Interim Results

CHAIRMAN'S STATEMENT UK Equity markets continued to rise in the first half of 2006 and the FTSE All Share Index produced total returns of 6.1%. Temple Bar's total assets, after management and other expenses, including accrued income but before deducting interest payments, rose by 5.2%. Net assets (including the re-investment of dividends) increased by 5.4%. Post-tax revenue earnings for the period were £ 10.5m compared with £10.0m in the equivalent period last year, a rise of 5.3%. Underpinned by strong dividend receipts from portfolio companies the board has declared an interim dividend of 9.35p , an increase of 5% over the prior year, payable on 29 September 2006 to shareholders on the register at 15 September 2006. UK Equity market performance in the first half of 2006 can be split into two distinct phases. Against a background of continuing positive economic data, the first four months were a continuation of the trend of recent years. Strong performance by small and medium-sized companies extended the bull market in equities into a fourth year; an unusually long period of equity market strength without a sizeable setback. The beginning of a correction in April, continuing into May, was of little surprise to most commentators. In this period, many investors became concerned about the longevity of the economic cycle and the danger of a rise in inflation. As they questioned the high valuations of many stocks, the subsequent sell-off was most intense in areas which had previously performed most strongly. The Temple Bar portfolio was better positioned for the market's second phase than for the first. The Board had doubts about the sustainability of high valuations in many areas of the equity market and, during 2005, our fund manager moved the portfolio substantially away from those areas of the market most in favour. Consequently, the portfolio now includes heavy investment in many of the largest stocks in the market, such as Royal Dutch Shell, BP, HSBC, Royal Bank of Scotland, Vodafone, BT and GlaxoSmithKline. In general, these stocks are some of the lowest rated companies in the market but have very strong balance sheets and attractive dividend yields. Indeed, in many cases the dividend yields of these stocks are at, or near, record levels relative to the yield of the FTSE 250, the index of 250 stocks directly beneath the FTSE100. Although, with hindsight, we switched into larger stocks too soon, we do not regret this move. At some point, investors who have driven up the riskier parts of the market will want to sell and it is difficult to see how this can be a painless process. Clearly, a few will time their exit to perfection but, in our view, most will be disappointed; liquidity is sometimes an elusive animal, and can disappear at the most frustrating of times. Our fund manager's reluctance to participate in the mining sector was articulated in the Annual Report and Accounts, and his views have not changed; at some point the supply and demand for many natural resources will begin to move back towards equilibrium, and this could have very significant impacts on their prices and on the profitability and valuations of mining companies. However, mining stocks continued to perform well in the first half of the year. During the period under review, some of the bright spots for Temple Bar were provided by ICAP, Boots, Compass (after a fair degree of pain), and Amvescap. As so often with the portfolio, there is no obvious trend to highlight amongst the winners; usually we profit from a positive re-evaluation by the market of a company's future prospects. Often this is accompanied by an increase in the company's profitability. In addition to our absence from the mining sector, most of the major negatives on the portfolio were FTSE100 stocks such as Vodafone and Reuters. Outlook A great deal of high profile analysis is focused upon the future direction of markets. However, outcomes are rarely straightforward. Many stocks rose in the severe bear market of 2000 to 2003 