Half Yearly Report

RNS Number : 5707I

British Portfolio Trust PLC

16 June 2011

 



For Immediate Release                                                                    16th June 2011

BRITISH PORTFOLIO TRUST plc

HALF-YEARLY FINANCIAL REPORT

For the six months ended 30th April 2011

Interim Management Report

Net Asset Value

A summary of the financial results for the period from 1st November 2010 to 30th April 2011 is set out below. The Net Asset Value (NAV) per Ordinary Share as at 30th April 2011 was 153.5p.  This represents an increase of 4.5% over the NAV as at 31st October 2010.  Over the same period the capital return on the Company's benchmark index, the FTSE All-Share Index, rose by 7.5%.  

Since the half year, the Company's portfolio, reflecting its defensive positioning, has performed better than the benchmark index, and as at 16th June 2011 the NAV performance for the financial year to date was approximately in line with the benchmark, having increased by 2.06% versus 2.24% in respect of the FTSE All-Share Index (Source: Datastream).

Interim Dividend

The Board has declared an interim dividend of 1.80p per Ordinary Share (unchanged from last year), which will absorb £550,437 and is payable on 1st September 2011 to all holders of Ordinary Shares on the Register of Members at the close of business on 29th July 2011. 

Manager's Review

The UK market performed strongly during the first half of the financial year as the US Federal Reserve unleashed a second round of liquidity via a $600bn quantitative easing programme, improving in the short term investors' appetite for risk assets.  Due to our more cautious strategic stance the portfolio underperformed the FTSE All-Share Index.  Some stock specific issues in the support services and consumer discretionary sectors were contributory factors. The most significant negative contributor was Xchanging, the business process outsourcing company which cost 0.6% of relative performance.  It is now clear that Xchanging made an ill judged acquisition in 2009, which has necessitated a costly restructuring of the business under the new CEO, Ken Lever.  We are supportive of these management actions, which should result in a stronger and better managed company.  In the consumer discretionary sector weak performances from bwin.party, N Brown and Mothercare were a further drag on returns.  This was partly offset by strong share price appreciation from two of the smaller companies in the portfolio, Henry Boot and Energy XXI, the latter of which was sold towards the end of this period.

i)   Portfolio Activity

Portfolio activity was concentrated in three areas during the period: financials, media and defensive growth stocks.  In general, the financial sector remains lowly valued and unloved following the global financial crisis and this provides an opportunity to buy good franchises at attractive prices.  We added new holdings in IG Group, Ashmore, Man Group, Amlin and RBS in the last six months.  The media sector continues to benefit from rising investment spending from cash rich corporates and we added new positions in Aegis and UBM.  Finally, defensive growth stocks that can achieve modest, but predictable profits growth and have strong balance sheets are attractive in the current environment in our view.   As a result, we bought Carillion, Bunzl and Inmarsat.  Disposals were focused in the reduction of mid-cap (and in general terms more risky) investments, such as ITV, SVG Capital, Melrose, Valiant, CPP and TalkTalk.

A strong performance by the market from the March lows is not expected to be maintained in the coming months for reasons further discussed below. Gearing was eliminated progressively over the six months via a greater emphasis on sales than new investments.  At 30th April 2011 net current assets (cash) represented 2.6% of the net asset value.

ii)  Market Review

The six months to 30th April 2011 was a volatile period, driven in the autumn by a strong rally prompted by US quantitative easing, whilst the spring was dominated by unrest in the Middle East and the tragic earthquake and tsunami in Japan.  With hindsight it is clear that the speech delivered by the Chairman of the US Federal Reserve, Ben Bernanke, on 27th August 2010, was the green light for investors to take on risk with a realisation that the Fed was likely to make additional purchases of longer-term securities, as it had in March 2009, marking at that time the low in equity markets.  December was a key month for the period as a whole as fears over European sovereign debt risk temporarily abated and additional fiscal stimulus in the US added to the bullish mood of investors.

Some of the optimism was punctured in March as the market focused on the potential for contagion in the Middle East as the 'Jasmine Revolution', that began in Tunisia at the end of 2010, spread to neighbouring countries, most notably Libya. The most immediate impact of the turmoil was on the oil price, which rose over 25% during the first 3 months of 2011. In conjunction with rises in other commodities, including food, the squeeze on disposable consumer income and company margins became an increasing concern for the growth outlook. Furthermore, with inflation rising in developing markets, further monetary tightening became evident in those economies that are driving much of the growth in economic activity.  The earthquake in Japan also briefly impacted markets. Although there has been terrible loss of life and some risk of nuclear fallout, the economic impact for the global economy looks to have been fairly muted.  It was interesting to observe how quickly equity markets recovered towards the end of this period as abundant liquidity again appeared to trump other concerns.

