BMO Capital and Income Investment Trust PLC

AGM 2021

Julian Cane

Director, Portfolio Manager, UK Equities

Julian Cane is a Director and fund manager in the European Equities team, and is the Fund Manager for BMO Capital and Income Investment Trust. Julian joined the Group in 1993. Prior to that, he worked for Mitsubishi Bank in Corporate Finance and Treasury. Julian has an MA degree in economics from the University of Cambridge and is an Associate of the CFA Society of the UK.

BMO Capital and Income Investment Trust – AGM 2021

The Annual General Meeting (“AGM”) for BMO Capital and Income Investment Trust PLC (“BCI”) was held at 11:30 on 16 February 2021.

Due to current restrictions and social distancing measures Shareholders were not permitted to attend this year’s AGM physically but were able to view proceedings at the meeting electronically. Voting occurred in advance with Shareholders encouraged to utilise their Form of Direction, appointing the Chairman of the AGM as their proxy

You can view the recording of the Chairman’s Introduction and the Lead Fund Manager’s presentation below and you can also download the full presentation here.

Annual General Meeting - Frequently Asked Questions

How did the Company perform during the year ended 30 September 2020?

Performance – year ended 30 September 2020

Total return

Net asset value (“NAV”)

Share price

Benchmark Index

-21.0%

-20.3%

-16.6%

Over the year to 30 September 2020, the total returns (including dividends) for the Company’s NAV and share price were -21.0% and -20.3% respectively. These compare directly to the total return of -16.6% for the Index.

The period between 21 February 2020 when the stock market started to fall sharply in response to the developing crisis and 23 March 2020 at the trough was when the performance of the Company was hit hardest. Up to that point the Company had been making good progress and, since the nadir in March 2020, performance for the remainder has been ahead of the Index.

Longer term performance was impacted by the turmoil of the year, but nevertheless NAV total returns measured over the last five years remain positive in both absolute and relative terms. Over five years to 30 September 2020, the Company’s NAV and share price total returns were +19.8% and +16.8% while the comparable figure for the Index was +18.6%.

How has the Company performed since 30 September 2020?

Performance year to date since 30 September 2020 (31 January 2021)

Total return

NAV

Share price

Benchmark Index

15.7%

12.7%

11.7%

November marked a real turnaround for the UK stock market after a period of ‘drift’ when market levels were lower than at the end of April. The recovery continued in December. Positive news on the development of successful vaccines continued to drive the expectation of economic and social improvement as or when populations are sufficiently vaccinated, bringing positive sentiment to the stock market

The Company’s own performance was significantly ahead of the benchmark index, a function of stock selection and a modest amount of gearing. Strongest contributors have been Signature Aviation, OneSavings Bank and Intermediate Capital.

What has been the impact of the COVID-19 pandemic on revenue and the Company’s dividend?

The lockdowns mandated by most governments worldwide to halt the spread of the virus clearly affected many businesses severely as did the general uncertainty as to how the situation would develop. This fed through immediately into lower or no dividend payments from companies to their shareholders, thus reducing this Company’s income.

One of the objectives of this Company is to pay a rising dividend to shareholders. Even though its own income has been significantly reduced during the year ended 30 September 2020 because of the COVID-19 pandemic, the Company has a very significant Revenue Reserve, which was accumulated in previous years. A key purpose of the Revenue Reserve is to be able to support dividend payments when conditions are more challenging, such as during this crisis, and therefore the Board was willing to use the Reserve to support the payment of an increased dividend.

In November 2020, the Board announced the payment of a fourth quarterly dividend of 3.75 pence per share. Together with the three dividends already paid, this took the total dividend for the year ended 30 September 2020 to 11.5 pence per share, an increase of 0.9% compared to the previous year. By comparison, the Consumer Prices Index rate of inflation for the year to September 2020 was 0.5%.

The Company is proud to be an AIC Dividend Hero, having increased its dividend every year since launch in 1992 and this is a record the Company will strive to maintain.

Did the Company deploy gearing during the year ended 30 September 2020?

