Interim Results

Lindsell Train Investment Trust PLC 23 November 2007 The Lindsell Train Investment Trust plc Half-year report for the six months ended 30 September 2007 Objective of the Company To maximise long-term total returns subject to the avoidance of loss of absolute value and with a minimum objective to maintain the real purchasing power of Sterling capital, as measured by the annual average yield on the 2.5% Consolidated Loan Stock. Financial highlights Performance comparisons in the current performance period (1 April 2007 - 30 September 2007) Middle market share price per ordinary share# +10.8% Net Asset Value per ordinary share^ +5.5% Benchmark* +2.3% MSCI World Index (sterling) +4.1% UK RPI Inflation (all items) +1.8% # Calculated on a total return basis. ^ Adjusted to include the £1.75 dividend paid on 25 July 2007. * The index of the annual average yield on the 2.5% Consolidated Loan Stock between the relevant dates. Chairman's Statement The Company's net asset value ('NAV') advanced by 5.5% (adjusted to include dividends) over the half year to the end of September 2007, better than the benchmark which increased by 2.3% and world equity markets (MSCI World Index in sterling) that rose in value by 4.1%. This steady appreciation of the NAV masked a much more volatile time for the underlying constituents of the portfolio. On the positive side two of the Company's longstanding positions, Reuters and Dow Jones, succumbed to takeovers at a significant premium to prior value and Nintendo continued its remarkable performance rising by a further 75%. On the other hand Marston's gave back much of the performance achieved in later 2006 by falling 23% despite a significant hike to the rate of prospective dividend growth. Clarins and Cadbury Schweppes fell by 13% each. All three suffered from the evaporation of bid premia that had for different reasons bolstered their share prices in prior months, as both the appetite and increased cost of issuing debt to finance such activity caused acquisition plans to be shelved. It was particularly encouraging that the investment in the Lindsell Train Funds continued to perform in volatile markets. The Lindsell Train Global Media Fund advanced 17% and the Lindsell Train Japan Fund advanced 18% since the beginning of April. Although both funds have been through difficult times in their history the Media fund is now benefiting from a resurgence in the value of media content businesses underpinned by recent corporate activity. Even though world stock markets have been rising for four years, the improvement in the values of media businesses is a relatively recent phenomenon and one that the Investment Manager thinks has much more potential. The Japan Fund still has much to do to make up for the poor years of 2003 and 2005 but again the Investment Manager has high hopes for the strategy especially if commodity prices fall at all in response to the likely moderation of economic activity, which seems to have already begun in the western world. The holding of 25% of Lindsell Train Limited ('LTL') continues to perform well with its value rising by 18% over the half year as funds under management ('FUM') rose 20% to £533m. The Board have just completed a review of its valuation methodology and have concluded a change is desirable to reflect the fact that LTL's business is dominated by the management of long only funds as opposed to long/short funds as initially envisaged, and to adjust for the comparatively low level of staff costs, a function of LTL's salary and bonus cap agreed with the Company at inception. The new methodology that will be used from 1 October 2007 values LTL as the simple average of two metrics: 2% of FUM, ignoring differences between different types of asset class and fee structures; and LTL's net earnings (adjusted for a notional increase of staff costs at 45% of revenues excluding performance fees) divided by the annual average yield on the 2.5% Consolidated Loan Stock plus an equity risk premium of 4.5%. The effect of this change is to value the holding in LTL a little more conservatively than in the past, but such is the growth in the business that the first valuation using the new methodology in early October was nevertheless 4% above the value that would have resulted from using the old methodology at the end of September. After four years of uninterrupted gains from world stock markets the fall in the summer is a reminder that equity returns are more often lumpy and inconsistent and sometimes uncomfortably negative, even if over the long term they exceed other financial assets. With interest rates having increased for the last three years the delayed effect of such rises is now being felt in economies around the