Interim Results

Capital Gearing Trust PLC 14 November 2006 CAPITAL GEARING TRUST plc INTERIM REPORT FOR THE SIX MONTHS ENDED 5 OCTOBER 2006 CONTENTS PAGE Chairman's Interim Statement 1 Distribution of Invested Funds at 5 October 2006 2 Major Investments of the Company at 5 October 2006 3 Income Statement 4 Reconciliation of Movements in Shareholders' Funds 5 Balance Sheet at 5 October 2006 6 Cash Flow 7 Notes 8 CHAIRMAN'S INTERIM STATEMENT The Trust recorded a small positive return during the half year to 5th October 2006. The net asset value per share increased by 0.6% to 1,935.5p excluding accrued income of 8.5p. Over the same period, the FTSE Equity Investment Instruments Index fell by 3.7%, the FTSE All Share Index by 0.3% and the FTSE Government All Stocks Index by 0.8%. The relatively small movement recorded in the stockmarket indices between the reporting dates in fact masks what turned out to be quite a volatile time for financial markets. From April to mid June, equity markets were extremely weak. For example, the UK market fell by some 9% before staging a strong recovery. The most common reasons cited for the initial weakness were fears over the inflationary impact of rising energy and commodity prices, pronounced weakness in the US housing market and its possible impact on consumer expenditure and economic growth, plus an abrupt change in monetary policy by Japan's central bank from one of 'quantitative easing' to quite aggressive tightening. It has since moderated this position. Indeed, monetary growth in general has re-accelerated and in the UK for instance has hit levels not seen for 16 years. With the oil price backing off from its high and reported corporate earnings generally surprising on the upside, news flow has for most of the reporting period been positive for equity markets. With private equity funds awash with cash and bankers and investors willing to provide finance on generous terms, corporate takeover activity has also supported markets. The international bond and index linked markets were better over the period but the strength of Sterling in most cases more than offset those gains. The endowment funds and portfolio of zero dividend shares made steady progress, as did the Trust's exposure to property, held largely through the holding in TR Property Investment Trust. For the moment, fearful of the recessionary consequences of aggressive tightening in monetary policy, central banks are likely to maintain a relatively accommodative stance. All the while this position persists, equity markets should continue to do well and corporate takeover activity is likely to remain buoyant. However, both the imbalances in the real economy and excessive leverage in the financial economy suggest caution. At this stage of an extended economic cycle, long term valuation measures for equities, such as price to earnings, price to book values and dividend yield are looking quite rich. At some stage, an adjustment to the economic imbalances in the world and in particular the US could prove disruptive both to corporate profits and financial stability. In such circumstances, equities may suffer badly. Recognising this risk, and in accordance with our stated policy of wealth preservation as well as capital growth, we continue to maintain an exposure to conventional bonds and index linked securities which should actually benefit from such disruption. The Trust's holdings in well covered zero preference shares and endowment funds should also prove defensive as well as providing reasonable returns. In the opinion of the Board, the current composition of the Trust's investments reflects an appropriate balance of risk and reward commensurate with the objective of providing an absolute return for shareholders. Tony Pattison 14th November 2006 - 1 - DISTRIBUTION OF INVESTED FUNDS AT 5 OCTOBER 2006 Distribution of investment funds of £53,969,000 (5 April 2006 - £53,702,000) As at As at 5/10/06 5/4/06 North UK America Europe Asia Elsewhere Total Total Investment Trust % % % % % % % Assets: Ordinary Shares 20.2 4.1 4.0 - 4.6 32.9 35.0 Endowment Funds 8.4 - - - - 8.4 8.0 Zero Dividend Preference Shares 16.7 - 2.5 - - 19.2 17.7 Other Assets: Fixed interest 0.8 - 15.4 - - 16.2 16.6 Index linked 7.8 4.6 8.9 - - 21.3 21.4 Cash 2.0 - - - - 2.0 1.3 ----- ------- ------ ------ ------- ------ ------ 55.9 8.7 30.8 - 4.6 100.0 100.0 ===== ======= ====== ====== ======= ====== ====== - 2 - MAJOR INVESTMENTS OF THE COMPANY AT 5 OCTOBER 2006 £'000 MARKET VALUE GREATER THAN £500,000 INVESTMENT TRUST ORDINARY SHARES AND ENDOWMENT FUNDS TR Property Investment Trust 2,228 Life Offices Opportunities Trust 1,584 Allianz Dresdner 2nd Endowment Policy Trust 2006 1,529 North Atlantic Smaller Companies 1,412 Rutland Trust 878 Henderson Euro Trust 822 Eurovestech 816 London & St Lawrence Investment Company 791 Active Capital Trust 728 Advance UK Trust 715 Advance Developing Markets Trust 704 Allianz Dresdner 2nd Endowment Policy Trust 2009 701 Barclays Global Investors Endowment Fund II Limited 697 American Opportunities Trust 653 Platinum Investment Trust 648 Eredene Capital 645 Utilico Emerging Markets Utilities Limited 623 Other (31 investments) 6,091 ------- 22,265 ------- INDEX LINKED SECURITIES AND FIXED INTEREST Sweden (Kingdom of) 3.5% Inflation Linked Bonds 01/12/2028 3,235 France (Govt of) 5.5% OAT 25/04/29 2,502 Treasury 2.5% Index Linked 2013 2,316 Germany (Fed Rep) 4.75% Bunds 04/07/28 2,275 Canada (Govt of) 4% Index Linked 01/12/31 1,677 Germany (Fed Rep) 4.0% Bunds 04/04/09 1,366 Treasury 2.5% Index Linked 2011 1,086 Switzerland (Govt of) 3.0% Bonds 2018 898 Germany (Fed Rep) 4.75% Bunds 04/07/34 849 USA Treasury 3.625% TIPS 15/04/28 834 Treasury 2.5% Index Linked 2016 783 Sweden (Kingdom of) 1% Index Linked 2012 714 Other (6 investments) 1,690 ------- 20,225 ------- INVESTMENT TRUST ZERO DIVIDEND PREFERENCE Utilico Investment Trust Zero Div Pref 1,309 Premium Trust Zero Div Pref 1,256 NFS Securities Zero Div Pref 1,108 European Utilities Trust Zero Div Pref 1,081 Premier Utilities Trust Zero Div Pref 1,016 JP Morgan Fleming Income & Capital Zero Div Pref 996 ADC Zero Div Pref 2010 872 ADC Zero Div Pref 2012 847 JZ Equity Partners Zero Div Pref 531 Other (6 investments) 1,357 ------- 10,373 ------- Cash 1,106 ------- Total Investment Funds 53,969 ======= - 3 - INCOME STATEMENT (UNAUDITED) FOR THE SIX MONTHS ENDED 5 OCTOBER 2006 (Unaudited) (Unaudited) (Audited) 6 months to 5 October 2006 6 months to 5 October 2005 Year to 5 April 2006 ---------------------------- ---------------------------- ----------------------------- Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains on - 538 538 - 3,787 3,787 - 6,926 6,926 investments Income from 439 - 439 449 - 449 897 - 897 investments Bank 17 - 17 29 - 29 51 - 51 interest ---------------------------- ---------------------------- ---------------------------- GROSS RETURN 456 538 994 478 3,787 4,265 948 6,926 7,874 ---------------------------- ---------------------------- ---------------------------- Management (81) (189) (270) (73) (171) (244) (152) (354) (506) expenses Administrative and transaction costs (112) (34) (146) (116) - (116) (240) (74) (314) ---------------------------- ---------------------------- ---------------------------- (193) (223) (416) (189) (171) (360) (392) (428) (820) ---------------------------- ---------------------------- ---------------------------- RETURN ON ORDINARY ACTIVITIES BEFORE TAX 263 315 578 289 3,616 3,905 556 6,498 7,054 Tax on ordinary activities (26) 26 - (31) 31 - (59) 59 - ---------------------------- ---------------------------- ---------------------------- RETURN ATTRIBUTABLE TO EQUITY SHAREHOLDERS 237 341 578 258 3,647 3,905 497 6,557 7,054 RETURN PER ORDINARY SHARE (NOTE 2) 20.68p 141.42p 253.92p ------- ------ ------ ---------------------------- All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. The total column of this statement is the profit and loss account of the Company. There were no recognised gains and losses other than the return attributable to shareholders. - 4 - RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (UNAUDITED) FOR THE SIX MONTHS ENDED 5 OCTOBER 2006 Called up Share Capital Capital Capital share premium redemption reserve reserve Revenue capital reserve reserve - unrealised - realised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 6 699 8,114 16 10,707 33,571 1,029 54,136 April 2006 Exchange - - - (554) - - (554) losses on investments Net gains on realisation of investments - - - - 460 - 460 Net increase in unrealised appreciation - - - 632 - - 632 Transfer on - - - (1,455) 1,455 - - disposal of investments Transaction - - - (29) (5) - (34) costs Costs charged - - - - (189) - (189) to capital Tax on costs - - - - 26 - 26 charged to capital Net revenue - - - - - 237 237 for the period Dividends - - - - - (377) (377) ------------------------------------------------------------------------------------------- Balance at 5 699 8,114 16 9,301 35,318 889 54,337 October 2006 ------------------------------------------------------------------------------------------- - 5 - BALANCE SHEET (UNAUDITED) AT 5 OCTOBER 2006 (Unaudited) (Unaudited) (Audited) 5 October 5 October 5 April 2006 2005 2006 £'000 £'000 £'000 FIXED ASSETS Investments 52,863 48,165 53,008 ------- ------- ------- CURRENT ASSETS Debtors 1,604 2,902 1,193 Bank 58 91 145 ------- ------- ------- 1,662 2,993 1,338 CREDITORS: amounts falling due within (188) (171) (210) one year ------- ------- ------- NET CURRENT ASSETS 1,474 2,822 1,128 ------- ------- ------- NET ASSETS 54,337 50,987 54,136 ======= ======= ======= CAPITAL EMPLOYED Called up share capital 699 699 699 Share premium account 8,114 8,114 8,114 Capital redemption reserve 16 16 16 Capital reserve - unrealised 9,301 8,979 10,707 Capital reserve - realised 35,318 32,389 33,571 Revenue reserve 889 790 1,029 ------- ------- ------- TOTAL EQUITY SHAREHOLDERS' FUNDS 54,337 50,987 54,136 ======= ======= ======= NET ASSETS PER ORDINARY SHARE 1,944.0p 1,824.3p 1,937.0p ======= ======= ======= - 6 - CASH FLOW (UNAUDITED) FOR THE SIX MONTHS ENDED 5 OCTOBER 2006 (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Year to 5 October 2006 5 October 2005 5 April 2006 --------------- --------------- -------------- £'000 £'000 £'000 Operating cash flows: Profit before tax 263 289 556 Expenses charged to capital (189) (171) (354) Change to accrued income and 102 89 (134) sundry debtors Change to sundry creditors (21) (4) 35 -------- -------- -------- Cash inflow from operating 155 203 103 activities Capital expenditure and financial investment: Purchase of investments (5,665) (9,105) (16,595) Sales of investments 6,213 9,985 15,697 Equity dividends paid (377) (358) (358) Management of liquid resources - increase/(decrease) in balance with brokers (413) (1,613) 319 Financing - issue of new - 828 828 shares -------- -------- -------- Decrease in cash (87) (60) (6) ======== ======== ======== Cash and cash equivalents: Balance at beginning of 145 151 151 period Net cash movement (87) (60) (6) -------- -------- -------- Balance at end of period 58 91 145 ======== ======== ======== - 7 - NOTES 1. Status of financial statements The financial information for the six months to 5 October 2006 and 5 October 2005, which is unaudited and does not constitute statutory accounts, has been prepared using accounting policies consistent with those set out in the Company's 5 April 2006 statutory accounts. The abridged financial information for the year ended 5 April 2006 has been extracted from the Company's statutory accounts for that year, which have been filed with the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain a statement under either Article 245(2) or Article 245(3) of the Companies (Northern Ireland) Order 1986. 2. Return per ordinary share The calculation of return per ordinary share is based on results after tax divided by the weighted average number of shares in issue during the period of 2,794,906 (2005: 2,761,300; 2006: 2,778,009). Under FRS 22: 'Earnings per share' the Company is only permitted to show one return per share on the Income Statement. The revenue and capital returns per share for the periods to 5 October 2006 and 5 October 2005 and the year ended 5 April 2006 are shown below: 6 months to 6 months to Year to 5 October 2006 5 October 2005 5 April 2006 Revenue 8.48p 9.34p 17.89p Capital 12.20p 132.08p 236.03p 3. Dividends 6 months to 6 months to Year to 5 October 2006 5 October 2005 5 April 2006 Pence per share 13.50p 13.00p 13.00p Total cost £377,000 £358,000 £358,000 4. Taxation No taxation arises because capital returns and dividend income are not subject to Corporation Tax within an Investment Trust company and management expenses exceeded unfranked investment income. - 8 - - END - Name of contact and telephone number for queries Shanny Looi Tel: 01582 439219 Date of notification 14 November 2006 This information is provided by RNS The company news service from the London Stock Exchange FFRLSLSLIR

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