Half Yearly Report

RNS Number : 1094I

Seneca Global Income & Growth PLC

07 December 2015

 



To:                    RNS

From:                Seneca Global Income & Growth Trust plc

Date:                7 December 2015

SENECA GLOBAL INCOME & GROWTH TRUST PLC
ANNOUNCES INTERIM RESULTS

Seneca Global Income & Growth Trust plc, (the Trust), with total assets of £65.6 million, announces its interim results for the six months ended 31 October 2015.

·      Share price rose 3.6%

·      Quarterly dividend increased by 5% year on year

·      Prospective yield of 4.1%

·      NAV declined modestly by 1.3%

·      Annualised volatility of 7.6% compared to 13% for the FTSE All Share Index

·      The Board plans to introduce a discount control mechanism to regulate the share price at the next AGM, in July 2016

The Trust has a distinctive multi-asset value approach to investing, focusing on quality and price, which has contributed to a good six months for the share price, increasing from 141.0 pence to 143.1 pence.

In a turbulent period that began with the Greek debt crisis and ended with falls in China, the Trust's NAV declined modestly.  Against this background, the portfolio has continued to produce a strong and balanced flow of income across all asset classes and announces a 5% increase in quarterly dividend.

Seneca Global Income & Growth Trust plc has achieved consistent performance and seen its discount narrowing by in excess of 10% since its mandate changed in 2012.  The Trust, managed by Seneca Investment Managers, the Liverpool based investment house, recently received an Investment Week Investment Company of the Year award.

Richard Ramsay, Chairman, said: "We will seek to maintain and build the good investment performance record achieved since January 2012 when the Trust's investment policy changed.  The Trust offers investors a combination of good performance and yield, a growing dividend, quarterly distributions and low volatility, built on a strong multi-asset, value approach to investing.'

 

The detailed interim results announcement follows.

Unaudited results for the six months ended 31 October 2015

Highlights for the period

• Net asset value total return of -1.3%

• Share price total return of 3.6%

• Quarterly dividend increased by 5.0%

• Annualised volatility of 7.6% compared to 13.0% for the FTSE All-Share Index

• Share price discount average over the period of 2.1% (and 2.1% now)

Introduction

The six months to the end of October have been a difficult time for markets, with the Greek debt crisis dominating the first part of the period and emerging market weakness coming to a head in sharp stock market falls in China.  Against this background the NAV has declined modestly, outperforming equity markets, though underperforming the benchmark.  The portfolio has continued to produce a strong and balanced flow of income across all asset classes, which continues to grow, and I am pleased to be reporting interim dividend increases of 5.0%.

Investment and share price performance

The period saw a significant pick-up in volatility, particularly in August, when many equity markets saw falls of over 10%. Whilst there was some recovery in the latter part of the period, the FTSE All Share closed with a negative outturn of 7.3% (capital only) and with the FTSE World Index down 8.5% (capital only).  Asian and emerging market equities fared even worse, supporting high teen percent reversals. Against this background, whilst it is never nice to report a fall in asset value, it is reassuring that your Company's net asset value has only fallen from 151.9 pence to 147.0 pence, a decline of 3.2%. On a total return basis the negative outturn of 1.3% was less than the average net asset value decline of the Global Equity Income sector, which was 5.3%.  Your Board assesses performance against a number of indices as well as against the benchmark.  You will see that the Manager comments on how the multi-asset value investing approach employed in the Trust helped in these market conditions. 

It is pleasing to report that the better performance compared to equity markets over the period was accompanied by a much lower level of volatility than that encountered in global stock markets. This perhaps should be expected from a multi-asset approach, but this lower level of volatility was also evident against similar 'balanced' funds in the Investment Association open ended funds universe.

Your Company's investment performance has been recognised by a number of rating agencies. Morningstar have given a maximum 5 star rating for performance over three and five years, and Financial Express has also given a 5 Crown rating to the Company in their Crown Fund Ratings service.  Investment Week, in their 2015 awards for the investment trust sector, named your Company as the Investment Company of the year for the Overseas Income Sector.

I have commented previously of the importance that your Board puts on the marketing of your Company. The Board believes that, as an investment trust with a multi asset value approach to meeting its investment objectives of growing of income and capital from a range of global assets classes whilst achieving this with low volatility, your Company offers a distinctive investment proposition.  This distinctive proposition is what we are seeking to market.

Sound investment performance and active marketing have contributed to a good six months for the Company's share price, which has increased from 141.0 pence to 143.1 pence, an increase of 1.5%.  This increase in the share price has occurred at a time when markets have been falling and volatile, and the share prices of other companies in the Global Equity Income Sector have suffered an average fall of 4.2%. This good performance has helped to close the discount at which your Company's shares trade.

