Half-yearly Report
The Edinburgh Investment Trust plc
Half-Yearly Financial Report
Six months to 30 September 2013
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
The Edinburgh Investment Trust plc (the `Company') is a UK investment trust
listed on the London Stock Exchange, which invests primarily in UK securities.
Investment Objective of the Company
The Company invests primarily in UK securities with the long term objective of
achieving:
1. an increase of the Net Asset Value per share by more than the growth in the
FTSE All-Share Index; and
2. growth in dividends per share by more than the rate of UK inflation.
Performance Statistics
At At
30 September 31 March %
2013 2013 Change
Total Return(1)
NAV - debt at par +4.4
NAV - debt at market value +5.1
Share price +7.2
FTSE All-Share Index +3.8
Capital Return
Net asset value (NAV):
- debt at par 591.89p 581.89p +1.7
- debt at market value 573.32p 559.01p +2.6
Share price 599.5p 572.0p +4.8
FTSE All-Share Index 3443.85 3380.64 +1.9
(Premium)/discount:
- debt at par (1.3)% 1.7%
- debt at market value (4.6)% (2.3)%
Gearing at par:
- gross gearing(2) 17.3% 17.6%
- net gearing(3) 17.1% 17.6%
%
for the six months to 30 september 2013 2012 Change
Revenue return per share 12.1p 11.3p +7.1
First interim dividend(4) 5.0p 5.0p -
Retail Price Index - increase over period 1.3% 1.4%
Notes:
1. Capital growth with income reinvested. Source: Thomson Reuters
Datastream.
2. Gross gearing: borrowings ÷ shareholders' funds.
3. Net gearing: borrowings less cash and investments in money market funds ÷
shareholders' funds.
4. Dividends declared in respect of the financial year.
.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT
Chairman's Statement
Dear Shareholder,
The recovery in equity markets reported in my last Chairman's Statement to
shareholders has continued into the new financial year, albeit at a slower rate
on the back of ongoing uncertainties around the strength and sustainability of
economic growth and the timing of tapering of quantitative easing in the US.
There has been no change in the investment strategy which has been in place
since 2008, and this has delivered investment out-performance against benchmark
in the six month period to 30 September 2013. More detail on performance is
given below. The income generation of the portfolio remains good and an
unchanged first interim dividend of 5.0 pence per share will be paid on 29
November 2013 (2012: 5.0p)
Since the period end it has been announced by Invesco Perpetual that the
Company's Portfolio Manager, Neil Woodford will be leaving in April 2014. This
is discussed in more detail below.
UK Equity Market
The positive sentiment towards equity markets continued in the period;
supported in part by continuing monetary stimuli, but also as a consequence of
a low interest rate environment reducing the attractiveness of many other asset
classes. However, the market correction in June provided a timely reminder of
the potential effect on equity markets of the eventual unwinding of
quantitative easing.
A more detailed discussion on the UK equity market and the Company's portfolio
is contained in the Manager's Report.
Performance
The Company produced a net asset value (NAV) total return for the six months
to 30 September 2013 of 4.4% (debt at par) and 5.1 % (debt at market), which
compares with a total return of 3.8% for the FTSE All-Share Index (the
`Index'), the Company's benchmark. The share price total return (share price
with dividends reinvested) for the period was 7.2%. The portfolio continues to
be concentrated in a relatively small number of sectors and its overweight or
underweight positions in various sectors can be material drivers of the
Company's relative investment performance.
The Company's share price at 30 September 2013 was 599.5p, an increase of 4.8%
from the year end share price of 572.0p. The shares traded at a discount of
1.7% to NAV (debt at par) at the year end of 31 March 2013, but moved to a
premium of 1.3% at 30 September 2013; valuing debt at market, the shares ended
the period trading at a premium of 4.6%, an increase from the year end premium
of 2.3%. At 11 November 2013, the latest practical date to signing this report,
the NAV was 616.05p, the share price was 582.5p and the resultant discount was
5.4% (debt at par) and 2.5% (debt at market value), reflecting a reaction in
the market to the announcement on 15 October 2013 of Neil Woodford's departure
from Invesco Perpetual in April 2014.
