Interim Results
Schroder Split Investment Fund PLC
01 June 2007
1 June 2007
UNAUDITED INTERIM RESULTS
The Directors of Schroder Split Investment Fund plc ('the Company') and its
subsidiary Schroder Split ZDP plc (together 'the Group') announce the unaudited
preliminary results of the Group for the six months ended 30 April 2007.
Highlights
As at 30 April 2007 As at 30 April 2006 As at 31 October 2006
Per Ordinary Share
Net asset value 137.93p 127.11p 131.20p
Share price 127.00p 112.50p 114.50p
Six ended Six ended Year ended 31 October 2006
30 April 2007 30 April 2006
Revenue return 4.45p 4.04p 8.10p
Total return 11.73p 27.89p 35.17p
Total dividends 3.40p 3.20p 8.10p
As at 30 April 2007 As at 30 April 2006 As at 31 October 2006
Zero Dividend Preference Share
Net asset value 147.97p 137.33p 142.59p
Share price 148.25p 140.50p 146.00p
Six ended Six ended Year ended
30 April 2007 30 April 2006 31 October 2006
Total return 5.38p 4.99p 10.26p
CHAIRMAN'S STATEMENT
Performance
During the six month period ended 30 April 2007, our net assets produced a total
return of 6.8%. This combines the returns of the equity and bond portfolios,
both of which performed well in relative terms. In particular, our UK equities
returned 8.9%, which compares to a total return of 8.6% for the FTSE All-Share
Index and 5.6% for the FTSE 350 Higher-Yield Index.
Our long-term performance also remains strong. From launch in 2002 to 30 April
2007, net assets have produced a total return of 69.8%, outperforming the FTSE
All-Share Index, which returned 60.1% over the same period.
At the period end, the hurdle rate for the Ordinary Shares to reach the
prevailing share price of 127.0p stood at -4.1% per annum. The asset cover on
the Zero Dividend Preference Shares has improved from 2.20 at 31 October 2006 to
2.30 at the period end.
Dividends
As previously announced, your Board has declared an increased second interim
dividend for the year ending 31 October 2007 of 1.7p (2006:1.6p). This follows
the payment of an increased first interim dividend for the year of 1.7p (2006:
1.6p).
Your Board expects, on the basis of current forecasts for income receivable,
that we will be able to declare dividends for the full year ended 31 October
2007 amounting to at least the same as the dividends paid in respect of the year
ended 31 October 2006, which totalled 8.1p per share.
Share Price Performance
During the period under review, the share price discount to net asset value of
the Ordinary Shares narrowed significantly, falling to 7.9% from 12.7% at 31
October 2006. Meanwhile, the share price premium to net asset value of the Zero
Dividend Preference Shares reduced as the shares moved closer to maturity,
falling to 0.2% from 2.4% during the same period. Since the period end, the
discount of the Ordinary Shares and premium of the Zero Dividend Preference
Shares has fallen further to 4.9% and 0.1% respectively as at 24 May 2007.
Outlook
As the Group approaches the end of its initial planned life we appear to be well
placed to deliver on the stated objectives for its two share classes.
Your Board is considering a number of options for the future of the Group taking
into account the interests of all shareholders. An announcement regarding the
Board's proposals will be made later in the year.
As this will be my final Chairman's Statement in advance of putting forward such
proposals, I would like to take the opportunity on behalf of the Board to thank
shareholders for their support since the Group's launch in 2002.
John Padovan
Chairman
1 June 2007
INVESTMENT MANAGER'S REVIEW
EQUITY PORTFOLIO (approximately 83% of Gross Assets)
Market Background
Equity markets continued to show robust returns, with the FTSE All-Share Index
recording a total return of 8.6% over the reporting period. The backdrop has
continued to be favourable for equities. Global growth momentum has slowed, but
this has been confined primarily to the United States and Japan in contrast to
most of Europe and the Emerging Markets. Interest rates continued to rise in
Europe, and the Bank of England increased rates twice over the reporting period
to 5.25%.
Looking at sector performance, there was a change in leadership from basic
materials towards a more broad-based performance profile, with industrials,
consumer services, telecoms and utilities taking the lead. The materials sector
suffered from a general deterioration of resource prices caused by a general
fear of a global economic slowdown. The main driver of the broad-based nature of
performance was increased corporate M&A activity and private equity funds.