world. Thus, the strong and consistent rises in corporate profitability that have supported such equity gains are probably in the past with the immediate future less assured, especially for those businesses particularly dependant on strong cyclical economic growth. It is somewhat reassuring that many of the businesses owned by the Company are either more dependant on secular growth (for instance e-Bay or Nintendo) or tend to have more stable (i.e. less cyclical) revenues (for instance Cadbury Schweppes or Marston's) which gives us some hope that if there are more challenging times in equity markets ahead the Company can endure these periods and continue to retain if not enhance the value accumulated over past years. R M Swire Chairman 23 November 2007 Investment Manager's Report Our analysis of Developed World investment markets today is as follows. Investors in fixed interest securities hate inflation. They hate it to such an extent that we cannot conceive of the circumstances where they would permit real yields on long dated government stocks to go negative. Instead, if actual rates of inflation rise markedly, we expect bond prices to fall even more markedly, leading to ever more punitive real long term interest rates which, in the end, will choke economic growth and squeeze inflation downwards. In other words, we think there is a self-regulating mechanism at work in financial markets that makes a sustained period of galloping inflation unlikely. Applying this model to the events of the last few quarters makes good sense. During 2006, inflation expectations in the West rose gradually, as commodity prices surged. Accordingly, bond investors required higher long term yields, to compensate for the inflation risk and central bankers, too, chose to raise short term interest rates. Eventually, by Spring 2007, this more expensive money worked its traditional and intended effect. It found out the area of maximum financial leverage and speculative excess - namely the Anglo-Saxon real estate markets - and distress has ensued, in the bricks-and-mortar real economy and the credit markets. The result of the distress has been a marked lessening of the appetites to lend and to borrow. The risk of recession has increased. Critically, inflation expectations, as measured by long bond yields have begun to decline. US and UK government bond prices are up usefully since the summer and could have much further to go. Shareholders will have their own opinion about this analysis, but it both persuades and encourages us. It is encouraging because we have no doubt that your portfolio, as currently constituted, is likely to generate better returns during periods of stable or declining inflation fears than the opposite. Obvious beneficiaries are the bonds and preference shares we retain, the steady growth stocks that comprise the bulk of all the direct and indirect holdings in the Company and the 'short' positions in the Japan Fund. If there is to be a period of slower economic growth, we think it important for investors to brace themselves for accelerating global merger and acquisition activity, as corporations look to capture cost savings and economies of scale. The financial services industry and particularly banks, looks an obvious candidate for consolidation and we expect the battle for ABN-AMRO to be a precursor for more such deals. Our UK Equity strategy, captured in the portfolio by the investment in the Finsbury Growth and Income Trust is well exposed to a range of UK banks, fund management companies and the London Stock Exchange itself. This has proven a disadvantage over the last 12 months, a period of rising interest rates, always inimical for financial shares, but we can hope for a better period ahead. Still on takeovers, we do not regard the tilts on Dow Jones and Reuters as arbitrary and unrelated events (we anticipate these transactions to close in the first quarter of 2008). Instead they illustrate how much value investors have left on the table in the pariah sectors of Media and Technology - sufficient to encourage industrialists to buy in the stock market, rather than build from green field. The exposure to these sectors, both direct and via the Funds, particularly the Lindsell Train Global Media Fund, is one of the most distinctive features of the Company and certainly where we see the greatest mis-pricing and opportunity. In addition, we remain enthusiastic about Cadbury Schweppes, as its board analyses its options for the future shape of the business. At the end of September the Company's net borrowings were £5.1m, or 15.61% of NAV, a marginal increase over the half year to fund the increased investment in Cadbury Schweppes. Our borrowing has become more expensive (currently 