Performance Fee
A performance fee is payable in respect of each three year rolling period in
which the Company outperforms its benchmark index plus a hurdle of 1.25% per
annum. This fee is capped at 1% of the period end net assets, before deduction
of performance fee.
The Company performed strongly in the two and a half years to 30 September 2013
in comparison to the Index, producing a total return of 45.6% against the Index
total return of 22.9%. If the Company's NAV were to perform in line with the
Index in the next six months, the calculated fee would be in excess of the cap,
and so a capped performance fee of £11.7 million is provided for in this
half-yearly financial report.
Gearing
The Company continues to benefit from debt amounting to £200 million in the
form of two £100 million debentures. This debt is fully deployed for investment
purposes. As a result of the appreciation in NAV over the six month period, at
30 September 2013 the gross gearing level fell to 17.3% from 17.6% at 31 March
2013.
One of the debentures, the 11.5 % £100 million debenture, matures in June 2014.
The Board continues to keep this position under review, both in terms of
whether and how best to replace the financing represented by that debenture.
Dividend
The Board declares an unchanged first interim dividend of 5.0 pence per share
which will be paid on 29 November 2013 to shareholders on the register on
22 November 2013. Shares will be quoted ex-dividend on 20 November 2013.
The Manager
On 15 October 2013, the Board was informed by its Manager, Invesco Asset
Management Limited, that Neil Woodford, the Company's portfolio manager, will
be leaving Invesco Perpetual in April 2014. The Board has been assured by
Invesco Perpetual that this will not result in any immediate change to the
Company's management.
The Board has met with senior management at Invesco Perpetual, including Mark
Armour, the CEO, to discuss the management arrangements for the Company and has
been assured that Neil Woodford remains committed to the management of the
Company's portfolio until his departure.
The Board would like to take some time to consider the options for the future
management of the Company before it makes a decision, but in the meantime it is
satisfied with the assurances that have been received from Invesco Perpetual.
The Board is also mindful that, as has been the case since we appointed Invesco
Perpetual, working with Neil Woodford is a highly experienced investment team
backed by the resources of a global company.
Outlook
It is appropriate to adopt a cautionary tone in respect of investment
performance in the short term. Equity valuations are higher than they have been
over the last few years and there remains considerable uncertainty around the
strength and sustainability of economic recovery, and the timing of the
withdrawal of extraordinary monetary policy.
Additionally, the Board, following the announcement of Neil Woodford's
departure next year, is in the process of reviewing its investment management
arrangements. I can assure you that the Board has your interests uppermost in
its considerations as we determine the future management of the Company. When
we have made our decision we will inform you in a timely manner. In the
meantime, we would like to reassure you that the management of the Company
continues in good hands.
Jim Pettigrew
Chairman
13 November 2013
Total Returns to 30 September 2013
6 MONTHS 1 YEAR 2 YEARS 3 YEARS 5 YEARS 10 YEARS
NAV (debt at par) (%) 4.4 22.0 42.9 56.2 89.3 163.7
Share Price (%) 7.2 20.9 45.8 65.0 125.9 242.1
FTSE All-Share (%) 3.8 18.9 39.4 33.4 66.2 140.2
Source: Thomson Reuters Datastream.
.
MANAGER'S REPORT
Market Review
The UK stock market continued its upward progress over the period under review.
A run of 12 consecutive months of positive returns ended with a sharp sell-off
in June, confirming that the positive sentiment towards equities had mainly
been driven by loose monetary policy - the weakness followed comments from Ben
Bernanke, Chairman of the US Federal Reserve, that "it would be appropriate to
moderate the pace of purchases later this year". Equities rallied as US GDP
growth forecasts were marked down and Mario Draghi, President of the European
Central Bank, stated that the "ECB will maintain its easy money policy for the
foreseeable future". Stock market volatility remained high, against a backdrop
of rising government bond yields and some conflicting economic and political
newsflow, including the Syrian crisis and concerns over slowing economic growth
in China.