Performance and Portfolio Activity
Equity performance has been strong in absolute terms, and has also outpaced that
of the FTSE All-Share Index and the FTSE 350 High Yield Index. In particular,
the stock selection in the consumer goods and services sector has generated
significant positive returns, whereas the oil sector suffered from a fall in the
oil price.
The major sector exposures have remained fairly stable over the reporting
period, with the strongest weightings still within financials and consumer
services. In general, changes made over the reporting period were biased towards
more defensive areas with stable earnings and high dividend profiles.
FIXED INTEREST PORTFOLIO (approximately 17% of Gross Assets)
Over the review period, the funds' lower-than-average duration strategy
benefited performance, as did individual stock selection, particularly from
short term exposure to new issues in the market.
Thanks to a supportive backdrop of rising equity markets and low default rates,
high yield credit continued to perform well over the last six months. In
contrast, however, government and investment-grade bonds struggled somewhat over
the period as concerns over UK interest rates continued to dominate the market.
OUTLOOK
Within the reporting period, market participants had to cope with increased
market volatility, prompted by increased concerns over the US sub-prime mortgage
market and the possible knock-on impact on consumer spending. Global equity
markets were further impacted by a series of weak economic data that spurred
fears of slower growth and potentially higher inflation.
Despite the recent volatility in global equity markets, we still believe a soft
landing scenario in the US is the most likely outcome. Against this backdrop, we
believe that UK equities can still produce attractive returns supported by
domestic drivers and, in particular, ample liquidity in the hands of corporate
managers and private equity funds. We continue to see plenty of opportunity to
invest in well-managed, soundly financed and growing companies that offer
well-covered dividends. We acknowledge the potential headwinds from weaker
macro-economic data and have taken this into account in the stock selection
process.
Turning to fixed interest assets, we believe we are nearing the end of the
upswing in the current interest rate cycle in both the UK and Europe, which is
normally a time when government bonds start to perform well.
Schroder Investment Management Limited
1 June 2007
Consolidated Income Statement
Six months ended Six months ended
30 April 2007 30 April 2006
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
Return Return Return Return Return Return
Note £'000 £'000 £'000 £'000 £'000 £'000
Net gains on investments# - 4,825 4,825 - 11,473 11,473
Income 2,272 - 2,272 2,055 - 2,055
Investment management fee 2 (133) (199) (332) (123) (184) (307)
Administrative expenses (118) - (118) (88) - (88)
Net return before finance costs and 2,021 4,626 6,647 1,844 11,289 13,133
taxation
Interest payable+ 3 (134) (202) (336) (109) (163) (272)
Provision for redemption of Zero
Dividend Preference Shares in
the subsidiary - (1,477) (1,477) - (1,371) (1,371)
Dividends on Ordinary Shares
Fourth interim dividend of 3.30p (1,360) - (1,360) (906) - (906)
per share (2.20p: year ended
31 October 2006)*
First interim dividend of 1.70p per 4 (700) - (700) (658) - (658)
share (1.60p: year ended 31 October
2006)
Net return on ordinary activities (173) 2,947 2,774 171 9,755 9,926
before taxation
Taxation on ordinary activities (53) 53 - (71) 71 -
(Decrease)/increase in net assets
attributable to Ordinary
Shareholders (226) 3,000 2,774 100 9,826 9,926
Net return per Ordinary Share 5 4.45p 7.28p 11.73p 4.04p 23.85p 27.89p
Net return per Zero Dividend
Preference Share in the subsidiary 5 - 5.38p 5.38p - 4.99p 4.99p
The Total Return column of this statement is the Income Statement of the Group
under IFRS. The Revenue Return and Capital Return columns are supplementary to
this and are prepared under guidance published by the Association of Investment
Companies.
# Net gains on investments represent realised and unrealised profits or losses
arising on the disposal or revaluation of investments held at a fair value
through profit and loss and special dividends classified as capital.
+ Interest payable includes a fair value adjustment on the interest rate swap.
* The fourth interim dividend of 3.30p per share was declared in respect of 31
October 2006 and the fourth interim dividend of 2.20p per share was declared in
respect of 31 October 2005.
All revenue and capital items derive from continuing operations.
