Half-yearly Report

21 July 2009 THE THROGMORTON TRUST PLC Half yearly announcement of results in respect of the six months ended 31 May 2009 As at As at 31 May 30 November 2009 2008 Change (unaudited) (audited) % Attributable to ordinary shareholders Assets Net assets (Â£'000) 94,430 77,029 22.6 Net asset value per share 114.67p 93.54p 22.6 - with income reinvested 28.8 Ordinary share price (mid-market) 98.00p 62.75p 56.2 - with income reinvested 66.5 Hoare Govett Smaller Companies plus AIM (ex Investment Companies) Index 29.9 Six months Six months ended ended 31 May 31 May 2009 2008 Change (unaudited) (unaudited) % Revenue Net return after taxation (Â£'000) 2,389 1,488 60.6 Return per share 2.90p 1.07p 171.0 Dividend per share Interim 0.55p 0.55p - The Chairman, Richard Bernays, comments: Performance I am pleased to report that during the six month period ended 31 May 2009, the performance of smaller companies has led the rally in UK equity markets. Since the beginning of March the Company's benchmark, the Hoare Govett Smaller Companies plus AIM (excluding Investment Companies) Index has risen significantly ahead of the FTSE 100. The recovery was based on improving sentiment towards smaller companies with signs of economic stabilisation encouraging investors to purchase recovery stocks. The Company has performed well during this six month period and the net asset value ("NAV") has increased by 28.8% with the share price rising 66.5%, all percentages in sterling terms with income reinvested. However, this was behind the benchmark index which performed very strongly over the same period and rose by 29.9%, by comparison to the FTSE 100 Index which increased by only 3.0%. Since the period end, the Company's NAV has increased by 2.1% compared to 1.9% in the benchmark index. The CFD portfolio incurred a loss of Â£1.8 million during the period but has generated net gains of Â£478,000 since its inception to 31 May 2009. Overall the CFD portfolio is now net long, with a bias to the high quality growth companies. It remains a unique feature of the Company and we anticipate that it will contribute significantly to performance in the future. Further information on performance is included in the Investment Manager's Report. Revenue return and dividends Revenue return in the period amounted to 2.90 pence per share which includes the net VAT payment referred to below. Excluding the net VAT payment the underlying revenue return per share was 1.08 pence per share (2008: 1.07 pence per share). The Board is pleased to declare an interim dividend of 0.55 pence per share (2008: 0.55 pence per share) payable on 27 August 2009 to shareholders on the register on 31 July 2009 (ex dividend date is 29 July 2009). Tender offer and bonus subscription share issues It was announced on 3 July 2009 that the Directors have resolved to exercise their discretion to implement a tender offer (the "Tender Offer") as at 1 September 2009. The Tender Offer will enable shareholders to tender their shares for cash, subject to a maximum of 10 per cent. in aggregate of the shares in issue at the relevant time. Whilst the Tender Offer is open to all shareholders, the Directors have no intention of tendering any of their own shares. Following the move to BlackRock Investment Management (UK) Limited in July of last year, the completion of the initial tender offer and the introduction of the CFD portfolio, the Board believes that the Company is an attractive investment opportunity and it is the Board's intention to focus on increasing the size of the Company. In addition to the Tender Offer, the Board is considering proposals for a bonus issue of subscription shares to shareholders on the register after the Tender Offer. The Board believes that subscription shares represent an opportunity for investors to participate in any future net asset growth of the Company through subscribing for shares, as well as having the potential to increase the size of the Company. A circular containing details of the Tender Offer and the procedure for tendering shares will be sent to shareholders with this report. VAT Following the repayment of VAT in the sum of Â£5.5 million in November 2008, a further amount of Â£2,469,000 has been received from HMRC in respect of simple interest on the overpayment, all of which has been allocated to income. A portion of this, Â£967,000 was attributable to tender shareholders and was factored into the final tender distribution. There remains a possibility that additional amounts may be recovered but there is insufficient certainty relating to the outcomes to accrue further amounts at this time. Director Simon Stevens retired as a Director of your Company following the Annual General Meeting held on 19 March 2009 and we are particularly grateful to him for his contribution to the Company. Simon had been a Director since 1999 and his experience was invaluable to his fellow Directors. The Board will keep under review the need for any changes to its size and composition. Auditors I am pleased to report that Ernst & Young