Half-yearly report
ABERFORTH GEARED CAPITAL & INCOME TRUST plc
HALF YEARLY REPORT
For the six months to 30 June 2008
FEATURES
Total Returns
Total Assets - 11.8%
Net Asset Value of Capital - 28.4%
Shares1
First Interim Dividend per 5.9p (+55.3%)
Income Share
1 Capital Shares asset performance assumes Income Shares have
a capital entitlement of 100p each.
All data throughout this Half Yearly Report is to, or as at, 30 June 2008
as applicable, unless otherwise stated.
CHAIRMAN'S STATEMENT TO SHAREHOLDERS
For the six months to 30 June 2008, Aberforth Geared Capital & Income Trust
plc (AGCiT) recorded a negative total return on total assets of 11.8%. The
Hoare Govett Smaller Companies Index (Excluding Investment Companies) (HGSC
(XIC)), which is representative of AGCiT's investment opportunity base,
recorded a negative total return of 14.2% for the same period. The FTSE All-
Share Index, representative of larger companies, showed a negative total
return of 11.2%.
AGCiT is a geared investment trust and one effect of the gearing is to
magnify the returns at total asset level for the Capital Shareholders. In
the recent period of falling equity markets this has resulted in the net
asset value of a Capital Share (assuming 100p prior charge for the Income
Shares) declining by 28.4% from 579.45p at 31 December 2007 to 414.72p at 30
June 2008.
With regard to the Income Shares your Board is pleased to announce a first
interim dividend of 5.9p. This represents an increase of 55.3% on the 3.8p
paid for the equivalent period in 2007. Whilst the underlying growth in
dividends from AGCiT's portfolio remains good, Income Shareholders should not
extrapolate this rate of increase for the year as a whole. Your Board is
seeking to rebalance the relative weight of the first and second interim
dividends with the intention of achieving an approximately even distribution
in 2009. In addition, there are a several non recurring items that have
served to enhance revenue in the first half of 2008. These items include
some "special dividends" and the recovery from HMRC of interest in respect of
the VAT that was credited to AGCiT late in 2007. In addition, VAT is no
longer charged on investment management fees and this has the effect of
reducing the total management costs thus enhancing the distributable earnings
for any given level of revenue.
The first interim dividend will be paid on 21 August 2008 to Income
Shareholders on the register on 1 August 2008. It is anticipated that the
"ex dividend" date will be 30 July 2008.
I am pleased to report that all the VAT and related interest have now been
received from HMRC. In addition, a repayment has also been received directly
from your Managers of VAT previously offset by them. In total, therefore,
£743,000 has been received by AGCiT in respect of VAT and related interest.
The quantum and prompt payment combine to produce an excellent outcome for
Shareholders.
The Managers' report that follows provides a detailed insight into AGCiT's
performance, as well as that of small and large companies during the period
under review. However, it seems clear that the stockmarket is attempting to
take company valuations down to a level that adequately discounts the
potential impact of a recession in the UK. AGCiT's total return on total
assets has been a negative 26.7% since 31 May 2007 (corresponding
approximately with the peak in the UK smaller companies market). Over this
period the trailing P/E on AGCiT's portfolio (weighted average and excluding
loss makers) has declined by approximately 40% and the dividend yield has
risen by about 60%.
This has been a significant and rapid adjustment. The issue is of course
whether these much lower valuations adequately reflect the risks ahead. Your
Board and Managers are of the view that they do and therefore have moved to a
position of using the substantial majority of the debt facilities available
to AGCiT, following a period earlier in 2008 when this was not the case.
Experience suggests that stockmarkets largely adjust ahead of events and that
recovery begins when news flow is still adverse.
In the meantime, some comfort can be taken from the value that is prevalent
in the portfolio and the fact that many of the investments have strong
balance sheets supported by good cash flow together with above average but
well covered dividend yields.
