Half Yearly Report

RNS Number : 0583W

Securities Trust of Scotland PLC

11 November 2010

 



Securities Trust of Scotland plc

Half-yearly financial report

Six months to 30 September 2010

A copy of the half yearly financial report has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.do

A copy of this half-yearly financial report can be shortly downloaded at www.securitiestrust.com

Financial summary

Key data	As at 30 September 2010	As at 31 March 2010	% change
Net asset value per share	109.28p	109.37p	-0.1%
FTSE All-Share Index	2,867.58	2,910.19	-1.5%
Share price	99.25p	99.00p	+0.3%
Discount	9.18%	9.48%

 

Total returns‡	Six months ended 30 September 2010	Six months ended 30 September 2009
Net asset value per share	2.5%	39.4%
FTSE All-Share Index	0.2%	35.7%
Share price	2.8%	41.0%

Income	Six months ended 30 September 2010	Six months ended 30 September 2009
Revenue return per share	2.48p	2.76p

Total expense ratio	Six months ended 30 September 2010	Year ended 31 March 2010	Six months ended 30 September 2009
As a percentage of shareholders' funds
Excluding performance fee	0.7%	0.8%	0.8%
Including performance fee	1.0%	0.9%	1.0%

‡ The combined effect of any dividends paid, together with the rise or fall in the share price, net asset value or benchmark.

Annual total returns with dividends reinvested over 12 month periods to 30 September

	2010	2009	2008	2007	2006
Securities Trust of Scotland share price	15.8%	6.9%	(30.4%)	10.7%	20.9%
FTSE All-Share index	12.5%	10.8%	(22.3%)	12.2%	14.7%
Securities Trust of Scotland net asset value per share	14.6%	6.6%	(28.8%)	10.6%	17.6%

Source: Martin Currie Investment Management Limited

INTERIM MANAGEMENT REPORT

Chairman's statement

Performance

For the six months to 30 September 2010, it is pleasing to see that on a total return basis, the company's share price returned 2.8%, outperforming the company's benchmark, the FTSE All

Share index, which returned 0.2% over the same period. The net asset value per share returned 2.5%.

Given that the share price returned 58.9% in the last full financial year to 31 March 2010, a period of relatively modest returns was not a surprise.

Revenues and dividends

At 30 September 2010 the company's shares offered a yield of 4.7%, a premium of 46% compared to the 3.2% available from the FTSE All-Share index**.

The revenue return per share for the six months to 30 September 2010 was 2.48p, a fall of 10% compared to the six months to 30 September 2009. The majority of this fall was due to the suspension of dividends by BP.

A first interim dividend payment of 1.15p per share has already been declared and paid for the financial year to 31 March 2011.  This dividend was paid on 3 September 2010 to shareholders on the register on 13 August 2010. Your board has also declared a second interim dividend of 1.15p per share, also unchanged year-on-year. This will be paid on 17 December 2010 to shareholders on the register on 26 November 2010.

A key objective of Securities Trust of Scotland is to achieve rising income through steady growth in dividends. The economic downturn has made it a challenging environment for income investors, although we share Ross Watson's belief - expressed in his manager's review - that we have turned a corner, and the outlook for dividends continues to brighten.

Revenue hedging

Dividend cuts by UK based companies have increased the proportion of portfolio income declared in currencies other than sterling. This means that shareholders are exposed to movement in the sterling/US dollar and sterling/euro exchange rates. To mitigate this potential risk, the board and managers have hedged 75% of the foreign-currency-denominated income on a rolling basis. This will protect shareholders from currency fluctuations and ensure greater confidence in forecasting future revenue.

Borrowing

Securities Trust of Scotland has a simple capital structure with no long-term debt. At present the company is 13% geared, lower than the maximum of 15% but reflecting the positive outlook for income and growth stocks in the UK.

The board

I am delighted to welcome Rachel Beagles to the board of Securities Trust of Scotland. This appointment took effect from 20 July following the approval of shareholders at the 2010 Annual General Meeting. Rachel will chair the company's committee for marketing and communication, an area in which she has extensive experience. She is also a non-executive director of Crown Place VCT plc and Schroder UK Mid and Small Cap Fund plc. I am confident that her experience and skills will greatly enhance the board.