The classification of called-up share capital and reserves as liabilities in
accordance with IFRS means that the provision for redemption of the Zero
Dividend Preference Shares and the dividends on Ordinary Shares are treated as
finance charges.
Movement in Liabilities in Respect of Net Assets Attributable to Ordinary Shareholders
Group and Company
Share Share Capital Revenue
Capital Purchase Reserves Reserve
Reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 31 October 2005 412 37,565 3,082 1,374 42,433
Dividends paid in respect of 31 October 2005 - - - (906) (906)
First interim dividend of 1.60p per Ordinary Share - - - (658) (658)
paid 31 March 2006
Net gains on investments - - 11,473 - 11,473
Other transfers to reserves - 9 (1,647) 1,664 26
Balance at 30 April 2006 (unaudited) 412 37,574 12,908 1,474 52,368
Balance at 31 October 2005 412 37,565 3,082 1,374 42,433
Dividends paid in respect of 31 October 2005 - - - (906) (906)
First interim dividend of 1.60p per Ordinary Share - - - (658) (658)
paid 31 March 2006
Second interim dividend of 1.60p per Ordinary Share - - (658) (658)
paid 30 June 2006 -
Third interim dividend of 1.60p per Ordinary Share - - - (658) (658)
paid 29 September 2006
Net gains on investments - - 14,534 - 14,534
Other transfers to reserves - (3,383) 3,339 (35)
9
Balance at 31 October 2006 (audited) 412 37,574 14,233 1,833 54,052
Balance at 31 October 2006 412 37,574 14,233 1,833 54,052
Dividends paid in respect of 31 October 2006 - - - (1,360) (1,360)
First interim dividend of 1.70p per ordinary share - - - (700) (700)
paid 30 March 2007
Net gains on investments - - 4,825 - 4,825
Other transfers to reserves - - (1,825) 1,834 9
Balance at 30 April 2007 (unaudited) 412 37,574 17,233 1,607 56,826
The classification of called up share capital and reserves as liabilities in
accordance with IFRS means that there are no shareholders' funds and accordingly
neither a Reconciliation of Movements in Shareholders' Funds nor a Statement of
Changes in Equity are presented. This statement has been provided to explain the
movement in the balances that represent liabilities in respect of assets
attributable to Ordinary Shareholders.
Balance Sheets
At At At
30 April 2007 30 April 2006 31 October 2006
(unaudited) (unaudited) (audited)
Group Company Group Company Group Company
£'000 £'000 £'000 £'000 £'000 £'000
Non-current assets
Investments held at fair value through
profit or loss:
- equity investments - - 81,804 81,804 84,792 84,792
- fixed interest investments - - 18,406 18,406 18,442 18,442
Held to maturity: subsidiary undertaking - - 50 - 50
-
100,210 100,260 103,234 103,284
Current assets
Investments held at fair value through
profit or loss:
- equity investments 87,731 87,731 - - - -
- fixed interest investments 18,198 18,198 - - - -
Held to maturity: subsidiary undertaking 50 - - - -
-
Debtors 1,042 1,042 918 918 407 407
Interest rate swap 18 18 - - - -
Short term deposits 2,981 2,981 1,483 1,483 2,082 2,082
Cash at bank 16 16 3 3 17 17
Total current assets 109,986 110,036 2,404 2,404 2,506 2,506
Current Liabilities
Other payables (417) (467) (332) (382) (414) (464)
Loan facility (12,100) (12,100) - - - -
Amount owed to group undertaking - (40,643) - - - -
Zero Dividend Preference Shares in the - - - - -
subsidiary
(40,643)
Net current assets 56,826 56,826 2,072 2,022 2,092 2,042
Total assets less current liabilities 56,826 56,826 102,282 102,282 105,326 105,326
Non-current liabilities:
Loan facility - - (12,100) (12,100) (12,100) (12,100)
Interest rate swap - - (94) (94) (8) (8)
Amount owed to Group undertaking - - - (37,720) - (39,166)
Zero Dividend Preference Shares in the - - (37,720) - (39,166) -
subsidiary
Net assets attributable to Ordinary 56,826 56,826 52,368 52,368 54,052 54,052
Shareholders
Balance Sheets (continued)
At At At
30 April 2007 30 April 2006 31 October 2006
(unaudited) (unaudited (audited)
Group Company Group Company Group Company
£'000 £'000 £'000 £'000 £'000 £'000
Liabilities in respect of net assets
attributable to Ordinary Shareholders are
represented by:
Called-up share capital 412 412 412 412 412 412
Share purchase reserve 37,574 37,574 37,574 37,574 37,574 37,574
Capital reserves 17,233 17,233 12,908 12,908 14,233 14,233
Revenue reserve 1,607 1,607 1,474 1,474 1,833 1,833
56,826 56,826 52,368 52,368 54,052 54,052
Funds attributable to:
Ordinary Shares 56,826 52,368 54,052
Zero Dividend Preference Shares 40,643 37,720 39,166
in the subsidiary
97,469 90,088 93,218
Net asset value per:
Ordinary Share (Note 6) 137.93p 127.11p 131.20p
Zero Dividend Preference Share in the 147.97p 137.33p 142.59p
subsidiary (Note 6)
The Group has an initial planned life to 30 November 2007 and as a result
non-current assets and non-current liabilities are now classified as current
assets and current liabilities respectively.