The commencement of Mark Carney's tenure as Governor of the Bank of England in
the summer saw GDP growth for Q2 confirmed at 0.7%, its fastest rate for three
years, and an upward revision to the IMF's forecasts for UK economic growth to
1.4% this year and 1.9% next. The half year concluded with a stalemate over the
US spending bill - although the market remained fairly relaxed about the
likelihood of a deal. After the period end, a deal was finalised, temporarily
resolving the on-going issues of budget reform and the debt ceiling.
Portfolio Strategy and Review
The Company's net asset value, including reinvested dividends, rose by 4.4%
(debt at par) and 5.1% (debt at market value) during the period under review,
compared with a rise of 3.8% (total return) by the FTSE All-Share Index. The
share price with dividends reinvested rose 7.2%.
This year's rise in the stock market has been noteworthy for its breadth. While
previous rallies have been driven by a relatively small number of "risk-on"
sectors, notably mining and banks, this year has seen strong performances from
a wide spread of sectors, including those perceived as defensive. Investors
have favoured stocks where they have confidence in their dividend paying
ability and the prospect of sustainable growth. The stock market has begun to
recognise that the shares of some companies that have these attributes were
profoundly undervalued, as we have believed for some while, and this has
benefited the portfolio's performance.
At an individual stock level, the portfolio's holding in BT continued to
deliver a strongly positive impact - despite the company announcing that Ian
Livingston was stepping down from his role as Chief Executive to take up the
role of Minister of State for Trade for the UK Government. It is testimony to
the job that Ian has done at BT that the stock market took the news relatively
well, focusing instead on the company's on-going scope for cost cutting and its
increasingly dominant position in the UK broadband market - bolstered by its
new TV sports channel.
BAE Systems provided a major positive impact on the portfolio's performance.
The company's operational performance since it halted the merger talks with
EADS has confirmed its ability to thrive as an independent entity. This a
company whose stock market perception is shifting from negative growth, exposed
to a challenging US defence spending environment, towards a combination of slow
growth in mature markets and faster growth in the emerging world.
Capita saw its shares continue their very positive performance of the past
12 months, as the company announced that it had formed a 10 year strategic
partnership with O2 for customer management services. The group confirmed that
it has now secured over £2.0 billion of new and extended contracts in 2013 and
has increased its forecast for organic growth for the year, underpinning our
confidence in the scale of the opportunities available to the business.
The holdings in UK tobacco companies, however, weighed on the portfolio's
performance. The UK government delayed the proposed introduction of plain
packaging while the European parliament was due to vote on new regulations to
limit packaging design and the packet sizes, but there was no major newsflow to
fundamentally justify the sector's underperformance.
The holdings in Centrica and SSE fell in value towards the end of the period,
on the back of the 20 month utility bill price freeze proposed by the Labour
Party should they win the next general election. This policy would clearly be
popular with the electorate but the economics of it are in our view absurd. We
believe it is irrational for any privately-owned company to sell its products
or services at a loss and we would encourage any company that was forced to do
so to simply stop supplying. Furthermore, energy bills have been increasing in
recent years due to higher commodity prices and as a result of policies
designed to increase the UK's sourcing of energy from renewables. Prices have
not increased through company profiteering - there have been 20 separate
inquiries into the energy market since 2001, none of which have found evidence
of anti-competitive behaviour.
There was some disappointing news from G4S, with the company warning that its
operating profit margin will contract this year. The company subsequently
announced not only that its Chief Executive, Nick Buckles, had decided to step
down to be replaced by its recently appointed Finance Director, Ashley Almanza,
but also a rights issue to strengthen its balance sheet.
In terms of portfolio activity, we disposed of the holding in Elan, following
the confirmation of an agreed bid from US healthcare company Perrigo. We
participated in the rights issue by G4S, as outlined above, as well as in share
placings by Lancashire Holdings, which announced the acquisition of Lloyd's
insurer Cathedral Capital, and by BTG, which announced the purchase of EKOS, an
interventional vascular business, and of the Targeted Therapies division of
Nordion.
