities 11,000 7,500
Cash-flows:
Drawdown of bank loan 2,000 3,500
Repayment of bank loan (5,500) –
Closing liabilities from financing activities 7,500 11,000
21. Financial instruments
The Company’s financial instruments comprise equity investments, cash balances, receivables and payables that arise directly from its
operations and borrowings. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The
Company makes use of borrowings to achieve enhanced returns. The downside risk of borrowings can be mitigated by raising the level of cash
balances held.
The Company may use derivatives for efficient portfolio management from time to time. No derivative financial instruments were used during
the current year or prior year. The Company may also write call options over some investments held in the Investment Portfolio. There were no
call options written during the current year or prior year.
The fair value of the financial assets and liabilities of the Company at 31March 2022 is not materially different from their carrying value in the
financial statements.
The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, market
price risk, liquidity risk, interest rate risk and foreign currency risk.
The Board reviews and agrees policies for managing its risk exposure. These policies are summarised overleaf and have remained unchanged
for the year under review.
80 | BMO UK High Income Trust PLC
Notes to the Financial Statements
21. Financial instruments (continued)
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.
The Company’s principal financial assets are bank balances and cash and other receivables, whose carrying amounts in the Statement of
Financial Position represent the Company’s maximum exposure to credit risk in relation to financial assets. The Company did not have any
exposure to any financial assets which were past due or impaired at the current or prior year end.
The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities
which the Company has delivered. A list of pre-approved counterparties used in such transactions is maintained and regularly reviewed by the
Manager, and transactions must be settled on a basis of delivery against payment. Broker counterparties are selected based on a combination
of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. Risk relating to unsettled transactions
is considered to be small due to the short settlement period involved and the acceptable quality of the brokers used. The rate of default in the
past has been insignificant.
All of the investments of the Company, are held by JPMorgan Chase Bank, the Company’s custodian. Bankruptcy or insolvency of the custodian
may cause the Company’s rights with respect to the securities held by the custodian to be delayed or limited. The Board monitors the Company’s
risk by reviewing the custodian’s internal control reports as described in the Report of the Audit Committee.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings,
normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the
Company’s ability to access cash placed on deposit to be delayed, limited or lost.
The Company has no significant concentration of credit risk with exposure spread over a number of counterparties and financial institutions.
Market price risk
The fair value of equity and other financial securities held in the Company’s portfolio fluctuates with changes in market prices. Prices are
themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks.
Other external events such as protectionism, inflation or deflation, economic recessions and terrorism could also affect share prices in particular
markets. The Company’s strategy for the management of market price risk is driven by the Company’s investment policy as outlined within the
Purpose, Strategy and Business Model on pages 9 and 10 and Principal Policies on pages30 and 31. The Board sets policies for managing this
risk and meets regularly to review full, timely and relevant information on investment performance and financial results. The management
of market price risk is part of the fund management process and is typical of equity investment. The portfolio is managed with an awareness
of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to
shareholders. Investment performance is discussed in more detail in the Manager’s Review and further information on the investment portfolio
is set out in the sections of this report entitled ‘Classification of Investments’ and ‘Investment Portfolio’.
Any changes in market conditions will directly affect the profit or loss reported through the Statement of Comprehensive Income. A 20per cent
increase in the value of the Investment Portfolio as at 31March 2022 would have increased net assets and income for the year by £22,272,000
(2021: an increase of 20per cent in the Investment Portfolio would have increased net assets and income by £24,650,000). A decrease of 20per
cent (2021: 20per cent) would have had an equal but opposite effect.
The calculations above are based on investment valuations at the respective statement of financial position dates and are not representative of
the year as a whole, nor are they reflective of future market conditions.
Disclosure of the hierarchy of fair value measurements for financial instruments, as required by IFRS 13, is provided in note 11 and in the
accounting policies.
Annual Report and Financial Statements 31 March 2022 | 81
Notes to the Financial Statements
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
21. Financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments.
The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given the liquid nature of
the portfolio of investments and the level of cash and cash equivalents ordinarily held. Cash balances are held with a spread of reputable banks
with a credit rating of normally A or higher, usually on overnight deposit. The Manager reviews liquidity at the time of making each investment
decision. The Board reviews liquidity exposure at each meeting.
In certain circumstances, the terms of the Company’s bank loans entitle the lender to demand early repayment and, in such circumstances, the
Company’s ability to maintain dividend levels and the net asset value attributable to equity shareholders could be adversely affected. Such early
repayment may be required on the occurrence of certain events of default which are customary for facilities of this type. These include events of
non payment, breach of other obligations, misrepresentations, insolvency and insolvency proceedings, illegality and a material adverse change
in the financial condition of the Company.
The remaining contractual maturities of the financial liabilities at 31March 2022, based on the earliest date on which payment can be required,
were as follows:
Three
months
or less
£’000
More than
three months
but less than
one year
£’000
More than
one year but
less than
two years
£’000
More than
two years but
less than
five years
£’000
Total
£’000
31 March 2022
Current liabilities
Payables 293 – – – 293
Bank loans 48 7,548 – – 7,596
31 March 2021
Current liabilities
Payables 292 – – – 292
Bank loans 3,504 – – – 3,504
Non-current liabilities
Bank loan 48 145 7,597 – 7,790
The figures in the above table are on a contractual maturity basis and therefore include interest payments where applicable.
Interest rate risk
Some of the Company’s financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing
maturities. As a consequence, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Company’s
exposure to floating interest rates gives cashflow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.
Floating rate
When the Company retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the
interest payments received on cash balances is the bank base rate, which was 0.75per cent at 31March 2022 (2021: 0.1per cent).
Considering the effect on cash balances, an increase of 100 basis points in interest rates would have increased net assets and income for the
year by £47,000 (year to 31March 2021: £23,000). A decrease of 100 basis points would have had an equal but opposite effect. The calculations
are based on the net cash balances at the respective statement of financial position date and are not representative of the year as a whole, nor
are they reflective of future market conditions.
82 | BMO UK High Income Trust PLC
Notes to the Financial Statements
21. Financial instruments (continued)
Fixed rate
At 31March 2022 and 31 March 2021 the Company’s Investment Portfolio did not contain any fixed interest or floating rate interest assets.
Details of the Company’s Investment Portfolio are given in Note 11 and in the section of this report entitled 'Classification of Investments' and
‘Investment Portfolio’. At 31March 2022 and 31March 2021 the Company had fixed interest liabilities.
2022 2021
£’000
Weighted
average
interest
rate
Average
duration
until
maturity £’000
Weighted
average
interest
rate
Average
duration
until
maturity
Fixed interest liabilities:
Term loan 7,500 2.58% 0.5 years 7,500 2.58% 1.5 years
Revolving credit facility – – – 3,500 1.50% 0.1 years
The £7.5million term loan carries a fixed interest rate of 2.58per cent per annum. An interest rate sensitivity analysis has not been performed
as the Company has borrowed at a fixed rate of interest.
Foreign currency risk
It is not the Company’s policy to hedge any overseas currency exposure on equity investments. Foreign currency exposure (which includes Euro
and Swiss Franc denominated equity investments) at 31March 2022 and 31 March 2021 was as follows:
Investments
£’000
2022
Net
Current
Assets
£’000
Total
£’000
Investments
£’000
2021
Net
Current
Assets
£’000
Total
£’000
Swiss Franc 3,851 26 3,877 3,765 8 3,773
Euro 14,634 80 14,714 14,165 56 14,221
Total 18,485 106 18,591 17,930 64 17,994
Total gains in the year from foreign exchange transactions and balances held in cash were £5,000 (2021 losses: £35,000).