LLP has been appointed as the Company's independent auditor following the resignation of Deloitte LLP. A copy of the statement of circumstances relating to the resignation of Deloitte LLP is included with this report in accordance with the requirements of the Companies Act 2006. The appointment of Ernst & Young LLP is the result of a recent beauty parade and subsequent evaluation, at which a number of audit firms were considered. Corporate Broker Following the announcement that UBS would be withdrawing from the UK and European Listed Investment Funds business, the Board made temporary arrangements in respect of the provision of broking services. With effect from 29 May 2009, Oriel Securities Limited was appointed as the Company's sole broker. A number of the personnel previously employed by UBS have joined the Investment Funds team at Oriel Securities Limited and the Board is pleased to continue the association with this team. Prospects During the six month period the Company's benchmark index has risen sharply. Markets will continue to be volatile as economies move out of global recession. It seems unlikely that any falls will test in the lows experienced in March 2009. Lower quality recovery stocks have performed particularly strongly since March with market sentiment shifting towards sectors such as travel and general retailers which had previously been some of the worst performers. Our portfolio positioning remains defensive, but we have added a little more risk to the portfolio with the purchases of early cyclical recovery stocks. We are confident that this strategy, enhanced by the opportunities provided by the CFD portfolio, will reward shareholders well in the coming years. Interim Management Report and Responsibility Statement The Chairman's statement and the Investment Managers' Report give details of important events which have occurred during the period and their impact on the financial statements. Principal risks and uncertainties The principal risks faced by the Company can be divided into various areas as follows: - Performance; - Income/dividend; - Regulatory; - Operational; and - Financial. The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 30 November 2008. A detailed explanation can be found on page 16 of the Annual Report and Financial Statements which is available on the website maintained by the Investment Manager, BlackRock Investment Management (UK) Limited, at www.blackrock.co.uk/its. In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review. The Company may utilise both exchange traded and over-the-counter derivatives, including but not limited to CFDs, as part of its investment policy. These instruments can be highly volatile and potentially expose investors to a high risk of loss. Further details of the risk factors associated with the use of such derivatives can be found on page 56 of the Annual Report and Financial Statements. Related party transactions The Investment Manager is regarded as a related party and details of the management fees payable are set out in note 4. Directors' responsibility statement The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements. The Directors confirm to the best of their knowledge and belief that: - the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement `Half Yearly Financial Reports; and - the interim management report, together with the Chairman's Statement and Investment Manager's Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules. The half yearly financial report has not been audited or reviewed by the Company's Auditors. The half yearly financial report was approved by the Board on 21 July 2009 and the above Responsibility Statement was signed on its behalf by the Chairman. Commenting upon the outlook for the Company, Mike Prentis and Richard Plackett of BlackRock Investment Management (UK) Limited, the Investment Manager, note: Market review and overall investment performance Markets have rallied sharply on hopes that the global recession may be over the worst. This is based on a number of early indicators of recovery, especially the Chinese Purchasing Managers' Index and the latest GDP growth figures. In the US there have been some signs that the economy is deteriorating less fast, but the data is not showing clear trends. For instance, the May non-farm payroll data showed a much lower level of job losses than in previous months, but the June data showed a higher number of job losses. Some recent large company news flow, for instance from Intel has been encouraging. In the UK, consumer confidence measures have been surprisingly positive despite rising unemployment, and there have been some tentative signs of improvement in the housing market. Governments and central banks have continued to take steps to help stimulate activity, through a combination of further cuts in interest rates, most recently by the European Central Bank, quantitative easing, by the UK Monetary Policy Committee and US Federal Reserve, and further steps to strengthen the banks and encourage them to lend. In the UK, many