Dividends and Income

Your Company paid two interim dividends of 1.47 pence per share for the period, an increase of 5.0% on the first two interims paid last year. 

It is the Board's intention, barring unforeseen circumstances, that it will at least maintain the quarterly dividend rate of 1.47 pence per share for the full year to 30 April 2016.

Gearing

The Company's existing short term rolling debt facility of £7 million expired on 31 October, and it has been replaced with a two year rolling debt facility on improved terms. The new facility can be cancelled at any time without cost to the Company.  The Company was 12% geared at the end of October.

Investment Outlook

The period ahead heralds a new phase for markets with the imminent prospect of rate rises in the United States, while the UK stands on the sidelines watching and Europe moves towards further QE.  Recent terrorist attacks in Europe have reinforced the sense that geo political risks remain acute, and China continues to look for ways to rekindle its growth. This will all undoubtedly add volatility to markets, creating an environment of heightened risk and opportunity which particularly suits your Company's multi-asset value investing approach.

The Board's Priorities

In my recent statements I have been clear that the Board's priorities are twofold: firstly, to maintain and build upon your Company's record of good investment performance since the change to the Company's investment policy, approved by shareholders in January 2012; and secondly, to market the distinctive qualities of the Company more actively, so as to do away with the discount to NAV at which the shares trade. The six months to the end of October 2015 have seen continued progress on both these fronts and this progress has continued since the period end.  The Board is also committed to pursuing the enlargement of your Company and to this end will be putting forward any necessary resolutions at the next AGM in July 2016 to introduce a discount control mechanism that would aim to regulate the share price at close to its net asset value. 

Richard Ramsay

Chairman

4 December 2015

Manager's Review

Investment approach - Multi-asset value investing

The starting point for all Seneca IM clients is to determine what their specific long-term, or strategic asset allocation (SAA) should be, given the investment return and risk objectives. We call this strategic asset allocation or "core allocations" and they represent how a particular client should be positioned in various asset classes on average over time. In the case of the Company, the SAA was approved by shareholders in January 2012.

In order to determine what the core allocations should be for a particular client given their objectives, we assess what we think the likely long-term returns will be for various asset classes and sub asset classes. To a great extent, we assume that future long-term returns will be similar to past long-term returns. Also, we use real returns which take account of the effect of inflation. As an example, since 1866, US equities have returned 6.4% per annum in real terms. While there may well be reasons why the returns in future could be slightly above or below this, we think that it makes most sense to assume that they will be in line with those in the past. We apply the same approach to equities elsewhere, whether in the UK, Japan or emerging markets as well as to bonds, and alternative investments. Some parts of the alternative investments sector do not have a long history so a little more guesswork is required. However, the long-term assumptions are robust and well-founded.

Armed with these long-term return estimates for various asset classes, we construct core allocations such that they provide good diversification as well as combine to generate the return objective of the fund. We review these core allocations periodically, but unless there is a very good reason why the long-term return estimate for a particular asset class might have changed, they remain fixed.

We seek to add value in relation to these core allocations through tactical asset allocation (TAA), security selection and third party fund selection. As multi-asset value managers, all our client portfolios divide into four parts: UK equities, overseas equities, fixed income and alternatives. In UK equities, we invest directly, with a focus on mid-sized companies. In overseas equities we invest in third party funds. In fixed income, we invest mostly in third party funds, although we have the scope to go direct in the UK (gilts or investment grade bonds). Alternatives, unlike equities or bonds, is a very heterogeneous asset class, constituting as it does various types of investment, and arguably should not be considered an asset class at all. Many of the alternative investments tend to be closed-ended fund structures such as real estate investment trusts (REITS) or renewable energy funds, where underlying assets are illiquid and do not lend themselves to being operated in open ended vehicles. We also seek to add value from sector and trend research, which feeds into tactical asset allocation, security selection and third party fund selection.

There now exists an enormous body of work that has uncovered longer term predictabilities in markets. With respect to the performance of bond and equity markets, many of these relate to the business cycle. As for cross sectional returns the finding that high dividend yielding stocks tend to produce above-normal returns is often explained, not by them being higher risk, but by them being out of favour. Conversely, lower yielding stocks may be ones that have generated a lot of investor interest unjustifiably and thus are prone to a setback.

At Seneca IM, we seek to put to use on behalf of our clients much of the work that has been done over the decades with respect to understanding asset prices. Many of the findings relate future returns to some measure of present value, whether dividends and earnings in the case of equities or real interest rates in the case of bonds. We are trying to identify some measure of intrinsic value across all the assets in which we invest. This value driven approach can, we believe, deliver both superior long-term returns and a defensive element to investments which, at a very fundamental level are 'cheap' at the time of acquisition.

