Interim Results

Dunedin Income Growth Inv Tst PLC 19 September 2007 DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 JULY 2007 The objective of Dunedin Income Growth Investment Trust is to achieve growth of income and capital from a portfolio invested predominantly in companies listed or quoted in the United Kingdom. Highlights • NAV total return with debt at market value 1.8% compared to a total return for the FTSE All-Share Index of 4.3%. • Interim dividend increased by 12.9% to 3.50p per share (2006 - 3.1p). • John Carson was appointed a director on 25 June 2007. For further information, please contact:- Chou Chong 0207 463 6000 Stewart Methven 0131 313 1000 Aberdeen Asset Managers Limited Interim Board Report Review of the Period Stockmarkets made further progress in the six months ended 31 July 2007, with the FTSE All-Share posting a total return of 4.3%. This, however, masks a high degree of volatility within the period, with stockmarkets suffering a sharp correction in July which has continued after the current reporting period. Not confined to the UK, stockmarkets internationally have experienced a degree of turbulence not witnessed since the aftermath of September 2001. Against this background, DIGIT's Net Asset Value (NAV), measured with debt priced at market value, rose by 1.8% in total return terms (1.7% when debt is valued at par - the difference highlights a benefit of higher interest rates which reduce the value of the fixed rate debt), and fell by 0.2% in capital return terms, from 292.33p to 291.83p, The main reason for the relative under-performance was the impact that rising bond yields had on some of the above average yield stocks held in the portfolio. Meanwhile, the share price fell by 2.1% from 267.25p to 261.75p as the discount to NAV against which the shares trade widened marginally. We are pleased to declare an interim dividend of 3.5p which represents an increase of 12.9% from last year's 3.1p. As in the previous two years, part of this growth reflects the Board's wish to achieve a more even balance between the interim and final dividend payments, and as such shareholders should not extrapolate this rate of growth to the full year. Economic and Market Background The current market backdrop would best be described as turbulent. The period started in fairly benign fashion, with some of the themes of the previous year being prevalent, such as M&A activity, robust economic growth and undemanding valuations all propelling the market forward; however, events towards the end of February conspired to reduce investors' risk appetite. This resulted in the first of two sharp corrections in the six month period. The initial trigger was delinquency rates in US sub-prime mortgages (loans to borrowers with weaker credit ratings), which culminated in the bankruptcy of several small lending institutions active in that area. After the initial surprise, the equity market subsequently rallied, helped by further corporate activity, including a number of cash bids for FTSE 100 companies. The improved sentiment helped push the FTSE All-Share to new highs despite interest rate increases by the Bank of England. The rally came to an abrupt halt in June, when some poor inflation data and better than expected growth figures in the US reversed the view that interest rates had peaked. This led to a sharp sell off in bond markets and caused a second round of pessimism relating to default risks on sub-prime mortgages and possible contagion into other credit markets. The nervousness spilled over into equity markets, with higher than average volumes indicating that some of the more leveraged participants in the market were unwinding positions. At the sector level, resource stocks made the most significant progress over the period, and these were joined by an unusual mix of industrially orientated sectors, boosted by acquisition activity in the chemical and building material sectors. Perhaps more surprisingly, the same sectoral mix has performed well in the current market correction, with as yet little relative headway being made by the traditionally more defensive areas. Discount and Share Buybacks DIGIT, like many other investment trusts, saw the discount to NAV at which our shares trade widen over the period. This provided us with the opportunity to enhance our NAV by buying back shares in the market. In aggregate, we bought 1,455,440 shares at discounts (with debt valued at market) ranging between 5.8% and 10.7%. We shall continue to use buybacks when they present the opportunity to add value for our shareholders. Gearing During the period we have taken advantage of the revolving credit facility to adjust the level of our borrowings - increasing gearing at times of market weakness when we can benefit from attractive buying opportunities and reducing gearing when we can sell into market strength. We closed the period with £22m drawn under the facility. This, coupled with the 7 7/8% debenture, took gearing at 31 July 2007 to 11.7% with debt valued at market (11.5% at 31 January 2007) and 10.4% (10.0% at 31 January 2007) with debt valued at par. Board During the period we announced with great sadness the death of Ruaridh Budge. Ruaridh was appointed to the Board in 2000, and contributed enormously with his understanding, experience and investment knowledge. He will be greatly missed. On a brighter note, we are delighted to welcome John