of the stocks that fell most sharply in 2008, heavily leveraged housebuilders, pub companies, retailers and junior miners have seen their share prices rallying sharply. Initially, this was probably driven by a belief that the global economy was close to bottoming, and that UK consumers were more prepared to spend than had been expected. The banks also appear to be taking a pragmatic approach to highly indebted customers, seeking to avoid failures, possibly due to behind the scenes Government pressure, whilst extracting tough terms on refinancing through large fees and significantly higher margins. Investors have repeatedly been prepared to support heavily discounted, dilutive rights issues and almost all companies which have had such rights issues have then seen their shares rise sharply better, Wolseley, Inchcape, Cookson and Segro being a few examples. Hedge funds started to close the large short positions in such heavily leveraged companies, often after rights issues in which they could not participate, but which clearly left the company they had shorted in a much stronger position. Our positioning has been defensive, with the portfolio heavily weighted towards our core holdings of well financed, high quality companies which had outperformed as stockmarkets fell in 2008. Over the last several months the share prices of many of these have remained largely unmoved, or have even fallen, as money has been taken out of these stocks and invested in riskier, leveraged recovery stocks. We have adopted a pragmatic approach, and have sought to identify the best recovery stocks, generally preferring those with market leadership and clear product differentiation. We have sold holdings where our conviction has reduced, and in some cases have taken some profits by reducing the size of several of our core holdings. The Company's net asset value per share increased by 28.8% during the six month period, but this was behind our benchmark index which rose by 29.9%. By contrast the FTSE 100 Index increased by only 3.0%. Our benchmark index performed very strongly. It is reviewed and updated only once a year, on 1 January. This year many of the stocks which had fallen so sharply in 2008 were included in our benchmark. RBS, who now manage the Hoare Govett data series, comment on the HGSC index as follows in their early May review of the first four months of the calendar year: "The strong ytd performance of the HGSC can in no small part be attributed to the performance of the fallen angels - those stocks that had previously been too large to enter the HGSC index, but fell into the index at start-2009 given their poor performance during 2008." Long only portfolio performance The long only portfolio performed well in absolute terms increasing in value by 28.2%, but the portfolio struggled to keep up with the benchmark index. Our performance in the technology area was good with our software stocks on average gaining 43%, led by holdings in Fidessa and SDL. Fidessa shares powered ahead as trading has remained stronger than anticipated by the market; at a recent product demonstration management were clearly very assured. SDL also continues to trade well as demand for language translation remains at a high level. Our hardware stocks also performed well, on average rising 116%, led by Pace and Dmatek. Pace has seen very strong growth in demand for its digital set top boxes and earnings forecasts have increased by more than 70%. Dmatek was subject to an agreed bid. We had good gains on our mining shares, with holdings in Frontier Mining and Cambrian Mining both more than doubling following strengthening of their financial positions. A number of factors detracted from relative performance. Firstly, part was due to holding more than Â£4 million of cash during a period when markets rose sharply. This had to be retained to pay the final and special dividend of Â£4 million due in early May 2009, much of this relates to the VAT refund. This cost us just over 1% in relative performance terms. Secondly, several holdings released disappointing trading updates. Endace saw delays to contracts with investment banking customers, which unsurprisingly took more time to commit to spending; we have met with management since and trading is improving and strong with Government customers. Umeco shares were weak ahead of renegotiating banking facilities; this has now been done and the shares have begun to recover. Intercytex announced one of its key drugs, Cyzact, used for the treatment of venous leg ulcers, had failed to meet its primary endpoint. London Capital experienced less volatile trading conditions, which led to a lower level of profits in its spread betting activities than it had expected. We have reduced the size of our holding in Umeco and sold the holding in Intercytex. Thirdly, a selection of our core holdings underperformed the market; these included our holdings in Connaught, Alternative Networks, Babcock International, Ultra Electronics and Chemring. Alternative Networks saw a slowdown in spending on mobile communications