Overview for period

The early part of the period was dominated by the build up to and eventual default by Greece on its debt. Negotiations with its European partners had been fraught and unconstructive. The eventual (if perhaps only shorter term) resolution of the Greek debt crisis, gave some respite to markets, although this turned out to be short lived.

The volatility experienced in the capital markets in August and September was largely driven by macro-economic concerns. Chinese economic weakness translated into a bursting of the stock market bubble which had been fuelled by retail investor speculation. Similarly, stuttering economic activity in China has manifested itself in continued weakness in commodity prices, which in turn has hit a number of export driven and commodity producing emerging markets.  These concerns surrounding global growth in general were ultimately given further credence in September when the US announced a softer employment report than expected and weaker than has been experienced so far this year.

In the UK households have enjoyed the strongest rise in real incomes for a number of years. This has been the result of rising nominal wages, increased employment, falling inflation (particularly in fuel and food) and vigorous competition amongst retailers. Some of these supportive factors will be weaker or could even reverse in 2016. Following the strength of household confidence in recent months, there has been a softening on this front towards the end of the period. This is partly explained by consumers being in a "depressed back to school mood" according to one survey and households being less confident about the forthcoming year than they have been over the last 12 months. However, consumer confidence figures are still above their long term average. Despite unemployment continuing to fall, the lack of inflationary pressures in the UK system has led many commentators to forecast that interest rate rises may yet be pushed back into 2017.

There had been a palpable build-up of expectation that the Fed would commence interest rate rises in the September meeting. However, following Chinese and emerging market turmoil these expectations began to wane. The prospect of a rate rise was finally quashed with a non-farm payroll employment release, which at the headline level of 142,000, fell short of previous months and that of expectations. Although the US economy is relatively insular given its size, the positive effects of the active household consumer and continued growth in imports will be countered by the slowdown in emerging market growth which will hinder US exports (and so growth).

Turning to Europe, as with the US, the consumer is providing a support to the economic recovery. Data releases for retail sales, improving employment levels and low inflation (close to deflation which may yet trigger further policy action by the ECB) all indicate ongoing strength in consumer spending, albeit from depressed levels. The high levels of consumer confidence reported in September, bolstered by employment expectations and household's view on their future economic expectation, should continue to fuel GDP growth.

In Japan the country is highly dependent on energy (oil) imports, there is marked divergence between its "core CPI", which suggests inflation is currently in deflation territory, while when measured on a "core core CPI" basis, which excludes food and energy (which have been deflating), it is closer to +1%.  Industrial production data suggests the weakness in demand from mainland Asia is having a negative impact. This external weakness and the headline deflation has given scope for the Bank of Japan to increase the pace and broaden the range of asset purchases (QE) being conducted to stimulate the economy. The Bank of Japan retains the official target of 2% CPI price stability around the first half of 2016. Business sentiment, however, has proved to be more resilient than some predicted.  This is particularly the case in services. Furthermore, inflation expectations in both households and corporates continue to exceed the level displayed by the official CPI figures.

Overall the period was a difficult one for risk assets, with negative returns being recorded by most major equity markets, despite some recovery from the lowest levels seen in the sharp sell-off during August. In particular emerging markets bore the brunt of the poor sentiment ending the period with double digit losses.

Performance

Performance over the period was mixed, with a net asset value total return of -1.3%. This was below the benchmark (3 month Libor +3%) return of +1.8%. However, the share price total return was better at +3.6%, as the discount to net asset value narrowed. Over the period, the FTSE All Share total return was -5.6% and negative returns from emerging market and Asian equities stretched well into double figures. The returns for your Company were achieved with a level of volatility (as measured by Financial Express Analytics) which was less than half that of FTSE 100 Share Index.

The chart below shows the performance against a range of comparator indices over the period. These indices were introduced in the 2014 annual report to give some useful guidance as to the success of your manager's investment approach.

Whilst the returns over the 6 months were below UK inflation and the UK gilt market, this still represents a reassuring outturn given the volatility and falls in risk assets over the period. The defensive value of adopting a multi-asset approach can be seen from the good relative performance compared to the FTSE All Share index. In addition, performance was also favourable against the FTSE Wealth Manager Association Balanced Portfolio index, which is a widely used by discretionary managers as a benchmark for diversified client portfolios. The longer term returns since the change in mandate agreed by shareholders in January 2012 remain comfortably ahead of all the major comparator indices, as shown in the following chart.