Carson to the Board. John is a chartered accountant, and is a former partner of Baillie Gifford, where he headed the department responsible for client servicing and marketing. His knowledge and experience of the financial world will be of great value to us in our deliberations and we look forward to his contribution. VAT on Management Fees In 2004 the Association of Investment Companies (AIC ) and JPM Claverhouse Investment Trust plc launched a case against HM Revenue & Customs (HMRC) in which they claimed that management fees charged to UK investment trusts should be exempt from VAT. On 28 June 2007 the European Court of Justice found in favour of the AIC/Claverhouse case in respect of the specific questions referred to it by the UK VAT Tribunal. The case now goes back to the VAT Tribunal for a formal judgement. HMRC have made no substantive comment following the ECJ decision and so it remains to be seen whether they will continue to defend the case before the Tribunal. Pending this uncertainty, the Company has determined that it is not appropriate to recognise the potential for the recovery of VAT in the financial statements. Risks and Uncertainties The major risks associated with the Company are market price risk (being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency movements), gearing risk and to a lesser extent liquidity and interest rate risk. The Company has established a framework for managing these risks which is evolving continually as the Company's investment activities change in response to market developments. The Board has provided the Manager with guidelines and limits for the management of market risk, gearing, and financial assets and liabilities. Other key risks identified by the Board that could affect the Company's business are as follows: -Performance risk: The performance of the portfolio relative to the Benchmark (FTSE All-Share Index) and the underlying stock weightings in the portfolio against their index weightings are monitored closely by the Board. -Discount volatility: The Company's share price can trade at a discount to its underlying NAV. The Company operates a share buyback programme which is reviewed on a regular basis. -Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 842 of the Income and Corporation Taxes Act 1988, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager. Directors' Responsibilities The Directors are responsible for preparing the half yearly financial report, in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge the interim financial statements have been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports' and that the Interim Board Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules. Outlook Stockmarkets around the world have been increasingly volatile in recent weeks as fears deepen over the extent to which problems in the US mortgage market will spread to other areas. Despite action taken by central banks to provide short term liquidity to the banking sector, this has not prevented the inter-bank lending rate in the UK from rising. This is likely to feed through to higher borrowing costs, and, with it, a likely reduction in the level of corporate activity within the market. In addition, these higher borrowing costs may well moderate personal consumption and consequently economic activity. As always, our attention is focused on individual stocks. The volatility that has ensued has resulted in the opportunity to add to positions in soundly financed, well run companies that are capable of providing further dividend growth at what the Manager sees as attractive valuations. The half yearly financial report was approved by the Board on 18 September 2007 and the above responsibility statement was signed on its behalf by: John Scott Chairman INCOME STATEMENT Six months ended 31 July 2007 (unaudited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 15,952 15,952 Unrealised (losses)/gains on investments - (15,697) (15,697) Currency losses - (3) (3) ________ ________ ________ Total capital gains on investments - 252 252 Income from investments 10,507 - 10,507 Interest receivable on short-term deposits 70 - 70 Stocklending commission 34 - 34 Underwriting commission - - - Investment management fee (302) (705) (1,007) Administrative expenses (477) - (477) ________ ________ ________ Net return before finance costs and taxation 9,832 (453) 9,379 Finance costs (529) (1,233) (1,762) ________ ________ ________ Return on ordinary activities before taxation 9,303 (1,686) 7,617 Taxation (47) - (47) ________ ________ ________ Return on ordinary activities after taxation 9,256 (1,686) 7,570 ________ ________ ________ Return per Ordinary share (pence): 6.04 (1.10) 4.94 ________ ________ ________ The total column of this statement represents the profit and loss account of the Company. The Company had no recognised gains or losses other than those recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. INCOME STATEMENT Six months ended 31 July 2006 (unaudited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 20,623 20,623 Unrealised (losses)/gains on investments - (9,503) (9,503) Currency losses - (7) (7) ________ ________ ________ Total capital gains on investments - 11,113 11,113 Income from investments 9,963 - 9,963 Interest receivable on short-term deposits 227 - 227 Stocklending commission 18 - 18 Underwriting commission - - - Investment management fee (271) (632) (903) Administrative expenses (336) - (336) ________ ________ ________ Net return before finance costs and taxation 9,601 10,481 20,082 Finance costs (527) (1,227) (1,754) ________ ________ ________ Return on ordinary activities before taxation 9,074 9,254 18,328 Taxation (17) - (17) ________ ________ ________ Return on ordinary activities after taxation 9,057 9,254 18,311 ________ ________ ________ Return per Ordinary share (pence): 5.77 5.89 11.66 ________ ________ ________ The total column of this statement represents the profit and loss account of the Company. The Company had no recognised gains or losses other than those recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. INCOME STATEMENT Year ended 31 January 2007 (audited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 37,480 37,480 Unrealised (losses)/gains on investments - 29,907 29,907 Currency losses - (4) (4) ________ ________ ________ Total capital gains on investments - 67,383 67,383 Income from investments 17,618 - 17,618 Interest receivable on short-term deposits 300 - 300 Stocklending commission 43 - 43 Underwriting commission 27 - 27 Investment management fee (551) (1,285) (1,836) Administrative expenses (633) - (633) ________ ________ ________ Net return before finance costs and taxation 16,804 66,098 82,902 Finance costs (1,049) (2,447) (3,496) ________ ________ ________ Return on ordinary activities before taxation 15,755 63,651 79,406 Taxation (54) - (54) ________ ________ ________ Return on ordinary activities after taxation 15,701 63,651 79,352 ________ ________ ________ Return per Ordinary share (pence): 10.04 40.71 50.75 ________ ________ ________ The total column of this statement represents the profit and loss account of the Company. The Company had no recognised gains or losses other than those recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. BALANCE SHEET As at As at As at 31 July 31 January 2007 31 July 2007 2006 (unaudited) (audited) (unaudited) £'000 £'000 £'000 Non-current assets Investments at fair value through profit or loss 497,150 501,706 456,012 ________ ________ ________ Current assets Debtors and prepayments 3,608 1,553 2,119 AAA Money Market funds - 950 3,750 Cash and short term deposits 2,611 1,313 310 ________ ________ ________ 6,219 3,816 6,179 ________ ________ ________ Creditors: amounts falling due within one year Bank loan (22,000) (20,000) (25,000) Other creditors (2,284) (1,014) (1,178) ________ ________ ________ (24,284) (21,014) (26,178) ________ ________ ________ Net current liabilities (18,065) (17,198) (19,999) ________ ________ ________ Total assets less current liabilities 479,085 484,508 436,013 Creditors: amounts falling due after more than one year (28,448) (28,441) (28,435) ________ ________ ________ Net assets 450,637 456,067 407,578 ________ ________ ________ Capital and reserves Called-up share capital 38,128 38,492 39,241 Share premium account 4,543 4,543 4,543 Capital redemption reserve 1,897 1,533 784 Capital reserve - realised 288,886 278,829 271,540 Capital reserve - unrealised 96,977 112,674 73,264 Revenue reserve 20,206 19,996 18,206 ________ ________ ________ Equity Shareholders' funds 450,637 456,067 407,578 ________ ________ ________ Adjusted net asset value per Ordinary share (pence): 295.37 296.10 259.55 ________ ________ ________ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Six months ended 31 July 2007 (unaudited) Share Capital Capital Capital Share premium redemption reserve reserve Revenue capital account reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 January 2007 38,492 4,543 1,533 278,829 112,674 19,996 456,067 Return on ordinary activities after - - - 14,011 (15,697) 9,256 7,570 taxation Dividends paid (see note 3) - - - - - (9,046) (9,046) Purchase of own shares (364) - 364 (3,954) - - (3,954) _______ _______ _______ _______ _______ _______ _______ Balance at 31 July 2007 38,128 4,543 1,897 288,886 96,977 20,206 450,637 _______ _______ _______ _______ _______ _______ _______ Six months ended 31 July 2006 (unaudited) Share Capital Capital Capital Share premium redemption reserve reserve Revenue capital account reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 January 2006 39,300 4,543 725 253,307 82,767 17,625 398,267 Return on ordinary activities after - - - 18,757 (9,503) 9,057 18,311 taxation Dividends paid (see note 3) - - - - - (8,476) (8,476) Purchase of own shares (59) - 59 (524) - - (524) _______ _______ _______ _______ _______ _______ _______ Balance at 31 July 2006 39,241 4,543 784 271,540 73,264 18,206 407,578 _______ _______ _______ _______ _______ _______ _______ Year ended 31 January 2007 (audited) Share Capital Capital Capital Share premium redemption reserve reserve Revenue capital account reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 January 2006 39,300 4,543 725 253,307 82,767 17,625 398,267 Return on ordinary activities after - - - 33,744 29,907 15,701 79,352 taxation Dividends paid (see note 3) - - - - - (13,330) (13,330) Purchase of own shares (808) - 808 (8,222) - - (8,222) _______ _______ _______ _______ _______ _______ _______ Balance at 31 January 2007 38,492 4,543 1,533 278,829 112,674 19,996 456,067 _______ _______ _______ _______ _______ _______ _______ CASHFLOW STATEMENT Six months ended Six months ended Year ended 31 July 31 July 31 January 2007 2007 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net return on ordinary