Replacement Half Yearly Report

RNS Number : 1028J

British Empire Sec & Gen Tst PLC

06 June 2014

 



The 'Half Yearly Report' announcement released on 30 May 2014 at 5.01pm under RNS No 5212I included the incorrect record date for the interim dividend. The record date will be 13 June 2014, and not 13 June 2013.

All other details remain unchanged.

The full amended text is shown below.

BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Announcement of unaudited results for the half year ended 31 March 2014

Objective

The investment objective of the Company is to achieve capital growth through a focused portfolio of investments, particularly in companies whose shares stand at a discount to estimated underlying net asset value.

Financial Highlights

At 31 March 2014		At 30 September 2013	% change
Capital Return
Net assets	£844.52m	£844.46m	-
Net asset value per Share	566.73p	551.97p	2.7
Net asset value per Share (Debt at fair value)	564.32p	549.62p	2.7
Share price (mid market)	487.00p	484.90p	0.4
Discount (Debt at fair value)#	13.7%	11.8%
	Six months to	Six months to
	31 March 2014	31 March 2013
Earnings and Dividends
Revenue earnings per Share	1.35p	2.64p
Capital earnings per Share	22.55p	82.88p
Total earnings per Share	23.90p	85.52p
Interim dividend per Share	2.00p	2.00p

	Six months to		Year to
	31 March 2014		30 September 2013
Performance Comparison
British Empire Securities and General Trust plc (NAV total return) †		4.8%	13.1%
Morgan Stanley Capital International All Country World ex-US Index^ (£ adjusted total return)		2.4%	16.6%
Morgan Stanley Capital International All Country World Index (£ adjusted total return)		5.6%	18.0%
Morningstar Investment Trust Global Index (total return)*		5.5%	18.9%

* The Morningstar Investment Trust Global Index (total return basis) is subject to revision and the figures are at 14 April 2014.

† Source: Morningstar

^Benchmark Index

# As per guidelines issued by the Association of Investment Companies ("AIC"), the discount is calculated using the net asset value per share inclusive of accrued income and with debt at fair value. In previous years, the discount was calculated using the net asset value per share inclusive of accrued income with debt at par value.

Capital Structure

as at 31 March 2014

The Company's capital structure comprises Ordinary Shares and Debenture Stock.

		Mid market price	Market capitalisation
		p	£ million
149,018,008*	Ordinary Shares	487.00	725.72
£15,000,000	81/8 per cent Debenture Stock 2023	123.50	18.53
*excluding 10,996,081 shares held in treasury

Chairman's Statement

This report covers the period from 1 October 2013 to 31 March 2014.

During the half year under review, the net asset value of the Company's shares rose by 4.8% on a total return basis, which compares with an increase in the benchmark Morgan Stanley Capital International All-Country World ex-US Index ('Index') of 2.4%.

 

Overall the NAV this financial year (to 28 May) has increased by 7.9%, some 2.2% ahead of the Index (5.7%). At the date of this report, net liquidity* stands at 1.8%, compared with 7.7% at 31 March and a range of 15.0% to 7.0% during the half year.

 

The accompanying report from the Investment Manager, Asset Value Investors (AVI), gives more detail on the factors which have affected the performance and outcome over the period, and includes some notable features. There have been significant changes in the constituents of the portfolio, both over the period and over the past twelve months, with turnover (72%) well above the prior year's figure of 41%. There are, encouragingly, increasing levels of corporate activity in many markets which have benefitted stocks which we own (whether it be private equity funds realising assets at valuations above their carrying value, or corporate restructuring). Sterling has been unexpectedly strong during this period against many currencies, which has provided a headwind to the level of absolute return.

 

As a result of changes to the portfolio, income has been somewhat lower than in the comparable period last year. However, your Board has decided to maintain the interim dividend at 2.0p per share, the same as last year, even though it was not fully covered by earnings in the first half. The Company has prudently accumulated significant revenue reserves in past years with a view to ensuring that AVI can maintain the freedom to pursue the primary objective of the Company, which is capital growth. These reserves give us some flexibility in our dividend policy, without constraining the Investment Managers in their pursuit of capital growth.

 

The level of discount during the half year has been between 13.8% and 10.8%. Since the beginning of the current financial year, the Company has bought back a total of 3,970,880 shares, adding some 0.34% to the net asset value per share to the benefit of continuing shareholders. The Board conducted an internal review and an independent external review of its share buyback strategy and possible alternatives. These reviews have endorsed the current approach. The Board will continue to use share buy backs as a useful tool to reduce the volatility of the discount.

 

The European Union's Alternative Investment Fund Managers' Directive ("AIFMD") came into force on 22 July 2013, with a further year until 22 July 2014 available to us to ensure compliance.  The Company has taken detailed legal and regulatory advice, working closely with AVI, to ensure that it will meet the deadline. AVI has been appointed as the Company's Alternative Investment Fund Manager. JP Morgan will take on additional responsibilities as Depositary, as required under the directive, in addition to its current role as Custodian. The Board's thanks go to the managers and advisers for successfully completing the considerable amount of work which these changes have entailed.