At 31March 2022, if the value of sterling had weakened against the Euro and Swiss Franc by 10per cent the impact on the profit or loss and
the net asset value would have been an increase of £2,054,000 (2021: £2,088,000). If the value of sterling had strengthened against the Euro
and Swiss Franc by 10per cent the effect the impact on the profit or loss and the net asset value would have been a decrease of £1,680,000
(2021:£1,552,000).
22. Related party and transactions with the Manager
The Directors of the Company are considered a related party. There are no transactions with the Board other than aggregated remuneration for
services as Directors as disclosed in the Directors’ Remuneration Report on pages50 to 52 and as set out in note 6 to the financial statements.
There are no outstanding balances with the Board at year end.
The beneficial interests of the Directors in the Ordinary shares and B shares of the Company are disclosed on page51.
Transactions between the Company and BMO Investment Business Limited are detailed in note 4 on management fees and in note 15 in relation
to fees owed to BMO Investment Business Limited at the statement of financial position date. The existence of an independent Board of Directors
demonstrated that the Company is free to pursue its own financial and operating policies and therefore under the AIC SORP, the Manager is not
considered a related party.
23. Post-balance sheet events
Since 31 March 2022, there are no post balance sheet events which would require adjustment of or disclosure in the financial statements.
Annual Report and Financial Statements 31 March 2022 | 83
AIFM Disclosures
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Alternative Investment Fund Managers (‘AIFM’) Directive
In accordance with the AIFM Directive, information in relation to the Company’s leverage and the remuneration of the Company’s AIFM, BMO
Investment Business Limited, is required to be made available to investors. Detailed regulatory disclosures including those on the AIFM’s
remuneration policy and costs are available on the Company’s website or from BMO GAM on request.
The Company’s maximum and average actual leverage levels at 31March 2022 are shown below:
Leverage exposure
Gross
method
Commitment
method
Maximum limit 260% 260%
Actual 100% 104%
For the purposes of the AIFM Directive, leverage is any method which increases the Company’s exposure, including the borrowing of cash and
the use of derivatives. It is expressed as a percentage of the Company’s exposure to its net asset value and is calculated on both a gross and
commitment method.
Under the gross method, exposure represents the sum of the Company’s positions after deduction of cash balances, without taking account of
any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after
certain hedging and netting positions are offset against each other.
The leverage limits are set by the AIFM and approved by the Board and are in line with the maximum leverage levels permitted in the
Company’s Articles of Association. The AIFM is also required to comply with the gearing parameters set by the Board in relation to borrowings.
Detailed regulatory disclosures to investors in accordance with the AIFM Directive are contained on the Company’s website under Key Documents.
AIFMD Disclosures
84 | BMO UK High Income Trust PLC
Notice of Annual General Meeting
Notice is hereby given that the fifteenth Annual General Meeting of BMO
UK High Income Trust PLC (Company registration number SC314671 and to
be renamed CT UK High Income Trust PLC (the ‘Company’)) will be held
at Exchange House, Primrose Street, London EC2A 2NY, on 20July 2022
at 12noon for the following purposes. To consider and, if thought fit,
pass the following Resolutions, of which Resolutions 1 to 8 and 12 will
be proposed as Ordinary Resolutions and Resolutions 9 to 11 and 13 as
Special Resolutions:
Ordinary Resolutions
1. That the Annual Report and Financial Statements for the year to
31March 2022 be received.
2. That the Annual Report on Directors’ Remuneration for the year
ended 31March 2022 be approved.
3. That Mrs H M Galbraith, who retires annually, be re-elected as a
Director.
4. That Mr S J Mitchell who retires annually, be re-elected as a
Director.
5. That MrA K Watkins, who retires annually, be re-elected as aDirector.
6. That Deloitte LLP be re-appointed as Auditor and the Directors be
authorised to determine its remuneration.
7. That the Company’s dividend/capital repayment policy with
regard to quarterly payments as set out in the Annual Report and
Financial Statements be approved.
8. That, in substitution for any existing authority, but without
prejudice to the exercise of any such authority prior to the date
hereof, the Directors of the Company be and they are hereby
generally and unconditionally authorised in accordance with
Section 551 of the Companies Act 2006 (the “Act”) to exercise all
the powers of the Company to allot shares in the Company and to
grant rights to subscribe for or to convert any security into shares
in the Company (“Rights”) provided that such authority shall
be limited to the allotment of shares and the grant of Rights in
respect of shares with an aggregate nominal value of up to £4,258
in respect of Ordinary shares of 0.1pence each in the capital of
the Company (“Ordinary Shares”) and £1,535 in respect of B shares
of 0.1pence each in the capital of the Company (“B Shares”),
such authority to expire at the conclusion of the Company’s next
Annual General Meeting or on 30September 2023, whichever
is the earlier, unless previously revoked, varied or extended by
the Company in a general meeting, save that the Company may
at any time prior to the expiry of this authority make an offer or
enter into an agreement which would or might require shares
in the Company to be allotted or Rights to be granted after the
expiry of such authority and the Directors shall be entitled to allot
shares in the Company or grant Rights in pursuance of such an
offer or agreement as if such authority had not expired.
Special Resolutions
9. That, subject to the passing of Resolution number 8 above, and in
substitution for any existing power but without prejudice to the
exercise of any such power prior to the date hereof, the Directors
of the Company be and they are hereby generally empowered,
pursuant to Section 570 of the Companies Act 2006 (the “Act”),
to allot equity securities (as defined in Section 560 of the Act,
provided that for the purposes of this resolution an allotment of
equity securities shall be deemed not to include the sale of shares
in the Company that immediately before the sale are held by the
Company as treasury shares) for cash pursuant to the authority
given by Resolution number 8 above as if Section 561(1) of the Act
did not apply to any such allotment of equity securities, provided
that this power:
(a) expires at the conclusion of the Company’s next Annual General
Meeting or on 30September 2023, whichever is the earlier,
save that the Company may, before such expiry, make an offer
or agreement which would or might require equity securities to
be allotted after such expiry and the Directors may allot equity
securities in pursuance of any such offer or agreement as if the
power conferred hereby had not expired; and
(b) shall be limited to the allotment of equity securities up to an
aggregate nominal value of £4,258 in respect of Ordinary Shares
and £1,535 in respect of B Shares (being approximately 4.3per
cent of the total nominal value of the issued share capital of
the Company (including treasury shares), as at 30May 2022)
at a price of not less than the net asset value per share of the
existing Ordinary Shares (in the case of an allotment of Ordinary
Shares) or B Shares (in the case of an allotment of B Shares).