Alastair C. Dempster
Chairman
17 July 2008
MANAGERS' REPORT
INVESTMENT BACKGROUND
Over AGCiT's first half, returns from major equity markets were generally
negative, as the implications of the credit crisis for real economic activity
were digested. In the UK, the FTSE All-Share produced a total return of -
11.2%. With sterling having depreciated by 7% against the euro, this
performance ranked amongst the weakest of the major markets on a constant
currency basis. As is common when the appetite for risk dwindles, small
companies performed more poorly, with the HGSC (XIC) down by 14.2% in total
return terms.
By mid March, stockmarkets seemed to have come to terms with the first-order
effects of the credit crunch. Central banks, particularly the Fed, succeeded
in restoring a degree of confidence, through a combination of interest rate
reductions and less conventional measures, including the rescue of Bear
Stearns and Northern Rock. The extreme stress in credit markets during the
fourth quarter of last year has abated, though there is evidence of lingering
caution: the gap between base rates and LIBOR, the rate at which banks lend
to each other, remains significantly above the level that prevailed prior to
the credit crisis.
With the banks unable or unwilling to increase their lending, economies are
set to endure further de-leveraging, an essentially deflationary process that
has implications for real economic activity. This second-order effect of the
credit crisis started to weigh on equity markets towards the end of the first
half. It is most obvious in the housing markets, with the US leading the
way. According to the S&P Case Shiller index, US house prices are now 18%
below their peaks of two years ago. Meanwhile, in the UK, where the peak was
reached as recently as August last year, prices are already down by almost
10%. The risks of these falls to consumer spending and, by extension, to
overall economic activity in both countries are obvious. Moreover, in a
potentially stagflationary turn of events, this has come at a time when the
room for manoeuvre on the part of monetary authorities is limited by the
stubborn inflationary threat of rapidly rising commodity prices, most notably
the oil price, which has appreciated by 40% since the start of the year.
These price movements were evident in the UK's May inflation release, which
revealed that the year-on-year change in the CPI had moved to 3.3%, thus
triggering another letter from the Governor to the Chancellor. This measure
of inflation excludes oil prices, which leaves a 7.8% rise in food prices
principally to blame. The RPI, which takes oil prices into account, showed
an increase of 4.3%. With short dated gilt yields above long, the yield curve has
inverted, which has traditionally been considered an indicator of imminent
economic slowdown.
INVESTMENT PERFORMANCE
Against this background of mounting concern about the outlook for the real
economy, equities suffered. AGCiT was not immune, recording a total return
at the total assets level of -11.8%. This was, however, ahead of the HGSC
(XIC)'s total return of -14.2%. The following paragraphs explain how this
out-performance was achieved.
The net effect of AGCiT's sector positioning was favourable. In broad terms,
the portfolio retains its relatively low exposure to sectors reliant on the
domestic economy. These include Real Estate and General Financials, both of
which are close to the epicentre of the credit crunch. Moreover, it has had
very little exposure to housebuilding, recruitment and regional press, areas
of the stockmarket that suffered particularly acutely in the first half. On
the other hand, the portfolio is over-weight in capital goods sectors, such
as Electronics, Engineering and Aerospace & Defence. These tend to generate
their sales and profits overseas and are therefore more insulated from the
problems confronting the domestic economy. But AGCiT retains its under-
weight positions in Oil and Mining sectors. This is not a reflection of
scepticism about the fundamental story of emerging market demand, but is
motivated by the stockmarket's willingness at the current time to attribute
often lofty valuations, including low or nil dividend yields, to constituents
of these sectors.
Stock selection was also favourable. The most significant factor in this
regard was corporate activity. Going into 2008, your Managers thought it
likely that tighter credit conditions would constrain M&A. This has proved
the case in the large company world, where big deals such as Alliance Boots
would appear to be off the agenda for private equity houses. However,
activity further down the size spectrum, generally below the FTSE 250, has
proved pleasantly robust. The portfolio has a relatively high exposure to
this area of the stockmarket, reflecting particularly low valuations on offer
there. Over the first half, AGCiT has seen five bids completed for its
holdings. At the end of June, another three holdings were in talks. Three
more holdings had been approached, though the talks came to nothing. The
buyers, or potential buyers, have been a mix of trade and private equity.