as corporate executives travelled less. The other stocks were affected to an extent by worries about future Government spending, and share prices were largely flat over the period. Subsequent to the period end we have sold holdings in Chemring and Babcock, reflecting our expectation that defence spending will be cut before long. Lastly, we suffered from not owning certain benchmark stocks that performed very strongly notably Debenhams and Ferrexpo, each of which more than tripled. Almost all of the long portfolio's underperformance was due to sector allocation. Our overweight position in aerospace and defence stocks and our underweight positions in the highly cyclical sectors, retailers, travel & leisure, and miners, accounted for this relative underperformance. Activity Our principal aim over the last six months has been to introduce a greater element of high beta, early cyclical holdings into our portfolio whilst retaining our exposure to the high quality core holdings which continue, in the main, to trade well through the recession. We have sold holdings where we feel trading or financial risks have not been adequately priced in shares. We have trimmed certain other holdings where immediate outperformance looks unlikely. The proceeds have been deployed into recovery stocks, with the focus being well-known, liquid stocks with strong market positions; in each case we have invested 0.5% to 0.75% of the portfolio. Recent purchases include retailers HMV Group, London West End office developer Great Portland Estates, steel supplies business Cookson and pub company Greene King. Long only portfolio positioning Despite recent purchases of more volatile recovery stocks, our portfolio beta remains quite low, only 0.93, and so we remain vulnerable to a sharply rallying market. We are still defensively positioned, albeit less so than six months ago. Our main overweight sectors remain software (Fidessa, Aveva, SDL), and wealth managers (Rathbones, Brewin Dolphin and Rensburg Sheppards). Our main underweight sectors are support services where we are nervous about UK corporate and UK Government spending on all discretionary areas, travel and leisure, and food producers. In general, we prefer companies that are exposed to international markets especially those that are likely to remain relatively strong, such as the Far East. In the short term we see the UK consumer facing companies as being potentially lower risk than those companies exposed to UK corporate or public spending which is likely to be cut. The proportion of the portfolio held in AIM stocks has been much reduced over the last year and now stands at 28.7%. The proportion of the portfolio in loss making stocks is approximately 4.5%. Gearing Following the repayment of the debentures in August, the Company has no financial gearing. However, the Company is exposed to the market through the CFD portfolio, the aggregate long and short positions of which amount to approximately 30% of net asset value. The exposure of the Company to the markets on a net basis, the aggregate of the long portfolio, and long CFD portfolio less the short CFD portfolio, is currently 9.6% of net asset value. The CFD portfolio Shareholders approved the proposal to put in place a CFD portfolio last September, and it was subsequently formed. It comprises approximately 50 positions. The long positions are mainly in our preferred core holdings, companies such as Ultra Electronics and Rotork. The short positions are in companies which in some way we see as flawed. Their qualities are in many ways the opposite of the qualities we insist on in our core holdings. For example, in some cases we see management as too optimistic, the companies as being essentially commoditised without pricing power, the balance sheets weak and over leveraged, the financial record being poor or erratic. In several cases our short positions have already proved highly profitable. However, with increasing appetite for risk, some of these lower quality shares have performed quite strongly since March, and so we have closed many of our short positions, especially those in retailers and pub companies. A significant part of the gains achieved between September and November last year have been reversed during March and April 2009. The CFD portfolio incurred a loss of Â£1.8 million during the period but has generated net gains of Â£478,000 since its inception to 31 May 2009. Overall the CFD portfolio is now net long, with a bias to the high quality growth companies. Outlook Markets remain unpredictable and volatile. After the recent strong run, we have seen a modest setback since mid June. It seems likely that the setback will not be so substantial as to test the lows of early March; this is because leading indicators do seem to be pointing to better times ahead for the world economy. Recent meetings with UK investors also suggested that there remains quite a bit of money on the sidelines waiting to be invested, which should limit the extent of a setback. Our plan is to continue the process of the last