Notice of Annual General Meeting
Annual Report and Financial Statements 31 March 2022 | 85
Notice of Annual General Meeting
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10. That, in substitution for any existing authority but without prejudice
to the exercise of any such authority prior to the date hereof,
the Company be and is hereby generally and unconditionally
authorised, pursuant to and in accordance with Section 701 of the
Companies Act 2006 (the “Act”) to make market purchases (within
the meaning of Section 693(4) of the Act) of fully paid Ordinary
shares of 0.1pence each in the capital of the Company and fully
paid B Shares of 0.1p each in the capital of the Company (“Ordinary
and/or B Shares”) (either for retention as treasury shares for future
reissue, resale, transfer or cancellation), provided that:
(a) the maximum aggregate number of Ordinary Shares and
B Shares hereby authorised to be purchased is 14.99per
cent of the issued Ordinary Shares and 14.99per cent of the
issued B Shares (excluding Ordinary Shares and B Shares
held in treasury) immediately prior to the passing of this
resolution (see note 15);
(b) the minimum price (excluding expenses) which may be paid
for an Ordinary Share or B Share is 0.1pence;
(c) the maximum price (excluding expenses) which may be paid
for an Ordinary Share or B Share shall not be more than the
higher of:
i. 5per cent. above the average of the middle market values
(as derived from the Daily Official List of the London Stock
Exchange) of an Ordinary Share or B Share over the five
business days immediately preceding the date of purchase;
and
ii. the higher of the last independent trade and the highest
current independent bid on the London Stock Exchange; and
(d) unless previously varied, revoked or renewed by the Company
in a general meeting, the authority hereby conferred shall
expire at the conclusion of the Company’s next Annual
General Meeting or on 30September 2023 whichever is the
earlier, save that the Company may, prior to such expiry, enter
into a contract to purchase Ordinary Shares and/or BShares
under such authority which will or might be completed
or executed wholly or partly after the expiration of such
authority and may make a purchase of Ordinary Shares and/or
B Shares pursuant to any such contract.
11. That, the Directors of the Company be and they are hereby
empowered pursuant to section 573 of the Companies Act 2006
(as amended) (the “Act”) to sell equity securities (within the
meanings of sections 560(1) and 560(2) of the Act) wholly for
cash as if section 561 of the Act did not apply to any such sale,
provided that this power shall be limited to the sale of equity
securities for cash out of treasury up to an aggregate nominal
amount of £8,517 in respect of Ordinary Shares and £3,070 in
respect of BShares, representing approximately 8.3per cent of
the Company’s Ordinary share capital in issue (including treasury
shares) as at the date of the passing of this resolution and
approximately 9.6per cent of the Company’s B share capital in
issue (including treasury shares) as at the date of the passing of
this resolution and shall expire on the earlier of 30September
2023 or at the conclusion of the Company’s next Annual General
Meeting, unless renewed at a general meeting prior to such time,
save that the Company may before such expiry make offers,
agreements or arrangements which would or might require equity
securities to be allotted after such expiry and so that the Directors
of the Company may allot equity securities in pursuance of such
offers, agreements or arrangements as if the power conferred
hereby had not expired.
Ordinary Resolution
12. That the Company continues in existence.
Special Resolution
13. That the Articles of Association contained in the document
produced to the meeting and signed by the Chairman for the
purposes of identification, be approved and adopted as the new
Articles of Association of the Company in substitution for, and to
the exclusion of, the existing Articles of Association with effect
from the conclusion of the 2022 Annual General Meeting.
By order of the Board
For BMO Investment Business Limited
Company Secretary
Quartermile 4,
7a Nightingale Way
Edinburgh EH3 9EG
30 May 2022
86 | BMO UK High Income Trust PLC
Notice of Annual General Meeting
Notes
1. A member entitled to attend and vote at this meeting may appoint
one or more persons as his/her proxy to attend, speak and vote on
his/her behalf at the meeting. A proxy need not be a member of
the Company. If multiple proxies are appointed they must not be
appointed in respect of the same shares. To be effective, the duly
executed enclosed form of proxy, together with any power of attorney
or other authority under which it is signed or a certified copy thereof,
should be lodged at the address shown on the proxy form not later
than 48 hours before the time of the meeting or, in the case of an
adjourned meeting, no later than 48 hours before the holding of
that adjourned meeting (or in the case of a poll taken subsequent
to the date of the meeting or adjourned meeting, no later than 24
hours before the time appointed for the taking of the poll). In the
calculation of these time periods, no account is taken of any part of
a day that is not a working day. The appointment of a proxy will not
prevent a member from attending the meeting and voting in person if
he/she so wishes. A member present in person or by proxy shall have
one vote on a show of hands and on a poll every member present in
person or by proxy shall have one vote for every share of which he/
she is the holder. Any power of attorney or any other authority under
which this proxy is signed (or a duly certified copy of such power
or authority) must be included with the proxy form. On a poll each
Ordinary shareholder is entitled to one vote per Ordinary share held
and each B shareholder is entitled to one vote per B share held.
2. CREST members who wish to appoint a proxy or proxies by utilising
the CREST electronic proxy appointment service may do so for this
meeting by following the procedures described in the CREST Manual
and by logging on to www.euroclear.com. CREST personal members
or other CREST sponsored members, and those CREST members who
have appointed a voting service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to take
the appropriate action on their behalf.
3. In order for a proxy appointment or instruction made by means of
CREST to be valid, the appropriate CREST message (a “CREST Proxy
Instruction”) must be properly authenticated in accordance with
Euroclear UK & Ireland Limited’s (“Euroclear”) specifications and must
contain the information required for such instructions, as described
in the CREST Manual. The message, in order to be valid, must be
transmitted so as to be received by the Company’s agent (ID RA19)
by the latest time for receipt of proxy appointments specified in Note
1 above. For this purpose, the time of receipt will be taken to be the
time (as determined by the timestamp applied to the message by the
CREST Applications Host) from which the Company’s agent is able to
retrieve the message by enquiry to CREST in the manner prescribed by
CREST. After this time, any change of instructions to proxies appointed
through CREST should be communicated to the appointee through
other means.
4. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
5. If you are an institutional investor you may be able to appoint a proxy
electronically via the Proxymity platform, a process which has been
agreed by the Company and approved by the Registrar. For further
information regarding Proxymity, please go to www.proxymity.io.
Your proxy must be lodged by 12 noon on 18 July 2022 in order to
be considered valid. Before you can appoint a proxy via this process
you will need to have agreed to Proxymity’s associated terms and
conditions. It is important that you read these carefully as you will be
bound by them and they will govern the electronic appointment of
your proxy.
6. Shareholders can vote online by logging onto www.sharevote.co.uk.
To use this service shareholders will need their Voting ID, Task ID
and Shareholder Reference Number printed on the accompanying
Form of Proxy. Full details of the procedure are given on the website.
Alternatively, shareholders who have already registered with Equiniti’s
online portfolio service, Shareview, can vote by logging on to their
portfolio at www.shareview.co.uk using your usual user ID and
password. Once logged in simply click “view” on the “My Investments”
page, click on the link to vote, then follow the on screen instructions.
7. A person to whom this notice is sent who is a person nominated
under section 146 of the Companies Act 2006 to enjoy information
rights (a “Nominated Person”) may, under an agreement between
him/her and the shareholder by whom he/she was nominated, have
a right to be appointed (or to have someone else appointed) as a
proxy for the Annual General Meeting. If a Nominated Person has no
such proxy appointment right or does not wish to exercise it, he/she
may, under any such agreement, have a right to give instructions to
the shareholder as to the exercise of voting rights.
The statements of the rights of members in relation to the appointment
of proxies in Notes 1 and 2 above do not apply to a Nominated Person.
The rights described in those Notes can only be exercised by registered
members of the Company.
8. Pursuant to Regulation 41 of the Uncertificated Securities Regulations
2001, the Company specifies that only those holders of shares entered
on the Register of Members of the Company as at 6.30p.m. on 18July
2022 or, in the event that the meeting is adjourned, on the Register of
Members as at 6.30pm on the day two days (excluding non-working
days) prior to any adjourned meeting, shall be entitled to attend or
vote at the meeting in respect of the number of Shares registered
in their names at that time. Changes to the entries on the Register
of Members after 6.30p.m. on 18July 2022 or, in the event that the
meeting is adjourned, in the Register of Members as at 6.30pm
on the day two days prior to any adjourned meeting (excluding
non-working days), shall be disregarded in determining the rights
of any person to attend or vote at the meeting, notwithstanding
any provisions in any enactment, the Articles of Association of the
Company or other instrument to the contrary.