and, similarly, a number of stocks have fallen in the ensuing recovery. We continue to find investment opportunities in the market, although not as many as in previous years. Consequently, the portfolio is slightly more concentrated than is usual. Our increasing focus on the largest stocks in the market, the 'mega-caps', including recent additional purchases of BP and HSBC, has been partially validated by this group of stocks delivering excellent dividend growth in the first half of the year. Elsewhere in the portfolio some stocks such as ICAP, Mitchells and Butlers and Provident Financial reached our assessment of fair value and were replaced by, among others, jewellery retailer Signet, baker Greggs, soft drinks manufacturer Britvic, and media conglomerate Daily Mail and General. Although these FTSE 250 companies are generally 'unloved', they fulfil the portfolio's contrarian strategy and are free of many of the risks attached to more fashionable stocks. Recently, the Temple Bar portfolio has performed better, in relative terms, when the equity market has been falling. We do not believe this reflects the portfolio's character, but simply illustrates how the last three years have been a period when stocks with the greatest historic price momentum have continued to lead the market higher, despite becoming quite highly valued. With its detailed focus on stocks which are out of favour and considered cheap in relative terms, the Temple Bar portfolio should be able to outperform the market when leadership finally moves away from these momentum-led stocks. 25 July 2006 John Reeve Twenty Largest Holdings as at 30 June 2006 Company Valuation % of £'000 portfolio Royal Dutch Shell 44,238 8.23 BP 40,536 7.54 GlaxoSmithKline 36,127 6.72 Vodafone 33,423 6.22 HSBC 30,630 5.70 Royal Bank of Scotland 26,314 4.90 Prudential 18,107 3.37 Centrica 17,115 3.18 BT 16,848 3.13 AstraZeneca 15,830 2.94 Unilever 15,579 2.90 HBOS 12,220 2.27 Legal & General 11,543 2.15 Kingfisher 11,329 2.11 HMV 11,187 2.08 Amvescap 10,648 1.98 Signet 10,560 1.96 ITV 10,476 1.95 Cable & Wireless 10,005 1.86 Investec UK Smaller Companies Fund 8,891 1.65 391,606 72.84 Consolidated Income Statement for the six months ended 30 June 2006 30 June 2006 30 June 2005 31 December 2005 Income Statement Income statement Income Statement (Unaudited) (unaudited) (audited) Revenue Capital Revenue Capital Revenue Capital Return Return Total Return Return Total Return Return Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investment income 11,862 - 11,862 11,240 - 11,240 19,637 - 19,637 Other operating income 244 - 244 277 - 277 483 - 483 Total income 12,106 - 12,106 11,517 - 11,517 20,120 - 20,120 Gains on investments Gains on fair value through profit or loss assets - 17,647 17,647 - 31,027 31,027 - 72,123 72,123 12,106 17,647 29,753 11,517 31,027 42,544 20,120 72,123 92,243 Expenses Management fees (443) (665) (1,108) (384) (576) (960) (804) (1,207) (2,011) Other expenses (215) (740) (955) (219) (835) (1,054) (441) (1,679) (2,120) (658) (1,405) (2,063) (603) (1,411) (2,014) (1,245) (2,886) (4,131) Profit before finance costs and tax 11,448 16,242 27,690 10,914 29,616 40,530 18,875 69,237 88,112 Finance costs (917) (1,356) (2,273) (909) (1,362) (2,271) (1,799) (2,735) (4,534) Profit before tax 10,531 14,886 25,417 10,005 28,254 38,259 17,076 66,502 83,578 Tax - - - - - - - - - Profit for the period 10,531 14,886 25,417 10,005 28,254 38,259 17,076 66,502 83,578 Earnings per Share (Basic and diluted) 18.05p 25.52p 43.57p 17.27p 48.75p 66.02p 29.35p 114.32p 143.68p An interim dividend of 9.35 pence per share (£5,455,000), in respect of the six months ended 30 June 2006 was declared on 25 July 2006 and is payable on 29 September 2006. An interim dividend of 8.90 pence per share (£5,190,000) in respect of the six months ended 30 June 2005 was declared on 17 August 2005 and paid on 30 September 2005. A final dividend of 18.93 pence per share (£11,044,000) in respect of the year ended 31 December 2005 was declared on 21 February 2006 and paid