CT UK Capital And Income Investment Trust : Latest Interim Report & Accounts

Half-Year Report for the six months ended 31 March 2023

Half-Year Report for the six months ended 31 March 2023

Financial Highlights for the half-yearended 31 March 2023

provides Shareholders with an annual yield(2) of 4.1%.

over the six-months to 31 March 2023.

1. The first interim dividend of 2.75 pence per share was paid on 31 March 2023 and the second interim dividend of 2.75 pence per share is payable on 30 June 2023 to Shareholders registered on 9 June 2023.
2. Calculated as the total of the four most recent quarterly dividends declared divided by the period end share price.
3. Total Return - the return to Shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or Net Asset Value in the period. The dividends 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.

• See full details of the explanation and calculation of Alternative Performance Measures in the Report and Accounts as at 30 September 2022

Chairman's Statement

Dear Shareholder,

In this interim report for the first half year ended 31 March 2023, I am pleased to announce a recovery in your share price and Net Asset Value ("NAV") per share, as well as another increase in the dividend.

Total Return Performance

Our current financial year started at close to the lowest point for the UK equity market since October 2020 following a period of unprecedented political turmoil, including the infamous September 2022 "Mini- budget" introduced by the short-lived Truss Administration. By contrast, the period since has been somewhat calmer politically and this has helped government bond yields to stabilise and equity markets to make some progress.

Your Company's NAV total return per share during the six months ended 31 March 2023 was 12.4%, outperforming the total return of the FTSE All-Share Index, our benchmark, of 12.3%.

Although the political situation in the UK may have stabilised with a new Prime Minister and Chancellor of the Exchequer, one of the key ongoing concerns has been the rate of inflation. There is more than a single factor causing the current inflationary surge, but to the extent that supply constraints previously caused by COVID-19 have eased and energy prices initially driven higher by Russia's war in Ukraine have decreased somewhat, many had hoped that the rate of inflation would

have started to decrease decisively. However, in the UK at least, inflation has been

more persistent than anticipated, with the Consumer Price Index in the year to March 2023 rising by 10.1%. In addition, bond yields are still considerably above the levels that existed before the September 2022 'Mini- Budget'.

Nonetheless, this improvement in overall financial stability has provided a positive enough background for the UK equity market and our portfolio to record some useful gains. The strongest contribution to performance (a function of the size of the investment and the magnitude of its return) was from the bank and specialist mortgage lender OSB Group, with a total return of 22.8%. This though was far from the strongest percentage return over the period with total returns of 53.5% from Melrose, 44.2% from Burberry, 43.2% from CRH, 39.5% from Howden Joinery and 37.9% from Vistry. The amount of these companies' share price increases far exceeded any improvement in their underlying trading

and was more a reflection of how severely their share prices had been depressed last September when fears for the UK economy were at their greatest.

Although the share prices of the companies mentioned above have recovered well, the same does not apply to all of the portfolio: the shares of property company LXi REIT, down 18.5% over the six-month period, struggled as the market became concerned that higher interest rates may have an impact

Performance over six months (%)

Performance over three years (%)

Share price premium/(discount) to NAV over 3 years (%)

This increase reflects a number of factors when compared with the comparative period

(Rebased to 100 at 30 September 2022)

120

160

(Rebased to 100 at 31 March 2020)

115

110

105

90

Sep 22 Oct 22 Nov 22 Dec 22 Jan 23 Feb 23 Mar 23

CT UK Capital and Income - share price total return CT UK Capital and Income - NAV total return FTSE All-Share Index - total return

Source: Refinitiv Eikon

CT UK Capital and Income share price total return CT UK Capital and Income NAV total return FTSE All-Share Index - total return

Source: Refinitiv Eikon

Source: Columbia Threadneedle Investments

The Company paid a dividend per share of

2.75 pence in respect of the first quarter of the financial year and I am pleased to say we will pay a further 2.75 pence in respect of the second quarter. This gives a total for the half year of 5.50 pence per share, an increase of 3.8% compared to the rate for the same period last year.

Dividend Cover and Revenue Reserve

on its property valuations. In addition, brick manufacturer Forterra shares were down 15.1% as housebuilders are expected to cut production, and hence demand for bricks, in response to uncertainties in the mortgage and housing markets. While understandable, these concerns are short-term in nature as LXi's assets and leases are of exceptional quality and Forterra has a very strong position in the brick market where there is considerable long-term demand due to the underlying shortage of housing in the UK.

Taking a longer, three-year view, the recent rebound in our NAV is positive, but not quite sufficient to outweigh the impact on our performance relative to the FTSE All-Share Index that occurred in the first calendar quarter of 2022, around the time of Russia's invasion of Ukraine, and the economic events of August/September 2022 referred to previously.

The strength in operating performance of many of our investments and the undemanding valuations appear to be at odds with each other, but we have confidence that, over the longer term, focusing on fundamental factors such as earnings and dividends drives positive results for investors. We are aware that in an actively managed fund there are inevitably periods when share price performance can diverge from targets at a time when fundamental factors are overridden by macro-market effects that impact valuations.