Annual Report and Financial Statements 31 March 2022 | 87
Notice of Annual General Meeting
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9. As at 30May 2022 (being the last business day prior to the publication
of this notice) the Company’s issued share capital consists of
85,172,653 Ordinary Shares carrying one vote each and 30,708,750
B Shares carrying one vote each. The Company holds 16,894,491
Ordinary Shares and 1,367,953 B shares in treasury which do not carry
voting rights. Therefore the total voting rights in the Company as at
30May 2022 were 115,881,403 votes. Any person holding 3per cent of
the total voting rights in the Company who appoints a person other
than the Chairman as his/her proxy will need to ensure that both he/
she and such third party complies with their respective disclosure
obligations under the Disclosure Guidance and Transparency Rules.
10. No Director has a contract of service with the Company. The Directors’
letters of appointment will be available for inspection at the
Company’s registered office during normal business hours on any
weekday (Saturdays, Sundays and public holidays excepted) and for 15
minutes prior to, and during, the Annual General Meeting.
11. Information regarding the Annual General Meeting, including
information required by section 311A of the Companies Act 2006, is
available from www.bmoukhighincome.com.
12. Under section 319A of the Companies Act 2006, the Company must
answer any question relating to the business being dealt with at the
meeting put by a member attending the meeting unless:
(a) answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of
confidential information;
(b) the answer has already been given on a website in the form of an
answer to a question; or
(c) it is undesirable in the interests of the Company or the good order
of the meeting that the question be answered.
13. The members of the Company may require the Company to publish,
on its website (without payment), a statement (which is also passed
to the Company’s auditor) setting out any matter relating to the audit
of the Company’s accounts including the auditor’s report and the
conduct of the audit. The Company will be required to do so once
it has received such requests from either members representing at
least 5per cent of the total voting rights of the Company or at least
100 members who have a relevant right to vote and hold shares in
the Company on which there has been paid up an average sum per
member of at least £100. Such requests must be made in writing and
must state your full name and address and be sent to Quartermile 4,
7a Nightingale Way, Edinburgh, EH3 9EG.
14. You may not use any electronic address provided either in this Notice
of Annual General Meeting or any related documents (including the
Form of Proxy) to communicate with the Company for any purpose
other than those expressly stated.
15. Following Resolution 10 becoming effective, the maximum aggregate
number of shares hereby authorised to be purchased shall be
12,767,300 Ordinary shares and 4,603,200 B shares (or, if less, 14.99per
cent. of the number of Ordinary shares and 14.99per cent. of the
number of B shares in issue (excluding treasury shares) immediately
prior to the passing of the resolution).
16. A copy of the current articles of association of the Company and the
proposed new articles of association of the Company will be available
for inspection on the Company’s website, www.bmoukhighincome.
com and at the offices of Dickson Minto W.S., Broadgate Tower,
20Primrose Street, London EC2A 2EW between the hours of 9.00am
and 5.00pm (Saturdays, Sundays and public holidays excepted) from
the date of the AGM Notice until the close of the AGM and will also be
available for inspection from 15 minutes before and at the AGM.
17. Under Section 338 of the Companies Act 2006, a member or members
meeting the qualification criteria set out at Note 19 below, may,
subject to certain conditions, require the Company to circulate to
members notice of a resolution which may properly be moved and
is intended to be moved at that meeting. The conditions are that: (i)
the resolution must not, if passed, be ineffective (whether by reason
of inconsistency with any enactment or the Company’s constitution or
otherwise); (ii) the resolution must not be defamatory of any person,
frivolous or vexatious; and (iii) the request: (a) may be in hard copy
form or in electronic form; (b) must identify the resolution of which
notice is to be given by either setting out the resolution in full or, if
supporting a resolution sent by another member, clearly identifying
the resolution which is being supported; (c) must be authenticated
by the person or persons making it; and (d) must be received by the
Company not later than six weeks before the Meeting to which the
requests relate.
18. Under Section 338A of the Companies Act 2006, a member or
members meeting the qualification criteria set out at Note 19 below,
may, subject to certain conditions, require the Company to include
in the business to be dealt with at the meeting a matter (other
than a proposed resolution) which may properly be included in
the business (a matter of business). The conditions are that: (i) the
matter of business must not be defamatory of any person, frivolous
or vexatious; and (ii) the request: (a) may be in hard copy form or in
electronic form; (b) must identify the matter of business by either
setting it out in full or, if supporting a statement sent by another
member, clearly identify the matter of business which is being
supported; (c) must be accompanied by a statement setting out the
grounds for the request; (d) must be authenticated by the person or
persons making it; and (e) must be received by the Company not later
than 6 weeks before the Meeting to which the requests relate.
19. In order to be able to exercise the members’ right to require: (i)
circulation of a resolution to be proposed at the Meeting (see
Note17); or (ii) a matter of business to be dealt with at the Meeting
(see Note 18), the relevant request must be made by: (a) a member
or members having a right to vote at the Meeting and holding at least
5% of total voting rights of the Company; or (b) at least 100 members
have a right to vote at the Meeting and holding, on average, at least
£100 of paid up share capital.
88 | BMO UK High Income Trust PLC
Capital Structure
The Company’s capital structure offers shareholders the opportunity
to receive quarterly returns in the form of either dividends, capital
repayments, or both, to suit their own particular circumstances.
The Company has two classes of shares: Ordinary shares and Bshares.
The rights of each class of shares are identical, save in respect of the right
to participate in dividends and capital repayments. Irrespective of these
rights, the net asset value attributable to each class of shares is the same.
Only Ordinary shares carry a right to participate in dividends paid by the
Company. B shares are not entitled to dividends but each Bshare instead
carries the right to receive a capital repayment at the same time as, and
in an amount equal to, each dividend paid in respect of Ordinary shares.
The capital repayments are paid out of the special capital reserve and
accordingly will only be able to be paid for so long as the amount of the
special capital reserve remains sufficient. If and when this reserve is
exhausted, the Articles of Association provide that all the Ordinary shares
and all the B Shares automatically convert into Ordinary shares with
identical rights.
The tax treatment on distributions received from Ordinary shares
will be different from that on distributions received from B shares.
Dividends paid on the Ordinary shares will be taxed on receipt in the
normal way for dividends. Capital repayments received on Bshares
will fall to be taxed in accordance with the rules relating to the
taxation of chargeable gains (see further information below) for
non-corporate holders (including individuals).
It is the Company’s current policy to maintain the ratio of Ordinary
shares to Bshares (excluding shares held in Treasury) within the range
72.5%:27.5% and 77.5%:22.5%. The Board may if it considers it to be
in the best interests of the Company, amend the ratio from time to time.
However, the Board will always be mindful in setting the ratio of any
impact on the level of revenue available for the Ordinary shares.
These two securities can be traded together in the form of a unit with
each unit consisting of three Ordinary shares and one B share.
Bank Facilities
The Company has a £7.5million unsecured term loan until
28September 2022 at a fixed rate of interest of 2.58per cent per
annum. It also has a £7.5 million revolving credit facility available until
28 September 2022. The returns of both the Ordinary shares and B
shares are geared by these bank facilities.
