Half Yearly Report

RNS Number : 3671S

British Assets Trust PLC

15 May 2009

 



BRITISH ASSETS TRUST PLC

To:            RNS

From:        British Assets Trust plc

Date:        15 May 2009

Half Yearly Financial Report for the six months ended 31 March 2009

Chairman's Statement

In the six month period to 31 March 2009 stockmarkets around the world fell sharply on continued concerns about the health of the financial sector and of the global economy. As growth in the world's major economies slowed, governments and central banks announced significant fiscal stimulus packages in an attempt to halt the economic decline. However, it is not yet clear how effective these measures will be.

Against this backdrop, the Company's net asset value total return fell by 20.3 per cent during the period. This compares to a fall of 17.0 per cent in the composite benchmark index of 75 per cent FTSE All-Share Index and 25 per cent FTSE World (ex UK) Index. The Company's share price total return fell by 13.6 per cent, reflecting a narrowing of the debt-adjusted discount, which was 2.0 per cent as at 31 March 2009 compared to 8.0 per cent as at 30 September 2008 (source: Fundamental Data).  

The table below provides a breakdown of the estimated contributions to the net asset value total return for the period. 

Market/benchmark return                                          -17.0%

Stock selection

    UK equities                                                              -1.9

Overseas equities                                                        -0.4

Regional asset allocation                                              2.2

Corporate bonds                                                            1.1

Gearing                                                                         -4.9

Cash/other                                                                     1.0

Expenses                                                                      -0.4

                                                                                  ----------

British Assets Trust net asset value total return        -20.3%

                                                                                  ----------

As previously reported, during the period the Board agreed with the Managers that the overseas portfolios would be consolidated into two portfolios, a global developed markets portfolio, which is managed using quantitative stock selection techniques, and an actively managed global emerging markets portfolio. This change has meant moving away from regional portfolios based on geographic domicile. The reason for the change is to provide greater focus on the best individual investment opportunities overseas. 

The emerging markets portfolio delivered positive performance during the period, in terms of both stock selection and asset allocation. This was, however, offset by negative stock selection elsewhere in the portfolio. The bulk of the underperformance in the UK was attributable to the Company's investment in Standard Life European Private Equity Trust plc which, along with the private equity funds of funds sector in general, fell heavily in value during the period. The corporate bond portfolio contributed positively to performance, outperforming its composite benchmark and is continuing to be an important contributor to the Revenue Account. The main reason for the overall underperformance during the period was the effect of gearing in a falling market. 

Earnings and Dividends

The Company's revenue earnings for the period were 3.1p per share (2008: 2.8p). 

A first interim dividend of 1.442p per share was paid on 9 April 2009 and the Board has declared a second interim dividend of 1.442p per share which will be paid on 10 July 2009 to shareholders on the register on 12 June 2009. These interim dividends represent increases of 3.0 per cent over the equivalent quarterly interim dividends paid in the previous year.

Although the Revenue Account has been affected by dividend cuts by the major banks and reduced interest rates on bank deposits, it has benefited from good dividend growth in certain sectors, in particular oils, pharmaceuticals and telecoms. It has also benefited from the recovery of VAT on management fees and associated interest, as explained in more detail below. 

Gearing

At the end of the period the Company's level of gearing, net of cash, was 26.9 per cent, represented by equity gearing of 11.1 per cent and 15.8 per cent in corporate bonds. 

The Company's borrowings are represented by £60 million 6.25 per cent Bonds which are due for redemption in 2031 and a £60 million bank revolving credit facility, £30 million of which was drawn down at the end of the period.

VAT on Management Fees

Following the European Court of Justice ruling in June 2007 that investment trusts should be regarded as special investment funds, investment management fees paid by the Company are no longer subject to VAT.

During the period, the Managers continued to liaise with HM Revenue & Customs to recover on the Company's behalf VAT paid previously on management fees. The accounts for the period include the recovery of VAT and associated interest of £2.2 million. Of this amount, £2.0 million was credited to the revenue account, providing an enhancement of 0.7p per share to the revenue earnings for the period. The balance was credited to capital. The total recovery provided an enhancement of 0.8p per share to the net asset value per share for the period. 

Outlook

Much has been done by governments and companies globally in response to the deteriorating economic conditions. However, the continuing uncertainty about growth and dividends in the months ahead is likely to mean that stockmarkets will remain volatile during this period. 

The Managers continue to focus on companies which they believe will provide a strong basis for both long term capital performance and dividend growth. 