Underlining the gap between the intrinsic values of many businesses and the
valuations currently accorded to them by the stockmarket, the premiums that
they have been prepared to pay have been considerably above the customary
range. In turn, enterprise valuations in relation to operating profits have
held up: the range for the five completed deals was 14x to 19x, which
compares with an average of 7x historic operating profits for the portfolio
at the end of June.
Somewhat surprisingly given credit conditions, de-equitisation, a term used
to describe the trend over recent years to replace equity with debt
financing, was still in evidence across the UK stockmarket in the first half,
albeit at a reducing rate. A handful of large takeovers and the perennial
share buy-back programmes from BP and Shell have so far offset the banks'
multi billion pound rights issues. This latter phenomenon has clearly been
an issue for the large company world, but if share prices sustain their
current momentum your Managers will have to dust off their banking analyses.
There have also been several rescue rights issues within the HGSC (XIC). The
companies involved have tended to have a domestic focus. AGCiT has a holding
in one of these and participated in the fund raising. Given the gloomier
outlook for the economy, further rights issues and equity funded deals are
inevitable.
Dividend payments are a more prosaic form of de-equitisation but over the
long term are crucial to equity returns. Once again, the dividend experience
of companies within AGCiT's portfolio has been remarkably good. There were 76
holdings at the end of June, a useful cross-section of the small company
universe. Of those companies, it was the policy of three not to pay a
dividend, while a further four had been listed for less than two years,
preventing growth calculations. Of the remaining 69, three cut their
dividends, five left them unchanged and 61 reported increases. Of the 69, the
median rate of dividend growth was 13%, though this median does not
necessarily reflect AGCiT's actual receipts, since it is diluted by the other
seven holdings and since the portfolio is actively managed, with a specific
rate of dividend growth not targeted. Nevertheless, this rate of growth is
considerably above both the rate of inflation and the long term average
achieved by equities.
INVESTMENT OUTLOOK
AGCiT and, indeed, the UK stockmarket as a whole have enjoyed several years
of strong profit and dividend growth. This run has extended into the first
half of 2008. Clouds are, however, gathering on the horizon as the credit
crunch begins to exercise its malign influence, through the housing market,
on the domestic economy. If the inflationary pressures of rising commodity
prices do indeed compel the Bank of England to raise interest rates this
year, as the futures markets are expecting, the risk of outright recession
would seem high. The implications of this turn of events for corporate
profitability and dividend growth are clearly not good.
However, the stockmarket, performing its discounting role, has already moved
many share prices lower, with the FTSE All-Share, in capital only terms,
sitting 17% below its peak in October last year. This drop has left equities
on ostensibly attractive valuations in relation to bonds, albeit running the
risk of lower future profits. Small companies have been punished even more
severely than large: the HGSC (XIC) is well into a bear market, now over 30%
below its peak in May last year. On a historic PE of 9.8x, it is trading on
a 6% discount to large companies. Intriguingly, this level of valuation may
already be discounting a severe collapse in small company profits similar to
declines experienced during the last recession in the early 1990s. Back
then, small company profits started to fall sharply in 1991 and did not
trough until the middle of 1993. However, the stockmarket discounted a
recovery in profits and moved the PE of small companies up to over 18x by the
end of 1993. With valuations thus taking the strain, it was possible to make
good absolute returns from small companies in a period that saw profits
decline by over one third.