Outlook

Share prices have rallied since the summer. However, investors are rightly focusing on the impact of an economic slowdown, particularly the effect of reduced public expenditure over a

number of years.

We share these concerns, although we remain encouraged by the degree to which the monetary authorities have committed to support economic growth. The corporate sector has surprised many investors, and positive expectations of profit growth will be reflected in our revenue forecasts in due course. This is explained further in the manager's review.

In an environment of continuing low interest rates, bank deposit accounts and government bonds offer limited attractions for income-seeking investors. We believe that this is an above-benchmark-yielding equity vehicle, Securities Trust of Scotland remains a compelling proposition for long-term, income-seeking investors.

Thank you for your continued support; please contact me if you have any questions regarding your company.  

	2011	2010	2009	2008	2007	2006*
1st Interim dividend	1.15p	1.15p	1.15p	1.10p	1.05p	n/a
2nd Interim dividend	1.15p	1.15p	1.15p	1.10p	1.05p	n/a
3rd Interim divided	Tbc	1.15p	1.15p	1.10p	1.05p	1.00p
4th Interim dividend	Tbc	1.20p	2.00p	2.15p	1.90p	1.85p
Total	Tbc	4.65p	5.45p	5.45p	5.05p	2.85p

*since launch on 28 June 2005

** Source: Thomson Datastream

Neil Donaldson

Chairman

11 November 2010

Management of principal risks

The board has drawn up a risk matrix, which identifies the key risks to the company. These key risks fall under the following categories and the implementation of specific mitigating measures and procedures has taken place in order to reduce the probability and impact of each risk to the greatest extent possible.

Loss of s1158-1159 status (previously s842 status) - In order to qualify as an investment trust, the company must comply with s1158-1159 of the Corporation Taxes Act 2010.

S1158-1159 qualification criteria are continually monitored by Martin Currie.

Operational disruption at the manager's premises - Martin Currie has in place a full disaster recovery and business continuity plan which facilitates continued operation of the business should the manager's premises be subject to operational disruption. The plan, including a full staff call chain test, was last tested in December 2009 with successful results. The manager maintains a fully operational off-site disaster recovery centre for use by key staff during any disruption.

Regulatory, accounting/ internal control breach - The company must comply with the Companies Act 2006 and the UKLA Rules. The board relies on the services of its company secretary and its professional advisers to ensure compliance.

Loss of investment team or portfolio manager - The manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel.

Failure to manage the discount - The board regularly discusses discount policy and has set parameters for the manager and the company's broker to follow.

Investment underperformance - The board manages the risk of investment underperformance by diversification of investments and through a set of investment restrictions and guidelines that are monitored and reported on by the manager.

The board monitors the implementation and results of the investment process with the manager, who attends all board meetings, and reviews data that show statistical measures of the company's risk profile.

Market risk - The company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holdings or selling of securities. It is the board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector.  

Interest rate risk - From time to time the company finances its operations through bank borrowings. The amount of such borrowings will not exceed 15% of the company's total assets.

Currency risk - The board regularly monitors the impact of the currency rate risk. In recent years the proportion of the company's revenue that is declared in US dollars and euros has increased and currency fluctuations have meant that revenue forecasting has become more uncertain. In order to offset those fluctuations, the company has taken out forward contracts to hedge the expected revenue from a number of portfolio constituents.  In aggregate, this will protect 77% of the remaining US dollar denominated dividends for the year to 31 March 2011 at a rate of $1.56 and 78% of the remaining euro denominated dividends for the year end to 31 March 2011 at a rate of €1.16.

Counterparty risk - Martin Currie monitors counterparty relationships on behalf of the board. This process includes identifying major counterparties, mapping exposure and analysing the risks through Martin Currie's risk, compliance, dealing, operations and middle office teams. The aim is to enable the board to determine an appropriate level of counterparty risk exposure, and to diversify or mitigate this, as required. This process is subject to continual monitoring and review with any recommendations being made to the board.