 

Having assessed the opportunities arising from the recent Retail Distribution Review, the Board is also reviewing with AVI its communications strategy across all channels including the report and accounts, website, monthly notes and analyst meetings.

 

Regulatory changes, and notably preparation for the AIFMD and consequences of RDR, are having an impact on our administrative and marketing expenses this year. We will continue to monitor these closely.

 

The Board has again reviewed its policy of charging a proportion of management costs to capital. Previously, the annual management fee has been allocated 50% to revenue and 50% to capital, but 100% of the cost of servicing debt has been charged to revenue. It is clear that a much higher proportion of long-term total returns has been the result of capital growth rather than revenue and this is expected to continue. Therefore, from this financial year, the Board has decided that 70% of the annual management fee and 70% of the cost of servicing the Company's debt will be allocated to the capital and 30% allocated to revenue. This is in line with the policy set out in the Statement of recommended Practice for Investment Trusts issued by the Association of Investment and the practice adopted by similar investment companies. Over the course of a full year this is likely to lead to a modest increase in income allocated to the revenue account above what would otherwise have been the case.

 

With effect from 1 April 2014, Capita Asset Services has taken over as corporate Company Secretary and AVI has also sub-contracted certain fund administration services to Capita. On behalf of the Board, I would like to thank our previous suppliers, Phoenix Administration Services for their diligent service over the last 10 years.

 

The improving levels of corporate activity and the sense in the investment community that earnings have not matched the recent multiple expansion in many markets are, after a period of some years, bringing more focus to, and renewed interest in, the AVI style of investing in good quality assets trading at significant discounts.

 

There are inevitably great uncertainties both in the UK, with the prospect of several important votes in the near future (the Scottish Referendum, the General Election and the anticipated EU referendum) and internationally with the prospective ending of the quantitative easing experiment and rising interest rates.

 

Overall, however, the Board is confident that AVI's clear investment philosophy and approach will continue to reward shareholders over the longer term.

Strone Macpherson

Chairman

30 May 2013

*Net liquidity is: the fixed income investments less the Debenture (at par value) plus or minus the net current assets/(liabilities) divided by the net assets of the Company.

Investment Manager's Report

Performance Summary

For the first six months of the financial year, the Company's net asset value per share rose by 4.8% compared with a gain of 2.4% for the Company's benchmark, the Morgan Stanley Capital International ("MSCI") All-Country World Index ("ACWI") ex-US (£) (all figures are on a total return basis).

 

The returns on the MSCI All Country World Index (£) and on the Morningstar Investment Trust Global Growth Index were 5.6% and 5.5% respectively.

 

The largest positive contributors during the period were Vivendi +1.2%, Investor AB 'A' +0.9%, Jardine Matheson Holdings +0.8%, Sofina +0.7% and Groupe Bruxelles Lambert ("GBL") +0.6%.

 

The largest detractors from performance were Dundee Corp -0.7%, Doğan Şirketler Grubu Holding (Doğan) -0.6% and Morrison (WM) Supermarkets -0.4%.

 

Over the ten year period to 31 March 2014 the Company's net asset value per share rose by 163.3% compared with gains of 129.2% for the MSCI ACWI ex-US Index (£), 127.8% for the MSCI AC World Index (£) and 141.1% for the Morningstar Investment Trust Global Index (all figures are on a total return basis).

 

As at 31 March 2014, the geographical profile of the portfolio was as follows: Continental Europe 39%, UK 17%, Asia Pacific ex-Japan 12%, Americas 12%, EMEA 6%, Japan 5% and Cayman Islands 2% (based on country of listing).

 

Net liquidity at the end of the period was 7.7% of net assets compared to 14.9% as at 30 September 2013.

 

The discount (debt at fair value) on the Company's shares was 13.7% at 31 March 2014. The discount has averaged 12.64% during the period, and over this time, 3,970,880 shares were bought back by the Company at an average discount of 12.98%, thereby adding 0.34% to NAV.

 

Portfolio Review

The financial year has started well for us and it is pleasing to be able to report performance that is ahead of our benchmark. In recent years, discounts on the type of company which we research have remained wide and whilst this has allowed us to build a portfolio with a good store of value, it is the narrowing of discounts that boosts our performance. In the last 12-18 months we have commented on the pick up in corporate activity and how this is a positive phenomenon for our style of investing. Disposals through trade sales or IPOs allow companies to realise the value of their assets and a healthy transactional market like this can often lead to a narrowing of discounts at which holding companies, conglomerates and closed-end funds trade.

 

During the period under review there have been several cases of corporate activity that have led to a narrowing of discounts on investments held by the Company. Vivendi is a good example of this. In the past year the company has embarked on a programme of asset disposals intended to transform it into a focused media business. This involved the disposal of its interests in Maroc Telecom and Activision Blizzard, as well as the recently announced sale of SFR, its mobile telephone business in France. The Company benefitted from the bidding battle for SFR, by way of a holding in Bouygues - one of the bidding parties. We reduced the Company's holding in Vivendi at prices very close to our estimates of its asset value, and also sold out of our holding in Bouygues on the back of a very sharp rise in its share price when it looked likely to have succeeded in winning SFR. It ultimately failed in its attempt and so our sale was timely.