Further information on the B Shares
What is different about the B shares
The B shares are just like any other ordinary share except that,
instead of dividends, B shareholders receive capital repayments, so
B shareholders will receive the same amount of cash on a quarterly
basis as Ordinary shareholders, but when it comes to the tax on these
capital repayments the tax treatment will be different. Effectively, no
UK tax is due on receipt of the capital repayments.
So a higher rate taxpayer, for example, will not be liable on receipt
to the additional income tax that would normally be applicable on
receipt of a dividend. This is because the capital repayment is taxed
under UK Capital Gains Tax (‘CGT’) rules rather than Income Tax rules
for non-corporate holders (including individuals). It is only when the
B shares are disposed of that the capital repayments received need
to be taken into account as part of the CGT disposal calculation. If the
shares continue to be held until death, no CGT arises in respect of the
capital repayments. The value of the holding will, however, be taken
into account for Inheritance Tax purposes, if applicable.
A summary of the tax treatment.
The capital repayments paid on the B shares will be taxed for individuals
under CGT rules rather than Income Tax rules. Holders of B shares therefore
have more scope for tax planning (for example, by selling shares within the
annual CGT exempt amount, or by offsetting gains against capital losses).
UK tax is not, in normal circumstances, due on receipt of the quarterly
capital repayments and you do not need to include them on your tax
return. Instead, when you dispose of B shares, an amount equivalent
to the capital repayments you have received is deducted from the
tax base cost as part of the CGT calculation. This treatment applies
because the quarterly sums are treated as ‘small capital receipts’
under CGT rules; being either less than 5per cent of the market value
of the B shareholding at the date of receipt or less than £3,000.
An individual B shareholder’s annual exempt amount for CGT purposes
is not reduced or prejudiced by this treatment of capital repayments.
Non-UK resident shareholders will not be subject to UK tax on capital
repayments, although local tax could arise.
The above is based on an understanding of legislation and HM Revenue
and Customs’ practice at the time of publication. Tax rates and reliefs
depend on the circumstances of the individual investor, are subject to
government legislation and may change in the future. You should consult
your tax adviser on your own individual tax circumstances.
Capital Structure At 31 March 2022
The Company has a capital structure comprising Ordinary shares and Bshares. In addition, the
Company has a bank loan and borrowing facility.
Annual Report and Financial Statements 31 March 2022 | 89
Shareholder Information
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Shareholder Information
Dividends
Dividends on Ordinary shares and capital repayments on B shares
are paid quarterly in August, November, February and May each
year. Shareholders who wish to have distributions paid directly into
a bank account rather than by cheque to their registered address
can complete a mandate form for the purpose. Mandates may be
obtained from Equiniti Limited (see back cover pagefor contact
details) on request. Where distributions are paid directly into
shareholders’ bank accounts, dividend and capital repayment tax
vouchers are sent directly to shareholders’ registered addresses.
Reinvestment of Returns
If you hold B shares through one of the BMO savings plans, you can
elect to have the quarterly repayments automatically reinvested to
buy further shares; contact BMO for further information.
Share Prices and Daily Net Asset Value
The Company’s securities are listed on the London Stock Exchange
under ‘Investment Trusts’. Prices are given daily in the Financial Times
and other newspapers. The net asset value of the Company’s shares can
be obtained by contacting BMO Investor Services on 0345 600 3030.
Change of Address
Communications with shareholders are mailed to the address held
on the share register. In the event of a change of address or other
amendment this should be notified to Equiniti Limited, under the
signature of the registered holder
Data protection
The Company is committed to protecting and respecting the
confidentiality, integrity and security of the personal data it holds. For
information on the processing of personal data, please see the privacy
policy on the Company’s website at www.bmoukhighincome.com.
Profile of the Company’s Ownership
% of Shares held at 31March 2022
BMO Savings Plans (41%)
Individuals and Private Client Stockbrokers (37%)
Institutions (22%)
Warning to shareholders – Boiler Room Scams
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at
an inflated price in return for an upfront payment.
If you receive unsolicited investment advice or requests:
• Check the Financial Services Register from www.fca.org.uk to see if the person or firm contacting you is authorised by the Financial Conduct Authority (“FCA”)
• Call the FCA on 0800 111 6768 if the firm does not have contact details on the Register or you are told they are out of date
• Search the list of unauthorised firms to avoid at www.fca.org.uk/scams
• Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme
• Think about getting independent financial and professional advice
If you are approached by fraudsters please tell the FCA by using the share fraud reporting form at www.fca.org.uk/scams where you can find out more about investment
scams. You can also call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
90 | BMO UK High Income Trust PLC
How to Invest
BMO ISA
You can use your ISA allowance to make an annual tax efficient
investment of up to £20,000 for the current tax year with a lump
sum from £100 or regular savings from £25 a month. You can also
transfer any existing ISAs to us whilst maintaining the tax benefits.
BMO Junior ISA ( JISA)*
A tax efficient way to invest up to £9,000 per tax year for a child.
Contributions start from £100 lump sum or £25 a month. JISAs or CTFs
with other providers can be transferred to BMO.
BMO Lifetime ISA (LISA)
For those aged 18-39, a Lifetime ISA could help towards purchasing
your first home or retirement in later life. Invest up to £4,000 for the
current tax year and receive a 25% Government bonus up to £1,000
per year. Invest with a lump sum from £100 or regular savings from
£25 a month.
BMO Child Trust Fund (CTF)*
If your child already has a CTF you can invest up to £9,000 per
birthday year, from £100 lump sum or £25 a month. CTFs with other
providers can be transferred to BMO.
BMO General Investment Account (GIA)
This is a flexible way to invest in our range of Investment Trusts.
There are no maximum contributions, and investments can be made
from £100 lump sum or £25 a month.
BMO Junior Investment Account ( JIA)
This is a flexible way to save for a child in our range of Investment
Trusts. There are no maximum contributions, and the plan can easily
be set up under bare trust (where the child is noted as the beneficial
owner) or kept in your name if you wish to retain control over the
investment. Investments can be made from a £100 lump sum or £25 a
month per account. You can also make additional lump sum top-ups at
any time from £100 per account.
*The CTF and JISA accounts are opened by parents in the child’s name and they
have access to the money at age 18. **Calls may be recorded or monitored for
training and quality purposes.
bmoinvestments.co.uk
facebook.com/bmoinvestmentsuk
0345 600 3030, 9.00am – 5.00pm, weekdays, calls may be recorded or
monitored for training and quality purposes.
One of the most convenient ways to invest in BMO UK High Income Trust is through one of the savings plans run by BMO.
Charges
Annual management charges and other charges apply according to the
type of plan.
Annual account charge
ISA/LISA: £60+VAT
GIA: £40+VAT
JISA/JIA/CTF: £25+VAT
You can pay the annual charge from your account, or by direct debit
(in addition to any annual subscription limits).
Dealing charges
£12 per fund (reduced to £0 for deals placed through the online BMO
Investor Portal) for ISA/GIA/LISA/JIA and JISA. There are no dealing
charges on a CTF.
Dealing charges apply when shares are bought or sold but not on the
reinvestment of dividends or the investment of monthly direct debits.
Government stamp duty of 0.5% also applies on the purchase of shares
(where applicable).
The value of investments can go down as well as up and you may
not get back your original investment. Tax benefits depend on your
individual circumstances and tax allowances and rules may change.
Please ensure you have read the full Terms and Conditions, Privacy Policy
and relevant Key Features documents before investing. For regulatory
purposes, please ensure you have read the Pre-sales Cost & Charges
disclosure related to the product you are applying for, and the relevant
Key Information Documents (KIDs) for the investment trusts you want to
invest into.