Major regulatory change- in response to the financial crisis, the European Commission produced the Alternative Investment Fund Managers Directive, currently in draft.  The directive was aimed at hedge funds and private equity funds but investment trusts fall within its scope.  Intensive representation has been made to ensure that the special circumstances of investment trusts are recognised.

Liquidity Test Failure- In order to retain its place in the FTSE All-Share index, the company must satisfy the liquidity test criteria set by FTSE at each annual review.  The liquidity of the company is monitored by the manager and the company's broker with a report being reviewed by the board regularly.

Directors' responsibility

In accordance with Chapter 4 of the Disclosure and Transparency Rules, and to the best of their knowledge, each director of Securities Trust of Scotland, confirms that the financial statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and net return of the company. Furthermore, each director certifies that the interim management report includes an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial statements, together with a description of the principal risks and uncertainties that the company faces. In addition, each director of Securities Trust of Scotland confirms that there have been no related party transactions during the six months to 30 September 2010.

By order of the board

Neil Donaldson

Chairman

Edinburgh 11 November 2010

 

Manager's Review

The returns from UK equities were very modest over the six-month period under review. The FTSE All-Share index produced a total return of just 0.2%, although this masks both a sharp fall and a subsequent recovery.

The period began as world equity markets had just started to run out of momentum after a strong year-long rally. The initial recovery from a deep recession, which had fuelled the sharp increase in share prices, began to be called into question, particularly in developed-market economies that remained burdened by debt. Forward-looking economic indicators began to weaken, prompting fears that a renewed recession was - in some countries at least - possible. These concerns pushed equity prices down steadily until the middle of 2010 when they began to recover, recapturing all of their falls by the end of September. Although the rate of inflation remains stubbornly above the Bank of England's 2% target, there is little chance that interest rates will be increased in the short term. The Bank of England is still concerned about the lack of growth in the economy.

The formation of the new coalition government sparked very little reaction from financial markets. Despite concerns earlier in the year about the size of the country's public-sector deficit, the gilt market was very strong, with prices rising and yields for 10-year maturities falling from 3.9% to 3.0%. This reduction came as investors worried about possible further weakness in economic activity and even the possibility of deflation. What the reduction in gilt yields did show, however, was the market's strong confidence in the government's deficit-reduction plans before they had been published in detail.

Although the stockmarket was flat over the period, there were big divergences in performance within and between sectors. A number of more cyclical sectors including chemicals, engineering and autos did well, but the mining sector lagged the market. The oil & gas sector was one of the weakest, and within this, BP's share price plummeted following the disastrous explosion and oil spill in the Gulf of Mexico; at its lowest point, it had fallen by over 50%. Although the shares have recovered from this level, they remain well below previous peaks. The impact has not been limited to capital, as the company was also forced to suspend dividend payments. While we expect BP to resume dividend payments early in 2011, this is likely to be at a lower level than before.

Elsewhere, the newsflow on dividends has been better, particularly towards the end of the period. A number of UK companies across a range of sectors have increased dividends well ahead of expectations. Croda, a chemical company, raised its interim dividend by 50% and other notable increases came from Legal & General, Informs, IMI and Admiral. These increases reflect their confidence in the future and give good support to share prices. Although not enough to offset the loss of income from BP, they have contributed to an improvement in revenue forecasts to 31 March 2012.

Over this period, the portfolio did better than the FTSE All-Share index, with a total return of 2.8% compared with 0.2% from the benchmark. The biggest contributors to this came from a number of industrial companies that we have owned for some time and where we have had confidence in both the management and their operations. Elementis, Croda, Domino Printing and Melrose all rose strongly in price, and their weightings in the portfolio made their contributions meaningful. None is among the FTSE 100 index of larger UK companies, and all have exposure to the faster-growing regions of the world.

Our biggest underperformers were larger companies, particularly BP and BHP Billiton. Not owning Lloyds Banking Group was also a drag on performance as this stock rallied.