Outlook
Further confirmation of the extent to which the stock market's progress has
been driven by quantitative easing came over the period, most recently with the
market's positive reaction to the news of no imminent tapering in the US. There
are many explanations as to why the Federal Reserve chose not to commence
tapering in September, as had been widely expected, but the most popular view
suggests that the Fed was concerned that the political impasse could have
an increasingly negative impact on economic confidence and market sentiment.
Although the timing is impossible to predict, the withdrawal of extraordinary
monetary policy in the US is ultimately inevitable. We expect the pace of
withdrawal to be gradual but, like the US Federal Reserve, we do worry about
the near-term implications of tapering for our asset class. It is even more
difficult than usual to predict the path that the market will take over the
next few months but the fund is positioned, with a focus on companies which can
deliver attractive cash flows, earnings and dividend growth. It therefore has
the potential to deliver an attractive positive return over more sensible,
longer time horizons. We would caution, however, that returns over the next
three years are likely to be somewhat lower than over the last three years,
purely as a consequence of the higher valuations that we now see in our market.
Neil Woodford
Investment Manager
13 November 2013
.
Related Parties and Transactions with the Manager
Under United Kingdom Generally Accepted Accounting Practice (UK Accounting
Standards and applicable law), the Company has identified no related parties
and there have been no related party transactions during the period. Invesco
Asset Management Limited, a wholly owned subsidiary of Invesco Limited, acts as
Manager, Company Secretary and Administrator to the Company. Details of the
management fee arrangements are given in notes 2 and 3 of the condensed
financial statements.
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be summarised as
follows:
• Market Risks - a fall in the stock market as a whole will affect the
performance of the portfolio, as well as the performance of individual
portfolio investments; it also includes interest rate and currency risks;
• Investment Performance Risk - this is the stock specific risk that the stock
selection process may not achieve the Company's published objectives;
• Gearing Risk - borrowing will amplify the effect on shareholders' funds of
portfolio losses;
• Income/Dividend Risk - investment income may fail to reach the level required
to meet the Company's income objective;
• Share Price Risk - the Company's prospects and NAV may not be fully reflected
in the share price;
• Control System Risk - the Board relies on the effectiveness of the Manager's
control systems which include control activities in fund management operations,
financial controls, meeting regulatory requirements and managing relations with
third parties;
• Reliance on Third Party Providers Risk - the Company has no employees, so is
reliant upon the performance of third party service providers for it to
function, particularly the Manager, Custodian and Registrars; and
• Other Risks - the Company may be affected by other risks such as business and
strategic risks, and the perceived impact of the designated Investment Manager
ceasing to be involved with the Company.
A detailed explanation of these principal risks and uncertainties can be found
on pages 16 to 18 of the 2013 annual financial report, which is available on
the Manager's website at www.invescoperpetual.co.uk/investmenttrusts.
In the view of the Board, these principal risks and uncertainties are unchanged
from the previous year end and are as much applicable to the remaining six
months of the financial year, as they were to the six months under review. As
highlighted in the annual financial report, the Manager's style may result in a
concentrated portfolio. In addition, the Manager manages other portfolios
holding many of the same stocks as the Company which reflects the Manager's
high conviction style of investment management. This could potentially increase
liquidity risk under certain scenarios and market conditions.
Going Concern
The financial statements have been prepared on a going concern basis. The
Directors consider this is the appropriate basis as the Company has adequate
resources to continue in operational existence for the foreseeable future. In
considering this, the Directors took into account the diversified portfolio of
readily realisable securities which can be used to meet funding commitments,
and the ability of the Company to meet all its liabilities and ongoing expenses
from its assets and revenue.
.
INDEPENDENT REVIEW REPORT
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended
30 September 2013 which comprises the condensed income statement, condensed
reconciliation of movements in shareholders' funds, condensed balance sheet,
condensed cash flow statement and the related explanatory notes. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules (the `DTR') of the UK's Financial Conduct Authority (the
`UK FCA'). Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this 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 for our review work, for this
report, or for the conclusions we have reached.