Apart from the good absolute and relative performance achieved over this extended period, it is worthy of note that these returns have been achieved with a lower level of volatility than either the FTSE All share index or the FTSE WMA Balanced index.

Turning back to the current period, the largest positive contributions to returns came from UK equity holdings, where the emphasis on mid cap companies was beneficial.  Other areas making a positive contribution included property and private equity (with the Company's position in A J Bell Holdings being revalued upwards following a partial sale of the position at a price a little above the carried value).

Perhaps unsurprisingly, the major detractors were the equity market positions in Asia, emerging markets and commodities, given the negative sentiment surrounding slowing growth in China and disappointing economic data more generally.

On drilling down further into individual contributors to returns the top four positive contributions came from within the UK equity holdings. In particular the bid for Amlin, which was a holding that had already performed well, was beneficial. The emphasis on mid cap holdings in the UK portfolio was a significant contributor, as they generally outperformed their large cap brethren.

Detractors from returns, perhaps unsurprisingly, lay mainly within the third party funds used to gain exposure to Asian and emerging market equities. The main exception being Blackrock World Mining, which continued to suffer from a de-rating following the announcement of a major write down within the portfolio, together with very negative sentiment towards mining companies.

Asset Allocation

There have been no major changes to asset class allocations over the period. The portfolio continues to emphasise real assets such as equities and property, which can provide capital growth and improved income over time. In addition, alternative assets have been targeted that provide dependable income streams, whilst also offering some potential for income and capital growth. Investments with asset backing have been preferred to monetary assets. Fixed interest holdings have been positioned in short duration bond and senior loan funds, which give little interest rate sensitivity and, indeed, may benefit as and when interest rates finally rise.

UK Equities (27.4%)

The UK economy still appears to be performing reasonably well, notwithstanding the spectre in 2017 of a vote on continuing membership of the European Union. The UK labour market has continued to improve, supporting more positive sentiment amongst consumers. However, industry performance has been patchy, with exporters struggling to cope with a strong currency (particularly those selling into Europe). UK inflation remains well below targeted levels and the prospect for interest rate rises have been pushed further along the horizon

Over the period there has been a small net disinvestment from the UK portfolio, as profits were taken on several mid cap holdings, which had performed well. We have struggled to find value amongst larger companies and the portfolio has no exposure to banks, oil companies or pharmaceuticals, amongst the most heavily weighted sectors within the FTSE 100 index. However, further down the market cap scale new holdings introduced during the period included BT Group, Diploma and Bovis Homes, with the latter being financed from the sale of Barratt Developments, which had performed well but where the valuation was looking stretched. The Diploma purchase was financed from the sale of Amlin, following the agreed offer from Mitsui Sumitomo Insurance.

Overseas Equities (32.4%)

The two track economic policy being followed amongst the major developed economies has, we believe, provided the main opportunity to add value to the portfolio this year. The economies within Japan and, more particularly Europe, should continue to find support from the loose monetary conditions and further significant QE measures. Meanwhile the US market may be facing some headwinds following the ending of the Fed's QE support and the subsequent strength in the dollar, as investors anticipate the long awaited turn in the interest rate cycle. The reduction in energy costs is a major benefit to most developed economies, albeit the US has suffered from pressures within the domestic oil industry due to the current low crude prices. Emerging markets have been under significant pressure, with large market falls beginning to throw up some interesting value opportunities we feel.

Although the headline overseas equity exposure has been fairly static, this disguises material changes to individual market positions. As can be seen in the table below there has been a further investment into European equities, where we believe the economy is at a much earlier stage of recovery and where valuations are not reflecting the benefits of tail winds which include the large QE programme, lower energy costs and a very competitive euro.

New positions in Europe have been taken largely through sterling hedged open ended funds namely Schroders European Alpha Income Fund and BlackRock Continental European Income Fund, with the result being a capping at 45% in euro exposure in order to protect the portfolio from further weakness in the currency. In addition, a position has been built in European Assets Trust to provide exposure to smaller companies. In all cases the managers invest on a very active basis, offer decent yields, and have benefited from good relative performance both historically and during the current period.

Funding for the increase in Europe came from the US equity and emerging market equity holdings, with respectively a stretched valuation and a wish to protect capital being the motivating factors behind the reductions. Japanese funds have performed well and again are run on a very concentrated approach. The holding in Lindsell Train Japanese Equity Fund has performed particularly well and also benefited from being held through a sterling hedged share class.

Asian equity market exposure has fallen over the period, despite a small further investment being made. This reduction is due to poor relative performance, which is now beginning to make the region more interesting on as valuations reach more attractive levels.