Cash Flow Statements
Group and Company
Six months ended 30 Six months ended Year ended
April 2007 30 April 2006
31 October 2006
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash flow from operating activities
Total return before taxation 2,774 9,926 11,610
Adjustment for
- gains on investments held at fair value (4,825) (11,473) (14,534)
through profit or loss
- interest payable 336 272 559
- dividends on ordinary shares 2,060 1,564 2,880
- decrease in investments 2,130 1,860 1,829
- provision for redemption of Zero Dividend 1,477 1,371 2,817
Preference Shares in the subsidiary
Operation cash inflow before movement in 3,952 3,520 5,161
working capital
Increase in receivables (634) (695) (230)
Increase in payables 9 3 13
Net cash inflow from operating 3,327 2,828 4,944
Activities before financing
Financing activities
Ordinary equity dividends paid (2,060) (1,564) (2,880)
Interest paid on bank loan (369) (361) (548)
Net cash used in financing activities (2,429) (1,925) (3,428)
Net increase in cash and cash equivalents 898 903 1,516
Cash and cash equivalents at start of the 2,099 583 583
period
Cash and cash equivalents at end of the period 2,997 1,486 2,099
Notes to the Preliminary Announcement
1 Basis of preparation
The Group financial statements consolidate the accounts of the Company and its
wholly-owned subsidiary, Schroder Split ZDP plc. The Company has an initial
planned life to 30 November 2007. The Company's Articles of Association require
that, inter alia, unless released from the obligation by shareholders, the
Directors shall convene an extraordinary general meeting on 30 November 2007, at
which an ordinary resolution will be proposed to wind up the Company. The future
of the Group has not been voted on by shareholders and accordingly these
accounts have been prepared on a going concern basis, but the existence of the
obligation in the Articles of Association means that there is a material
uncertainty which casts significant doubt about the Company's ability to
continue as a going concern. The interim financial information does not include
any adjustments that would result if the Company's shareholders voted to place
the Company into liquidation. In particular, no provision has been made for
transaction costs in respect of future portfolio realisations or the costs of
winding up the Company as such costs are not contractually committed at 30 April
2007.
These interim financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), which comprise standards
and interpretations approved by the International Accounting Standards Board ('
IASB') and International Accounting Standards Committee ('IASC') as adopted by
the European Union. The principal accounting policies adopted are set out below.
Where presentational guidance set out in the Statement of Recommended Practice
('the SORP') for investment trusts issued by the Association of Investment
Companies ('the AIC') in January 2003 and revised in December 2005 is consistent
with the requirements of IFRS, the Directors have sought to prepare the
financial statements on a basis compliant with the SORP. IAS 34 'Interim
Financial Reporting' has not been applied early and, consequently, the full
requirements of that standard have not been adopted.
2 Investment management fee
The Investment Manager was entitled to a fee at an annual rate of 0.75% (plus
VAT) payable by reference to the value of the Company's assets under management
at the end of the relevant quarter. The Manager's periodic charge in respect of
Schroder funds in which the Company invests are rebated to the Company so that
no double charging occurs. These fees are apportioned on 60:40 basis between the
capital and revenue accounts respectively.
For the six months ended 30 April 2007, a total fee of £332,000 including VAT
has been accrued under the terms of the management agreement.