UK economic growth remains sluggish as consumers continue to pay down debt and the Coalition Government's austerity programme begins to bite.  UK GDP grew 0.5% in the first quarter of 2011, which offset the 0.5% fall in the final quarter of 2010 meaning that in real terms the UK economy had not grown since the third quarter of last year.  Although headline inflation is in excess of 4%, average earnings are only growing at around 2% per annum currently.  Financial markets are pricing in a 50% chance of a 0.25% increase in UK interest rates in August of this year, but there is a great deal of uncertainty, particularly with oil prices in Sterling terms still around the previous peak of 2008.  If interest rates do rise at all in 2011 it is likely to be only a token gesture from the Monetary Policy Committee. 

The best performing sectors over the six months were industrial cyclicals, particularly those exposed to emerging market growth such as engineering, automotive suppliers and electronics.  Oil and oil service companies also performed well.  The laggards were mostly amongst the defensive sectors, although banks and retailers were also weak.

iii) Outlook

Our outlook has become more cautious as markets have risen and time has passed.  We have been increasingly attentive to the long term risks including consumer deleveraging in the Western world, the high levels of Sovereign debt in the US, Europe and Japan, unstable Chinese growth and rising inflation.  These concerns have until now been mitigated by global liquidity, upward surprises to economic growth, and rising corporate profit expectations.  However, these short term positives are beginning to wane and we expect markets to question the long term growth outlook more intensely as we move to the second half of 2011.  The US quantitative easing programme is due to end in June, Chinese efforts to constrain inflation are becoming more urgent and there are signs that global economic growth expectations are becoming more subdued.  Most importantly for equity markets, company profit expectations are no longer rising.  This is prompting a rotation to more defensive sectors and we expect this to continue for a while yet.  Market positioning is still biased towards risk, perhaps best evidenced by the consensus negative view on the US dollar. This recent change in market environment has had a beneficial impact on relative performance as we move into the second half of our financial year.

Although our outlook is in general cautious, corporate cashflow and balance sheets are strong which will support dividend growth.  We expect UK market dividends to grow in both 2011 and 2012, which will help the Company's earnings and reduce reliance on revenue reserves, which have been used to maintain the dividend in recent years.  Headline valuations at the market level are also reasonable in the UK, notwithstanding the concern that profit margins have already achieved new peaks in the aftermath of the global financial crisis and may not be sustainable in the long term.  Most importantly we can still identify a good number of companies, particularly amongst the large capitalisation shares where absolute valuations are attractive, and this is where the portfolio is focused.

Jeremy Thomas

RCM (UK) Limited

16th June 2011

Share Buybacks and Treasury Share Transactions

During the period under review 362,000 Ordinary Shares were repurchased for cancellation at a cost of £516,261, and 100,000 Ordinary Shares were repurchased into treasury at a cost of £147,023, at an average discount of around 5%. In addition, during the period 300,000 Ordinary Shares held in treasury were cancelled. In the period from 1st May 2011 until 15th June 2011 a further 313,000 Ordinary Shares have been repurchased for cancellation.

Principal Risks and Uncertainties

The principal risks facing the Company were outlined in the Directors' Report on pages 16 and 17 of the Annual Financial Report of the Company for the year ended 31st October 2010.   These risks fall broadly under the following categories:  Investment and Strategy, Market, Accounting, Legal and Regulatory, Corporate Governance and Shareholder Relations, Operational and Financial.   In the opinion of the Board these principal risks have not changed.  

Material Events and Transactions

In the six month period ended 30th April 2011 the following material events and transactions have taken place.

A C Barker retired as Chairman and a Director on 18th April 2011.   J H Cartwright was appointed Chairman on the same date.

At the Annual General Meeting of the Company held on 8th February 2011, all the resolutions put to shareholders were passed.

The final dividend of 3.30p per share was paid on 1st March 2011 to shareholders on the register on 28th January 2011.  The total dividend payment for the year ended 31st October 2010 was 5.10p per share.

There were no related party transactions in the period.

Responsibility Statement

The Directors confirm to the best of their knowledge that:

·     the condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports';

·     the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 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;

·     the interim management report includes a fair review of the information concerning related parties transactions as required by Disclosure and Transparency Rule 4.2.8R.