 

Henex is another example of the potential for discount narrowing that exists within the portfolio. This family-controlled holding company was taken private by the controlling shareholder in October 2013 at a very small discount to NAV and a large uplift in share price. Sofina, an important investment for the Company, is part of the same family group, and the elimination of the discount at Henex has boosted sentiment toward Sofina, leading to a narrowing of its discount from 38% to 30% over the period. In addition, the company has delivered outperformance in terms of NAV growth, with its diversified portfolio of quality European companies.

 

Shortly after the period end Lafarge announced a merger with Holcim. Lafarge is one of the largest investments of another significant holding for the Company, GBL, making up over 20% of its NAV and the positive market reaction to the merger provided a welcome boost to GBL's net asset value. In addition, as one of the key shareholders in Lafarge, Albert Frère, the patriarch of GBL, was involved in exploring ways to create value for shareholders and this transaction serves as a reminder that often the shareholders behind such family controlled holding companies are actively seeking ways to create value for all shareholders. Like Sofina, GBL has been one of the key contributors to performance during the period and its discount remains at 29% - a level we consider to be very attractive.

 

Asian holding companies have also been a source of positive returns for us during the period. Jardine Matheson Holdings, your Company's largest investment, has recovered strongly from the weakness in its share price during the summer of 2013 when fears of the potential effect of the US "tapering" its quantitative easing programme hit the share prices of Asian stocks. As fears over the effects of tapering receded, an increase in share price of almost 15% during the period led Jardine Matheson to be a key contributor to performance.

 

The continuing pick up in corporate activity has also benefitted the listed private equity funds that we own. Almost 20% of your Company is invested in closed-end funds, with the vast majority of these being funds that invest in private equity assets. The current environment is one in which private equity companies are able to sell assets at prices that are often in excess of carrying values. Whilst NAV performance has benefitted from these transactions, the improved confidence around the sector has drawn attention from other investors and this has led to a narrowing of average discounts from 24% to 17% over the last 12 months amongst listed private equity funds we own. During the period, we sold out of our holding in Electra Private Equity, a company we have held since 2006 and which has seen a very strong performance in recent years. During 2008 we were able to increase our holding in Electra Private Equity at discounts to NAV that reached in excess of 60% and recently sold out at a discount of 12%.

 

With an international portfolio of companies, our portfolio is vulnerable to the effects of foreign exchange. Typically over the long run these tend to even out. Nevertheless, over shorter periods of time the effects of a strong Pound can weigh on performance. Doğan and Dundee Corp are Turkish and Canadian family-controlled holding companies respectively. In both cases, the effects of weak share prices have been compounded by weak currencies. Discounts on both companies remain wide: 63% in the case of Doğan and 42% in the case of Dundee Corp - levels we consider to be very attractive and prices at which we have added to our holdings.

 

As a consequence of the increased levels of activity, turnover on the portfolio has increased. For the twelve months to 31 March 2013, the turnover on the portfolio was just above 40%. In the past twelve months, portfolio turnover has risen to 72%. We view this as a positive development. It reflects an increase in opportunities for us in an environment where companies are more able to realise full value for their assets. This also helps in narrowing discounts. Encouragingly, whilst we have sold several investments at or above NAV, we have been able to reinvest the proceeds into companies trading on wide discounts. Thus the weighted average portfolio discount remains at a similar level to that at 30 September 2013 - 27.5% and we see very good potential for continued good performance as the discount has material scope to narrow in the current corporate environment.

 

Outlook

Recent years have been challenging for our style of investment with wide discounts and lack of corporate activity holding back relative performance.

 

There has been a marked change in recent months. We see evidence that investors are becoming more interested in our type of companies. This often happens after several years of strong equity market performance. Companies trading on discounts are cheaper ways to access markets. The pick up in corporate activity is another positive feature of the current market environment. In such an environment investors come round to our way of thinking - buying good quality assets at wide discounts is a sensible approach to investing.