Directors' Responsibilities
The half-yearly report is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the half-yearly
financial report in accordance with the DTR of the UK FCA. As disclosed in note
1, the annual financial statements of the Company are prepared in accordance
with UK Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice). The condensed set of financial statements included in
this half-yearly financial report has been prepared in accordance with the
Statement `Half-Yearly Financial Reports' as issued by the UK Accounting
Standards Board.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 `Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2013 is not prepared, in
all material respects, in accordance with the Statement `Half-Yearly Financial
Reports' as issued by the UK Accounting Standards Board and the DTR of the UK
FCA.
Salim Tharani
for and on behalf of KPMG Audit Plc
Chartered Accountants
London
13 November 2013
.
INVESTMENTS IN ORDER OF VALUATION
at 30 September 2013
UK listed and ordinary shares unless stated otherwise.
AIM Investments quoted on AIM (formerly Alternative Investment Market).
Market
Value % of
Investment Sector £'000 Portfolio
GlaxoSmithKline Pharmaceuticals & Biotechnology 121,456 8.9
AstraZeneca Pharmaceuticals & Biotechnology 118,882 8.7
BT Fixed Line Telecommunications 106,811 7.8
British American Tobacco 85,591 6.3
Tobacco
Roche - Swiss common Pharmaceuticals & Biotechnology 84,528 6.2
stock
BAE Systems Aerospace & Defence 77,045 5.6
Imperial Tobacco Tobacco 70,383 5.2
Reckitt Benckiser Household Goods & Home 62,342 4.6
Construction
Reynolds American - Tobacco 60,553 4.4
  US common stock
Capita Support Services 58,964 4.3
Ten largest holdings 846,555 62.0
Rolls-Royce Aerospace & Defence 51,336 3.8
Centrica Gas, Water & Multiutilities 50,073 3.7
Altria - US Common Tobacco 37,194 2.7
Stock
Sanofi - French common Pharmaceuticals & Biotechnology 34,035 2.5
stock
Novartis - Swiss common Pharmaceuticals & Biotechnology 33,247 2.4
stock
Drax Electricity 30,629 2.2
Smith & Nephew Health Care Equipment & 28,030 2.1
Services
SSE Electricity 26,399 1.9
G4S Support Services 23,222 1.7
Provident Financial Financial Services 21,812 1.6
Twenty largest holdings 1,182,532 86.6
Wm Morrison Food & Drug Retailers 19,245 1.4
Supermarkets
Raven Russia - Real Estate Investment & 8,028
Preference Services
- Ordinary 7,128
15,156 1.1
BTG Pharmaceuticals & Biotechnology 15,117 1.1
Rentokil Initial Support Services 14,702 1.1
Hiscox Non-life Insurance 14,415 1.1
Serco Support Services 13,489 1.0
Amlin Non-life Insurance 12,834 0.9
Catlin - US common Non-life Insurance 9,464 0.7
stock
PayPoint Support Services 9,241 0.7
HomeServe Support Services 8,579 0.6
Thirty largest holdings 1,314,774 96.3
IP Group Financial Services 7,236 0.5
Legal & General Life Insurance 6,970 0.5
Lancashire Non-life Insurance 5,969 0.4
Stobart Industrial Transportation 5,952 0.4
Smiths General Industrials 5,632 0.4
Burford Capital AIM Investment Instruments 5,362 0.4
Chemring Aerospace & Defence 4,781 0.4
Barclays Bank - Nuclear Investment Instruments 3,423 0.3
Power
  Notes 28 Feb 2019(1)
Oxford Pharmascience Pharmaceuticals & Biotechnology 1,907 0.1
AIM
HSBC Banks 1,338 0.1
Forty largest holdings 1,363,344 99.8
Proximagen - Rights - Pharmaceuticals & Biotechnology 815 0.1
  Unquoted
Helphire Financial Services 689 0.1
Revolymer AIM Chemicals 475 -
Velcoys Oil Equipment, Services & 450 -
Distribution
Eurovestech - Unquoted Financial Services 289 -
Total holdings (45) 1,366,062 100.0
(1) Contingent Value Rights (CVRs) referred to as Nuclear Power Notes (NPNs)
were offered by EDF as a partial alternative to cash in its bid for British
Energy (BE). The NPNs were issued by Barclays Bank. The CVRs participate in
BE's existing business.