Alternative Assets (28.8% including property)

Your Company's exposure to alternative assets encompasses the following sectors:

·      Commercial property - focused on UK secondary and niche markets

·      Infrastructure - Renewable energy and proven social infrastructure

·      Speciality Finance - Leasing, mortgages and direct lending to SME market

·      Private equity - A J Bell Holdings and private equity fund of funds

·      Global reinsurance

The rationale to these exposures is to identify investments which offer a combination of income streams that are more often more stable than equities, but also with real returns that look attractive when compared to bonds. Many of these investments also offer a lack of correlation to other assets held and as such give considerable diversification benefits within a balanced portfolio.

Property exposure increase slightly over the period, rising to 9% from 8.5%, with this being held through a number of UK listed REITs. Investments encompass areas such as large industrial distribution centres; student accommodation; primary healthcare facilities and active property managers investing mainly in the regions outside the south-east. A new holding was introduced to the portfolio, namely AEW UK REIT, which is investing into smaller lot sized investments which are below the radar of the main institutional market. The company is targeting a yield in excess of 7% when fully invested. However, profit was also taken on other holdings where strong price performance dictated a reduced exposure.

Within infrastructure holdings investment was consolidated into three core holdings in the renewable energy sector. In addition, a new position was introduced late in the period with the purchase of Sequoia Economic Infrastructure Fund, a quoted vehicle investing in the debt of proven social infrastructure projects. Overall exposure to infrastructure fell by 1% to 4.7%.

One of the most interesting opportunities in alternative assets is offered, we believe, from the squeeze on the banks - be this either from regulatory pressures or through the disintermediation of their traditional lending businesses due to technology developments. During the period two new investments were made to take advantage of these pressures. An investment was made in Ranger Direct Lending, which operates through specialist online lending platforms, primarily operating in the Small and Medium Enterprises (SME) market. Deal flow across the partner platforms used is very strong and the managers are targeting low double digit returns. Another new investment came through a commitment of capital to UK Mortgage Limited, a listed fund investing in UK residential mortgages, taking advantage of mainly UK based banks looking to divest these core assets to meet Basle 3 capital adequacy requirements.

Other specialist lending exposure is held in asset leasing vehicles, either in commercial aircraft or commercial leases. During the period investment in leasing vehicles exposed to the A380 aircraft were reduced , through the sale of Doric Nimrod 3, in favour of more diversification as a new holding in DP Aircraft 1 was initiated, with this fund operating leases on the Boeing 787 Dreamliner.

Private equity exposure was reduced to 5.5% (from 7.8%) mainly through the sale of Princess Private Equity Holdings and with further regular redemptions of Partners Group Global Opportunities Fund, which is carried at a 20% discount to net asset value due to its illiquidity. The fund is being wound up and further regular distributions can be expected.

The unquoted investment in A J Bell Holdings (AJB), the fast growing SIPP provider and investment platform, was revalued to 600p per share (from 575p previously) following a sale of 65,000 shares at that level. The company's interim results, which were released in May 2015, showed a small drop in profits but other key financial metrics were very positive. Assets under administration grew by 10% to £26.1 billion; Revenue increased by 7% to £27.8 million and the number of retail clients also lifted by 7% to 111,503. At 600p per share the company is valued on a prospective price earnings ratio of 19.7x and a yield of over 4%.This valuation looks conservative when compared to the company's main quoted comparator Hargreaves Lansdown, which trades on a PE in excess of 40x and yield of just over 2%.

Fixed Interest (11.4% - inclusive of cash)

Fixed interest exposure has been maintained, with no significant transactions being undertaken .The vast majority of fixed interest exposure is in short duration specialist bond and senior loan funds, which offer protection against a reversal in the positive sentiment to developed market sovereign bonds. Given the growing issues surrounding liquidity in bond markets (or lack of it) we also feel there is a value in being exposed to shorter duration bonds where there is natural liquidity as bonds regularly mature.

One of the major benefits derived from operating a multi asset approach is the wide range of sources from which income is derived. The chart above demonstrates that income from the portfolio is closely aligned to underlying asset exposure. This high level of diversification provides a good degree of certainty around the portfolio's ability to produce an income stream that is not only robust but also capable of growth over time.

Outlook

The outlook for financial markets remains challenging. With the OECD tempering global growth expectations for 2016 and the rising likelihood of a US rate rise in December, following a very strong non-farm payroll report in November, elevated market volatility can be expected. Market participants may have to adapt to the new paradigm that includes rising US treasury yields, US dollar strength and widening corporate bond spreads, whilst the returns from equities may come under pressure. Divergent monetary policies between the US, UK, Europe and Japan will support a selective approach to asset exposure. US dollar monetary tightening may put further pressure on those emerging market countries with significant current accounts deficits. Geo political risks are also never far from the headlines.