How to Invest
To open a new BMO plan, apply online at bmogam.com/apply
Online applications are not available if you are transferring an existing
plan with another provider to BMO, or if you are applying for a new
plan in more than one name but paper applications are available at
bmoinvestments.co.uk/documents or by contacting BMO.
New Customers
Call: 0800 136 420** (8.30am – 5.30pm, weekdays)
Email: info@bmogam.com
Existing Plan Holders
Call: 0345 600 3030** (9.00am – 5.00pm, weekdays)
Email: investor.enquiries@bmogam.com
By post: BMO Administration Centre, PO Box 11114,
Chelmsford, CM99 2DG
You can also invest in the trust through online dealing platforms for
private investors that offer share dealing and ISAs. Companies include:
Barclays Stockbrokers, EQi, Halifax, Hargreaves Lansdown, HSBC,
Interactive Investor, Lloyds Bank, The Share Centre
© 2022 BMO Global Asset Management. BMO Global Asset Management is a registered trading name for various affiliated entities of BMO Global Asset Management (EMEA) that provide investment
management services, institutional client services and securities products. Financial promotions are issued for marketing and information purposes; in the United Kingdom by BMO Asset Management
Limited, which is authorised and regulated by the Financial Conduct Authority. This entity is a wholly owned subsidiary of Columbia Threadneedle Investments UK International Limited, whose direct parent
is Ameriprise Inc., a company incorporated in the United States. It was formerly part of BMO Financial Group and is currently using the “BMO” mark under licence. 186311 (04/22) UK
How to Invest
Annual Report and Financial Statements 31 March 2022 | 91
Ten Year Record
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
Assets
at 31March
£’000s 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total assets less current liabilities 143,158 139,498 144,552 144,886 134,528 149,649 129,825 127,605 97,021 126,007 118,715
Bank loans at fair value* 34,245 18,186 17,692 18,103 18,156 18,078 7,500 7,500 7,500 11,000 7,500
Net assets, debt at fair value 108,913 121,312 126,860 126,783 116,372 131,571 122,325 120,105 89,521 115,007 111,215
* includes interest rate swap, where applicable
Net Asset Value (NAV)*
at 31March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
NAV per A/Ordinary share and per B share 85.9p 97.9p 102.8p 103.6p 96.3p 111.1p 103.7p 102.4p 76.7p 99.3p 96.0p
NAV High 88.7p 98.5p 105.8p 107.5p 107.3p 112.3p 116.3p 115.3p 111.8p 103.9p 107.8p
NAV Low 74.5p 78.9p 93.0p 95.0p 87.3p 92.6p 101.1p 91.1p 66.3p 71.2p 84.4p
NAV total return on 100p – 5 years 111.2p
NAV total return on 100p – 10 years 180.3p
* includes debt at fair value
Share Price – A/Ordinary Shares
at 31March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Middle market price per share 82.0p 93.5p 95.0p 100.8p 89.8p 104.0p 96.5p 95.0p 69.5p 91.5p 87.0p
Discount to NAV % (4.5)% (4.5)% (7.6)% (2.7)% (6.7)% (6.4)% (7.0)% (7.2)% (9.3)% (7.8)% (9.3)%
Share price High 83.5p 93.5p 97.5p 101.0p 100.0p 104.5p 108.0p 106.0p 102.0p 92.0p 100.0p
Share price Low 70.5p 76.5p 90.0p 87.5p 84.0p 87.5p 96.0p 86.3p 59.5p 64.0p 79.5p
Share price total return on 100p – 5 years 111.5p
Share price total return on 100p – 10 years 180.6p
Share Price – B Shares
at 31March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Middle market price per share 86.5p 94.5p 102.3p 100.8p 91.5p 104.3p 95.8p 95.0p 67.5p 91.5p 88.0p
Discount to NAV % 0.7% (3.5)% (0.5)% (2.7)% (5.0)% (6.1)% (7.7)% (7.2)% (11.9)% (7.8)% (8.3)%
Share price High 91.5p 94.5p 103.5p 102.3p 102.0p 104.3p 107.0p 107.0p 102.5p 92p 106.5p
Share price Low 78.0p 79.0p 90.5p 88.5p 84.5p 86.5p 95.8p 86.0p 58.0p 64p 82.0p
Share price total return on 100p – 5 years 110.9p
Share price total return on 100p – 10 years 170.0p
Ten Year Record
92 | BMO UK High Income Trust PLC
Ten Year Record
Share Price – Units
at 31March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Middle market price per share 322.5p 369.0p 375.0p 402.5p 354.0p 409.5p 397.0p 373.0p 273.0p 365.0p 336.0p
Discount to NAV % (6.2)% (5.7)% (8.8)% (2.9)% (8.1)% ( 7.9)% (4.3)% (8.9)% (11.0)% (8.1)% (12.5)%
Share price High 334.5p 369.0p 375.0p 402.5p 400.5p 409.5p 425.0p 418.0p 403.0p 365p 398.0p
Share price Low 300.0p 300.0p 358.0p 349.5p 335.0p 336.5p 397.0p 335.0p 234.0p 258p 310.0p
Share price total return on 100p – 5 years 108.1p
Share price total return on 100p – 10 years 175.8p
Revenue
For the year ended 31March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Available for A/Ordinary shares – £’000s 4,704 4,391 4,598 4,848 4,571 4,585 4,764 4,451 4,053 3,020 4,178
Revenue earnings per share 3.70p 3.52p 3.73p 3.95p 3.74p 3.82p 4.03p 3.77p 3.46p 2.59p 3.61p
Dividends per A/Ordinary share 4.28p 4.28p 4.37p 4.48p 4.60p 4.72p 4.88p 5.04p 5.21p 5.30p 5.45p
Capital repayments per B share 4.28p 4.28p 4.37p 4.48p 4.60p 4.72p 4.88p 5.04p 5.21p 5.30p 5.45p
Performance
(rebased at 100 at 31 March 2012)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
NAV per A/Ordinary share, B share and Unit 100.0 114.2 119.6 120.9 112.3 129.6 120.7 119.4 89.6 117.0 112.2
Middle market price per A/Ordinary share 100.0 114.0 115.9 122.9 109.5 126.8 117.7 115.9 84.8 111.6 106.1
Middle market price per B share 100.0 109.2 118.2 116.5 105.8 120.5 110.7 109.8 78.0 105.8 101.7
Middle market price per Unit 100.0 114.4 116.3 124.8 109.8 127.0 123.1 115.7 84.7 113.2 104.2
Dividends per A/Ordinary share 100.0 100.0 100.0 102.1 104.7 1 07. 5 110.3 114.0 117.8 121.7 127.3
Capital repayments per B share 100.0 100.0 100.0 102.1 104.7 1 07. 5 110.3 114.0 117.8 121.7 127.3
Ongoing Charges
For the year ended 31March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Expressed as a percentage of average net assets
– excluding performance fees 1.14% 1.15% 1.06% 1.05% 1.06% 1.11% 0.91% 0.98% 0.96% 1.04% 0.98%
– including performance fees 1.14% 1.15% 1.51% n/a n/a n/a n/a n/a n/a n/a n/a
Gearing
at 31March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Net gearing 20.1% 10.1% 10.0% 7.9% 9.7% 3.5% 4.4% 4.3% 3.4% 7. 2% 0.1%
Annual Report and Financial Statements 31 March 2022 | 93
Alternative Performance Measures (“APMs”)
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
The Company uses the following Alternative Performance Measures (“APMs”):
Discount/Premium – the share price of an Investment Trust is derived from buyers and sellers trading their shares on the stock market. This
price is not identical to the net asset value (NAV) per share of the underlying assets less liabilities of the Company. If the share price is lower
than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers of shares than buyers. Shares
trading at a price above NAV per share are deemed to be at a premium.