few months, adding beta and recovery stocks with potentially very attractive upside, whilst maintaining faith in our core holdings but trimming the size of some of these. We may also revisit the microcap space where many valuations are very low and where investor appetite is rekindling. Company Market % of total Business activity value Â£'000 portfolio Fidessa 2,733 2.8 Development and marketing of financial trading and connectivity software Rathbone Brothers 2,133 2.2 Private client fund management Rensburg Sheppards 2,089 2.2 Private client fund management Brewin Dolphin 2,006 2.1 Fund management and stock broking Holdings Aveva Group 1,927 2.0 Development and marketing of engineering computer software Domino Printing 1,889 1.9 Manufacture of inkjet and laser Sciences commercial printers Dechra Pharmaceuticals 1,868 1.9 Development, manufacture and supply of veterinary products Pace 1,839 1.9 Design and sale of digital set top boxes Emerald Energy 1,786 1.9 Exploration and production of oil and gas Chemring Group 1,611 1.7 Manufacture and supply of defence decoy countermeasures and energetic materials Victrex 1,502 1.6 Manufacture and supply of PEEK thermoplastic products City of London 1,491 1.5 Management of investment funds Investment Group* primarily invested in emerging markets Endace* 1,426 1.5 Provision of telecoms networks security solutions Abcam* 1,420 1.5 Production and distribution of research grade anti-bodies and associated products SDL 1,356 1.4 Supply of multilingual translation software and translation services Ultra Electronic 1,306 1.3 Design and supply of electronic Holdings products to the aerospace and defence sector BATM Advanced 1,281 1.3 Development and production of data Communications and telecommunication products Rotork 1,262 1.3 Engineering, manufacturing and design of valve actuators Connaught 1,253 1.3 Services to improve the quality of social housing Kier Group 1,234 1.3 House building, construction and project management ------ ----- 20 largest investments 33,412 34.6 ------ ----- Remaining investments 61,859 64.2 CFD Portfolio (951) (1.0) Investment in subsidiary entities 2,096 2.2 ------ ----- Total investments 96,416 100.0 ------ ----- * Traded on the Alternative Investment Market of the London Stock Exchange Distribution of Investments as at 31 May 2009 Sector %of total portfolio Oil & Gas Producers 7.9 Oil Equipment, Services & Distribution 1.3 ----- Oil & Gas 9.2 ----- Mining 6.0 Chemicals 3.0 Industrial Metals 1.0 ----- Basic Materials 10.0 ----- Support Services 8.9 Aerospace & Defence 5.6 Industrial Engineering 4.5 Electronic & Electrical Equipment 3.6 Construction & Materials 2.4 General Industrials 0.8 Automobiles & Parts 0.2 ----- Industrials 26.0 ----- Household Goods 2.0 Beverages 1.5 Personal Goods 0.8 ----- Consumer Goods 4.3 ----- Pharmaceuticals & Biotechnology 2.6 Health Care Equipment & Services 2.3 ----- Health Care 4.9 ----- Travel & Leisure 3.7 Media 3.7 General Retailers 3.4 ----- Consumer Services 10.8 ----- Fixed Line Telecommunications 0.5 Mobile Telecommunications 0.4 ----- Telecommunications 0.9 ----- Electricity 0.2 ----- Utilities 0.2 ----- General Financial 11.4 Real Estate 3.9 Non-life Insurance 2.1 ----- Financials 17.4 ----- Software & Computer Services 13.0 Technology Hardware & Equipment 3.3 ----- Technology 16.3 ----- Total 100.0 ----- Analysis of the UK listed and AIM traded portfolio as at 31 May 2009 FTSE 250 51.5% AIM 29.3% FTSE Small Cap 17.2% FTSE Fledging 1.8% Other 0.2% Investment Size as at 31 May 2009 < Â£1 m Â£1m to Â£2m > Â£2 m Grand Total Number of Investments 90 35 19 144 % of portfolio 34.0 32.3 33.7 100.0 Market capitalisation as at 31 May 2009 > Â£1 bn Â£400 m to Â£1 bn Â£100 m to Â£400 m < Â£100 m TOTAL % of portfolio 8.2 27.5 40.5 23.8 100.0 Distribution of contracts for difference portfolio Sector Long Short Net Gross exposure* exposure* exposure* exposure* % % % % Basic materials 5.3 - 5.3 5.3 Consumer goods 5.3 -6.6 -1.3 11.9 Consumer services 7.1 -1.6 5.5 8.7 Financials 4.3 -0.8 3.5 5.1 Health care - -1.3 -1.3 1.3 Industrials 27.6 -18.2 9.4 45.8 Oil & gas 4.5 - 4.5 4.5 Technology 14.6 -2.8 11.8 17.4 ---- ---- ---- ----- Total 68.7 -31.3 37.4 100.0 ---- ---- ---- ----- Positions 26 22 - 48 ---- ---- ---- ----- *% of CFD portfolio INCOME STATEMENT Six Six Six Six Six Six months months Year months months Year months months Year ended ended ended ended ended ended ended ended ended 31.05.09 31.05.08 30.11.08 31.05.09 31.05.08 30.11.08 31.05.09 31.05.08 30.11.08 revenue revenue revenue capital capital capital total total total (unaudited)(unaudited)(audited)(unaudited)(unaudited)(audited)(unaudited)(unaudited) (audited) Notes Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Gains/ (losses) on investments held at fair value through profit or loss - - - 19,800 (25,336) (125,374) 19,800 (25,336) (125,374) Income from investments held at fair value through profit or loss 3 1,190 2,079 4,565 - - - 1,190 2,079 4,565 Net return on contracts for differences 68 - 34 (1,845) - 2,221 (1,777) - 2,255 Interest