Despite this challenging background, the multi-asset value approach followed by your manager continues to identify opportunities to generate both income and capital growth, with the prospect for further value being added from taking tactical asset allocation decisions when more value is evident within the wide range of assets in which we can invest.

Seneca Investment Managers

4 December 2015

Enquiries:

Alan Borrows

Seneca Investment Managers Limited                  Tel:  [phone]

Martin Cassels, Company Secretary

R&H Fund Services Limited                                Tel:  [phone]

Unaudited Income Statement

		Six months ended 31 October 2015 (unaudited)			Six months ended 31 October 2014 (unaudited)
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments		-	(1,827)	(1,827)	-	(508)	(508)
Income	2	1,567	-	1,567	1,393	-	1,393
Investment management fee		(124)	(124)	(248)	(121)	(121)	(242)
Administration expenses		(204)	-	(204)	(211)	-	(211)
Exchange gains		-	-	-	-	3	3
Net return on ordinary activities before finance costs and taxation		1,239	(1,951)	(712)	1,061	(626)	435
Finance costs		(30)	(30)	(60)	(32)	(32)	(64)
Net return on ordinary activities before taxation		1,209	(1,981)	(772)	1,029	(658)	371
Taxation		-	-	-	-	-	-
Return on ordinary activities after taxation		1,209	(1,981)	(772)	1,029	(658)	371
Return per share (pence):	3	3.03	(4.97)	(1.94)	2.58	(1.65)	0.93

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

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

All revenue and capital items in the above statement derive from continuing operations.

Audited Income Statement

		Year ended 30 April 2015 (audited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Gains on investments		-	3,390	3,390
Income	2	3,044	-	3,044
Investment management fee		(241)	(241)	(482)
Administration expenses		(393)	-	(393)
Exchange gains		-	6	6
Net return on ordinary activities before finance costs and taxation		2,410	3,155	5,565
Finance costs		(60)	(60)	(120)
Net return on ordinary activities before taxation		2,350	3,095	5,445
Taxation		-	-	-
Return on ordinary activities after taxation		2,350	3,095	5,445
Return per share (pence):	3	5.89	7.76	13.65

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

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

All revenue and capital items in the above statement derive from continuing operations.

Balance Sheet
		As at 31 October	As at 31 October	As at 30 April
		2015	2014	2015
		(unaudited)	(unaudited)	(audited)
		£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		64,599	62,660	65,988
Current assets
Debtors and prepayments		218	447	501
Cash at short term deposits		953	661	1,217
		1,171	1,108	1,718
Creditors: amounts falling due within one year
Bank loan		(7,000)	(7,000)	(7,000)
Other creditors		(125)	(137)	(115)
		(7,125)	(7,137)	(7,115)
Net current liabilities		(5,954)	(6,029)	(5,397)
Net assets		58,645	56,631	60,591
Capital and reserves
Called-up share capital		9,974	9,974	9,974
Share premium account		1,445	1,445	1,445
Special reserve		41,783	41,783	41,783
Capital redemption reserve		2,099	2,099	2,099
Capital reserve	5	2,344	572	4,325
Revenue reserve		1,000	758	965
Equity shareholders' funds		58,645	56,631	60,591
Net asset value per share (pence):	6	146.99	141.95	151.87

Reconciliation of Movements in Shareholders' Funds

Six months ended 31 October 2015 (unaudited)

	Notes	Share capital	Share premium	Special reserve	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 April 2015		9,974	1,445	41,783	2,099	4,325	965	60,591
Return on ordinary activities after taxation		-	-	-	-	(1,981)	1,209	(772)
Dividends paid	4	-	-	-	-	-	(1,174)	(1,174)
Balance at 31 October 2015		9,974	1,445	41,783	2,099	2,344	1,000	58,645

Six month ended 31 October 2014 (unaudited)

	Notes	Share capital	Share premium	Special reserve	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 April 2014		9,974	1,445	41,783	2,099	1,230	847	57,378
Return on ordinary activities after taxation		-	-	-	-	(658)	1,029	371
Dividends paid	4	-	-	-	-	-	(1,118)	(1,118)
Balance at 31 October 2014		9,974	1,445	41,783	2,099	572	758	56,361

Year ended 30 April 2015 (audited)

	Notes	Share capital	Share premium	Special reserve	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 April 2014		9,974	1,445	41,783	2,099	1,230	847	57,378
Return on ordinary activities after taxation		-	-	-	-	3,095	2,350	5,445
Dividends paid	4	-	-	-	-	-	(2,232)	(2,232)
Balance at 30 April 2015		9,974	1,445	41,783	2,099	4,325	965	60,591