W R E Thomson

Chairman

For further information please contact:

Julie Dent 0207 628 8000

[e-mail]

F&C Investment Business Limited

Unaudited Income Statement 

For the Six Months ended 31 March 2009

	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on investments	-	(70,092)	(70,092)
Exchange differences	-	(2,665)	(2,665)
Income (see note 4)	9,133	-	9,133
Investment management fee (see note 4)	926	(253)	673
Other expenses	(347)	-	(347)
Net return before finance costs & taxation	9,712	(73,010)	(63,298)
Finance Costs:
6.25% Bonds 2031	(474)	(1,422)	(1,896)
Bank borrowings	(139)	(415)	(554)
Return on ordinary activities before tax	9,099	(74,847)	(65,748)
Tax on ordinary activities	(173)	-	(173)
Return attributable to shareholders	8,926	(74,847)	(65,921)
Return per Ordinary Share (p)	3.1	(25.6)	(22.5)

The total column of this statement is the Profit and Loss Account of the Company. The 

supplementary revenue and capital columns are both prepared under guidance published

by the Association of Investment Companies.

Unaudited Income Statement

For the Six Months ended 31 March 2008

	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on investments	-	(56,246)	(56,246)
Exchange differences	-	(562)	(562)
Income	10,157	873	11,030
Investment management fee	(222)	(663)	(885)
Other expenses	(369)	-	(369)
Net return before finance costs & taxation	9,566	(56,598)	(47,032)
Finance Costs:
6.625% Bonds 2008	(505)	(1,514)	(2,019)
6.25% Bonds 2031	(474)	(1,422)	(1,896)
Bank borrowings	(20)	(45)	(65)
Return on ordinary activities before tax	8,567	(59,579)	(51,012)
Tax on ordinary activities	(68)	-	(68)
Return attributable to shareholders	8,499	(59,579)	(51,080)
Return per Ordinary Share (p)	2.8	(19.9)	(17.1)

Audited Income Statement 

For the Year ended 30 September 2008

		Revenue £'000	Capital £'000	Total £'000
Losses on investments		-	(137,257)	(137,257)
Exchange differences		-	(1,460)	(1,460)
Income		21,414	873	22,287
Investment management fee		(85)	(39)	(124)
Other expenses		(869)	-	(869)
Net return before finance costs & taxation		20,460	(137,883)	(117,423)
Finance Costs:
6.625% Bonds 2008		(505)	(1,514)	(2,019)
6.25% Bonds 2031		(944)	(2,832)	(3,776)
Bank borrowings		(231)	(615)	(846)
Return on ordinary activities before tax		18,780	(142,844)	(124,064)
Tax on ordinary activities		(295)	-	(295)
Return attributable to shareholders		18,485	(142,844)	(124,359)
Return per Ordinary Share (p)		6.2	(48.0)	(41.8)

Unaudited Balance Sheet	As At  31 March 2009	Audited As At  30 September 2008	As At  31 March 2008
	£'000	£'000	£'000
Non-Current Assets
Investments at fair value through profit or loss	328,029	401,838	500,814
Current Assets
Debtors	7,092	4,263	53,028
Cash at bank and on deposit	18,066	17,962	7,775
	25,158	22,225	60,803
Creditors:
Amounts falling due within one year	(35,338)	(31,152)	(81,370)
Net Current Liabilities	(10,180)	(8,927)	(20,567)
Total Assets less Current Liabilities	317,849	392,911	480,247
Creditors:  amounts falling due after more than one year:
6.25% Bonds 2031	(59,408)	(59,395)	(59,382)
Net Assets	258,441	333,516	420,865
Capital and Reserves
Called-up share capital	73,153	73,153	74,378
Capital redemption reserve	15,188	15,188	13,963
Capital reserve	134,473	209,320	298,353
Revenue reserve	35,627	35,855	34,171
Shareholders' Funds	258,441	333,516	420,865
Net Asset Value per Ordinary Share (p)	83.3	114.0	141.5

  Unaudited Reconciliation of Movements in Shareholders' Funds

	Six months ended	Six months ended	Audited Year ended
	31 March	31 March	30 September
	2009	2008	2008
	£'000	£'000	£'000
Opening shareholders' funds	333,516	485,772	485,772
Share buy-backs	-	(4,839)	(10,607)
Dividends paid	(9,154)	(8,988)	(17,290)
Return attributable to shareholders	(65,921)	(51,080)	(124,359)
Closing shareholders' funds	258,441	420,865	333,516

