Half Yearly Report

RNS Number : 2805E

British Assets Trust PLC

09 May 2013

 



BRITISH ASSETS TRUST PLC

To:                   RNS

From:              British Assets Trust plc

Date:               9 May 2013

Half-Yearly Financial Report for the six months ended 31 March 2013

Highlights

·     Quarterly interim dividend increased by 3.0%

·     Dividend yield of 4.6% at the period end

·     Net asset value total return of 15.5% compared with a total return of 15.1% from the composite benchmark index

·     Share price total return of 13.9%

Chairman's Statement

The Company's net asset value ('NAV') total return for the six month period ended 31 March 2013 was 15.5 per cent, outperforming the composite benchmark index (see note 9) which generated a total return of 15.1 per cent. The share price total return for the period was 13.9 per cent, reflecting a widening of the discount (on an ex-income NAV with debt at market value basis) from 2.8 per cent to 4.7 per cent.

Global stock markets performed well during the period. Central bank liquidity, asset allocation shifts and a general reduction in the perception of risk were the main reasons for the increasing demand for equities during the period. This was despite continued sluggish global GDP, the events in Cyprus, inconclusive Italian elections, and rising anti austerity sentiment in Europe. In the UK, the FTSE All-Share Index recorded its tenth successive month of positive performance in March.

The rally drew its fundamental energy from the apparently stable economic output in the US, spurred on by the ongoing diminution in the labour cost differentials between the US and China, the recovery in the housing market and manufacturing growth offsetting government spending reductions. Further confidence came from the active programmes in Japan to stimulate domestic demand and weaken the Yen.

Performance globally was led by defensive, lower volatility shares - cyclicals and financials were increasingly out of favour as leading economic indicators faded. Healthcare, consumer goods and consumer services were the top performers.

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

Market/benchmark return	15.1%
Stock selection
UK equities	-0.3
Overseas equities	-0.3
Regional equity asset allocation	-0.5
Corporate bonds	0.1
Gearing	1.7
Expenses	-0.3
British Assets Trust net asset value total return	15.5%

The Company benefited from equity gearing in a rising market. Despite performing well against the income-focused FTSE 350 High Yield Index, the UK equities portfolio, which is the largest component of the overall portfolio, slightly underperformed the FTSE All-Share Index. Whilst the Global High Yield (ex UK) portfolio generated a very acceptable total return of 14.5 per cent, this was slightly behind its benchmark. The effect of asset allocation was also negative, due to the overweight exposure to emerging markets, which underperformed developed markets during the period. Both the emerging markets portfolio and corporate bond portfolio, which is an important contributor to the Company's revenue account, outperformed their regional benchmark indices during the period.

Earnings and Dividends

The Company's revenue earnings for the period were 2.9p per share (2012: 3.0p). A first quarterly interim dividend of 1.442p per share was paid on 12 April 2013.

As stated in the recent Annual Report, the Board decided to allocate management fees and finance costs to revenue and capital in the ratio 35:65 with effect from 1 October 2012 (previously a ratio of 25:75). This had an effect of reducing earnings for the period by 0.1p per share.

It is the Company's stated objective to maintain a progressive dividend policy which will be dependent upon, inter alia, the rate of dividend growth within the investment portfolio and the level of dividend cover. The Board is also mindful of the level of accumulated revenue reserves. Despite a revenue surplus for the year to 30 September 2012 the Board did not increase the dividend at that time, as it wanted to ensure any increase was sustainable based on the factors above. Following a review of the Company's half year results and its short to medium term revenue forecast, the Board has decided to increase the second quarterly interim dividend by 3.0 per cent. The dividend declared is 1.4853p per share (2012: 1.442p) and this will be paid on 12 July 2013 to shareholders on the register on 14 June 2013.

Share Buy Backs

The Company bought back 1.7 million shares during the period, at a discount (on an ex-income NAV with debt at market value basis) of 5.6 per cent to the NAV per share. The shares bought back have been held in treasury, to enable them to be re-issued at a premium to the NAV per share in the future, should the opportunity arise.

Gearing

As at 31 March 2013, the Company's level of gearing, net of cash, was 16.6 per cent. This was represented by 3.3 per cent of equity gearing and 13.3 per cent in corporate bonds.

The Company's borrowings comprise £60 million 6.25 per cent Bonds which are due for redemption in 2031, and a £50 million bank facility which matures in March 2016. The bank facility was put in place in March 2013 to replace the previous £60 million facility which matured at that time. The new facility includes terms which are typical for a facility of this nature, and the principal covenants are similar to those previously in place. £20.0 million of the bank facility was drawn down at the end of the period.