.
CONDENSED INCOME STATEMENT
Six Months TO 30 six months to 30 Year
September 2013 September 2012 ended
(Unaudited) (Unaudited) 31 March
2013
(audited)
Revenue Capital Total Revenue Capital Total Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 41,484 41,484 - 27,646 27,646 185,241
Foreign exchange - 169 169 - 866 866 (377)
profits
Income
  UK dividends 23,101 - 23,101 22,667 - 22,667 40,609
  Scrip dividends 572 - 572 484 - 484 823
  Overseas dividends 3,732 - 3,732 3,605 - 3,605 10,986
  Special dividends 1,092 22 1,114 - - - 462
  Income from money 3 - 3 6 - 6 7
market funds
  Underwriting and 1 - 1 - - - -
other income
28,501 41,675 70,176 26,762 28,512 55,274 237,751
Operating costs
Investment management (1,038) (2,422) (3,460) (874) (2,040) (2,914) (6,011)
fee - note 2
Performance fee - - (11,688) (11,688) - (10,005) (10,005) (11,492)
note 3
Other expenses (395) (1) (396) (361) (2) (363) (724)
Net return before 27,068 27,564 54,632 25,527 16,465 41,992 219,524
finance costs and
taxation
Finance costs - note (2,925) (6,826) (9,751) (2,925) (6,826) (9,751) (19,501)
2
Return on ordinary 24,143 20,738 44,881 22,602 9,639 32,241 200,023
activities before tax
Tax on ordinary (532) - (532) (523) - (523) (1,565)
activities - note 4
Return on ordinary 23,611 20,738 44,349 22,079 9,639 31,718 198,458
activities after tax
Return per ordinary 12.1p 10.6p 22.7p 11.3p 4.9p 16.2p 101.7p
share - note 5
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The supplementary
revenue and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the Association
of Investment Companies. All items in the above statement derive from
continuing operations and the Company has no other gains or losses therefore no
statement of recognised gains or losses is presented. No operations were
acquired or discontinued in the period.
.
CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS'FUNDS
Capital
Share Share redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months
ended
30 September 2013
(Unaudited)
At 31 March 2013 48,779 6,639 24,676 997,171 60,481 1,137,746
Dividends paid - note - - - - (24,948) (24,948)
6
Net return on ordinary - - - 20,738 23,611 44,349
activities
At 30 September 2013 48,779 6,639 24,676 1,017,909 59,144 1,157,147
For the year ended 31
March 2013 (Audited)
At 31 March 2012 48,779 6,639 24,676 841,659 60,425 982,178
Dividends paid - note - - - - (42,890) (42,890)
6
Net return on ordinary - - - 155,512 42,946 198,458
activities
At 31 March 2013 48,779 6,639 24,676 997,171 60,481 1,137,746
For the six months
ended
30 September 2012
(Unaudited)
At 31 March 2012 48,779 6,639 24,676 841,659 60,425 982,178
Dividends paid - note - - - - (23,378) (23,378)
6
Net return on ordinary - - - 9,639 22,079 31,718
activities
At 30 September 2012 48,779 6,639 24,676 851,298 59,126 990,518
.