We purchased a holding in Legal & General, funded by a reduction in the holding of Aviva. Management at Legal & General are now placing a much greater emphasis on cash returns, and this has been reflected in a recent 20% increase in the dividend. We also established a holding in BBA Aviation, a US-based provider of support and services to the aviation industry. The appointment at DS Smith of a new chief executive who was already well known to us prompted us to add this packaging company to the portfolio. We sold Premier Foods as, despite a rights issue last year, the balance sheet was still carrying a high level of debt. We reduced our weightings in some of the stocks that had performed very well, including Melrose, Admiral and Domino Printing. The growth outlook for Scottish & Southern Energy is becoming more difficult, and dividend growth will be slower in future, so we reduced our holding here.

Outlook

The rally in share prices that began in June has taken values back to the peak levels of the spring. The concerns about a slowdown in growth in countries such as the UK have not gone away, however, and the impact of reduced public expenditure in future years can now be assessed. But the monetary authorities have stated that they will keep policy as loose as possible to support growth.

Meanwhile, the US Federal Reserve has announced significant purchases of US government debt, mirroring the policy of the Bank of England a year ago, to inject liquidity into the monetary system. This has supported equity prices in recent weeks. The corporate sector has remained more positive than financial markets, as shown by the many strong dividend increases, and profit growth will continue. For many companies, the continued strength of global economic growth is enough to offset possible weakness in some countries. It is this background that gives us confidence that share prices continue to look attractive.

Ross Watson

11 November 2010

Portfolio summary
Portfolio distribution
By asset class	As at 30 September 2010	As at 31 March 2010
	%	%
Equities	108	110
Fixed interest	4	3
Cash	1	-
Less borrowings	(13)	(13)
	100	100
By sector (excluding cash and fixed interest)	As at 30 September 2010	As at 31 March 2010
	%	%
Financials	23	24
Industrials	14	12
Consumer goods	13	12
Oil and Gas	13	16
Basic materials	8	7
Consumer services	8	9
Healthcare	8	8
Utilities	6	6
Telecommunications	5	5
Technologies	2	1
	100	100

Largest holdings
	As at 30 September 2010		As at 31 March 2010
	Market value	% of total	Market value	% of total
	£000	portfolio	£000	portfolio
Royal Dutch Shell	8,428	6.88	8,240	6.67
BP	7,450	6.08	10,857	8.79
British American Tobacco	7,401	6.04	7,107	5.75
Vodafone	6,355	5.19	6,172	5.00
GlaxoSmithKline	5,760	4.70	5,832	4.72
BHP Billiton	5,175	4.23	5,776	4.68
HSBC	4,477	3.66	4,654	3.77
AstraZeneca	4,138	3.38	3,761	3.04
National Grid	3,400	2.78	2,896	2.34
Barclays	3,158	2.58	3,813	3.09
Imperial Tobacco	3,114	2.54	3,312	2.68
BAE Systems	2,894	2.36	3,152	2.55
Elementis	2,664	2.18	1,515	1.23
Melrose	2,565	2.09	2,691	2.18
Next	2,522	2.06	3,631	2.94
IMI	2,364	1.93	2,040	1.65
Halfords	2,354	1.92	2,522	2.04
Hiscox	2,271	1.86	2,187	1.77
Intermediate Capital	2,266	1.85	2,062	1.67
Scottish and Southern Energy	2,225	1.82	2,614	2.12

Unaudited income statement

		Six months to 30 September 2010			Six months to 30 September 2009
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£000	£000	£000	£000	£000	£000
Gains on investments	6	-	299	299	-	25,885	25,885
Currency gains/(losses)		37	-	37	5	(3)	2
Income	3	2,824	-	2,824	3,119	-	3,119
Investment management fee		(46)	(85)	(131)	(39)	(73)	(112)
VAT recovered on investment management fee		-	-	-	27	-	27
Performance fee		-	(303)	(303)	-	(175)	(175)
Other expenses		(250)	-	(250)	(246)	-	(246)
Net return before finance costs and taxation		2,565	(89)	2,476	2,866	25,634	28,500
Finance Costs		(68)	(126)	(194)	(47)	(88)	(135)
Net return on ordinary activities before taxation		2,497	(215)	2,282	2,819	25,546	28,365
Taxation on ordinary activities	5	-	-	-	-	-	-
Return attributable to ordinary redeemable shareholders		2,497	(215)	2,282	2,819	25,546	28,365
Return per ordinary redeemable share	2	2.48p	(0.21p)	2.27p	2.76p	25.05p	27.81p