30 June 2008 30 June 2007
Characteristics AGCiT HGSC AGCiT HGSC
(XIC) (XIC)
Number of Companies 76 484 86 487
Weighted Average Market
Capitalisation £317m £536m £467m £627m
Price Earnings Ratio 9.2x 9.8x 16.5x 15.8x
(Historic)
Net Dividend Yield 4.2% 3.7% 2.5% 2.0%
(Historic)
Dividend Cover (Historic) 2.6x 2.8x 2.4x 3.2x
Timing a change in the mood of the stockmarket is never easy. At the end of
June, AGCiT's portfolio retained a defensive disposition: around one third by
value was invested in companies with net cash on their balance sheets and it
still had its relatively high exposure towards businesses with overseas
profit streams. As such, its average historic PE was 9.2x, a modest 6%
discount to the HGSC (XIC). So, for now, your Managers prefer to eschew the
opportunity to push that PE downwards aggressively by increasing exposure in
the vulnerable domestically oriented businesses, such as the housebuilders,
many of which are valued on less than 5x historic earnings. However, at some
point it will be right to invest again in these areas of the stockmarket.
That process will not feel comfortable and the chances are high that timing
will not be perfect. But, given how quickly sentiment can turn, the risks of
being `too late' are as great, if not greater, than being `too early'. With
valuations for the asset class attractive in absolute terms and in relation
to both bonds and large companies, your Managers contend that small companies
are closer to the end of their de-rating than the beginning.
Aberforth Partners LLP
Managers
17 July 2008
INVESTMENT PORTFOLIO
Thirty Largest Investments as at 30 June 2008
Valuation % of
No Company £'000 Total Business Activity
1 Hampson 5,137 4.9 Aerospace and automotive
Industries
2 Spirax-Sarco 4,622 4.4 Engineering
Engineering
3 Greggs 3,407 3.2 Retailer of sandwiches, savouries
and other bakery products
4 Shanks Group 3,182 3.0 Waste management
5 Interserve 3,003 2.9 Facilities, project & equipment
services
6 e2v 2,604 2.5 Manufacture of electronic
technologies components and sub-systems
7 Domino 2,444 2.3 Manufacture of industrial
Printing printing equipment
Sciences
8 UMECO 2,441 2.3 Advance composite materials and
supply chain management
9 RPC Group 2,352 2.2 Manufacture of plastic containers
and devices
10 Robert Wiseman 2,277 2.2 Processing and distribution of
Dairies milk
Top Ten
Investments 31,469 29.9
11 Senior 2,233 2.1 Automotive and aerospace
engineering
12 Low & Bonar 2,220 2.1 Manufacture of industrial
textiles
13 Holidaybreak 2,201 2.1 Holiday company
14 Hiscox 2,185 2.1 Insurance
15 Spectris 2,156 2.0 Manufacture of precision
instrumentation and controls
16 BSS Group 2,148 2.0 Distribution of plumbing supplies
& tools
17 Wincanton 2,107 2.0 Logistics
18 Phoenix IT 2,094 2.0 IT services
Group
19 Headlam Group 2,058 2.0 Distribution of floorcoverings
20 Brown (N.) 1,924 1.8 Home shopping catalogue retailer
Group
Top Twenty
Investments 52,795 50.1
21 Halfords Group 1,870 1.8 Retailer of auto, leisure and
cycling products
22 Delta 1,841 1.7 Galvanising, manganese products
and industrial supplies
23 Wilmington 1,744 1.7 B2B publishing and training
Group
24 Kofax 1,743 1.7 Software and related services
25 Nord Anglia 1,612 1.5 International schools and
Education learning services
26 Castings 1,537 1.5 Engineering
27 Beazley Group 1,531 1.5 Insurance
28 JD Sports 1,477 1.4 Retailer of sports and
Fashion leisurewear
29 Bodycote 1,475 1.4 Engineering
30 Britvic 1,460 1.4 Manufacture and distribution of
soft drinks
Top Thirty
Investments 69,085 65.7
Other
Investments 36,132 34.3