6.4% per annum) both because short term interest rates have risen and because the cost of borrowing is linked to LIBOR, which, following problems in the credit market, is trading at premium to government controlled short rates. We view most of the borrowing as financing our investment in HBOS Preference shares, which have performed badly in light of the concerns about the banking sector. We regard HBOS's business as one of the best banking franchises in the UK and think that owning its preference shares at near 9% gross yield is the best value perpetual stream of income we know. The annual cost to HBOS of paying its preference dividends is trivial compared to that of the ordinary dividends, yet the reputational risk to the bank of cutting its preference dividends would be much greater even than reducing the ordinary. In all but the most adverse circumstances, then, we believe the preference dividends are secure. Meanwhile, there is a case to argue that HBOS's business is actually getting stronger today, as UK savers look to deposit and save with the top savings institution in the country. There will be cash coming into the Company over the next few months, from takeover receipts and, we can reveal, from recent profit taking in Nintendo. In the first instance, we may use these inflows to pay down borrowings, but we are alert to opportunities across the current portfolio and some targeted assets, if markets wobble. Nick Train Investment Manager Lindsell Train Limited 23 November 2007 Income Statement Six months ended Six months ended Year ended 30 September 2007 30 September 2006 31 March 2007 Unaudited Unaudited Audited Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments - 1,739 1,739 - 1,180 1,180 - 3,954 3,954 Exchange differences - (78) (78) - (85) (85) - (159) (159) Gains on forward - 24 24 - 71 71 - 116 116 currency contracts Income (note 5) 764 - 764 579 - 579 1,108 - 1,108 Investment (351) - (351) (84) - (84) (265) - (265) management fee (note 6) Other expenses (note 7) (168) (1) (169) (87) (1) (88) (154) (1) (155) Net return before 245 1,684 1,929 408 1,165 1,573 689 3,910 4,599 finance costs and tax Interest payable and (193) - (193) (138) - (138) (292) - (292) similar charges Return on ordinary 52 1,684 1,736 270 1,165 1,435 397 3,910 4,307 activities before tax Tax on ordinary (8) - (8) (5) - (5) (8) - (8) activities Return on ordinary 44 1,684 1,728 265 1,165 1,430 389 3,910 4,299 activities after tax for the period Return per Ordinary £0.22 £8.42 £8.64 £1.33 £5.82 £7.15 £1.95 £19.55 £21.50 Share All revenue and capital items in the above statement derive from continuing operations. The total columns of this statement represent the profit and loss accounts of the Company. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. A statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement. No operations were acquired or discontinued in the year. Reconciliation of Movements in Shareholders' Funds Capital Capital Share Special reserve reserve Revenue reserve capital reserve realised unrealised Total £'000 £'000 £'000 £'000 £'000 £'000 For the six months ended 30 September 2007 Net assets at 31 March 2007 150 19,850 1,175 9,457 920 31,552 Return on ordinary activities after tax - - (78) 1,762 44 1,728 for the period Dividends paid - - - - (350) (350) Net assets at 30 September 2007 150 19,850 1,097 11,219 614 32,930 For the six months ended 30 September 2006 Net assets at 31 March 2006 150 19,850 1,226 5,496 881 27,603 Return on ordinary activities after tax - - (57) 1,222 265 1,430 for the period Dividends paid - - - - (350) (350) Net assets at 30 September2006 150 19,850 1,169 6,718 796 28,683 For the year ended 31 March 2007 Net assets at 31 March 2006 150 19,850 1,226 5,496 881 27,603 Return on ordinary activities after tax - - (51) 3,961 389 4,299 for the period Dividends paid - - - - (350) (350) Net assets at 31 March 2007 150 19,850 1,175 9,457 920 31,552 Balance Sheet 30 September 30 September 31 March 2007 2006 2007 Unaudited Unaudited Audited £'000 £'000 £'000 Fixed assets Investments held at fair value through profit or 38,070 32,662 35,869 loss Current assets Debtors 975 960 1,000 Cash at bank 1,574 1,471 1,520 2,549 2,431 2,520 Creditors: amounts falling due within one year (7,689) (6,410) (6,837) Net current liabilities (5,140) (3,979) (4,317) Net assets 32,930 28,683 31,552 Capital and reserves Called up share capital 150 150 150 Special reserve 19,850 19,850 19,850 20,000 20,000 20,000 Capital reserve - realised 1,097 1,169 1,175 Capital reserve - unrealised 11,219 6,718 9,457 Revenue reserve 614 796 920 Equity shareholders' funds 32,930 28,683 31,552 Net asset value per Ordinary Share £164.65 £143.41 £157.76 Cash Flow Statement Six months