CONDENSED BALANCE SHEET
Registered number SC1836
At At At
30 September 30 September 31 March
2013 2012 2013
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Fixed assets
  Investments at fair value through 1,366,062 1,194,830 1,340,948
profit or loss
Current assets
  Amounts due from brokers - 713 -
  Unrealised profit on forward currency - 128 617
contracts
  Prepayments and accrued income 4,770 4,888 7,125
  Tax recoverable 833 1,424 1,668
  Cash and cash funds 2,067 1,527 87
7,670 8,680 9,497
Creditors: amounts falling due within one
year
  Amounts due to brokers (3,532) (1,977) -
  Accruals (3,624) (3,520) (3,592)
  Debenture Stock 2014 (100,000) - -
  Performance fee payable - - (11,492)
(107,156) (5,497) (15,084)
Net current (liabilities)/assets (99,486) 3,183 (5,587)
Total assets less current liabilities 1,266,576 1,198,013 1,335,361
Creditors: amounts falling due after more
than one year
  Debenture Stock 30 Jun 2014 - (100,000) (100,000)
  Debenture Stock 30 Sep 2022 (97,741) (97,490) (97,615)
Provision for performance fee (11,688) (10,005) -
Net assets 1,157,147 990,518 1,137,746
Capital and reserves
Share capital 48,779 48,779 48,779
Share premium 6,639 6,639 6,639
Capital redemption reserve 24,676 24,676 24,676
Capital reserve 1,017,909 851,298 997,171
Revenue reserve 59,144 59,126 60,481
Shareholders' funds 1,157,147 990,518 1,137,746
Net asset value per ordinary share
  Basic - note 7 591.89p 506.36p 581.89p
.
CONDENSED CASH FLOW STATEMENT
Six Months Six Months
to to Year Ended
30 September 30 September 31 March
2013 2012 2013
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Net return before finance costs and 54,632 41,992 219,524
taxation
Scrip dividends (572) (484) (823)
Gains on investments (41,484) (27,646) (185,241)
Foreign exchange losses/(gains) 617 (25) (514)
Decrease/(increase) in debtors 3,190 2,096 (385)
Increase in creditors and provisions 228 6,410 7,969
Overseas tax paid (532) (523) (1,565)
Net cash inflow from operating activities 16,079 21,820 38,965
Servicing of finance (9,625) (9,625) (19,250)
Financial investment
  Purchase of investments (58,415) (84,586) (148,477)
  Sale of investments 78,889 97,089 171,532
Net equity dividends paid - note 6 (24,948) (23,378) (42,890)
Net cash inflow/(outflow) before 1,980 1,320 (120)
managementof liquid resources and
financing
Net cash (outflow)/inflow from management - (1,330) 160
of liquid resources
Increase/(decrease) in cash 1,980 (10) 40
  Cashflow from movement in liquid - 1,330 (160)
resources
  Debenture stock non-cash movement (126) (126) (251)
Net debt at beginning of period (197,528) (197,157) (197,157)
Net debt at end of period (195,674) (195,963) (197,528)
Analysis of changes in net debt:
Brought forward:
  Cash and cash funds 87 207 207
  Debenture stock (197,615) (197,364) (197,364)
Net debt brought forward (197,528) (197,157) (197,157)
Movements in the period:
  Cash inflow/(outflow) from cash and 1,980 1,320 (120)
cash funds
  Debenture stock non-cash movement (126) (126) (251)
Net debt carried forward (195,674) (195,963) (197,528)
.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of preparation
These condensed financial statements of the Company have been prepared using
the same accounting policies as those adopted in the 2013 annual financial
report, which are consistent with applicable United Kingdom Accounting
Standards, and with the Statement of Recommended Practice `Financial Statements
of Investment Trust Companies and Venture Capital Trusts'. These financial
statements are prepared on a going concern basis.
2. Investment management fee and finance costs
Invesco Asset Management Limited (IAML) acts as Manager and Secretary to the
Company under an investment management agreement dated 15 September 2008. The
agreement is terminable by either party by giving not less than three months'
notice.
The management fee is payable monthly in arrears and is equal to 0.05% of the
market capitalisation of the Company's ordinary shares at each month end.
Investment management fee and finance costs are allocated 30% to revenue and
70% to capital.
3. Performance fee
IAML is entitled to a performance fee of 15% of the out-performance of the NAV
(with debt at par), up to a maximum of 1% of net assets (prior to the deduction
of the performance fee) in any one year, in respect of each rolling three year
period in which the Company outperforms its benchmark (the FTSE All-Share
Index) plus a hurdle rate, being the equivalent of 1.25% per annum.