John Pennink

Joe Bauernfreund

Asset Value Investors Limited

30 May 2014

  Investment Portfolio

Investments at 31 March 2014
Company	Nature of business	% of class	Cost £'000	Valuation £'000	% of total assets less current liabilities
Jardine  Matheson Holdings	Investment Holding Company	0.2	31,594	56,871	6.62
Investor AB 'A'	Investment Holding Company	0.8	27,653	51,989	6.05
Groupe Bruxelles Lambert	Investment Holding Company	0.5	38,354	43,595	5.07
Sofina	Investment Holding Company	1.4	24,812	34,332	3.99
Aker	Investment Holding Company	2.4	28,719	34,225	3.98
Vivendi	Media & Telecoms Conglomerate	0.1	30,689	32,455	3.78
Hyundai Motor (Preference Shares)	Auto Manufacturing	0.8	21,568	26,131	3.04
NB Private Equity Partners	Investment Company	4.8	22,852	25,189	2.93
First Pacific	Investment Holding Company	1.0	30,019	24,866	2.89
Gagfah	Real Estate Company	1.1	18,511	24,468	2.50
Top ten investments			274,771	351,121	40.85
British Land	Real Estate Investment Company	0.3	21,615	21,096	2.46
Harbourvest Global Private Equity	Investment Company	3.8	17,621	20,424	2.38
Immofinanz	Real Estate Company	0.6	20,680	20,267	2.36
Hitachi	Conglomerate	0.1	22,162	19,976	2.32
Morrison (WM) Supermarkets	Retail Holding Company	0.4	23,557	19,961	2.32
Mitsui Fudosan	Real Estate Company	0.1	20,251	19,673	2.29
AP Alternative Assets	Investment Company	1.2	7,112	18,930	2.20
Rallye	Investment Holding Company	1.4	17,098	18,710	2.18
Hudson's Bay	Retail Holding Company	1.0	17,693	17,286	2.01
Dundee Corp	Investment Holding Company	4.0	24,173	17,226	2.00
Top twenty investments			466,733	544,670	63.37
Power Corporation of Canada	Investment Holding Company	0.3	17,755	17,040	1.98
Symphony International Holdings	Investment Company	7.4	14,994	16,677	1.94
Doğan Şirketler Grubu Holdings	Investment Holding Company	3.6	24,429	16,512	1.92
Dolphin Capital Investors	Real Estate Investment Company	6.4	15,908	16,460	1.92
Dorel Industries 'B'	Consumer Good Conglomerate	3.0	18,713	16,359	1.90
Suntec REIT	Real Estate Investment Company	0.8	13,516	14,824	1.73
Pantheon International Participations	Investment Company	4.0	7,489	14,801	1.72
DWS Vietnam Fund	Investment Company	9.2	12,551	13,574	1.58
Marwyn Value Investors	Investment Company	8.3	8,591	12,107	1.41
Crombie Real Estate Investment Trust	Real Estate Investment Company	2.3	13,672	11,908	1.39
Top thirty investments			614,351	694,932	80.86
Private Equity Holding AG	Investment Company	8.6	8,903	11,613	1.35
Brookfield Canada Office Properties	Real Estate Investment Company	2.9	13,276	11,345	1.32
LMS Capital	Investment Company	7.5	9,076	10,706	1.24
Dream Unlimited 'A'	Real Estate Company	0.3	8,070	9,523	1.11
Paris Orléans	Investment Holding Company	0.8	6,962	7,773	0.90
Ashmore Global Opportunities - GBP	Investment Company	9.6	7,148	6,486	0.75
ThyssenKrupp	Conglomerate	0.1	6,253	6,330	0.74
Mitra Energy*	Oil & Gas Company	2.3	4,632	5,566	0.65
Forterra Trust	Real Estate Investment Company	2.6	4,670	5,474	0.64
Pantheon Internation Participations (Redeemable Shares)	Investment Company	1.3	2,423	4,323	0.50
Top forty investments			685,764	744,071	90.06
Vietnam Property Fund	Investment Company	7.5	2,844	2,148	0.25
Macquarie International Infrastructure Fund	Investment Company	3.2	196	1,844	0.22
Resaca Exploitation*	Oil & Gas Company	9.3	5,176	1	0.00
Total equity investments			693,980	778,064	90.53
Fixed income investments
UK Treasury 2.75% 22/01/2015	UK Government Security	-	24,459	24,449	2.85
Treasury 2% 22/01/2016	US Government Security	-	21,528	21,485	2.50
German Treasury Bill 0% 23/07/2014	German Government Security	-	20,663	20,662	2.40
Total investments			760,630	844,660	98.28
Net current assets				14,814	1.72
Total assets less current liabilities				859,474	100.00

*  Unquoted Investments

Consolidated Statement of Comprehensive Income

of the Group for the six months ended 31 March 2014

	For the six months to 31 March 2014 (unaudited)			For the six months to 31 March 2013 (unaudited)			For the year to 30 September 2013 (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
Income
Investment income (see note 2)	4,230	-	4,230	7,193	-	7,193	28,796	-	28,796
Gains on investments held at fair value	-	37,145	37,145	-	133,017	133,017	-	80,029	80,029
Losses on Equities Index Unsecured Loan Stock 2013 held at fair value	-	-	-	-	(1,166)	(1,166)	-	(1,166)	(1,166)
Exchange (losses)/ gains on currency balances	-	(457)	(457)	-	151	151	-	776	776
	4,230	36,688	40,918	7,193	132,002	139,195	28,796	79,639	108,435
Expenses
Investment management fee	(884)	(2,063)	(2,947)	(1,176)	(1,176)	(2,352)	(2,353)	(2,353)	(4,706)
Other expenses (including irrecoverable VAT)	(789)	(133)	(922)	(654)	(26)	(680)	(1,332)	(144)	(1,476)
Profit before finance costs and tax	2,557	34,492	37,049	5,363	130,800	136,163	25,111	77,142	102,253
Finance costs	(188)	(430)	(618)	(739)	(4)	(743)	(1,360)	(7)	(1,367)
Profit before taxation	2,369	34,062	36,431	4,624	130,796	135,420	23,751	77,135	100,886
Taxation	(333)	-	(333)	(454)	-	(454)	(1,976)	8	(1,968)
Profit for the period	2,036	34,062	36,098	4,170	130,796	134,966	21,775	77,143	98,918
Earnings per Ordinary Share  (see note 3)	1.35p	22.55p	23.90p	2.64p	82.88p	85.52p	13.90p	49.24p	63.14p

The Company did not have any income or expense that is not included in consolidated profit for the period. Accordingly, the "Profit for the period" is also the "Total Comprehensive Income for the period", as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income for the Company has been presented.