(46)
Total
Investments 105,217 100.0
Net
Liabilities (58,654)
Total Net
Assets 46,563
The Income Statement, Balance Sheet, Summary Reconciliation of Movements in
Shareholders' Funds, and Summary Cash Flow Statement are set out below: -
INCOME STATEMENT
(unaudited)
For the six months to 30 June 2008
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net losses on sales - (489) (489)
Movement in unrealised - (17,085) (17,085)
appreciation
--------- ---------- ----------
-
Net losses on investments - (17,574) (17,574)
Dividend income 2,384 636 3,020
Interest income 73 - 73
Other income 9 - 9
Investment management fee (151) (353) (504)
Transaction costs - (231) (231)
Other expenses (140) - (140)
--------- ---------- ----------
-
Net return before finance 2,175 (17,522) (15,347)
costs and tax
Finance costs:
Interest (334) (782) (1,116)
Change in fair valuation of - 1,007 1,007
interest rate swap
--------- ---------- ----------
-
1,841 (17,297) (15,456)
Finance costs:
Dividends on Income Shares (1,642) - (1,642)
classified as financial
liabilities
--------- ---------- ----------
-
Return on ordinary 199 (17,297) (17,098)
activities before tax
Tax on ordinary activities (2) - (2)
--------- ---------- ----------
-
Return attributable to 197 (17,297) (17,100)
equity shareholders
====== ====== ======
Returns per Share: (Note 4)
Income Share 7.50p - 7.50p
Capital Share - (164.73p) (164.73p)
DIVIDENDS
On 17 July 2008 the Board declared a first interim dividend for the year to
31 December 2008 of 5.9p per Income Share (2007 - 3.80p) payable on 21 August
2008.
INCOME STATEMENT
(unaudited)
For the six months to 30 June 2007
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 12,766 12,766
Movement in unrealised - (4,409) (4,409)
appreciation
--------- ---------- ----------
-
Net gains on investments - 8,357 8,357
Dividend income 2,039 176 2,215
Interest income 1 - 1
Other income - - -
Investment management fee (183) (426) (609)
Transaction costs - (433) (433)
Other expenses (108) - (108)
--------- ---------- ----------
-
Net return before finance 1,749 7,674 9,423
costs and tax
Finance costs:
Interest (343) (803) (1,146)
Change in fair valuation of - 958 958
interest rate swap
--------- ---------- ----------
-
1,406 7,829 9,235
Finance costs:
Dividends on Income Shares (1,446) - (1,446)
classified as financial
liabilities
--------- ---------- ----------
-
Return on ordinary (40) 7,829 7,789
activities before tax
Tax on ordinary activities - - -
--------- ---------- ----------
-
Return attributable to (40) 7,829 7,789
equity shareholders
====== ====== ======
Returns per Share:
Income Share 5.73p - 5.73p
Capital Share - 74.57p 74.57p
INCOME STATEMENT
(unaudited)
For the year to 31 December 2007
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 19,654 19,654
Movement in unrealised - (32,197) (32,197)
appreciation
--------- ---------- ----------
-
Net losses on investments - (12,543) (12,543)
Dividend income 3,925 176 4,101
Interest income 3 - 3
Other income - - -
Investment management fee (163) (382) (545)
Transaction costs - (636) (636)
Other expenses (235) - (235)
--------- ---------- ----------
-
Net return before finance 3,530 (13,385) (9,855)
costs and tax
Finance costs:
Interest (695) (1,623) (2,318)
Change in fair valuation of - (225) (225)
interest rate swap
--------- ---------- ----------
-
2,835 (15,233) (12,398)
Finance costs:
Dividends on Income Shares (2,377) - (2,377)
classified as financial
liabilities
--------- ---------- ----------
-
Return on ordinary 458 (15,233) (14,775)
activities before tax
Tax on ordinary activities - - -
--------- ---------- ----------
-
Return attributable to 458 (15,233) (14,775)
equity shareholders
====== ====== ======
Returns per Share:
Income Share 11.57p - 11.57p
Capital Share - (145.08p) (145.08p)
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the six months to 30 June 2008
Capit
al Capita Capital
Share redem Specia l reserve Reven
capit p- l reserv - ue Total
al tion reserv e - unreali reser £ 000
£ 000 reser e realis sed ve
ve £ 000 ed £ 000 £ 000
£ 000 £ 000
Equity
shareholders 105 50 9,674 41,776 9,238 2,820 63,663
funds as at 31
December 2007
Return
attributable to - - - (1,219) (16,078) 197 (17,100)
equity
shareholders
----- ----- ------ ------ ------- ----- ------
Equity
shareholders 105 50 9,674 40,557 (6,840) 3,017 46,563
funds as at 30
June 2008
===== ===== ====== ====== ====== ===== ======
For the six months to 30 June 2007
Capit
al Capita Capital
Share redem Specia l reserve Reven
capit p- l reserv - ue Total
al tion reserv e - unreali reser £ 000
£ 000 reser e realis sed ve
ve £ 000 ed £ 000 £ 000
£ 000 £ 000
Equity
shareholders 105 50 9,674 24,587 41,660 2,362 78,438
funds as at 31
December 2006
Return
attributable to - - - 11,280 (3,451) (40) 7,789
equity
shareholders
----- ----- ------ ------ ------- ----- ------
Equity
shareholders 105 50 9,674 35,867 38,209 2,322 86,227
funds as at 30
June 2007
===== ===== ====== ====== ====== ===== ======
For the year to 31 December 2007
Capit
al Capita Capital
Share redem Specia l reserve Reven
capit p- l reserv - ue Total
al tion reserv e - unreali reser £ 000
£ 000 reser e realis sed ve
ve £ 000 ed £ 000 £ 000
£ 000 £ 000
Equity
shareholders 105 50 9,674 24,587 41,660 2,362 78,438
funds as at 31
December 2006
Return
attributable to - - - 17,189 (32,422) 458 (14,775)
equity
shareholders
----- ----- ------ ------ ------- ----- ------
Equity
shareholders 105 50 9,674 41,776 9,238 2,820 63,663
funds as at 31
December 2007
===== ===== ====== ====== ====== ===== ======
BALANCE SHEET
(unaudited)
As at 30 June 2008
30 31 30
June December June
2008 2007 2007
£'000 £'000 £'000
Fixed Assets: Investments
Investments at fair value through 105,217 119,420 145,421
profit or loss
------- ------- -------
Current assets
Amounts due from brokers 66 - 39
Interest rate swap 653 - 829
Other debtors 663 1,029 522
------- ------- -------
1,382 1,029 1,390
------- ------- -------
Creditors (amounts falling due
within one year)
Bank overdraft (554) - (1,019)
Amounts due to brokers (628) (61) (745)
Other creditors (86) (63) (62)
------- ------- -------
(1,268) (124) (1,826)
------- ------- -------
Net current assets/(liabilities) 114 905 (436)
------- ------- -------
Total assets less current 105,331 120,325 144,985
liabilities
Creditors (amounts falling due (58,768) (56,662) (58,758)
after more than one year)
------- ------- -------
Total net assets 46,563 63,663 86,227
====== ====== ======
Capital and reserves: Equity
interests
Called up share capital:
Capital shares 105 105 105
Reserves:
Capital redemption reserve 50 50 50
Special reserve 9,674 9,674 9,674
Capital reserve - realised 40,557 41,776 35,867
Capital reserve - unrealised (6,840) 9,238 38,209
Revenue reserve 3,017 2,820 2,322
------- ------- -------
Total equity 46,563 63,663 86,227
====== ====== ======
Net Asset Values:
- per Capital Share 449.28p 620.27p 846.25p
- per Income Share (Income 97.51p 94.02p 89.27p
Shares are classified as
financial liabilities)
NOTE
The Company had 24.5m Income Shares and 10.5m Capital Shares
in issue as at 30 June 2008, 31 December 2007 and 30 June
2007.