ended Six months ended Year ended 30 September 30 September 31 March 2007 2006 2007 Unaudited Unaudited Audited £'000 £'000 £'000 Net cash inflow from operating activities 453 488 849 Servicing of finance (186) (136) (286) Taxation (10) (10) (8) Financial investment (479) (65) (482) Net cash (outflow)/inflow before financing (222) 277 73 Equity dividends paid (350) (350) (350) Decrease in cash in the period (572) (73) (277) Reconciliation of net cash flow to movement in net debt Decrease in cash in the period (572) (73) (277) Exchange movements (78) (85) (159) Opening net debt (4,473) (4,037) (4,037) Closing net debt (5,123) (4,195) (4,473) Represented by 1,574 1,471 1,520 Cash at bank (6,697) (5,666) (5,993) Overdrafts (5,123) (4,195) (4,473) Reconciliation of operating profit to net cash inflow from operating activities Profit before finance costs and taxation 1,929 1,573 4,599 Gains on investments held at fair value (1,739) (1,180) (3,954) Losses on exchange movements 78 85 159 Decrease in other debtors 40 23 49 Increase/(decrease) in accrued income (12) 53 (18) Increase/(decrease) in creditors 157 (66) 14 Net cash inflow from operating activities 453 488 849 Notes 1. The financial information for the year ended 31 March 2007 included in this half-year report has been based upon the Company's full accounts, which for the year to 31 March 2007 carry an unqualified audit report and did not include statements under Section 237(2) or (3) of the Companies Act 1985 and which have been filed with the Registrar of Companies. 2. The financial statements for the six months ended 30 September 2007 have been prepared on a basis consistent with the accounting policies adopted by the Company in its statutory accounts for the year ended 31 March 2007. 3. The Income Statement for the six months ended 30 September 2007, six months ended 30 September 2006 and year ended 31 March 2007 have been prepared in accordance with the Statement of Recommended Practice 'Financial Statement of Investment Trust Companies' issued by The Association of Investment Companies in January 2003 (revised December 2005), which has been adopted by the Company. 4. The Income Statement includes the results of the Company and together with the Reconciliation of Movements in Shareholders' Funds, Balance Sheet and Cash Flow Statement at 30 September 2007, are unaudited and do not constitute full statutory accounts within the meaning of Section 240 of the Companies Act 1985. 5. Income Six months ended Six months ended Year ended 30 September 30 September 31 March 2007 2006 2007 Unaudited Unaudited Audited £'000 £'000 £'000 Overseas dividends 100 28 62 UK dividends 506 128 726 Fixed interest income 118 387 247 Deposit Interest 40 36 73 764 579 1,108 6. Investment management fees Six months ended Six months ended Year ended 30 September 30 September 31 March 2007 2006 2007 Unaudited Unaudited Audited £'000 £'000 £'000 Management fee 108 84 184 Provision for manager's performance fees - 243 85 Rebate of investment management fee - - (4) 351 84 265 7. Other expenses Administration fees 33 30 60 Directors' fees 17 13 31 Provision for directors' bonus 24 - 9 Auditor's remuneration for: - audit of the financial statements of the Company 8 8 15 - other services relating to taxation - 4 4 Legal and professional fees 20 - Provision for VAT Written Off 48 19 Other* 17 14 35 167 88 154 * Includes registrar's fees, printing fees, London Stock Exchange/ FSA fees and Directors' & officers' liability insurance 8. The net asset value per Ordinary Share is based on net assets at 30 September 2007 of £32,930,000 (31 March 2007: £31,552,000 and 30 September 2006: £28,683,000) and on 200,000 Ordinary Shares in issue at 30 September 2007 (31 March 2007 and 30 September 2006: 200,000). 9. Returns per Ordinary Share The total return per Ordinary Share is based on net gain on ordinary activities after taxation of £1,728,000 for the six months ended 30 September 2007 (31 March 2007: £4,299,000 and 30 September 2006: £1,430,000) divided by 200,000 Ordinary Shares (31 March 2007 and 30 September 2006: 200,000) being the weighted average number of Ordinary Shares in issue during the period. The total return per Ordinary Share figure detailed above can be further analysed between revenue and capital, as below: Revenue return The revenue return per Ordinary Share is based on net revenue on ordinary activities after taxation of £44,000 for the six months ended 30 September 2007 (31 March 2007: £389,000 and 30 September 2006:£265,000) divided by 200,000 Ordinary Shares (31 March 2007 and 30 September 2006: 200,000) being the weighted average number of Ordinary Shares in issue during the period. Capital return The capital return per Ordinary Share is based on net gain on ordinary activities after taxation of £1,684,000 for the six months ended 30 September 2007 (31 March 2007: £3,910,000 and 30 September 2006: £1,165,000) divided by 200,000 Ordinary Shares (31 March 2007 and 30 September 2006: 200,000) being the weighted average number of Ordinary Shares in issue during the period. 