on write back of prior years' VAT 3 2,469 - - - - - 2,469 - - Other income 3 23 382 679 - - - 23 382 679 Investment management and performance fees 4 (95) (202) (422) (286) (714) (1,640) (381) (916) (2,062) Write back of prior years' VAT 4 - - 2,284 - - 3,254 - - 5,538 Operating expenses 5 (258) (257) (428) 262 - (1,399) 4 (257) (1,827) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return before finance costs and taxation 3,397 2,002 6,712 17,931 (26,050) (122,938) 21,328 (24,048) (116,226) Costs/ premium on early redemption of debenture stocks - - - (30) - (10,297) (30) - (10,297) Finance costs (2) (513) (798) - (1,429) (2,174) (2) (1,942) (2,972) Change in tender offer provision (1,006) - (1,062) 1,105 - 14,954 99 - 13,892 -------- -------- -------- -------- -------- -------- -------- -------- -------- Return on ordinary activities before taxation 2,389 1,489 4,852 19,006 (27,479) (120,455) 21,395 (25,990) (115,603) Tax on ordinary activities - (1) (4) - - - - (1) (4) -------- -------- -------- -------- -------- -------- -------- -------- -------- Return on ordinary activities after taxation 8 2,389 1,488 4,848 19,006 (27,479) (120,455) 21,395 (25,991) (115,607) -------- -------- -------- -------- -------- -------- -------- -------- -------- Return per ordinary share: 8 2.90p 1.07p 3.85p 23.08p (19.85p) (95.63p) 25.98p (18.78p) (91.78p) -------- -------- -------- -------- -------- -------- -------- -------- -------- The total column of this statement represents the Income Statement of the Company. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. The Company had no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movements in Shareholders' Funds. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Share Capital Share premium redemption Capital Revenue capital account reserve reserve reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the six months ended 31 May 2009 (unaudited) At 30 November 2008 6,863 35,272 8,327 19,648 6,919 77,029 Return for the period - - - 19,006 2,389 21,395 Tender offer shares cancelled (2,335) - 2,335 - - - Dividends paid* - - - - (3,994) (3,994) ----- ------ ------ ------ ----- ------ At 31 May 2009 4,528 35,272 10,662 38,654 5,314 94,430 ----- ------ ------ ------ ----- ------ For the six months ended 31 May 2008 (unaudited) At 30 November 2007 7,003 35,272 8,187 216,860 5,192 272,514 (Loss)/return for - - - (27,479) 1,488 (25,991) the period Shares purchased and (140) - 140 (3,771) - (3,771) cancelled Dividends paid** - - - - (2,367) (2,367) ----- ------ ----- ------ ----- ------ At 31 May 2008 6,863 35,272 8,327 185,610 4,313 240,385 ----- ------ ----- ------ ----- ------ For the year ended 30 November 2008 (audited) At 30 November 2007 7,003 35,272 8,187 216,860 5,192 272,514 (Loss)/return for the year - - - (120,455) 4,848 (115,607) Transfer of assets to tender pool - - - (74,439) - (74,439) Shares purchased and (140) - 140 (3,771) - (3,771) cancelled Proceeds from shares sold through mix and match facility - - - 1,453 - 1,453 Dividends paid*** - - - - (3,121) (3,121) ----- ------ ----- ------ ----- ------ At 30 November 2008 6,863 35,272 8,327 19,648 6,919 77,029 ----- ------ ----- ------ ----- ------ * Final dividend of 1.85p per share and special dividend of 3.00p per share for the year end 30 November 2008, declared on 1 April 2009 and paid on 1 May 2009. ** Final dividend of 1.70p per share for the year end 30 November 2007, declared on 12 February 2008 and paid on 27 March 2008. *** Final dividend of 1.70p per share for the year end 30 November 2007, declared on 12 February 2008 and paid on 27 March 2008 and Interim dividend of 0.55p per share for the six months ended 31 May 2008, declared on 16 July 2008 and paid on 12 September 2008. BALANCE SHEET as at 31 May 2009 31 31 30 May May November 2009 2008 2008 (unaudited) (unaudited) (audited) Note Â£'000 Â£'000 Â£'000 Non current assets Investments held at fair value through profit or loss 96,416 249,001 93,042 ------- ------- ------ Current assets Debtors 3,008 2,382 1,457 Contracts for differences - - 3,893 Cash 282 24,077 3,790 ------- ------- ------ 3,290 26,459 9,140 ------- ------- ------ Creditors - amounts falling due within one year Other creditors (4,325) (2,906) (22,126) Amounts due in respect of contracts for differences (951) - (3,027) ------- ------- ------ (5,276) (2,906) (25,153) ------- ------- ------ Net current (liabilities)/assets (1,986) 23,553 (16,013) ------- ------- ------ Total assets less current liabilities 94,430 272,554 77,029 Provision for liabilities and charges - (32,169) - ------- ------- ------ Net assets 94,430 240,385 77,029 ======= ======= ====== Capital and reserves Share capital 4,528 6,863 6,863 Share premium account 35,272 35,272 35,272 Capital redemption reserve 10,662 8,327 8,327 Capital reserves 38,654 185,610 19,648 Revenue reserve 5,314 4,313 6,919 ------- ------- ------ Total equity shareholders' funds 94,430 240,385 77,029 ======= ======= ====== Net asset value per ordinary share 8 114.67p 175.14p 93.54p ======= ======= ====== SUMMARISED