Share Price Premium/Discount

During the six months under review, the share price traded relative to NAV at an average discount of 2.8% and within a range of a premium of 0.03% to a discount of 5.05%.

The widening of the discount over the period meant the share price total return of 8.1% was rather less than that of the NAV.

Share Issuance and Buy-backs

As has been consistently stated over many years, we believe the share price should not vary significantly from the underlying NAV in normal market conditions and we are willing and able to buy or sell the Company's own shares to assist in that approach. In the first six months of this financial year, we bought 600,000 shares and sold 75,000. In line with our previous commitments, the shares were bought at a discount to their concurrent NAV and were sold at a premium. These purchases and sales help to add liquidity

to the market, and add very marginally to NAV per share - to the benefit of ongoing Shareholders.

Revenue, Earnings and Dividends

Our income, which comprises the dividends we receive from our investments, has continued to grow at a healthy rate, increasing by 11.6% compared to the first six months of the previous financial year.

The dividends for the first half year are more than covered by earnings of 5.96 pence per share, allowing us to add to the Revenue Reserve which proved so important in enabling us to maintain and grow the dividend to our Shareholders through the period of interruption in business and social activities caused by COVID-19.

We remain proud of our record of dividend growth, having increased the dividend every year since launch in 1992, and that we are recognised as a "Dividend Hero" by the Association of Investment Companies. We aim to extend our dividend record yet further.

Balance Sheet and Gearing

In March 2023 we renewed our loan facility with The Bank of Nova Scotia, London Branch. We started the financial year having borrowed £24 million and this was increased to £29 million during the six months, giving gearing as at 31 March 2023 of 8.7%.

Directorate Change

As announced in our most recent Annual Report and Accounts, I shall be retiring from the Board on 1 July 2023. Upon my retirement Jane Lewis, who joined the Board in April 2015 will be appointed Chair.

expected and interest rates are probably staying at higher levels for longer, which would normally be considered a headwind for businesses and share prices. We are also very aware of the emerging risk of instability in the US financial sector, but, as yet there appears very limited

Directors' Statement of Principal Risks

and Uncertainties

Jane holds a number of investment trust directorships and I am delighted that the Company and Shareholders will benefit from her extensive experience, knowledge and leadership.

It is announced that as part of the Board's succession planning, and following a thorough selection process, Dunke Afe has been appointed as a Director of the Company with effect from 1 June 2023. Dunke is an accomplished global marketing executive with extensive experience in raising brand and product awareness. She is employed by leading prestige beauty company Estee Lauder where she is Executive Director, Global Marketing and Regions - Joe Malone London.

As a further part of the Board's succession planning, it is anticipated that Tim Scholefield, the Company's Senior Independent Director, will retire from the Board at the conclusion

of the 2024 Annual General Meeting. A new Director will be appointed to the Board in advance of this retirement.

Outlook

It might be tempting to think that the opportunities for UK equities are lacklustre as the stock market has already shown some signs of recovery since the start of the financial year, yet the economy is apparently struggling to produce any meaningful growth. Furthermore, inflation is proving more persistent than

read across to the UK.

All these points of caution, however, ignore the actual experience of many of the companies in our portfolio where sales, profits, earnings and dividends are increasing and where valuations appear undemanding. As has already been stated, share prices can be impacted by macro-economic events but, across a longer- term timeframe, fundamental value should be reflected in improving individual share prices as companies deliver superior performance.

Your Board believes that the Company's investment strategy is sound, and it is supported and executed by an exceptionally experienced investment manager. Shareholders' overwhelming support

in the continuation vote taken at the Company's AGM in March of this year was very encouraging and we are determined to continue a track record beneficial to Shareholders.

May I take this opportunity to thank all Shareholders for their support for the Company. I look forward to seeing you at future general meetings.

On behalf of the Board Jonathan Cartwright Chairman

31 May 2023

Most of the Company's principal risks and uncertainties are market related and no different from those of other investment trusts investing primarily in listed equities. They are described in more detail under the heading "Principal risks and future prospects" within the Strategic Report in the Company's Annual Report for the year ended 30 September 2022.

The principal risks identified in the Annual Report were:

• Macroeconomic and geopolitical risk including the possibility of a prolonged recession in the United Kingdom and the impact of the war in Ukraine.
• Unfavourable markets or asset allocation, sector and stock selection and use of gearing and derivatives are inappropriate giving rise to investment underperformance as well as impacting capacity to pay dividends;
• Errors, fraud or control failures at service providers, or loss of data through increasing cyber-threats or business continuity failure could damage reputation or investors interests or result in losses; and
• Inappropriate business or marketing strategy particularly in relation to investor needs
  or sentiment giving rise to a share price discount to NAV per share.

At present the global economy continues to suffer considerable disruption due to inflationary pressures, the war in Ukraine and the after-effects of the COVID-19 pandemic. The Directors continue to review the key risk register for the Company which identifies the risks that the Company is exposed to, including those that are considered to be emerging, the controls in place and the actions being taken to mitigate them.

The Board considers that the principal risks have not changed materially since

30 November 2022, the date of the Company's Annual Report. The Board has also considered these principal risks in relation to going concern, see page 23.