on 31 March 2006. The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Trust Companies. All terms in the above statement derive from continuing operations. All income is attributable to the equity holders of the parent company. There are no minority interests. Consolidated cash flow statement for the six months ended 30 June 2006 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000 (unaudited) (unaudited) (audited) CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 25,417 38,259 83,578 Adjustments for: Purchase of investments ¹ (136,732) (110,417) (210,423) Sales of investments ¹ 129,751 95,528 203,662 (6,981) (14,889) (6,761) Gains on investments (17,647) (31,027) (72,123) Financing costs 2,273 2,271 4,534 Operating cash flows before movements in working capital 3,062 (5,386) 9,228 Increase in accrued income and prepayments (595) (180) (592) Decrease/(increase) in 347 (5,092) (5,160) receivables (Decrease)/increase in (14,776) 11,752 15,107 payables NET CASHFLOW FROM OPERATING ACTIVITIES BEFORE AND AFTER TAX (11,962) 1,094 18,583 CASH FLOWS FROM FINANCING ACTIVITIES Equity shares issues - 2,764 2,997 Interest paid on borrowings (2,279) (2,279) (4,559) Bank interest paid (6) (1) (5) Equity dividends paid (11,044) (10,644) (15,834) NET CASH USED IN FINANCING ACTIVITIES (13,329) (10,160) (17,401) NEW INCREASE IN CASH AND CASH EQUIVALENTS (25,291) (9,066) 1,182 Cash and cash equivalents at the start of the period 26,663 25,481 25,481 Cash and cash equivalents at the end of the period 1,372 16,415 26,663 ¹ Purchases and sales of investments are considered to be operating activities of the Company, given its purpose, rather than investing activities. Consolidated balance sheet as at 30 June 2006 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000 (unaudited) (unaudited) (audited) Non-current assets Investments held at fair value through profit or loss 537,639 480,051 513,012 Current assets Cash and cash equivalents 1,372 16,415 26,663 Other receivables 9,202 8,754 8,953 10,574 25,169 35,616 Total assets 548,213 505,220 548,628 Current liabilities Other payables (887) (12,961) (1,218) Total assets less current 547,326 492,259 532,965 liabilities Non-current liabilities Interest bearing borrowings (63,332) (63,000) (63,344) NET ASSETS 483,994 429,259 469,621 Capital and reserves Ordinary share capital 14,585 14,578 14,585 Share premium 5,083 4,857 5,083 Capital reserves - realised 361,564 304,815 333,041 Capital reserves - 78,446 82,061 92,083 unrealised Retained earnings 24,316 22,948 24,829 TOTAL EQUITY 483,994 429,259 469,621 NET ASSET VALUE PER SHARE 829.60p 736.15p 804.96p Consolidated statement of changes in equity for the six months ended 30 June 2006 Ordinary Share Capital Capital premium reserve reserve Share Retained Total capital reserve realised unrealised earnings equity £'000 £'000 £'000 £'000 £'000 £'000 BALANCE AT 1 JANUARY 2006 14,585 5,083 333,041 92,083 24,829 469,621 Profit for the period - - 28,523 (13,637) 10,531 25,417 14,585 5,083 361,564 78,446 35,360 495,038 Dividends paid to equity shareholders - - - - (11,044) (11,044) BALANCE AS AT 30 JUNE 2006 14,585 5,083 361,564 78,446 24,316 483,994 Consolidated statement of changes in equity for the six months ended 30 June 2005 Share Capital Capital premium reserve reserve Share Revenue Total capital reserve realised unrealised reserve equity £'000 £'000 £'000 £'000 £'000 £'000 BALANCE AT 1 JANUARY 2006 14,478 2,193 283,133 75,489 23,587 398,880 Profit for the period - - 21,682 6,572 10,005 38,259 14,478 2,193 304,815 82,061 33,592 437,139 Dividends paid to equity shareholders - - - - (10,644) (10,644) Issue of share 100 2,664 - - - 2,764 capital BALANCE AT 30 JUNE 2005 14,578 4,857 304,815 82,061 22,948 429,259 1. Comparative Figures The financial information contained in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the six months ended 30 June 2006 and 30 June 2005 has not been audited. 2. 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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