CASH FLOW STATEMENT for the six months ended 31 May 2009 Six months Six months Year ended ended ended 31 31 30 May May November 2009 2008 2008 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities 2,259 1,564 8,171 Returns on investment and servicing of finance (2) (1,905) (3,061) ------- ------ ------- Capital expenditure and financial investment Purchase of investments (44,184) (23,185) (155,456) Proceeds from sale of investments 60,210 42,801 233,127 ------- ------ ------- Net cash inflow from capital expenditure and financial investment 16,026 19,616 77,671 ------- ------ ------- Equity dividends paid (3,994) (2,367) (3,121) ------- ------ ------- Net cash inflow before financing 14,289 16,908 79,660 ------- ------ ------- Financing Repurchase of ordinary shares - (4,135) (2,683) Distributions to tender shareholders (17,768) - (42,020) Debenture stock redemption costs (30) - (42,466) ------- ------ ------- Net cash outflow from financing (17,798) (4,135) (87,169) ------- ------ ------- (Decrease)/increase in cash (3,509) 12,773 (7,509) ======= ====== ======= RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES Six months Six months Year ended ended ended 31 31 30 May May November 2009 2008 2008 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Net gain/(loss) before finance costs and taxation 21,328 (24,048) (116,226) (Gains)/losses on investments held at fair value (17,931) 26,050 122,938 Decrease in accrued income 99 - 241 (Increase)/decrease in debtors (262) 277 (321) (Decrease)/increase in creditors (932) - 1,328 Expenses charged to capital (24) (714) (3,039) VAT write back to capital - - 3,254 Scrip dividends included in investment income (5) - - Overseas taxation suffered (14) (1) (4) ------ ------ ------ Net cash inflow from operating activities 2,259 1,564 8,171 ====== ====== ====== Notes to the financial statements 1. Principal activity The principal activity of the Company is that of an investment trust company within the meaning of section 842 of the Income and Corporation Taxes Act 1988. 2. Basis of preparation The half yearly financial statements have been prepared on the basis of the accounting policies set out in the Company's report and and financial statements for the year ended 30 November 2008. The Company's financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and with the statement of Recommended Practice "Financial Statements of Investment Trust Companies" ("SORP" dated January 2005 and revised in December 2005 and January 2009). 3. Income Six months Six months Year ended ended ended 31 31 30 May May November 2009 2009 2008 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Investment income: UK dividends 997 2,040 4,217 Overseas dividends 193 39 348 ----- ----- ----- 1,190 2,079 4,565 ----- ----- ----- Other income: Deposit interest 11 326 614 Interest on write back of prior years' VAT 2,469 - - Underwriting commission 7 - 65 Sundry income 5 56 - ----- ----- ----- 2,492 382 679 ----- ----- ----- Total 3,682 2,461 5,244 ----- ----- ----- 4. Investment management and performance fees Six months Six months Six months Six months Six months Six months Year Year Year ended ended ended ended ended ended ended ended ended 31 31 31 31 31 31 30 30 30 May May May May May May November November November 2009 2009 2009 2008 2008 2008 2008 2008 2008 revenue capital total revenue capial total revenue capital total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited)(unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) Investment management fees - AXA - - - 256 768 1,024 294 883 1,177 - BlackRock 95 286 381 - - - 128 380 508 Performance fees - - - - - - - 377 377 VAT written back - - - (54) (54) (108) (2,284) (3,254) (5,538) --- --- --- --- --- ----- ----- ----- ----- Total 95 286 381 202 714 916 (1,862) (1,614) (3,476) --- --- --- --- --- ----- ----- ----- ----- The investment management fee is levied quarterly, based on the value of the market capitalisation of the Company on the last day of each month. The investment management fee is allocated 75% to the capital reserves and 25% to the revenue reserve. No performance fee was accrued for the six months ended 31 May 2009 (six months ended 31 May 2008: nil; year ended 30 November 2008: Â£ 377,000). The performance fee accrued for the year ended 30 November 2008 was calculated based on the outperformance of the Company's net asset value relative to the HGSC + AIM (excluding Investment Companies) Index (total return). The performance fee for the year ended 30 November 2008 was allocated 100% to the capital reserves, as performance was predominantly generated through capital returns of the investment portfolio. 