Cash Flow Statement
	Six months ended 31 October 2015 (unaudited)	Six months ended 31 October 2014 (unaudited)	Year ended 30 April 2015 (audited)
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	(712)	435	5,565
Adjustments for: Gains/(losses) on investments	1,827	508	(3,390)
Exchange gains	-	(3)	(6)
Decrease in accrued income	295	367	174
(Increase)/decrease in other debtors	(12)	(7)	2
Increase in creditors	10	35	10
Net cash inflow from operating activities	1,408	1,335	2,355
Net cash outflow from servicing of finance	(60)	(60)	(117)
Net cash (outflow)/inflow from financial investment	(438)	322	1,026
Equity dividends paid	(1,174)	(1,118)	(2,232)
Net cash (outflow)/inflow before financing	(264)	479	1,032
Net cash outflow from financing	-	-	-
(Decrease)/increase in cash	(264)	479	1,032
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash as above	(264)	479	1,032
Foreign exchange movements	-	3	6
Movement in net debt in the period	(264)	482	1,038
Opening net debt	(5,783)	(6,821)	(6,821)
Closing net debt	(6,047)	(6,339)	(5,783)
Represented by:
Cash at bank and in hand	953	661	1,217
Debt falling due within one year	(7,000)	(7,000)	(7,000)
	(6,047)	(6,339)	(5,783)

Notes

1.   Accounting policies

Basis of accounting

The accounts have been prepared in accordance with applicable UK Accounting Standards, with pronouncements on half-yearly reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis.

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 half yearly financial statements have been prepared using the same accounting policies as the preceding annual accounts.

2.   Income

	Six months ended 31 October 2015 £'000	Six months ended 31 October 2014 £'000	Year ended 30 April 2015 £'000
Income from investments
UK franked income	608	936	1,080
UK unfranked income	613	326	1,172
Overseas dividends	344	127	787
	1,565	1,389	3,039
Other income:
Deposit interest	2	4	5
	2	4	5
Total income	1,567	1,393	3,044

3 Return per share

The revenue return of 3.03 pence (31 October 2014 - 2.58 pence; 30 April 2015 - 5.89 pence) per ordinary share is calculated on net revenue on ordinary activities after taxation for the year of £1,209,000 (31 October 2014 - £1,029,000; 30 April 2015 - £2,350,000) and on 39,896,361 (31 October 2014 - 39,896,361; 30 April 2015 - 39,896,361) ordinary shares being the weighted average number of ordinary shares in issue during the period.

The capital loss of 4.97 pence (31 October 2014 - loss of 1.65 pence; 30 April 2015 - return of 7.76 pence) per ordinary share is calculated on a net capital loss for the period of £1,981,000 (31 October 2014 - loss of £658,000; 30 April 2015 - return of £3,095,000) and on 39,896,361 (31 October 2014 - 39,896,361; 30 April 2015 - 39,896,361) ordinary shares being the weighted average number of ordinary shares in issue during the period.

The total return of 1.94 pence (31 October 2014 - return of 0.93 pence; 30 April 2015 - return of 13.65 pence) per ordinary share is calculated on the total loss for the period of £772,000 (31 October 2014 - return of £371,000; 30 April 2015 - £5,445,000) and on 39,896,361 (31 October 2014 - 39,896,361; 30 April 2015 - 39,896,361) ordinary shares being the weighted average number of ordinary shares in issue during the period.

4 Dividends

Ordinary dividends on equity shares deducted from reserves are analysed below:

	Six months ended 31 October 2015	Six months ended 31 October 2014	Year ended 30 April 2015
	£'000	£'000	£'000
2014 fourth interim dividend - 1.40p	-	559	558
2015 first interim dividend - 1.40p	-	559	558
2015 second interim dividend - 1.40p	-	-	558
2015 third interim dividend - 1.40p	-	-	558
2015 fourth interim dividend - 1.47p	587	-	-
2016 first interim dividend - 1.47p	587	-	-
	1,174	1,118	2,232

The Company has declared a second interim dividend in respect of the year ending 30 April 2016 of 1.47p (2015 - 1.40p) per ordinary share which will be paid on 11 December 2015 to ordinary shareholders on the register on 20 November 2015.

5 Analysis of capital reserve

The capital reserve reflected in the Balance Sheet at 31 October 2015 includes losses of

£3,308,000 (31 October 2014 - losses of £1,160,000; 30 April 2015 - gains of £2,596,000) which relate to the revaluation of investments held at the reporting date.