The half-yearly financial report was approved by the Board on 16th June 2011 and the above responsibility statement was signed on its behalf by the Chairman.

Jonathan Cartwright

Chairman

155 Bishopsgate                                                                    

London EC2M 3AD

16th June 2011                                                                                  

TWENTY LARGEST EQUITY HOLDINGS

As at 30th April 2011

		Valuation £'000s	% of Total Assets*	Principal Activities
GlaxoSmithKline		3,390	7.16	Pharmaceuticals & Biotechnology
BP		2,962	6.25	Oil & Gas Producers
HSBC Holdings		2,414	5.10	Banking
Royal Dutch Shell "B" Shares		2,086	4.40	Oil & Gas Producers
Vodafone Group		2,051	4.33	Mobile Telecommunications
Rio Tinto		1,904	4.02	Mining
Unilever		1,847	3.90	Food Producers
BG Group		1,612	3.40	Oil & Gas Producers
Barclays		1,540	3.25	Banking
Diageo		1,491	3.15	Beverages
Reed Elsevier		1,421	3.00	Media
Tesco		1,332	2.81	Food & Drug Retailers
Cobham		1,279	2.70	Aerospace & Defence
Anglo American		1,073	2.27	Mining
Resolution		960	2.03	Life Insurance
Centrica		946	2.00	Gas, Water & Multiutilities
Boot (Henry)		918	1.94	Construction & Materials
BAE Systems		882	1.86	Aerospace & Defence
Compass Group		788	1.66	Travel & Leisure
Aegis Group		678	1.43	Media
		31,574	66.66

PORTFOLIO ANALYSIS

As at 30th April 2011

Sector		Valuation £'000s	% of Total     Assets*	Benchmark (FTSE All-Share) %
Financials		10,080	21.3	22.6
Oil & Gas		7,208	15.2	17.5
Industrials		6,746	14.2	7.5
Consumer Services		6,106	12.9	9.5
Consumer Goods		3,941	8.3	11.3
Health Care		3,390	7.2	7.0
Basic Materials		2,977	6.3	13.2
Telecommunications		2,688	5.7	6.0
Utilities		1,813	3.8	3.7
Technology		1,177	2.5	1.7
Net Current Assets		1,254	2.6	-
		47,380	100.0	100.0

* Total Assets are stated net of current liabilities.

SUMMARY OF RESULTS

INCOME STATEMENT

For the six months ended 30th April 2011
	Revenue	Capital	Total Return
	£'000s	£'000s	£'000s
			(Note 2)
Net gains on investments at fair value	-	2,483	2,483
Income	826	-	826
Investment management fee	(55)	(89)	(144)
Performance fee	-	-	-
Administration expenses	(103)	(3)	(106)
Net return before finance costs and taxation	668	2,391	3,059
Finance costs: interest payable and similar charges	(3)	(8)	(11)
Net return on ordinary activities before taxation	665	2,383	3,048
Taxation	-	-	-
Net return attributable to Ordinary Shareholders	665	2,383	3,048
Return per Ordinary Share  (Note 1)	2.14p	7.66p	9.80p

BALANCE SHEET

As at 30th April 2011

	£'000s
Investments at fair value through profit or loss	46,126
Net Current Assets	1,254
Total Net Assets	47,380
Called up Share Capital	361
Share Premium Account	14,819
Capital Redemption Reserve	188
Special Reserve	29,561
Capital Reserve	352
Revenue Reserve	2,099
Shareholders' Funds	47,380

Net Asset Value per Ordinary Share	153.5p
The net asset value is based on 30,859,820 Ordinary Shares in issue.
An additional 5,304,664 Ordinary Shares were held in treasury.

SUMMARY OF RESULTS

INCOME STATEMENT

For the six months ended 30th April 2010
	Revenue	Capital	Total Return
	£'000s	£'000s	£'000s
			(Note 2)
Net gains on investments at fair value	-	5,896	5,896
Income	997	-	997
Investment management fee	(54)	(88)	(142)
Performance fee	-	(93)	(93)
Administration expenses	(94)	(3)	(97)
Net return before finance costs and taxation	849	5,712	6,561
Finance costs: interest payable and similar charges	(4)	(12)	(16)
Net return on ordinary activities before taxation	845	5,700	6,545
Taxation	-	-	-
Net return attributable to Ordinary Shareholders	845	5,700	6,545
Return per Ordinary Share  (Note 1)	2.51p	16.96p	19.47p

BALANCE SHEET

As at 30th April 2010

	£'000s
Investments at fair value through profit or loss	47,730
Net Current Liabilities	(298)
Total Net Assets	47,432
Called up Share Capital	383
Share Premium Account	14,819
Capital Redemption Reserve	166
Special Reserve	32,130
Capital Reserve	(2,445)
Revenue Reserve	2,379
Shareholders' Funds	47,432

Net Asset Value per Ordinary Share	144.4 p
The net asset value is based on 32,848,820 Ordinary Shares in issue.
An additional 5,504,664 Ordinary Shares were held in treasury.