3 Interest payable
The Company has drawn down a loan facility of £12.1m since the commencement of
its operations. The loan is repayable in November 2007 and attracts variable
interest payments of 3 month LIBOR plus a margin of 0.6644%. On the original
drawdown date, the Company entered into a swap contract with the lender which
expires on the loan's repayment date in November 2007. The effect of the swap is
that the Company has been making, since inception of the loan, and will continue
to make, fixed quarterly interest payments, at an equivalent annual rate of
6.05%. Accordingly, the Company's borrowings have been, and will continue to be,
fixed.
For the six months ended 30 April 2007, a total interest payable of £336,000 has
been accrued under the terms of the management agreement. This includes the fair
value adjustment on the interest rate swap.
4 Dividends
The second interim dividend of 1.70 pence per ordinary share will be paid on 29
June 2007 to shareholders on the register at 25 May 2007. A first interim
dividend of 1.70 pence per ordinary share has been paid on 30 March 2007.
5 Net returns per Share
(a) Net return per Ordinary Share
The basic revenue return attributable to Ordinary Shareholders for the period
ended 30 April 2007 is £1,834,000 (30 April 2006: £1,664,000 and 31 October
2006: £3,339,000) and on 41,199,661 (30 April 2006: 41,199,661 and 31 October
2006: 41,199,661) Ordinary Shares, being the weighted average number of shares
in issue in the period.
The basic capital return attributable to Ordinary Shareholders for the period
ended 30 April 2007 is £3,000,000 (30 April 2006: £9,826,000 and 31 October
2006: £11,151,000) and on 41,199,661 (30 April 2006: 41,199,661 and 31 October
2006: 41,199,661) Ordinary Shares, being the weighted average number of shares
in issue in the period.
The basic total return attributable to Ordinary Shareholders for the period
ended 30 April 2007 is £4,834,000 (30 April 2006: £11,490,000 and 31 October
2006: £14,490,000) and on 41,199,661 (30 April 2006: 41,199,661 and 31 October
2006: 41,199,661) Ordinary Shares, being the weighted average number of shares
in issue in the period.
(b) Net return per Zero Dividend Preference ('ZDP') Share
The capital return for ZDP Shares for the period ended 30 April 2007 is
£1,477,000 (30 April 2006: £1,371,000 and 31 October 2006: £2,817,000) and is
based on 27,467,332 (30 April 2006: 27,467,332 and 31 October 2006: 27,467,332)
Zero Dividend Preference Shares, being the weighted average number of shares in
issue in the period.
The ZDP Shares carry no entitlement to income.
6 Net Asset Value per Share
(a) Net Asset Value per Ordinary Share
Net asset value per Ordinary Share is based on the net assets attributable to
ordinary shares of £56,826,000 (30 April 2006: £52,368,000 and 31 October 2006:
£54,052,000) and on 41,199,661 (30 April 2006: 41,199,661 and 31 October 2006:
41,199,661) Ordinary Shares in issue.
(b) Net Asset Value per ZDP Share
Net asset value per ZDP Share is based on the net assets attributable to the ZDP
Shares of £40,643,000 (30 April 2006: £37,720,000 and 31 October 2006:
£39,166,000) and on 27,467,332 (30 April 2006: 27,467,332 and 31 October 2006:
27,467,332) Zero Dividend Preference Shares in issue.
7 Comparative information
The results for the six months to 30 April 2007 and 30 April 2006, which are
unaudited, constitute non-statutory accounts within the meaning of Section 240
of the Companies Act 1985. The latest published accounts which have been
delivered to the Registrar of Companies are for the year ended 31 October 2006;
the report of the auditors thereon was unqualified and did not contain a
statement under Section 237 of the Companies Act 1985. The abridged financial
statements shown above for the year ended 31 October 2006 are an extract from
those accounts.
This statement was approved by the Board of Directors on 1 June 2007.
Interim Report
The Interim Report for the period ended 30 April 2007 will be mailed to
shareholders at their registered addresses in June 2007 and, from the date of
release, copies of the Annual Report and Accounts will be available to the
public at the Company's registered office, 31 Gresham Street, London EC2V 7QA.
Enquiries: Schroder Investment Management Limited
Louise Richard (020 7658 6501)
1 June 2007
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