activities before finance costs 9,379 20,082 82,902 and taxation Adjustment for: Gains on investments (255) (11,120) (67,387) Currency losses 3 7 4 Decrease/(increase) in accrued income 230 (71) (234) Increase in other debtors (51) (18) (32) (Decrease)/increase in creditors (21) 25 23 __________ __________ __________ Net cash inflow from operating activities 9,285 8,905 15,276 Net cash outflow from servicing of finance (1,748) (1,751) (3,486) Taxation (47) (17) (54) Net cash inflow/(outflow) from financial investment 3,861 (14,717) (3,563) Equity dividends paid (9,046) (8,476) (13,330) __________ __________ __________ Net cash inflow/(outflow) before use of liquid resources 2,305 (16,056) (5,157) and financing Net cash inflow from management of liquid resources 950 7,400 10,200 Net cash outflow from financing (1,954) (523) (13,222) __________ __________ __________ Increase/(decrease) in cash 1,301 (9,179) (8,179) __________ __________ __________ Reconciliation of net cash flow to movements in net funds Increase/(decrease) in cash as above 1,301 (9,179) (8,179) Exchange movements (3) (7) (4) __________ __________ __________ Movement in net funds in the period 1,298 (9,186) (8,183) Net funds at 1 February 2007 1,313 9,496 9,496 __________ __________ __________ Net funds at 31 July 2007 2,611 310 1,313 __________ __________ __________ Notes to the Financial Statements For the six months ended 31 July 2007 1. Accounting policies (a) Basis of accounting The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards, and with pronouncements on interim reporting issued by the Accounting Standards Board. They are consistent with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies' (December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP). The interim accounts have been prepared using the same accounting policies as the preceding annual accounts. (b) Dividends payable Interim and final dividends are recognised in the period in which they are paid. Six months ended Six months ended Year ended 31 July 2007 31 July 2006 31 January 2007 2. Taxation £'000 £'000 £'000 Withholding tax on income from foreign 47 17 54 investments __________ __________ __________ 47 17 54 Six months ended Six months ended Year ended 31 July 2007 31 July 2006 31 January 2007 3. Dividends £'000 £'000 £'000 Interim dividend of 3.10p - - 4,858 Final dividend of 5.90p (2006 - 5.40p) per 9,046 8,476 8,476 share paid on 8 May 2007 Unclaimed dividends refunded by Registrar - - (4) __________ __________ __________ 9,046 8,476 13,330 __________ __________ __________ An interim dividend of 3.50p (2006 - 3.10p) will be paid on 9 October 2007. The ex dividend date is 26 September 2007. Six months ended Six months ended Year ended 31 July 2007 31 July 2006 31 January 2007 4. Return per Ordinary share p p p Revenue return 6.04 5.77 10.04 Capital return (1.10) 5.89 40.71 __________ __________ __________ Total return 4.94 11.66 50.75 __________ __________ __________ The figures above are based on the following: Six months Six months Year ended ended ended 31 July 31 July 31 January 2007 2006 2007 £'000 £'000 £'000 Revenue return 9,256 9,057 15,701 Capital return (1,686) 9,254 63,651 __________ __________ __________ Total return 7,570 18,311 79,352 __________ __________ __________ Weighted average number of Ordinary shares 153,233,031 156,979,602 156,357,102 in issue __________ __________ __________ 5. Transaction costs During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:- Six months ended Six months ended Year ended 31 July 2007 31 July 2006 31 January 2007 £'000 £'000 £'000 Purchases 197 424 659 Sales 38 72 129 __________ __________ __________ 235 496 788 __________ __________ __________ 6. Net asset value Total Shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 4 'Capital Instruments'. The analysis of total Shareholders' funds on the face of the Balance Sheet does not reflect the rights under the Articles of Association of the Ordinary Shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary Shareholders at the period end, adjusted to reflect the deduction of the Debenture Stock at par. A reconciliation between the two sets of figures is given below: As at As at As at 31 July 31 January 2007 31 July 2007 2006 £'000 £'000 £'000 Total Shareholders' funds £450,637,000 £456,067,000 £407,578,000 Adjusted net assets £450,485,000 £455,908,000 £407,413,000 Number of Ordinary shares in issue at the period end 152,514,194 153,969,634 156,965,735 Total Shareholders' funds per share 295.47p 296.20p 259.66p Less: Unamortised Debenture Stock premium and issue (0.10p) (0.10p) (0.11p) expenses __________ __________ __________ Adjusted net asset value per share 295.37p 296.10p 259.55p __________ __________ __________ 7. The financial information in this report comprises non-statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 January 2007 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified under Section 235 of the Companies Act 1985. 8. The half yearly financial report is available on the Company's website, www.dunedincincomegrowth.co.uk, and the Interim Report will be posted to shareholders end September 2007 and copies will be available from the investment manager. Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested This information is provided by RNS The company news service from the London Stock Exchange

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