The total column of this statement is the profit and loss account of the Group. The revenue return and capital return columns are supplementary to this and are prepared under the guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of British Empire Securities and General Trust plc. There are no minority interests.

Consolidated Statement of Changes in Equity

for the six months to 31 March 2013

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
For the six months to 31 March 2013 (unaudited)
Balance as at 30 September 2012	16,001	2,934	28,078	664,536	41,406	38,270	791,225
Ordinary Shares bought back and held in treasury	-	-	-	(4,878)	-	-	(4,878)
Total comprehensive income for the period	-	-	-	130,796	-	4,170	134,966
Ordinary dividend paid	-	-	-	-	-	(11,836)	(11,836)
Special dividend paid	-	-	-	-	-	(5,523)	(5,523)
Balance at 31 March 2013	16,001	2,934	28,078	790,454	41,406	25,081	903,954

For the year ended 30 September 2013

 (audited)

Balance as at 30 September 2012	16,001	2,934	28,078	664,536	41,406	38,270	791,225
Ordinary Shares bought back and held in treasury	-	-	-	(25,193)	-	-	(25,193)
Total comprehensive income for the period	-	-	-	77,143	-	21,775	98,918
Ordinary dividends paid	-	-	-	-	-	(14,972)	(14,972)
Special dividend paid	-	-	-	-	-	(5,523)	(5,523)
Balance at 30 September 2013	16,001	2,934	28,078	716,486	41,406	39,550	844,455

For the six months to 31 March 2014

(unaudited)

Balance as at 30 September 2013	16,001	2,934	28,078	716,486	41,406	39,550	844,455
Ordinary Shares bought back and held in treasury	-	-	-	(19,355)	-	-	(19,355)
Total comprehensive income for the period	-	-	-	34,062	-	2,036	36,098
Ordinary dividend paid	-	-	-	-	-	(12,885)	(12,885)
Special dividend paid	-	-	-	-	-	(3,790)	(3,790)
Balance at 31 March 2014	16,001	2,934	28,078	731,193	41,406	24,911	844,523

Consolidated Balance Sheet

at 31 March 2014

	At  31 March 2014  (unaudited)  £'000		At  31 March 2013  (unaudited) £'000	At 30 September 2013 (audited) £'000
Non-current assets
Investments held at fair value through profit or loss		844,660	915,399	846,354
Current assets
Sales for future settlement		-	181	3,305
Other receivables		4,005	5,396	5,044
Cash and cash equivalents		51,415	8,362	7,126
		55,420	13,939	15,475
Total assets		900,080	929,338	861,829
Current liabilities
Purchases for future settlement		(36,834)	(1,298)	(90)
Other payables		(2,436)	(9,134)	(2,337)
Bank overdraft		(1,336)	-	-
		(40,606)	(10,432)	(2,427)
Total assets less current liabilities		859,474	918,906	859,402
Non-current liabilities
81/8 per cent Debenture Stock 2023		(14,932)	(14,925)	(14,928)
Provision for deferred tax		(19)	(27)	(19)
Net assets		844,523	903,954	844,455

Equity attributable to equity Shareholders
Ordinary share capital	16,001	16,001	16,001
Capital redemption reserve	2,934	2,934	2,934
Share premium	28,078	28,078	28,078
Capital reserve	731,193	790,454	716,486
Merger reserve	41,406	41,406	41,406
Revenue reserve	24,911	25,081	39,550
Total equity	844,523	903,954	844,455
Net asset value per Ordinary Share - basic (see note 6)	566.73p	575.32p	551.97p
Number of Shares in issue excluding treasury	149,018,008	157,121,038	152,988,888

Registered in England & Wales No. 28203

Consolidated Cash Flow Statement

for the six months ended 31 March 2014

Six months to 31 March 2014 (unaudited)		Six months to  31 March 2013  (unaudited)	Year to  30 September 2013  (audited)
	£'000	£'000	£'000
Net cash inflow from operating activities
Profit before taxation	36,431	135,420	100,866
Losses on Equities Index Unsecured Loan Stock 2013 held at fair value	-	1,166	1,166
Realised exchange losses/(gains) on currency balances	457	(151)	(776)
Gains on investments held at fair value through profit or loss	(37,145)	(133,017)	(80,029)
Purchases of investments	(389,076)	(321,126)	(711,162)
Sales of investments	467,964	342,704	744,465
Decrease/(increase) in other receivables	676	(806)	(1,620)
Increase in creditors	99	7,242	445
Taxation	30	(564)	(920)
Amortisation of Debenture issue expenses	4	4	7
Net cash inflow from operating activities	79,440	30,872	52,462
Financing activities
Dividends paid	(16,675)	(17,359)	(20,495)
Payments for Ordinary Shares bought back and held in treasury	(19,355)	(4,878)	(25,193)
Redemption of Equities Index Unsecured Loan Stock 2013	-	(8,204)	(8,204)
Cash outflow from financing activities	(36,030)	(30,441)	(53,892)
Increase/(decrease) in cash and cash equivalents	43,410	431	(1,430)
Exchange movements	(457)	151	776
Change in cash and cash equivalents	42,953	582	(654)
Cash and cash equivalents at beginning of period	7,126	7,780	7,780
Cash and cash equivalents at end of period	50,079	8,362	7,126