5. Operating expenses Six months Six months Year ended ended ended 31 May 31 May 30 November 2009 2008 2008 (unaudited) (unaudited) (audited) Auditors' remuneration 16 11 40 Registrar's fee 19 16 40 Directors' remuneration 55 64 117 Other administration costs 168 166 231 --- --- --- 258 257 428 --- --- --- 6. Movement in tender offer provision The debit of Â£1,006,000 to the revenue account in relation to the tender offer provision reflects an increase in the value of the tender portfolio attributable to revenue items for the period from 30 November 2008 to the date of the final tender payment. The majority of the increase relates to interest received from HMRC in respect of VAT on management fees overpaid in prior periods. Of the total interest of Â£2,469,000, approximately 40% (Â£967,000) was attributable to tender shareholders and was factored into the value of the final tender distribution. The balance of the increase relates to income arising in the tender portfolio for the period since the year end, mainly bank interest and interest income from the BlackRock Institutional Cash fund. Offsetting the increase in revenue attributable to tendering shareholders, there was a decrease of Â£1,105,000 in the value of capital items, mainly due to a decrease in value of tender portfolio investments between the year end and the date of the final tender payment. The overall change in value attributable to tendering shareholders amounted to a small decrease of Â£99,000. 7. Dividend The Board has declared an interim dividend of 0.55p per share (2008: 0.55p) payable on 27 August 2009 to shareholders on the register at close of business on 31 July 2009. 8. Return and net asset value per ordinary share Six months Six months Year ended ended ended 31 May 31 May 30 November 2009 2008 2008 (unaudited) (unaudited) (audited) Net revenue return attributable to ordinary shareholders (Â£'000) 2,389 1,488 4,848 Net capital return attributable to ordinary shareholders (Â£'000) 19,006 (27,479) (120,455) ------ ------- ------- Net total return (Â£'000) 21,395 (25,991) (115,607) ------ ------- ------- Equity shareholders' funds (Â£'000) 94,430 240,385 77,029 ------ ------- ------- Continuing Shares The weighted average number of ordinary shares in issue during the period, on which the return per ordinary share was calculated, was: 82,351,197 138,443,057 125,966,485 The actual number of ordinary shares in issue at the end of each period, on which the net asset value was calculated, was: 82,351,197 137,251,872 82,351,197 ---------- --------- --------- Net asset value per share 114.67p 175.14p 93.54p ---------- --------- --------- Exiting Shares Liability attributable to tendering and mix and match shareholders (Â£'000) - - 17,768 Shares attributable to tendering shareholders - - 54,900,675 Shares attributable to mix and match shareholders - - 1,127,000 ---------- ---------- ---------- Total shares in respect of which proceeds are payable from the tender pool - - 56,027,675 ---------- ---------- ---------- Net asset value per share - - 31.71p ---------- --------- --------- Return per share Calculated on weighted average shares: Revenue return 2.90p 1.07p 3.85p Capital return 23.08p (19.85p) (95.63p) ====== ====== ====== Total 25.98p (18.78p) (91.78p) ====== ====== ====== 9. Ordinary share capital and shares held in treasury Number of Number of Number of Total Nominal continuing Tender treasury value shares in shares shares in Â£'000 issue issue Authorised share capital comprised: Ordinary shares of 5p each 460,000,000 - - 460,000,000 23,000 ----------- ---------- --------- ----------- ------ At 30 November 2008 82,351,197 54,900,675 - 137,251,872 6,863 Shares cancelled pursuant to tender offer - (46,700,675) - (46,700,675) (2,335) Shares transferred into treasury pursuant to tender offer on 27 March 2009 - (8,200,000) 8,200,000 - - ----------- ---------- --------- ----------- ------ At 31 May 2009 82,351,197 - 8,200,000 90,551,197 4,528 ----------- ---------- --------- ----------- ------ 10. Publication of non statutory accounts The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 31 May 2009 and 31 May 2008 has not been audited. The information for the year ended 30 November 2008 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditors on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006. 11. Results The Board expects to announce the annual results for the year ended 30 November 2009, as prepared under UK Generally Accepted Accounting Practice in mid January 2010. Copies of the preliminary announcement can be obtained from the Secretary on 020 7743 3000. The annual report should be available at the beginning of February 2010, with the Annual General Meeting being held in March 2010. Copies of the half yearly financial report will be posted to shareholders by 27 July 2009. Copies will also be available to the public from the Company's registered office at 33 King William Street, London EC4R 9AS, and on BlackRock Investment Management's website at www.blackrock.co.uk/its. 21 July 2009 33 King William Street London EC4R 9AS For further information please contact: Jonathan Ruck Keene, Managing - 020 7743 2178 Director Investment Companies Mike Prentis, Fund Manager - 020 7743 2312 Emma Phillips, Media & Communications - 020 7743 2922 BlackRock Investment Management (UK) Limited Or William Clutterbuck The Maitland Consultancy - 020 7379 5151

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