At 31 March 2022 At 31 March 2021
Ordinary
shares B shares Units
Ordinary
shares B shares Units
Net asset value per share (a) 95.97p 95.97p 383.88p 99.25p 99.25p 397.00p
Share price (b) 87.00p 88.00p 336.00p 91.50p 91.50p 365.00p
(Discount) (c=(b-a)/(a)) (c) -9.3% -8.3% -12.5% -7.8% -7.8% -8.1%
Ongoing Charges – all operating costs expected to be incurred in future and that are payable by the Company, expressed as a proportion of the
average net assets of the Company over the reporting year. The costs of buying and selling investments and derivatives are excluded, as are
interest costs, taxation, non-recurring costs and the costs of buying back or issuing shares.
Ongoing charges calculation
Page
31 March
2022
£’000
31 March
2021
£’000
Total expenditure 63 1,262 1,186
Less management fee at rate of 0.65% of NAV 63 (756) –
Add management fee at revised rate of 0.60% of NAV (see note 4) 667 –
Less revolving credit facility commitment fee 72 (20) (32)
Less non-recurring expenses (16) (51)
Total (a) 1,137 1,103
Average daily net assets (b) 116,551 105,838
Ongoing charges (c = a/b) (c) 0.98% 1.04%
Gearing – represents the excess amount above shareholders‘ funds of total investments, expressed as a percentage of the shareholders funds. If
the amount calculated is negative, this is a ‘net cash’ position and no gearing.
Page
31 March
2022
£’000
31 March
2021
£’000
Investments held at fair value through profit or loss (a) 64 111,362 123,249
Net assets (b) 64 111,215 115,007
Gearing (c = (a/b) – 1)% (c) 0.1% 7.2%
Alternative Performance Measures (“APMs”)
94 | BMO UK High Income Trust PLC
Alternative Performance Measures (“APMs”)
Total return – the theoretical return to shareholders calculated on a per share basis by adding dividends/capital repayments paid in the period
to the increase or decrease in the Share Price or NAV in the period. The dividends/capital repayments are assumed to have been re-invested in
the form of shares or net assets, respectively, on the date on which the shares were quoted ex-dividend.
The effect of reinvesting these dividends/capital repayments on the respective ex-dividend dates and the share price total returns and NAV total
returns are shown below.
31 March 2022 31 March 2021
Ordinary shares/
B shares Units
Ordinary shares/
B shares Units
NAV per share at start of financial year 99.25p 397.00p 76.66p 306.64p
NAV per share at end of financial year 95.97p 383.88p 99.25p 397.00p
Change in the year -3.3% -3.3% +29.5% +29.5%
Impact of dividend/capital repayment reinvestments
†
+5.2% +5.2% +7.9% +7.9%
NAV total return for the year +1.9% +1.9% +37.4% +37.4%
†
During the year to 31 March 2022 dividends/capital repayments totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went ex dividend. During the year to 31 March
2021 the equivalent figures were 5.21p (Ordinary shares/B shares) and 20.84p (units).
31 March 2022 31 March 2021
Ordinary
shares B shares Units
Ordinary
shares B shares Units
Share price per share at start of financial year 91.5p 91.5p 365.0p 69.5p 67.5p 273.0p
Share price per share at end of financial year 87.0p 88.0p 336.0p 91.5p 91.5p 365.0p
Change in the year -4.9% -3.8% -7.9% +31.7% +35.6% +33.7%
Impact of dividend/capital repayment
reinvestment
†
+5.5% +5.4% +5.3% +9.1% +9.3% +6.9%
Share price total return for the year +0.6% +1.6% -2.6% +40.8% +44.9% +40.6%
†
During the year to 31 March 2022 dividends/capital repayments totalling 5.33p (Ordinary shares/B shares) and 21.32p (units) went ex dividend. During the year to 31 March
2021 the equivalent figures were 5.21p (Ordinary shares/B shares) and 20.84p (units).
Yield – The total annual dividend/capital repayment expressed as a percentage of the year end share price.
31 March 2022 31 March 2021
Ordinary
shares B shares Units
Ordinary
shares B shares Units
Annual dividend/capital repayment (a) 5.45p 5.45p 21.80p 5.30p 5.30p 21.20p
Share price (b) 87.00p 88.00p 336.00p 91.50p 91.50p 365.00p
Yield = (c=a/b) (c) 6.3% 6.2% 6.5% 5.8% 5.8% 5.8%
Annual Report and Financial Statements 31 March 2022 | 95
Glossary of Terms
Governance Report Auditor's Report Notice of Meeting Other InformationStrategic ReportOverview Financial Report
AAF – Audit and Assurance Faculty guidance issued by the Institute of
Chartered Accountants in England and Wales.
AIC – Association of Investment Companies, the trade body for
Closed-end Investment Companies.
AIFMD – Alternative Investment Fund Managers Directive. Issued by
the European Parliament in 2012 and 2013, the Directive required that
all investment vehicles in the European Union, including Investment
Trusts, must have appointed a Depositary and an Alternative
Investment Fund Manager before 22July 2014. The Board of Directors
of an Investment Trust, remain fully responsible for all aspects of the
company’s strategy, operations and compliance with regulations.
Ordinary Shares – a security issued by the Company. The net asset
value attributable to each Ordinary share is equal to the Net Asset
Value of the Company divided by the total number of Ordinary shares
and B shares in issue. Therefore the net asset value attributable to
each of the Ordinary shares and B shares is the same. The Ordinary
shares are entitled to dividends paid by the Company.
Benchmark – from 5 July 2018 the FTSE All-Share Index is the
benchmark against which the increase or decrease in the Company’s
net asset value is measured. This index represents the performance
of all eligible companies listed on the London Stock Exchange’s
main market, which pass screening for size and liquidity. Prior to
that the benchmark index was the FTSE All-Share Capped 5% Index.
This Index averages the performance of 98% of the market value
of all eligible companies listed on London Stock Exchange’s main
market and gives an indication of how this market has performed in
any period. Constituents of the Index are capped at 5% of the total
index quarterly to avoid over-concentration in any one stock. As the
investments within these indices are not identical to those of the
Company, the indices do not take account of operating costs and
the Company’s strategy does not include replicating (tracking) these
indices, there is likely to be some level of divergence between the
performance of the Company and the Index.
B Shares – a security issued by the Company. The net asset value
attributable to each B share is equal to the Net Asset Value of the
Company divided by the total number of Ordinary shares and B shares
in issue. Therefore the net asset value attributable to each of the
Ordinary shares and B shares is the same. The B shares are entitled to
capital repayments paid by the Company. These capital repayments
will be paid at the same time as, and in an amount equal to, each
dividend paid on the Ordinary shares.
Closed-end company – a company, including an Investment
Company, with a fixed issued ordinary share capital which is traded on
an exchange at a price not necessarily related to the net asset value
of the company and in which shares can only be issued or bought
back by the company in certain circumstances. This contrasts with
an open-ended company or Fund, which has units not traded on an
exchange but issued or bought back from investors at a price directly
related to net asset value.
Cum-dividend – shares are classified as cum-dividend when the
buyer of a security is entitled to receive a dividend that has been
declared, but not paid. Shares which are not cum-dividend are
described as ex-dividend.