Summarised Unaudited Statement of Cash Flows

	Six months ended	Six months ended	Audited Year ended
	31 March	31 March	30 September
	2009	2008	2008
	£'000	£'000	£'000
Net cash inflow from operating activities	10,272	7,549	19,577
Servicing of finance	(2,508)	(3,927)	(6,474)
Taxation	-	-	-
Investments sold less investments purchased	4,299	1,162	16,840
Dividends paid	(9,154)	(8,988)	(17,290)
Net cash inflow/(outflow) before financing	2,909	(4,204)	12,653
Financing:
Ordinary shares purchased for cancellation	-	(4,839)	(10,607)
6.625% Bonds redeemed	-	(60,000)	(60,000)
Loan drawn down	-	30,000	30,000
Increase/(decrease) in cash	2,909	(39,043)	(27,954)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash	2,909	(39,043)	(27,954)
Exchange differences	(2,726)	(531)	(1,499)
6.625% Bonds redeemed	-	60,000	60,000
Loan drawn down	-	(30,000)	(30,000)
Increase in 6.625% Bonds 2008 liability	-	(32)	(32)
Increase in 6.25% Bonds 2031 liability	(13)	(14)	(27)
Opening net debt	(71,499)	(71,987)	(71,987)
Closing net debt	(71,329)	(81,607)	(71,499)

Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	(63,298)	(47,032)	(117,423)
Losses on investments	70,092	56,246	137,257
Exchange differences	(393)	(531)	1,460
Tax on investment income	(153)	(81)	(295)
Changes in working capital and other non-cash items	4,024	(1,053)	(1,422)
Net cash inflow from operating activities	10,272	7,549	19,577

Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed securities and its principal risks are therefore market related. The Company is also exposed to currency risk in respect of overseas markets in which it invests. Other risks faced by the Company include external, investment and strategic, regulatory, operational, and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal Risks and Risk Management within the Business Review in the Company's Annual Report for the year ended 30 September 2008. The Company's principal risks and uncertainties have not changed since the date of that report.

Statement of Directors' Responsibilities in Respect of the Interim Report

We confirm that to the best of our knowledge:

• the financial statements have been prepared in accordance with the Statement 'Half-Yearly Financial Reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return of the Company; 

• the Chairman's Statement (constituting the Interim Management Report) includes a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

• the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

• the financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so. The only such transactions that have taken place during the period have been the payment of the investment management fee as disclosed in note 4.

On behalf of the Board

W R E Thomson

Director

15 May 2009

  Notes:

1.    The unaudited interim results have been prepared on the basis of the accounting policies set out in the statutory accounts of the Company for the year ended 30 September 2008.

2.    The results for the first six months should not be taken as a guide to the results for the full year.

3.    There were no special dividends in the six months to 31 March 2009 (31 March 2008 - £873,000 all recognised through capital and 30 September 2008 - £873,000 all recognised through capital).

4.    Investment Management Fee

As a result of the European Court of Justice decision that investment management fees payable by investment trusts are not, and never should have been, liable to value added tax ('VAT'), the Company recovered VAT and associated interest of £2,207,000 during the period (31 March 2008 - nil and 30 September 2008 £1,490,000). 

The amount of £2,207,000 includes interest of £936,000, which is recognised within income for the period, and a VAT recovery of £1,271,000, as shown in the table below, which has been allocated between revenue and capital in the same ratio as the VAT originally suffered.

	Six months to 31 March 2009			Six months to 31 March 2008			Year to 30 September 2008
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
- basic fee	149	449	598	222	663	885	403	1,211	1,614
-VAT recoverable	(1,075)	(196)	(1,271)	-	-	-	(318)	(1,172)	(1,490)
	(926)	253	(673)	222	663	885	85	39	124

5.    The second interim dividend of 1.442p per Ordinary Share will be paid on 10 July 2009 to shareholders on the register on 12 June 2009. In accordance with accounting standards this dividend and the first interim dividend of 1.442p per Ordinary Share, paid on 9 April 2009, have not been accounted for in the results for the six months ended 31 March 2009. 

6.    The last date for receipt of mandate instructions for those shareholders who wish to join the Dividend Reinvestment Plan is 19 June 2009.

7.    Return per share is based on a weighted average 292,612,282 Ordinary Shares in issue during the period (31 March 2008 - 298,575,124 and 30 September 2008 - 297,162,555).

8.    There were 292,612,282 Ordinary Shares in issue at 31 March 2009 (31 March 2008 - 297,512,282 and 30 September 2008 - 292,612,282).  

9.         These accounts have not been audited or reviewed by the Company's auditors.

10.    The Company's geographic exposure as a percentage of shareholders' funds at 31 March 2009 was as follows:

	31 March 2009	30 September 2008
UK	74.5	74.8
Overseas Regional Portfolios	-	36.8
Overseas Developed	19.9	n/a
Overseas Emerging Markets	16.7	n/a
Corporate Bonds	15.8	8.9
Cash	7.6	6.3
Borrowings	(34.5)	(26.8)
	_____	____
	100.0	100.0

11.        These are not statutory accounts in terms of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2008, which received an unqualified audit report, have been lodged with the Registrar of Companies. No statutory accounts in respect of any period after 30 September 2008 have been reported on by the Company's auditors or delivered to the Registrar of Companies. The Half Yearly Financial Report will be available at the Company's website address, www.british-assets.co.uk.

 

END

 

 

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