Notes to the Financial Statements

for the six months ended 31 March 2014

1. Significant accounting policies

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The accounting policies and methods of computation followed in these half year financial statements are consistent with the most recent annual financial statements for the year ended 30 September 2013, except as described below:

Adoption of new and revised standards

The Company has adopted IFRS 13 'Fair Value Measurement' with an initial application date of 1 January 2013. This adoption will also be reflected in the Company's consolidated financial statements as at and for the year ending 30 September 2014.

IFRS 13 establishes a single source of guidance under IFRS for all the fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. It also replaces and expands the disclosure requirements about fair value measurements in other IFRS's, including IFRS 7 'Financial Instruments: Disclosures'. It does not introduce any new requirements to measure an asset or a liability at fair value, change what is measured at fair value in IFRS or address how to present changes in fair value. The adoption of this standard has therefore had no impact on the financial statements.

Expenses

The management fee has been allocated 30% to revenue and 70% to capital within the Consolidated Statement of Comprehensive Income.

Finance costs

Finance costs are accounted for on an effective interest rate basis and have been allocated 30% to revenue and 70% to capital within the Consolidated Statement of Comprehensive Income. This complies with the Statement of Recommended Practice for Financial Statements of Investment Trust Companies, which require the finance costs of the Debenture stock to be allocated between revenue and capital in the same proportions as the Management Fee.

Going Concern

The Directors have carefully reviewed the Group's current financial resources and the projected expenses of the Group for the next 12 months. On the basis of that review and as the majority of net assets are securities which are traded on recognised stock exchanges, the Directors are satisfied that the Company's resources are adequate for continuing in business for the foreseeable future and that it is appropriate to prepare the Group's financial statements on a going concern basis.

The financial information contained in this report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The half year financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

These financial statements are presented in sterling as this is the currency of the primary economic environment in which the Group operates.

2. Income

	Six months to	Six months to	Year to
	31 March	31 March	30 September
	2014	2013	2013
	£'000	£'000	£'000
Income from investments
Listed investments	4,222	7,180	28,709
Other income
Deposit interest	8	7	15
Interest received on Norwegian WHT reclaims	-	-	66
Underwriting commission	-	6	6
Total income	4,230	7,193	28,796

3.   Earnings per Ordinary Share

	Six months to	Six months to	Year to
	31 March	31 March	30 September
	2014	2013	2013
Total earnings per Ordinary Share
Total profit	£36,098,000	£134,966,000	£98,918,000
Weighted average number of Ordinary Shares in issue during the period	151,042,618	157,806,227	156,665,364
Total earnings per Ordinary Share	23.90p	85.52p	63.14p
The total earnings per Ordinary Share detailed above can be further analysed between revenue and capital as below:
Revenue earnings per Ordinary Share
Revenue profit	£2,036,000	£4,170,000	£21,775,000
Weighted average number of Ordinary Shares in issue during the period	151,042,618	157,806,227	156,665,364
Revenue earnings per Ordinary share	1.35p	2.64p	13.90p
Capital earnings per Ordinary Share
Capital profit	£34,062,000	£130,796,000	£77,143,000
Weighted average number of Ordinary Shares in issue during the period	151,042,618	157,806,227	156,665,364
Capital earnings per Ordinary Share	22.55p	82.88p	49.24p

4. Comparative information

The financial information contained in this half year report does not constitute statutory accounts as defined in section 435(1) of the Companies Act 2006. The financial information for the half year periods ended 31 March 2013 and 31 March 2014 has not been audited. The figures and financial information for the year ended 30 September 2013 are an extract from the latest published audited financial statements and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and include the report of the auditors, which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

5.   Retained earnings

The table below shows the movement in the retained earnings analysed between revenue and capital items.

	Revenue	Capital	Total
	£'000	£'000	£'000
At 30 September 2013	39,550	716,486	756,036
Movement during the period:
Ordinary Shares bought back and held in treasury	-	(19,335)	(19,335)
Total comprehensive income for the period	2,036	34,062	36,098
Ordinary dividend paid: Ordinary Shares	(12,885)	-	(12,885)
Special dividend paid: Ordinary Shares	(3,790)	-	(3,790)
At 31 March 2014	24,911	731,193	756,104

6.   Net asset value per Ordinary Share

The net asset value per Ordinary Share is based on net assets of £844,523,000 (31 March 2013: £903,954,000; 30 September 2013: £844,445,000) and on 149,018,008 (31 March 2013: 157,121,038; 30 September 2013: 152,988,888) Ordinary Shares, being the number of Ordinary Shares in issue excluding treasury at the period ends.

7.   Share capital

During the period 3,790,880 (six months to 31 March 2013: 973,947; year ended 30 September 2013: 5,106,097) Ordinary Shares were bought back and placed in treasury for an aggregate consideration of £19,355,529 (six months to 31 March 2013: £4,877,525; year ended 30 September 2013: £25,192,951). No Ordinary Shares were bought back and cancelled in the period (six months to 31 March 2013: nil; year ended 30 September 2013: nil).

8.   Dividends

During the period the Company paid a final dividend of 8.5p per Ordinary Share and a special dividend of 2.5p per Ordinary Share for the year ended 30 September 2013 on 6 January 2014 to Ordinary Shareholders on the register at 6 December 2013 (ex-dividend 4 December 2013).

The interim dividend of 2.00p per Ordinary Share for the year ending 31 March 2014 will be paid on 27 June 2014 to Ordinary Shareholders on the register at the close of business on 13 June 2014 (ex-dividend 11 June 2014).

9.   Contingent assets

While most of the Back VAT has now been recovered, the Company will continue to examine methods to recover further Back VAT, and interest, but does not anticipate any further significant recovery in the near term.

10.  Principal financial risks

The principal financial risks which the Company faces include exposure to:

- Market price risk

- Foreign currency risk

- Interest rate risk

- Liquidity risk

- Credit risk

Further details of the Company's management of these risks and exposure to them is set out in Note 18 of the Company's Annual Report for the year ended 30 September 2013, as issued on 11 November 2013. There have been no changes to the management of or exposure to these risks since that date.

11.  Fair values of financial assets and financial liabilities

Except for the Company's 8¹/₈% Debenture Stock 2023 which is measured at amortised cost under the effective interest method, financial assets and financial liabilities of the Company are carried in the Balance Sheet at their fair value. The fair value is the amount at which the asset could be sold or the liability transferred in a current transaction between market participants, other than a forced or liquidation sale.

Set out below is a comparison of the carrying amounts and fair values of financial instruments:

	At 31 March 2014		At 30 September 2013
	Carrying amount	Fair value	Carrying amount	Fair value
	£'000	£'000	£'000	£'000
Financial assets:
Equity Investments - quoted	772,497	772,497	710,123	710,123
Equity Investments - unquoted	5,567	5,567	6,183	6,183
Fixed interest bearing securities	66,596	66,596	130,048	130,048
Total assets	844,660	844,660	846,354	846,354
Financial liabilities:
81/8% Debenture Stock 2023	(14,932)	(18,525)	(14,928)	(18,525)
Total liabilities	(14,932)	(18,525)	(14,928)	(18,525)

Fair value hierarchy

The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in the making the measurements.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

·      Level 1 - valued using quoted prices, unadjusted in active markets for identical assets or liabilities.

·      Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in level 1.

·      Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

The tables below set out fair value measurements of financial instruments as at the period end, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets at fair value through profit or loss at 31 March 2014	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Equity investments	772,497	-	5,567	778,064
Fixed interest bearing securities	66,596	-	-	66,596
	839,093	-	5,567	844,660

Financial assets at fair value through profit or loss at 30 September 2013	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Equity investments	710,123	-	6,183	716,306
Fixed interest bearing securities	130,048	-	-	130,048
	840,171	-	6,183	846,354

There have been no transfers during the period between levels 1 and 2 fair value measurements and no transfers into or out of Level 3 fair value measurements.

The following table summarises the Company's level 3 investments that were accounted for at fair value in the six months to 31 March 2014.

	At 31 March 2014  Level 3  £'000	At 30 September 2013  Level 3  £'000
Opening fair value of investments	6,183	4,492
Transfer from level 1 to level 3 investment	-	5,296
Purchase at cost	-	-
Sales proceeds	-	-
Total gains or losses included in gains on investments
in the Consolidated Statement of Comprehensive Income
-on sold assets	278	-
-on assets held at the period end	(894)	(3,605)
Closing fair value of investments	5,567	6,183

If the inputs used to measure fair value are categorised into different levels of the hierarchy, the investment is categorised entirely according to the lowest priority level that is significant to the fair value measurement of the relevant asset or liability. The Company's unquoted investments are categorised as level 3 and their fair values are determined in accordance with the International Private Equity and Venture Capital Valuation guidelines.

Level 3 valuations comprise an investment in Mitra Energy Limited ("Mitra") and Resaca Exploitation, both held at Directors' valuation.

Mitra's valuation is based on an average of peer NAV multiples, and peer EV/Resources multiples. A liquidity discount of 25% is applied and as a cross-check, a simple average of peer share price moves over the period is calculated to lend support to the valuation.

Resaca Exploitation has been valued at $0.07 per share based on the final expected liquidation payment following the sale of assets to Legacy Reserves in 2013.

12.  Related parties and transactions with the manager

The Company paid management fees to Asset Value Investors Limited during the period amounting to £2,947,000 (six months to 31 March 2013: £2,352,000; year ended 30 September 2013: £4,706,000).

Fees paid to the Directors for the six months ended 31 March 2014 amounted to £67,000 (six months ended 31 March 2013: £65,000; £132,000: year ended 30 September 2013).