Outlook

Global economic conditions have softened slightly with some impact of fiscal austerity measures impacting the US. The growth rate of the Chinese economy continues to moderate, as the new regime seeks to rebalance the economy from fixed asset investment towards consumption, without triggering a surge in residential property prices. In Europe, whilst the actions of the ECB have bought time for reform it is critical this time is used and the necessary structural changes are made to the still troubled peripheral economies - there is little economic growth at this time. The Managers continue to observe events in Europe with some degree of caution and believe the risk of fragmentation, whilst diminished, has not been extinguished entirely.

After the strong returns of the first half of the year, this all suggests that a conservative stance is currently warranted. However, the broad monetary conditions remain benign with low interest rates and quantitative easing in operation throughout many developed world economies. This provides an attractive backdrop for continued good stock market returns over the longer term.

Lynn Ruddick

Chairman

Unaudited Income Statement

For the Six Months ended 31 March 2013

	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	50,956	50,956
Exchange differences	-	(507)	(507)
Income	9,893	-	9,893
Management expenses (see note 7)	(326)	(605)	(931)
Other expenses	(321)	-	(321)
Net return before finance costs & tax	9,246	49,844	59,090
Finance Costs:
6.25% Bonds 2031	(664)	(1,232)	(1,896)
Bank borrowings	(62)	(116)	(178)
Return on ordinary activities before tax	8,520	48,496	57,016
Tax on ordinary activities	(132)	-	(132)
Return attributable to shareholders	8,388	48,496	56,884
Return per share (p) (see note 4)	2.9	16.6	19.5

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 2012

	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	45,786	45,786
Exchange differences	-	278	278
Income	9,928	-	9,928
Management expenses (see note 7)	(214)	(642)	(856)
Other expenses	(369)	-	(369)
Net return before finance costs & tax	9,345	45,422	54,767
Finance Costs:
6.25% Bonds 2031	(474)	(1,422)	(1,896)
Bank borrowings	(45)	(136)	(181)
Return on ordinary activities before tax	8,826	43,864	52,690
Tax on ordinary activities	(147)	-	(147)
Return attributable to shareholders	8,679	43,864	52,543
Return per share (p) (see note 4)	3.0	15.0	18.0

Audited Income Statement

For the Year ended 30 September 2012

		Revenue £'000	Capital £'000	Total £'000
Gains on investments		-	41,800	41,800
Exchange differences		-	544	544
Income		21,887	-	21,887
Management expenses (see note 7)		(442)	(1,325)	(1,767)
Other expenses		(859)	-	(859)
Net return before finance costs & tax		20,586	41,019	61,605
Finance Costs:
6.25% Bonds 2031		(944)	(2,832)	(3,776)
Bank borrowings		(84)	(250)	(334)
Return on ordinary activities before tax		19,558	37,937	57,495
Tax on ordinary activities		(471)	-	(471)
Return attributable to shareholders		19,087	37,937	57,024
Return per share (p) (see note 4)		6.6	13.0	19.6

Balance Sheet	Unaudited As At 31 March 2013	Audited As At 30 September 2012	Unaudited As At 31 March 2012
	£'000	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	498,646	445,115	449,686
Current assets
Debtors	8,003	3,573	12,930
Cash at bank and on deposit	4,033	14,486	11,635
	12,036	18,059	24,565
Creditors:
Amounts falling due within one year	(23,390)	(21,139)	(28,325)
Net current liabilities	(11,354)	(3,080)	(3,760)
Total assets less current liabilities	487,292	442,035	445,926
Creditors:  amounts falling due after more than one year:
6.25% Bonds 2031	(59,513)	(59,500)	(59,487)
Net assets	427,779	382,535	386,439
Capital and reserves
Called-up share capital	72,778	72,778	72,778
Capital redemption reserve	15,563	15,563	15,563
Capital reserve	308,025	261,772	267,699
Revenue reserve	31,413	32,422	30,399
Shareholders' funds	427,779	382,535	386,439
Net asset value per share (p) (see note 6)	147.8	131.4	132.7

Reconciliation of Movements in Shareholders' Funds

	Unaudited Six months ended	Unaudited Six months ended	Audited Year ended
	31 March	31 March	30 September
	2013	2012	2012
	£'000	£'000	£'000
Opening shareholders' funds	382,535	343,293	343,293
Return attributable to ordinary shareholders	56,884	52,543	57,024
Dividends paid	(9,397)	(9,397)	(17,782)
Share buy-backs	(2,243)	-	-
Closing shareholders' funds	427,779	386,439	382,535

Summarised Statement of Cash Flows

	Unaudited Six months ended	Unaudited Six months ended	Audited Year ended
	31 March	31 March	30 September
	2013	2012	2012
	£'000	£'000	£'000
Net cash inflow from operating activities	7,762	7,814	18,218
Servicing of finance	(2,073)	(2,054)	(4,057)
Capital expenditure and financial investment	(4,508)	4,582	10,168
Equity dividends paid	(9,397)	(9,397)	(17,782)
Net cash (outflow)/inflow/ before financing	(8,216)	945	6,547
Financing:
Revolving advance facility (repaid)/drawndown	(5)	19	(2,917)
Share buy-backs	(2,232)	-	-
(Decrease)/increase in cash	(10,453)	964	3,630

Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash	(10,453)	964	3,630
Revolving advance facility repaid/(drawdown)	5	(19)	2,917
Exchange differences	(10)	220	465
Increase in 6.25% Bonds 2031 liability	(13)	(13)	(26)
Opening net debt	(64,968)	(71,954)	(71,954)
Closing net debt	(75,439)	(70,802)	(64,968)

Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	59,090	54,767	61,605
Gains on investments	(50,956)	(45,786)	(41,800)
Exchange differences	507	(278)	(544)
Tax on investment income	(184)	(115)	(440)
Changes in working capital and other non-cash items	(695)	(774)	(603)
Net cash inflow from operating activities	7,762	7,814	18,218

Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed securities and its principal risks are therefore market related, including investment performance and discount volatility. 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 2012. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year.

Statement of Directors' Responsibilities in Respect of the Half-Yearly Financial 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) together with the Statement of Principal Risks and Uncertainties above include 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; 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.

On behalf of the Board

Lynn Ruddick

Director

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 2012.

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

3.   The second interim dividend of 1.4853p per Ordinary Share will be paid on 12 July 2013 to shareholders on the register on 14 June 2013. 

The last date for receipt of mandate instructions for those shareholders who wish to join the Dividend Reinvestment Plan is 21 June 2013.

4.   Return per share is based on a weighted average 291,074,919 Ordinary Shares in issue during the period (six month period to 31 March 2012 and year to 30 September 2012 - 291,112,282).

5.   During the six months ended 31 March 2013 the Company bought back 1,700,000 Ordinary Shares (six month period to 31 March 2012 and year to 30 September 2012 - Nil) to hold in treasury at a cost of £2,243,000.

6.   There were 289,412,282 Ordinary Shares in issue at 31 March 2013 (31 March 2012 and 30 September 2012 - 291,112,282) excluding those shares held in treasury.   As at 31 March 2013 there were 1,700,000 shares held in treasury (31 March 2012 and 30 September 2012 - Nil).

7.   Management Expenses

	Six months ended 31 March 2013			Six months ended 31 March 2012			Year ended 30 September 2012
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment Management Fee:	326	605	931	214	642	856	442	1,325	1,767

       With effect from 1 October 2012 investment management fees and finance costs have been allocated 35 per cent to revenue and 65 per cent to capital.  Prior to 1 October 2012 the allocation was 25 per cent to revenue and 25 per cent to capital.

8.   The Company's geographic exposure as a percentage of shareholders' funds at 31 March 2013 was as follows:

	31 March 2013	30 September 2012
UK	75.7	75.2
Global High Yield (ex UK)	18.1	19.3
Emerging Markets	9.5	8.4
Corporate Bonds	13.3	13.5
Gearing*	(16.6)	(16.4)
	_____	____
	100.0	100.0

              * Comprising equity gearing of 3.3 per cent (30 September 2012 - 2.9 per cent) and 13.3 per cent in corporate bonds (30 September 2012 - 13.5 per cent)

9.   The Company's benchmark index is a composite of 80 per cent FTSE All-Share Index, 20 per cent FTSE World (ex UK) Index

10. The results for the half-year ended 31 March 2013, which have not been audited or reviewed by the Company's auditors, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended 30 September 2012, which received an unqualified audit report, have been lodged with the Registrar of Companies.  The Half-Yearly Financial Report is available at the Company's website address, www.british-assets.co.uk.

For further information please contact:

Phil Doel

F&C Investment Business Limited

0207 628 8000

[e-mail]

 

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