SUMMARY OF RESULTS

INCOME STATEMENT

For the year ended 31st October 2010

	Revenue	Capital	Total       Return
	£'000s	£'000s	£'000s
			(Note 2)
Net gains on investments at fair value	-	6,566	6,566
Income	1,820	-	1,820
Investment management fee	(108)	(175)	(283)
Performance fee	-	(235)	(235)
Administration expenses	(198)	(6)	(204)
Net return before finance costs and taxation	1,514	6,150	7,664
Finance costs: interest payable and similar charges	(12)	(36)	(48)
Net return on ordinary activities before taxation	1,502	6,114	7,616
Taxation	(1)	-	(1)
Net return attributable to Ordinary Shareholders	1,501	6,114	7,615
Return per Ordinary Share (Note 1)	4.58p	18.66p	23.24p
BALANCE SHEET As at 31st October 2010
			£'000s
Investments at fair value through profit or loss			46,164
Net Current Liabilities			(141)
Total Net Assets			46,023
Called up Share Capital			368
Share Premium Account			14,819
Capital Redemption Reserve			181
Special Reserve			30,224
Capital Reserve			(2,031)
Revenue Reserve			2,462
Shareholders' Funds			46,023
Net Asset Value per Ordinary Share			146.9p
The net asset value is based on 31,321,820 Ordinary Shares in issue.
An additional 5,504,664 Ordinary Shares were held in treasury.

SUMMARY OF RESULTS

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the six months ended 30th April 2011 and comparative periods

	Called up Share Capital £'000s	Share Premium Account £'000s	Capital Redemption Reserve £'000s	Special Reserve £'000s	Capital Reserve £'000s	Revenue Reserve £'000s	Total £'000s
Six months ended 30th April 2011
Net Assets at 31st October 2010	368	14,819	181	30,224	(2,031)	2,462	46,023
Revenue Return	-	-	-	-	-	665	665
Shares repurchased during the period	(7)	-	7	(663)	-	-	(663)
Dividends on Ordinary Shares	-	-	-	-	-	(1,028)	(1,028)
Capital Return	-	-	-	-	2,383	-	2,383
Net Assets at 30th April 2011	361	14,819	188	29,561	352	2,099	47,380
Six months ended 30th April 2010
Net Assets at 31st October 2009	385	14,819	164	34,500	(8,145)	2,641	44,364
Revenue Return	-	-	-	-	-	845	845
Shares repurchased during the period	(2)	-	2	(2,370)	-	-	(2,370)
Dividends on Ordinary Shares	-	-	-	-	-	(1,107)	(1,107)
Capital Return	-	-	-	-	5,700	-	5,700
Net Assets at 30th April 2010	383	14,819	166	32,130	(2,445)	2,379	47,432
Year ended 31st October 2010
Net Assets at 31st October 2009	385	14,819	164	34,500	(8,145)	2,641	44,364
Revenue Return	-	-	-	-	-	1,501	1,501
Shares repurchased during the year	(17)	-	17	(4,276)	-	-	(4,276)
Dividends on Ordinary Shares	-	-	-	-	-	(1,680)	(1,680)
Capital Return	-	-	-	-	6,114	-	6,114
Net Assets at 31st October 2010	368	14,819	181	30,224	(2,031)	2,462	46,023