Custodian – a specialised financial institution responsible for
safeguarding, worldwide, the listed securities and certain cash assets
of the Company, as well as the income arising therefrom, through
provision of custodial, settlement and associated services. The
Company’s Custodian is JPMorgan Chase Bank.
Depositary – under AIFMD rules applying from July 2014, the Company
must appoint a Depositary, whose duties in respect of investments,
cash and similar assets include: safekeeping; verification of ownership
and valuation; and cash monitoring. Under AIFMD regulations, the
depositary has strict liability for the loss of the Company’s financial
assets in respect of which it has safe-keeping duties. The Depositary’s
oversight duties will include but are not limited to oversight of share
buy backs, dividend payments and adherence to investment limits.
The Company’s Depositary is JPMorgan Europe Limited.
Derivative – a contract between two or more parties, the value of
which fluctuates in accordance with the value of an underlying security.
The contract is usually short-term (for less than one year). Examples
of derivatives are Put and Call Options, Swap contracts, Futures and
Contracts for Difference. A derivative can be an asset or a liability and
is a form of gearing because the fluctuations in its value are usually
greater than the fluctuations in the underlying security’s value.
Dividend Dates – reference is made in announcements of dividends
to three dates. The “ex-dividend” date is the date up to which the
shareholder needs to hold the shares in order to be entitled to receive
the next dividend. As it takes time for a stock purchase to be recorded
on the register, dividends are actually paid to the holders of shares
on the share register on the “record” date. If a share transfer prior to
the ex-dividend date is not recorded on the register before the record
date, the selling party will need to pass on the benefit or dividend to
the buying party. The “ex-dividend” date is currently the business day
Glossary of Terms
96 | BMO UK High Income Trust PLC
Glossary of Terms
prior to the record date. The “payment” date is the date that dividends
are credited to shareholders’ bank accounts. This may be several
weeks or even months after the record date.
Gearing – this is the ratio of the borrowings of the Company to its
net assets. Borrowings have a “prior charge” over the assets of a
company, ranking before shareholders in their entitlement to capital
and/or income. They include: overdrafts and short and long-term
loans from banks; and derivative contracts. If the Company has cash
assets, these may be assumed either to net off against borrowings,
giving a “net” or “effective” gearing percentage, or to be used to buy
investments, giving a “gross” or “fully invested” gearing figure. Where
cash assets exceed borrowings, the Company is described as having
“net cash”. The Company’s maximum permitted level of gearing is set
by the Board and is described within the Strategic Report.
Investment Company (Section 833) – UK Company Law allows an
Investment Company to make dividend distributions out of realised
distributable reserves, even in circumstances where it has made
capital losses in any year provided the Company’s assets remaining
after payment of the dividend exceed 150% of the liabilities. An
Investment Company is defined as investing its funds in shares, land
or other assets with the aim of spreading investment risk.
Investment Trust taxation status (Section 1158) – UK Corporation
Tax law allows an Investment Company (referred to in Tax law as
an Investment Trust) to be exempted from tax on its profits realised
on investment transactions, provided it complies with certain rules.
These are similar to Section 833 Company law rules but further require
that the Company must be listed on a regulated stock exchange
and that it cannot retain more than 15% of income received (set out
in note 9 to the financial statements). The Report of the Directors
contains confirmation of the Company’s compliance with this law and
its consequent exemption from taxation on capital gains.
Manager – BMO Investment Business Limited. The responsibilities and
remuneration of the Manager are set out in the Purpose, Strategy and
Business Model, Report of the Directors and note 4 to the financial
statements.
Market capitalisation – the stock market quoted price of the
Company’s shares, multiplied by the number of shares in issue. If the
Company’s shares trade at a discount to NAV, the market capitalisation
will be lower than the Net asset value.
Net asset value (NAV) – the assets less the liabilities of the Company,
as set out on the Statement of Financial Position, all valued in
accordance with the Company’s Accounting Policies (see note 1 to
the financial statements) and UK-adopted International Accounting
Standards. The net assets correspond to Equity Shareholders’ Funds,
which comprise the share capital account, share premium, capital
redemption reserve, buy back reserve, special capital reserve and
capital and revenue reserves.
Net asset value (NAV), Debt at par – the Company’s bank loans are
valued in the Accounts at par (the actual amount borrowed) and this
NAV including this number is referred to as “NAV, Debt at par”.
Non-executive Director – a Director who has a contract for services,
rather than a contract of employment, with the Company. The
Company does not have any executive directors. Non-executive
Directors’ remuneration is described in detail in the Remuneration
Report. The duties of the Directors, who govern the Company through
the auspices of a Board and Committees of the Board, are set out in
the Corporate Governance Statement.
Ongoing Charges – all operating costs expected to be incurred in future
and that are payable by the Company, expressed as a proportion of the
average net assets of the Company over the reporting year. The costs
of buying and selling investments and derivatives are excluded, as are
interest costs, taxation, non-recurring costs and the costs of buying
back or issuing shares.
SORP – Statement of Recommended Practice “Financial Statements
of Investment Trust Companies and Venture Capital Trusts” issued by
theAIC.
Units – a way of holding and trading in the Ordinary shares and B
shares issued by the Company. Each unit consists of three Ordinary
shares and one B share.
Annual Report and Financial Statements 31 March 2022 | 97
Corporate Information
Directors
J M Evans (Chairman)
H M Galbraith (nee Driver)
S J Mitchell
A K Watkins
Alternative Investment Fund Manager (‘AIFM’),
Investment Manager and Company Secretary
BMO Investment Business Limited
6th Floor, Quartermile 4
7a Nightingale Way
Edinburgh EH3 9EG
Brokers
Panmure Gordon (UK) Limited
One New Change
London EC4M 9AF
Auditor
Deloitte LLP, Statutory Auditor
110 Queen Street
Glasgow G1 3BX
Depositary
JPMorgan Europe Limited
25 Bank Street
Canary Wharf
London E14 5JP
Principal Bankers and Custodian
JPMorgan Chase Bank
25 Bank Street
Canary Wharf
London E14 5JP
Bankers
Scotiabank Europe
201 Bishopsgate
London EC2M 3NS
Solicitors
Dickson Minto W.S.
16 Charlotte Square
Edinburgh EH2 4DF
Company Number
SC314671
Website
www.bmoukhighincome.com
Corporate Information
© 2022 BMO Asset Management Limited is authorised and regulated by the Financial Conduct Authority. BMO Asset Management Limited is a wholly owned subsidiary of Columbia
Threadneedle Investments UK International Limited, whose direct parent is Ameriprise Inc., a company incorporated in the United States. BMO Asset Management Limited was
formerly part of BMO Financial Group and is currently using the “BMO” mark under licence.
Registered office:
6th Floor, Quartermile 4, 7a Nightingale Way, Edinburgh EH3 9EG
Tel: 0207 628 8000
bmoukhighincome.com
Registrars:
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Registrars’ Shareholder Helpline: 0371 384 2470*
Registrars’ Broker Helpline: 0906 559 6025
†
Registrars’ Overseas Helpline: +44 121 415 7047**
shareview.co.uk
* Lines open 8.30 am to 5.30 pm, Monday to Friday, excluding public holidays in England and Wales.
†
Calls to this number are charged at £1 per minute from a BT landline. Other telephony providers’ costs may vary.
Lines open 8.30 am to 5.30 pm, Monday to Friday, excluding public holidays in England and Wales.
** Local overseas call rates will apply.
BMO UK High Income Trust PLC
Annual Report and Financial Statements
31 March 2022