6 Net asset value per share

	Six months ended 31 October 2015	Six months ended 31 October 2014	Year ended 30 April 2015
Net asset value per share	£'000	£'000	£'000
Attributable net assets (£'000)	58,645	56,631	60,591
Number of Ordinary shares in issue	39,896,361	39,896,361	39,896,361
Net asset value per Ordinary share (p)	146.99	141.95	151.87

7 Half-Yearly Financial Report

The results for the six months ended 31 October 2014 and six months ended 31 October 2015, which have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on "Review of Interim Financial Information", constitute non-statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the year ended 30 April 2013 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2),(3) or (4) of the Companies Act 2006.

The report and accounts for the half-year ended 31 October 2015 will be posted to shareholders and made available on the website www.senecaim.com/.  Copies may also be obtained from the Company Secretary, R&H Fund Services Limited, 20 Forth Street, Edinburgh, EH1 3LH.

Principal Risks and Uncertainties

Risks are inherent in the investment process, but it is important that their nature and magnitude are understood so that risks, particularly those which the Company does not wish to take, can be identified and either avoided or controlled. The Board has established a detailed framework of the key risks that the business is exposed to, with associated policies and processes devised to mitigate or manage those risks. The principal risks faced by the Company are set out below.

Investment and Strategy Risk: The Board is responsible for deciding the investment strategy to fulfil the Company's objectives and monitoring the performance of the Investment Manager. Inappropriate strategy, including country and sector allocation, stock selection and the use of gearing, could lead to poor returns for shareholders. To manage this risk the Board requires the Investment Manager to provide an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio at each Board meeting, when gearing levels are also reviewed. The Board monitors the spread of investments to ensure that it is adequate to minimise the risk associated with particular countries or factors specific to particular sectors. The Investment Manager also provides the Board and shareholders with monthly factsheets which include an investment commentary.

Market Risk: The Company's assets consist principally of listed equities and fixed interest securities and its greatest risks are in consequence market-related. In addition to ordinary movements in the prices of the Company's investments and the loss that the Company might suffer through holding investments in the face of negative market movements, the Company's use of gearing necessarily amplifies this risk. The Board seeks to mitigate this risk through the processes described in the paragraph above, monitoring the implementation and results of the investment process with the Investment Manager.

Financial Risk: The Company's investment activities expose it to a variety of financial risks that include market price risk, foreign currency risk, interest rate risk and liquidity and credit risk.

Earnings and Dividend Risk: The earnings that underpin the amount of dividends declared and future dividend growth are generated by the Company's underlying portfolio. Fluctuations in earnings resulting from changes to the underlying portfolio or changes in the tax treatment of the dividends or interest received by the Company could reduce the level of dividends received by shareholders. The Board monitors and manages this risk by considering detailed income forecasts prepared by the Investment Manager and Company Secretary at each Board meeting and when the quarterly dividends are declared.

Operational Risk: The Company relies upon the services provided by third parties and is reliant on the control systems of the Investment Manager and the Company's other service providers. The security and/or maintenance of, inter alia, the Company's assets, dealing and settlement procedures, and accounting records depend on the effective operation of these systems. These are regularly tested and monitored and are reported on at each Board meeting. An internal control report, which includes an assessment of risks, together with the procedures to mitigate such risks, is prepared by the Investment Manager and the Company Secretary and reviewed by the Audit Committee at least once a year. The Custodian, State Street Bank and Trust Company, produces an internal control report each year which is reviewed by its auditors and gives assurance regarding the effective operation of controls. A summary of this report is reviewed by the Audit Committee.

Regulatory Risk: The breach of regulatory rules could lead to a suspension of the Company's stock exchange listing or financial penalties. Breach of Sections 1158 to 1159 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on chargeable gains. The Company Secretary monitors the Company's compliance with the Listing Rules of the UK Listing Authority and Sections 1158 to 1159 of the Corporation Tax Act 2010.  Compliance with the principal rules is reviewed by the Directors at each Board meeting.

Key Man Risk: The Company is substantially dependent on the services of key individuals working for its Investment Manager, namely Alan Borrows and Simon Callow. The loss of either or both of these individuals could have an adverse effect on the Company's performance.

Directors' Statement of Responsibilities in Respect of the Half-Yearly Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, the Directors confirm that to the best of their knowledge:

• the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards on a going concern basis, and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;

• the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

• the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year;

• the half-yearly report includes a fair review of the related party transactions that have taken place in the first six months of the financial year; and

• in light of the controls and monitoring processes that are in place, the Company has adequate resources and arrangements to continue operating within its stated objective and policy for the foreseeable future.  Accordingly, the accounts continue to be drawn up on the basis that the Company is a going concern.

On behalf of the Board

Richard Ramsay

Chairman

4 December 2015

 

END

 

 

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