The Company entered the financial year with relatively little gearing: a bank loan of £10m and cash of £4.2m compared to net assets of £338.1m. The cash was invested during the first six months and as shares fell in February and March 2020 a further £10m was borrowed and invested in new and follow-on opportunities where market movements were excessive. The Company’s borrowing has stayed at £20m throughout the second half of its financial year and as returns were overall positive in that period, the use of debt was advantageous, but this was not sufficient to offset the gearing effect in the first half of the financial year when market conditions were much weaker.

What steps has the Company taken to consider ESG factors when investing?

The Board and the Manager have long recognised and been committed to the importance of high standards of Environmental, Social and Governance (“ESG”) practice in assessing investments for inclusion in the portfolio. These standards also establish a framework for dialogue with those companies. We believe higher standards can help to deliver better and more sustainable long-term growth in capital and income, in addition to their own intrinsic merits.

The Manager has one of the largest and longest established teams in the City dedicated to ESG and pages 24 to 27 of the 2020 Annual Report explain in detail its ESG policies and the engagement the Manager has had with companies in its portfolio. The Board fully supports the Manager’s engagement in this increasingly important area.

What is BMO Investment Business Limited (“the Manager”) paid?
The Manager provides investment management and general administrative services to the Company for a quarterly management fee payable in arrears equal to 0.1% of the funds under management.
Management fees have been allocated 50% to capital reserve in accordance with the Company’s accounting policies.
Why have the Annual General Meeting (“AGM”) arrangements been changed this year?

On 26 November 2020 the Board announced that the AGM of the Company would be held at 11.30am on 16 February 2021 at Quartermile 4, 7a Nightingale Way, Edinburgh EH3 9EG. Mindful of travel and gathering restrictions arising from the COVID-19 pandemic the Board took the difficult decision to amend the format of the 2021 AGM.

Shareholders are not permitted to attend this year’s AGM physically but will be able to view proceedings at the meeting electronically. Voting will occur in advance with shareholders encouraged to utilise their Form of Proxy or Form of Direction, appointing the Chairman of the AGM as their proxy. The formal meeting will be preceded by a presentation by the Company’s Fund Manager. Shareholders are requested to direct any questions they may have with regard to the resolutions proposed at the AGM or the performance of the Company, in advance of the meeting to [email protected].

The Fund Manager’s presentation will also be available on the Company’s website www.bmocapitalandincome.com accompanied with this regularly updated Questions and Answers Schedule. Access details for the AGM are included on the Form of Proxy or Form of Direction.

The Board has always valued the opportunity that the AGM provided to meet the Company’s shareholders. The Board looks forward to a resumption of its normal practices in 2022 and if possible, with the additional facility of online attendance for those shareholders unable to travel.

If I cannot attend the AGM how can my votes count?

Use your Form of Proxy, appointing the Chairman as your proxy.

This will allow your votes to count despite you being unable to attend physically. Appointment of a proxy other than the Chairman will result in your vote not being counted, as the person appointed as your proxy will not be admitted to the AGM.

Why are the Directors seeking the authority to issue and buyback shares?
The Directors seek these powers to minimise the volatility of the Company’s share price to its NAV.

These authorities will provide the Directors with a degree of flexibility to increase the assets of the Company by the issue of new shares or the sale of treasury shares. The Directors anticipate that they will mainly use them to satisfy demand from participants in the BMO Savings Plans when they believe it is advantageous to plan participants and the Company’s shareholders to do so. In no circumstances would the Directors use them to issue or sell any shares from treasury unless the existing shares in issue are trading at a premium to NAV.

Purchases would only be made through the market for cash at prices below the prevailing NAV per share which would have the effect of enhancing that value for remaining shareholders. Any shares that are purchased would either be placed into treasury or cancelled.
Why are the Directors seeking to increase the aggregate limit on Directors’ remuneration?

The Company’s articles of association limit the aggregate fees payable to the Board to a total of £180,000 per annum. Within that limit, it is the responsibility of the Board as a whole to determine and approve the Directors’ fees, following a recommendation from the Chairman and, in his case, from the Senior Independent Director.

To assist with Board succession planning the Board is seeking approval at the forthcoming AGM to increase the limit to £250,000. This increase would facilitate periods of transition between newly appointed Directors and those approaching retirement and allow for the transfer of knowledge and experience between Directors.

No Director fee rate increases are proposed for the year ended 30 September 2021 in comparison to the prior year.

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