Unaudited income statement

		(Audited)
		Year to
		31 March 2010
		Revenue	Capital	Total
	Note	£000	£000	£000
Gains on investments	6	-	35,276	35,276
Currency gains/(losses)		(56)	(3)	(59)
Income	3	5,950	-	5,950
Investment management fee		(88)	(163)	(251)
VAT recovered on investment management fee		27	-	27
Performance fee		-	(109)	(109)
Other expenses		(464)	-	(464)
Net return before finance costs and taxation		5,369	35,001	40,370
Finance costs		(109)	(201)	(310)
Net return on ordinary activities before taxation		5,260	34,800	40,060
Taxation on ordinary activities	5	-	-	-
Return attributable to ordinary redeemable shareholders		5,260	34,800	40,060
Return per ordinary redeemable share	2	5.16p	34.14p	39.30p

The total columns of this statement are the profit and loss accounts of the company. 

The revenue and capital items are presented in accordance with the Association of Investment Companies (AIC) SORP.

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

No operations were acquired or discontinued in the period.

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.

Unaudited balance sheet

		As at 30 September 2010		As at 30 September 2009		(Audited) As at 31 March 2010
	Note	£000	£000	£000	£000	£000	£000
Non-current assets
Investments at fair value through profit or loss
Listed on Exchanges in the UK			122,141		112,642		123,227
Listed on Exchanges abroad			339		265		282
	6		122,480		112,907		123,509
Current assets
Loans and receivables	7	680		608		2,845
Cash at bank		1,699		911		301
		2,379		1,519		3,146
Creditors
Amounts falling due within one year	8	(14,728)		(12,382)		(16,438)
Net current liabilities			(12,349)		(10,863)		(13,292)
Net assets			110,131		102,044		110,217
Capital and reserves
Called up ordinary share capital			1,008		1,019		1,008
Capital redemption reserve			73		62		73
Special distributable capital reserve			109,968		111,145		109,968
Capital reserve			(3,576)		(12,615)		(3,361)
Revenue reserve			2,658		2,433		2,529
			110,131		102,044		110,217
Net asset value per ordinary redeemable share	2		109.28p		100.07p		109.37p

Unaudited statement of cash flow

		Six months to				Six months to				(Audited) Year to
		30 September 2010				30 September 2009				31 March 2010
	Note	£000		£000		£000		£000		£000		£000
Net cash inflow from operating activities	9			2,576				3,246				5,405
Servicing of finance
Finance costs				(194)				(120)				(298)
Capital expenditure and financial investment
Payments to acquire investments		(6,733)				(12,374)				(17,515)
Receipts from disposal of investments		7,917				7,171				11,245
Net cash inflow/(outflow) from investing activities				1,184				(5,203)				(6,270)
Dividends paid				(2,368)				(3,212)				(5,557)
Net cash inflow/(outflow) before use of liquid resources and financing					1,198				(5,289)			(6,720)
Financing
Repurchase of ordinary share capital		-				-				(1,177)
Net movement in short-term borrowings		200				3,000				5,000
Net cash inflow from financing				200				3,000				3,823
Increase/(decrease) in cash for the period				1,398				(2,289)				(2,897)
Reconciliation of net cash flow to movements in net debt
Increase/(decrease) in cash as above		1,398				(2,289)				(2,897)
Drawdown of short term borrowings		(200)				(3,000)				(5,000)
Change in net debt resulting from cash flows				1,198				(5,289)				(7,897)
Foreign exchange movements				-				2				-
Movement in net debt in the period				1,198				(5,287)				(7,897)
Opening net debt				(13,699)				(5,802)				(5,802)
Closing net debt	10			(12,501)				(11,089)				(13,699)