At the half year end, the following amounts were outstanding in respect of management fees: £490,000 (half year end 31 March 2013: £392,000; year ended 30 September 2013: £392,000).

Interim Management Report

There have been no changes to the related party disclosures set out in the Annual Report of the Company for the year ended 30 September 2013, except as above.

The Directors consider that the Chairman's Statement, the Investment Manager's Report, the above statement on related party disclosures and the Directors' Responsibility Statement below, together constitute the Interim Management Report of the Company for the half year to 31 March 2014 and satisfy the requirements of the FCA's Disclosure Rules and Transparency Rules ("DTR") 4.2.3 to 4.2.11.

Directors' Responsibility Statement

The non-executive Directors of the Company (Mr Strone Macpherson (Chairman), Mr Steven Bates, Mrs Susan Noble, Mr Nigel Rich and Mr Andrew Robson) confirm that to the best of their knowledge:

a) the condensed set of financial statements, which has been prepared in accordance with IAS 34, gives a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 31 March 2014;

b) the Interim Management Report includes a fair review, under the FCA's Disclosure and Transparency Rules DTR 4.2.7R, of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

c) the Interim Management Report includes a fair review of the information concerning related parties transactions as required by DTR 4.2.8R.

Strone Macpherson

Chairman

30 May 2014

Independent Review Report to British Empire Securities and General Trust plc

Introduction

We have been engaged by the Company to review the financial statements in the half year financial report for the six months ended 31 March 2014 which comprises the Consolidated Income Statement, Consolidated Statement of Changes in Equity, Consolidated Balance Sheet, Consolidated Cash Flow Statement and the related notes 1 to 12. We have read the other information contained in the half year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the financial statements.

This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half year financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half year financial report in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The financial statements included in this half year financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the financial statements in the half year financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to  obtain assurance that we would become aware of all significant matters  that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial statements in the half year financial report for the six months ended 31 March 2014 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

30 May 2014

Shareholder Information        

Dividends

Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandates may be obtained from Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA on request. The Company operates the BACS system for the payment of dividends. Where dividends are paid directly into Shareholders' bank accounts, dividend tax vouchers are sent to Shareholders' registered addresses.

Share Prices

The Company's Ordinary Shares are listed on the London Stock Exchange under 'Investment Trusts'. Prices are given daily in The Financial Times, The Times, The Daily Telegraph, The Scotsman and The Evening Standard.

Change of Address

Communications with Shareholders are mailed to the last address held on the Share register. Any change or amendment should be notified to Equiniti Limited at the address given above, under the signature of the registered holder.

Daily Net Asset Value

The net asset value of the Company's shares can be obtained by contacting Customer Services on 0845 850 0181 or via the website: www.british-empire.co.uk

AVI ISA

The AVI Stocks and Shares Individual Savings Account ("ISA") is a savings account that allows you to invest in stocks and shares in line with HM Revenue & Customs limitations.

AVI Share Plan

The AVI Share Plan is a savings plan which aims to provide a simple and low cost way for private investors to purchase shares in the British Empire Securities and General Trust. Lump sum payments or regular monthly deposits can be made to the Share Plan.

For further information contact Customer Services on 0845 850 0181

Call charges may apply

Company Information

Directors

Philip Strone Stewart Macpherson (Chairman)

Steven Andrew Ralph Bates

Andrew Stephen Robson

Susan Margaret Noble

Nigel Mervyn Sutherland Rich

Secretary

Capita Company Secretarial Services Limited

Beaufort House

51 New North Road

Exeter

Devon EX4 4EP

Registered Office

Beaufort House

51 New North Road

Exeter

Devon EX4 4EP

Registered in England & Wales

No 28203

Investment Manager

Asset Value Investors Limited

25 Berkeley Square

London W1J 6HN

Registrars and Transfer Office

Equiniti Limited

Aspect House

Spencer Road

Lancing

West Sussex BN99 6DA

Registrars' Shareholder Helpline

Tel. [phone]

Calls to this number cost 8p per minute from a BT Landline,

other providers costs may vary. Lines are open at 8.30am to

5.30pm, Monday to Friday.

Registrars' Broker Helpline

Tel. [phone]

Calls to this number cost £1 per minute from a BT Landline,

Other providers' costs may vary. Lines are open 8.30am to

5.30pm, Monday to Friday.

Corporate Broker

Winterflood Securities Limited

The Atrium Building

Cannon Bridge

25 Dowgate Hill

London EC2R 2GA

Auditor

Ernst & Young LLP

1 More London Place

London SE1 2AF

Bankers and Custodian

JP Morgan Chase Bank

125 London Wall

London EC2Y 5AJ

Solicitors

Herbert Smith

Exchange Square

Primrose Street

London EC2A 2HS

Copies of the Half Year Report

Printed copies of this Half Year Report will be sent to shareholders shortly. Additional copies may be obtained from the Company Secretary - Capita Company Secretarial Services Limited, Beaufort House, 51 New North Road, Exeter EX4 4EP.

A copy of the Half Year Report can be viewed and downloaded from the Company's website: www.british-empire.co.uk.

The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages is neither incorporated into nor forms part of the above announcement.

 

END

 

 

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