SUMMARY OF RESULTS

CASH FLOW STATEMENT

For the six months ended 30th April 2011 and comparative periods

	Six Months ended 30th April 2011		Six Months ended 30th April 2010		Year ended 31st October 2010
	£'000s		£'000s		£'000s
Net cash inflow from operating activities	271		627		1,209
Return on investments and servicing of finance
Interest paid	(11)		(16)		(48)
Capital expenditure and financial investment
Purchases of fixed asset investments	(8,686)		(9,039)		(23,142)
Sales of fixed asset investments	10,478		12,480		28,870
Net cash inflow from capital expenditure and financial investment	1,792		3,441		5,728
Equity dividends paid	(1,028)		(1,107)		(1,680)
Net cash inflow before financing	1,024		2,945		5,209
Financing
Purchase of Ordinary Shares for cancellation and held in treasury	(663)		(2,370)		(4,277)
Repayment of loan	(1,000)		-		(2,000)
Drawdown of loan	-		-		1,500
Net cash outflow from financing	(1,663)		(2,370)		(4,777)
(Decrease) Increase in cash	(639)		575		432
Reconciliation of Return on Ordinary Activities before Finance Costs and Taxation to Net Cash Flow from Operating Activities
Total Return before finance costs and taxation	3,059		6,561		7,664
Less: Net gains on investments at fair value	(2,483)		(5,896)		(6,566)
	576		665		1,098
Increase in debtors	(147)		(151)		(60)
(Decrease) Increase in creditors	(158)		113		171
Net cash inflow from operating activities	271		627		1,209
Reconciliation of net cash flow to movement in net debt
Net cash (outflow) inflow	(639)		575		432
Repayment of loan	1,000		-		2,000
Drawdown of loan	-		-		(1,500)
Movement in net funds	361		575		932
Net funds (debt) brought forward	23		(909)		(909)
Net funds (debt) carried forward	384		(334)		23

Note 1

The returns per Ordinary Share have been calculated using a weighted average number of shares in issue of 31,097,019 (30th April 2010 - 33,614,501; 31st October 2010 - 32,770,227).

Note 2

The total return column of this statement is the profit and loss account of the Company.

All revenue and capital items derive from continuing operations.  No operations were acquired or discontinued in the period.

A  Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the Income Statement.

Included in the cost of investments are transaction costs on purchases which amounted to £52,271 (30th April 2010 - £49,504; 31st October 2010 - £112,703) and transaction costs on sales which amounted to £15,534 (30th April 2010 - £16,401; 31st October 2010 - £34,257).

Note 3

Investments are designated as held at fair value through profit or loss in accordance with FRS 26 'Financial Instruments: Recognition and Measurement'.  Listed investments are valued at bid market prices.

Note 4

In accordance with FRS 21'Events after the Balance Sheet Date' the final dividend payable on Ordinary Shares is recognised as a liability when approved by shareholders.  Interim dividends are recognised only when paid.

Dividends paid on Ordinary Shares in respect of earnings for each period are as follows:

	Six months ended	Six months ended	Year ended
	30th April 2011	30th April 2010	31st October 2010
	£'000s	£'000s	£'000s
Final dividend 3.30p paid 1st March 2011           (2010 - 3.30p)	1,028	1,107	1,107
Interim dividend 1.80p paid 2nd September 2010	-	-	573
	1,028	1,107	1,680

Dividends payable at the period end are not recognised as a liability under FRS 21 'Events after the Balance Sheet Date'.  Details of these dividends are set out below.

	Six months ended		Six months ended	Year ended
	30th April 2011		30th April 2010	31st October 2010
	£'000s		£'000s	£'000s
Interim dividend 1.80p payable 1st September 2011 (2010 -1.80p)		555	591	-
Final dividend 3.30p		-	-	1,034
		555	591	1,034

The proposed dividends above are based on the number of shares in issue at the period end.  However, the dividends payable will be based on the number of shares in issue on the record date and will reflect any purchases and cancellations of shares by the Company settled subsequent to the period end.

Note 5

The Directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements, as the assets of the Company consist mainly of securities which are readily realisable and accordingly, that the Company has adequate financial resources to continue in operational existence for the foreseeable future.

Note 6

The half-yearly financial report has neither been audited nor reviewed by the Company's auditors.  The financial information for the year ended 31st October 2010 has been extracted from the statutory financial statements of the Company for that year, which have been delivered to the Registrar of Companies. The Auditors' Report on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

In accordance with the UK's disclosure requirements for listed companies, the Company is required to make limited additional and updated disclosures, mainly relating to the first and third quarters of the financial year. These Interim Management Statements are released via the Regulatory News Service and posted on the Company's website www.britishportfoliotrust.co.uk on or shortly before 19th March and 19th September each year.

The half-yearly financial report will be sent to Shareholders shortly and made available to the public at the Registered Office of the Company, 155 Bishopsgate, London EC2M 3AD.

For further information, please contact:-

Peter Ingram

Company Secretary

Tel: [phone]

 

END

 

 

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