10. The investment in Lindsell Train Limited (LTL) (representing 25% of the Investment Manager) is held as part of the investment portfolio. Accordingly, the shares are accounted for and disclosed in the same way as other investments in the portfolio. The valuation of the investment is calculated at the end of each quarter on the basis of fair value as determined by the Directors of the Company. The valuation process employed up to 30 September 2007 was formula based and took into account inter alia, the net assets of LTL, the value of the funds under its management and the moving average of its monthly earnings. On 18 October 2007, the Company announced that with effect from 1 October 2007, it had adopted a new methodology, based on professional advice, to reflect that the business of LTL is dominated by the management of long only funds. From 1 October 2007, the carrying value of the Company's investment in LTL will be calculated on the simple average of both the following: (a) 2% of LTL's most recent funds under management ignoring any differences between types of asset class and fee structure; and (b) LTL's net earnings (adjusted for a notional increase in total staff costs at 45% of revenues excluding performance fees) divided by the annual average yield on 2.5% Consolidated Loan Stock plus an equity risk premium of 4.5%. 11. Following the publication of the Investment Entities (Listing Rules and Conduct of Business) Instrument 2003, on 29 October 2003 the Company announced that it is the Company's policy to invest no more than 15% of its gross assets in other UK listed investment companies (including UK listed investment trusts) as defined in Listing Rule 15. 12. It is the intention of the Directors to conduct the affairs of the Company so that it satisfies the conditions for approval as an Investment Trust Company set out in Section 842 of the Income and Corporation Taxes Act 1988. Interim Management Report The Directors are required to provide an Interim Management Report in accordance with the UK Listing Authority's Disclosure and Transparency Rules and accordingly consider that the Chairman's Statement and the Investment Manager's Report above, the following statement on related party transactions and the Directors' Responsibility Statement below, together constitute the Interim Management Report for the Company for the six months ended 30 September 2007. The Directors confirm that no related party transactions were undertaken by the Company in the first six months of the current financial year. Whilst there have been no changes to the related party disclosures set out in the Annual Report of the Company for the year ended 31 March 2007, the Company announced on 18 October 2007 that with effect from 1 October 2007, it had adopted a new methodology for the valuation process of the Company's investment in its Investment Manager Lindsell Train Limited. Further details on this are given in note 10 to the Financial Statements. The half-year report for the six months ended 30 September 2007 has not been reviewed by the Company's Auditor Grant Thornton UK LLP. Directors' Responsibility Statement The non-executive Directors of the Company confirm that to the best of their knowledge: (a) the condensed set of financial statements, which has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, gives a true and fair view of the assets, liabilities, financial position and profit of the Company; (b) the Interim Management Report includes a fair review, as required by Disclosure and Transparency Rule 4.2.7 R, of important events that have occurred during the first six months of the financial year, 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 Disclosure and Transparency Rule 4.2.8 R. The half-year report was approved by the Board on 23 November 2007 and the above responsibility statement was signed on its behalf by R M Swire, Chairman. The printed half-year report for the six months ended 30 September 2007 will shortly be issued to shareholders and will be available on the following web site: http://www.lindselltrain.com/. Copies can also be requested from the Company Secretary, Phoenix Administration Services Limited, Springfield Lodge, Colchester Road, Chelmsford CM2 5PW Tel. 01245 398950 This information is provided by RNS The company news service from the London Stock Exchange

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