Unaudited reconciliation of movements in shareholders' funds

		Called up ordinary share capital	Capital redemption reserve		Special distributable capital reserve			Capital reserve			Revenue Reserve			Total
For the six months to 30 September 2010	Note	£000	£000		£000			£000			£000			£000
As at 31 March 2010		1,008	73		109,968			(3,361)			2,529			110,217
Return attributable to shareholders		-	-		-			(215)			2,497			2,282
Dividends paid	4	-	-		-			-			(2,368)			(2,368)
Balance at 30 September 2010		1,008	73		109,968			(3,576)			2,658			110,131
For the six months to 30 September 2009
As at 31 March 2009		1,019	62			111,145			(38,161)			2,826			76,891
Return attributable to shareholders		-	-			-			25,546			2,819			28,365
Dividends paid	4	-	-			-			-			(3,212)			(3,212)
Balance at 30 September 2009		1,019	62			111,145			(12,615)			2,433			102,044
For the year ended 31 March 2010
As at 31 March 2009		1,019	62	111,145			(38,161)			2,826			76,891
Return attributable to shareholders		-	-	-			34,800			5,260			40,060
Ordinary shares bought back during the year		(11)	11	(1,177)			-			-			(1,177)
Dividends paid	4	-	-	-			-			(5,557)			(5,557)
Balance at 31 March 2010		1,008	73	109,968			(3,361)			(2,529)			110,217

The revenue reserve represents the amount of the company's reserves distributable by way of dividend.

Notes to the Financial Statements

1 Accounting policies

 (a) The financial statements have been prepared in accordance with UK Generally Accepted Accounting Standards (UK GAAP) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.

Dividends - In accordance with FRS 21: "Events after the balance sheet date", dividends are included in the financial statements in the period in which they are paid.

Functional currency - In accordance with FRS 23: "The effects of changes in foreign currency", the company is required to nominate a functional currency, being the currency in which the company predominately operates. The board has determined that sterling is the company's functional currency, which is also the currency in which these financial statements are prepared.

(b) Income from equity investments is determined on the date on which the investments are quoted ex-dividend, or where no ex-dividend date is quoted, when the company's right to receive payment is established. Income from fixed interest securities is recognised on an effective yield basis. UK dividends received are accounted for at the amount receivable and are not grossed up for any tax credit. Other income includes any taxes deducted at source. Gains and losses arising from the translation of income denominated in foreign currencies are recognised in the revenue reserve. Scrip dividends are treated as unfranked investment income; any excess in value of shares received over the amount of the cash dividend is recognised in capital reserves. Income from underwriting commission and traded options is recognised as earned.

(c) Interest receivable and payable and management expenses are treated on an accruals basis.

(d) The management fee and interest costs are allocated 65% to capital and 35% to revenue in accordance with the board's expected long-term split of returns in the form of capital gains and income, respectively. The performance fee is wholly allocated to capital. All other expenses are wholly allocated to revenue.

(e) Gains and losses on realisation of investments and changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms, together with exchange adjustments to overseas currencies are taken to capital reserve.

(f) Foreign currencies are translated at the rates of exchange ruling on the balance sheet date. Investments are recognised initially as at the trade date of a transaction. Subsequent to this, the disposal of an investment is accounted for once again as at the trade date of a transaction.

(g) Revenue received and interest paid in foreign currencies are translated at the rates of exchange ruling on the transaction date. Any exchange differences relating to revenue items are taken to the revenue account.

(h) The company's investments are classified as "financial assets at fair value through profit or loss" and are therefore valued at bid price. Gains and losses arising from changes in fair value are included in the capital return for the period.

(i) All financial assets and liabilities are recognised in the financial statements.

(j) Deferred tax is recorded in accordance with Financial Reporting Standard 19 (Deferred Tax). Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. A deferred tax asset is only recognised to the extent that it is regarded as recoverable. Due to the company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

(k) Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the income statement.

(l) