Interim Results

CHAIRMAN'S STATEMENT RESULTS The challenges facing investors during this six month period are not entirely apparent in the relatively modest 4.1% increase in the FTSE All Share over the reporting period. At one point, at the height of pre war uncertainty, the UK market had fallen a further 16% from its already depressed value at the start of the year, only then quickly to recover. Temple Bar's total assets, including accrued revenue, rose by 5.7%; the FTSE 350 Higher Yield index increased by 2.85%. Pre tax earnings have been struck after a change in accounting allocation basis, whereby 60% (previously 50%) of the cost of interest and management fees is charged against the capital account, better to reflect the sources of past and prospective gains. Post tax earnings were £8.8m compared with £8.0m in 2002, a rise of 10%. The board has declared an interim dividend of 8.43p, an increase of 2.5% over 2002, which will be payable on 30 September 2003 to those shareholders on the register at the close of business on 12 September 2003. INVESTMENT BACKGROUND Although the extremes of market movement were influenced by the build up to the war in Iraq and subsequent campaign, investor concern also centred around the prospects for the global economy. These two issues were not entirely unconnected. Particularly destructive to equity markets in the early part of the period was the fear of the effect of war related disruption and higher oil prices on a global economy already struggling to overcome the deflationary forces associated with the bursting of a market bubble. Risk aversion was a priority, with investors especially sensitive to geopolitical issues following the events of 11th September 2001. For the UK, more than overseas equity markets, an added ingredient was the forced selling of equities by life companies as their solvency margins came under pressure. With hindsight it is easy to see that once the oil fields of Southern Iraq had been secured by the coalition, the worst fears concerning the economic impact of the war were unlikely to be realised. Equity markets thus recovered whilst the campaign was still raging and investors were able to focus again on pure economic issues, albeit with Severe Acute Respiratory Syndrome (SARS) as an added concern. The economic debate continued between those who considered that sufficient monetary and fiscal stimuli were being applied to allow the US economy to emerge from a normal recessionary cycle; and those who feared that the headwinds from the imbalances evident in the US current account deficit and from general deflationary forces were too strong. Until the end of the period, the strength of government bond markets and the weakening of the US dollar versus the Euro suggested that the latter argument was gaining the upper hand, although such a view does not sit easily with the recovery in equity markets in the second quarter of the year. Against this background, discerning patterns of sectoral performance in the UK market is not easy. Other than tobacco, the most obvious defensive sectors, Food Producers and Beverages, were among the weaker sectors. This was due to a combination of investors' search for more economically sensitive stocks and disappointing trading news from the likes of Unilever and Scottish & Newcastle where, arguably, investor enthusiasm for their defensive qualities had been overdone. Utilities were also among the weaker performers. On the positive side the Construction and Building sector continued to be strong, influenced by a robust housing market as well as support from government spending on infrastructure. Companies which had been depressed by the deteriorating geopolitical situation towards the end of last year, such as stocks in the leisure and hotel sector, staged a revival. As markets recovered, we saw a partial lifting of the concern over large pension fund deficits, enabling some of the cyclical stocks with large final salary pension schemes to bounce back. Corporate activity was also a positive factor, particularly in the retail sector. Of the three largest sectors, Banks was the best performing. Those financials perceived to have least life insurance exposure posted the strongest gains, although this did not include HSBC and Standard Chartered, where exposure to the Far East and the economic effects of SARS was a concern. Pharmaceuticals were flat in relative terms, whilst Oils, on the basis that the best news for the oil price was behind us, were the weakest. Given the traditionally defensive nature of Temple Bar's portfolio we can be reasonably satisfied with having outperformed the FTSE All Share over this period. Performance was aided by a bias towards mid cap stocks, with the best performances from Yule Catto, Bellway and RMC. Our overweight positions in Construction and Building Materials and Leisure and Hotels proved helpful, as did our underweight in Oils. A large holding in Barclays, the second best performing bank behind HBOS, contributed positively. In general the portfolio benefited from being underweight some of the large cap stocks. T e m p l e B a r I n v e s t m e n t OUTLOOK The fate of the global economy, and hence of equity markets, seems to lie with the ability of the American authorities to reflate the US economy. The recent news in this regard is mixed. Surveys of consumer confidence looking forward have suggested a rebound in activity. This is supported by the continuing relative strength of the housing market and the recent non manufacturing Institute of Supply Management (ISM) index which rose to its highest level since September 2000. However, the manufacturing ISM index for June was weaker than expected and the rise in the provisional June unemployment rate to 6.4% suggests companies are still under pressure to cut costs. The dilemma facing the US authorities in balancing the interests of equity and of bond investors is illustrated by the reaction to the recent cut in interest rates. Some bond investors were disappointed that the cut was only 0.25%, not 0.5%, and government bonds sold off, as the Fed was interpreted as being slightly less concerned about deflation. The delicate task for the authorities is to encourage equity investors that the economy is recovering without upsetting the bond markets, where an adverse reaction might choke off any recovery in its infancy. This is all somewhat frustrating for investors in UK equity markets where, arguably, the economy is in better shape and valuations are far less stretched than in the US. While it is unlikely that the UK market can make much progress if Wall Street is weak, UK investors at least have the comfort of a reasonable dividend yield while they await better times. 22 July 2003 John Reeve Twenty largest holdings at 30 June 2003 Company Valuation % of £'000 portfolio GlaxoSmithKline 19,303 5.69 HSBC 18,919 5.58 BP 18,193 5.37 Barclays 14,109 4.16 Lloyds TSB 12,018 3.54 Shell Transport & 11,857 3.50 Trading BT 11,576 3.42 British American 11,435 3.37 Tobacco Scottish Power 9,847 2.91 Dixons 8,260 2.44 Gallaher 8,101 2.39 Prudential 8,067 2.38 GKN 7,751 2.29 Investec UK Smaller Companies Fund 7,565 2.23 Alliance & Leicester 7,099 2.09 Hilton 5,816 1.72 Diageo 4,992 1.47 Boots 4,872 1.44 Rio Tinto 4,507 1.33 Reuters 4,411 1.30 198,698 58.62 Statement of total return (incorporating the revenue account) for the six months ended 30 June 2003 Six months Six months Year ended 30 ended ended June 2003 30 June 31 (unaudited) 2002 December 2002 (unaudited) (audited) Revenue Capital Total Revenue Capital Total Revenue Capital Total Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains/ (losses) 4 - 17,204 17,204 - (15,223) (15,223) - (75,090) (75,090) on investments Income 5 10,217 - 10,217 9,816 - 9,816 18,142 - 18,142 Investment (271) (406) (677) (428) (428) (856) (771) (771) (1,542) management fee Other expenses (200) - (200) (226) - (226) (417) - (417) Net return before 9,746 16,798 26,544 9,162 (15,651) (6,489) 16,954 (75,861) (58,907) finance costs and taxation Interest payable (912) (1,368) (2,280) (1,140) (1,140) (2,280) (2,280) (2,279) (4,559) Return on 8,834 15,430 24,264 8,022 (16,791) (8,769) 14,674 (78,140) (63,466) ordinary activities before taxation Taxation - - - (134) 134 - - - - Return on 8,834 15,430 24,264 7,888 (16,657) (8,769) 14,674 (78,140) (63,466) ordinary activities after taxation Ordinary (4,882) - (4,882) (4,760) - (4,760) (14,817) - (14,817) dividends Transfers to/ 3,952 15,430 19,382 3,128 (16,657) (13,529) (143) (78,140) (78,283) (from) reserves Return per 15.26p 26.65p 41.91p 13.62p (28.77)p (15.15)p 25.34p (134.96)p (109.62) ordinary share p Dividend per 8.43p 8.22p 25.59p ordinary share Consolidated cash flow statement for the six months ended 30 June 2003 30 June 2003 30 June 2002 31 December 2002 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Cash flow from operating 9,781 8,742 16,388 activities Return on investments and servicing of finance Interest paid (2,279) (2,279) (4,559) Taxation UK tax recovered - - 112 Capital expenditure and financial Investment Purchases of investments (72,719) (86,851) (166,183) Sales of investments 85,557 86,271 164,096 12,838 (580) (2,087) Equity dividends paid (10,058) (9,761) (14,520) Cash inflow/(outflow) before 10,282 (3,878) (4,666) management of liquid resources and financing Management of liquid resources Money market deposits (placed) / (10,072) 6,951 7,000 withdrawn Financing Gross proceeds from issue of 49 57 57 shares Increase in cash 259 3,130 2,391 Reconciliation of net cash flow to movement in net debt Increase in cash 259 3,130 2,391 Cash used to increase/(decrease) 10,072 (6,951) (7,000) liquid resources Change in net debt 10,331 (3,821) (4,609) Net debt at 1 January (48,077) (43,468) (43,468) Net debt at 30 June (37,746) (47,289) (48,077) Consolidated summary balance sheet at 30 June 2003 30 June 2003 30 June 2002 31 December 2002 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Investments 338,967 390,346 334,811 Net current assets 21,530 15,474 6,255 Amounts falling due after one (63,000) (63,000) (63,000) year Net assets 297,497 342,820 278,066 Attributable to ordinary 297,497 342,820 278,066 shareholders Net asset value per ordinary 513.71p 592.07p 480.24p share: Number of shares in issue 57,911,367 57,901,599 57,901,599 Notes to the interim results 1. Principal activity The principal activity of the Company remains that of an investment trust. The principal activity of its trading subsidiary is investment dealing. 2. Recharges to capital and accounting policies 40% (2002 and prior years: 50%) of the management fee and interest payable on the debenture stocks is charged to the revenue account and 60% (2002 and prior years: 50%) is charged to capital reserves, net of corporation tax relief and inclusive of any related irrecoverable value added tax. The unaudited interim financial statements have been prepared on a basis consistent with the statutory financial statements for the year ended 31 December 2002. 3. Dividend The interim dividend of 8.43p (2002: 8.22p) per ordinary share will absorb £ 4,882,000 and will be paid on 30 September 2003 to shareholders registered on 12 September 2003. 4. Gains / (losses) on investments 5. 30 June 2003 30 June 2002 31 December 2002 £'000 £'000 £'000 Net realised gains/(losses) on (7,898) 10,502 (7,451) sales Net increase/(decrease) in 25,102 (25,725) (67,639) unrealised appreciation Gains/ (losses) on investments 17,204 (15,223) (75,090) 5. Income 6. 30 June 2003 30 June 31 December 2002 2002 £'000 £'000 £'000 UK dividends net of tax credits 8,942 8,609 15,407 Income from UK fixed interest 721 770 1,519 securities Scrip dividends 188 88 293 Bank interest 277 306 629 Underwriting commission - 43 72 Dealing profit 89 - 222 10,217 9,816 18,142 6. Comparative figures The information for the year ended 31 December 2002 does not constitute statutory accounts, but has been extracted from the latest published audited accounts, which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under section 237(2) or (3) of the Companies Act 1985. 7. Publication This interim report is being sent to shareholders and copies will be made available to the public at the registered office of the Company.

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