CASH FLOW STATEMENT
(unaudited)
For the six months to 30 June 2008
6 months 6 months Year
to to to
30 June 30 June 31 December
2008 2007 2007
£'000 £'000 £'000
Net cash inflow from operating 2,831 1,257 2,603
activities
------- ------- -------
Taxation
Taxation paid (2) - -
------- ------- -------
Net cash outflow from taxation (2) - -
------- ------- -------
Returns on investments and
servicing of finance
Interest and other finance costs (1,096) (1,130) (2,324)
paid
Dividends paid (1,642) (1,446) (2,377)
------- ------- -------
Net cash outflow from returns
on investments and servicing of (2,738) (2,576) (4,701)
finance
------- ------- -------
Capital expenditure and
financial investment
Payments to acquire investments (19,952) (33,284) (48,417)
Receipts from sales of 16,852 29,581 48,966
investments
------- ------- -------
Net cash (outflow)/inflow from (3,100) (3,703) 549
capital
expenditure and financial
investment
------- ------- -------
Net cash outflow before (3,009) (5,022) (1,549)
financing activities
------- ------- -------
Financing activities
Loans drawn down 2,455 4,002 1,548
------- ------- -------
Net cash inflow from financing 2,455 4,002 1,548
activities
------- ------- -------
Change in cash during the period (554) (1,020) (1)
====== ====== ======
Reconciliation of net return
before finance costs and
taxation to net cash inflow from
operating activities
Net return before finance costs (15,347) 9,423 (9,855)
and taxation
Net losses/(gains) on 17,574 (8,357) 12,543
investments
Transaction costs 231 433 636
Decrease/(Increase) in debtors 366 (236) (743)
Increase/(Decrease) in creditors 7 (6) 22
------- ------- -------
Net cash inflow from operating 2,831 1,257 2,603
activities
====== ====== ======
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING STANDARDS
The financial statements have been prepared in accordance with UK generally
accepted accounting practice (UK GAAP) and the AIC's Statement of Recommended
Practice ``Financial Statements of Investment Trust Companies'' issued in
2005. The total column of the Income Statement is the profit and loss account
of the Company. All revenue and capital items in the Income Statement are
derived from continuing operations. No operations were acquired or
discontinued in the period. The same accounting policies used for the year
ended 31 December 2007 have been applied.
2. INVESTMENT MANAGEMENT FEE
Six months to 30 June 2008
Revenue Capital Total
£'000 £'000 £'000
Investment management fee 151 353 504
------- ------- -------
Total for six months to 30 June 151 353 504
2008 ====== ====== ======
Six months to 30 June 2007
Revenue Capital Total
£'000 £'000 £'000
Investment management fee 156 363 519
VAT paid thereon 27 63 90
------- ------- -------
Total for six months to 30 June 183 426 609
2007 ====== ====== ======
Year to 31 December 2007
Revenue Capital Total
£'000 £'000 £'000
Investment management fee 323 754 1,077
VAT paid thereon 42 98 140
VAT recoverable (202) (470) (672)
------- ------- -------
Total for the year to 31 163 382 545
December 2007 ====== ====== ======
The VAT recoverable recognised during the year to 31 December 2007
represents the repayment of all VAT paid on investment management fees since
the company's inception (including all VAT previously offset by the
managers).
3. FINANCE COSTS: DIVIDENDS ON INCOME SHARES CLASSIFIED AS
FINANCIAL LIABILITIES
Six months Six months Year
to to to
30 June 30 June 31 December
2008 2007 2007
£'000 £'000 £'000
Amounts recognised as
distributions to Income
Shareholders:
Second interim dividend for the - 1,446 1,446
year to 31 December 2006 of 5.9p
paid on 22 February 2007
First interim dividend for the - - 931
year to 31 December 2007 of 3.8p
paid on 23 August 2007
Second interim dividend for the 1,642 - -
year to 31 December 2007 of 6.7p
paid on 21 February 2008
------- ------- -------
1,642 1,446 2,377
====== ====== ======
A first interim dividend for the year to 31 December 2008 of
5.9p will be paid on 21 August 2008 to Income Shareholders on
the register on 1 August 2008.