A performance fee provision of £11,688,000 (30 September 2012: £10,005,000) is
provided for in these accounts. A performance fee of £11,492,000 was accrued
and paid for the year ended 31 March 2013. Performance fees are allocated
wholly to capital.
4. Tax
Owing to the Company's status as an investment company no tax liability arises
on capital gains. The tax charge represents withholding tax suffered on
overseas income.
A deferred tax asset is not recognised in respect of surplus management
expenses since the Directors believe that there will be no taxable profits in
the future against which these can be offset.
5. Return per ordinary share
The basic revenue, capital and total returns per share are based on the returns
after tax and the average number of shares in issue during the period as
follows:
Six months Six months Year Ended
to to
30 September 30 September 31 March
2013 2012 2013
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Returns after tax:
Revenue 23,611 22,079 42,946
Capital 20,738 9,639 155,512
Total return after tax 44,349 31,718 198,458
Weighted average number of shares in 195,116,734 195,116,734 195,116,734
issue during the period
6. Dividends
Six months to six months to year ended
30 September 30 September 31 March
2013 2012 2013
(Unaudited) (Unaudited) (Audited)
pence £'000 Pence £'000 Pence £'000
Dividends paid:
Third interim 5.0 9,756 5.0 9,756 5.0 9,756
Final 7.8 15,219 7.0 13,658 7.0 13,658
First interim - - - - 5.0 9,756
Second interim - - - - 5.0 9,756
Return of unclaimed - (27) - (36) - (36)
dividends from previous
years
12.8 24,948 12.0 23,378 22.0 42,890
A first interim dividend of 5p (2013: 5p) for the year ended 31 March 2014,
will be paid on 29 November 2013 to shareholders on the register on 22 November
2013.
7. Net asset value (NAV) per ordinary share
(a) Debt at par
The shareholders' funds in the balance sheet are accounted for in accordance
with accounting standards, however, this does not reflect the rights of
shareholders on a return of assets under the Articles of Association. These
rights are reflected in the net assets with debt at par and the corresponding
NAV per share.
30 September 30 September 31 March
2013 2012 2013
(Unaudited) (Unaudited) (Audited)
pence Pence Pence
NAV per ordinary share 593.05 507.65 583.11
Less: unamortised discount and (1.16) (1.29) (1.22)
expenses arising from debenture issue
NAV - debt at par 591.89 506.36 581.89
(b) Debt at market value
30 September 30 September 31 March
2013 2012 2013
(Unaudited) (Unaudited) (Audited)
pence Pence Pence
NAV - debt at par 591.89 506.36 581.89
Debt at par 102.50 102.50 102.50
Debt at market value (121.07) (128.75) (125.38)
NAV - debt at market value 573.32 480.11 559.01
8. Share capital
30 September 30 September 31 March
2013 2012 2013
(Unaudited) (Unaudited) (Audited)
Allotted, called-up and fully paid
Number of ordinary shares of 25p each 195,116,734 195,116,734 195,116,734
9. It is the intention of the Directors to conduct the affairs of the Company
so that it satisfies the conditions for approval as an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
10. The financial information contained in this half-yearly financial report,
which has not been audited, does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006. The financial information for the
half years ended 30 September 2013 and 2012 has not been audited. The figures
and financial information for the year ended 31 March 2013 are extracted and
abridged from the latest published accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the Register of
Companies and included the Report of the Independent Auditors, which was
unqualified.
By order of the Board
Invesco Asset Management Limited
Company Secretary
13 November 2013
.
DIRECTORS' RESPONSIBILITY STATEMENT
in respect of the preparation of the half-yearly financial report.
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements contained within the half-yearly
financial report have been prepared in accordance with the Accounting Standards
Board's Statement `Half-Yearly Financial Reports';
- the interim management report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules;
and
- the interim management report includes a fair review of the information
required on related party transactions.
Signed on behalf of the Board of Directors.
Jim Pettigrew
Chairman
13 November 2013
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