4. RETURNS PER SHARE
Six months Six months Year
to to to
30 June 30 June 31 December
2008 2007 2007
Return per Income Statement £1,841,000 £1,406,000 £2,835,000
Less: Tax on ordinary activities £2,000 - -
--------- --------- ---------
Return attributable to Income £1,839,000 £1,406,000 £2,835,000
Shareholders ======== ======== ========
Number of Income Shares in issue 24,500,000 24,500,000 24,500,000
during the period
Return attributable to Capital (£17,297,000) £7,829,000 (£15,233,000)
Shareholders ======== ====== ========
Number of Capital Shares in 10,500,000 10,500,000 10,500,000
issue during the period
5. NET ASSET VALUE
Total net assets have been calculated in accordance with the provisions of
Financial Reporting Standard 4. Income Shares are classified as financial
liabilities and are carried on the balance sheet at their fair value of 100p
each which results in a total fair valuation of the Income Shares of
£24,500,000. This valuation does not reflect the rights of the Income Shares
under the Articles of Association on a return of assets. Set out below is a
reconciliation of the Capital Share net asset value on the basis of Income
Shares at 100p each and a reconciliation of Capital and Income share net
asset values in accordance with the Articles.
Net Asset Value of Capital Shares (based on Income Shares at 100p)
As at As at As at
30 June 31 December 30 June
2008 2007 2007
£'000 £'000 £'000
Total net assets 46,563 63,663 86,227
Revenue reserve (3,017) (2,820) (2,322)
------- ------- -------
Net Asset Value of Capital 43,546 60,843 83,905
Shares ====== ====== ======
Number of Capital Shares 10,500,000 10,500,000 10,500,000
NAV per Capital Share (Income 414.72p 579.45p 799.10p
Shares at 100p)
Net Asset Value of Capital and Income Shares (Articles basis)
Capital Income Total
Shares Shares
£'000 £'000 £'000
Total net assets as at 30 June 46,563 - 46,563
2008
Revenue reserve (3,017) 3,017 -
Capital entitlement of Income - 24,500 24,500
Shares at 31 March 2011
(valuation of Income Shares
disclosed within Creditors)
Adjustment to reflect capital 3,628 (3,628) -
entitlement not yet transferred
to Income Shareholders in
accordance with Articles
------- ------- -------
Net assets per Articles as at 30 47,174 23,889 71,063
June 2008 ====== ====== ======
Number of shares 10,500,000 24,500,000
NAV per share (per Articles) 449.28p 97.51p
6. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
As at As at As at
30 June 31 December 30 June
2008 2007 2007
£'000 £'000 £'000
Loan facility 4,300 1,845 4,300
LIBOR loan facility 30,000 30,000 30,000
Less: unamortised issue costs (32) (37) (42)
Income shares 24,500 24,500 24,500
Interest rate swap - 354 -
------- ------- -------
58,768 56,662 58,758
====== ====== ======
7. FURTHER INFORMATION
The foregoing do not comprise Statutory Accounts (as defined in section
434(3) of the Companies Act 2006) of the Company. The statutory accounts for
the year to 31 December 2007, which contained an unqualified Report of the
Auditors , have been lodged with the Registrar of Companies and did not
contain a statement required under section 237(2) or (3) of the Companies Act
1985(as amended). All information shown for the six months to 30 June 2008 is
unaudited.
Certain statements in this announcement are forward looking statements. By
their nature, forward looking statements involve a number of risks,
uncertainties or assumptions that could cause actual results or events to
differ materially from those expressed or implied by those statements.
Forward looking statements regarding past trends or activities should not be
taken as representation that such trends or activities will continue in the
future. Accordingly, undue reliance should not be placed on forward looking
statements.
It is anticipated the Half Yearly Report will be posted to shareholders
during the week commencing 21 July 2008. Members of the public may obtain
copies from Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or
from its website at www.aberforth.co.uk.
Contact: John Evans or David Ross - Aberforth Partners LLP
Tel: 0131 220 0733
Aberforth Partners LLP, Secretaries - 17 July 2008
ANNOUNCEMENT ENDS
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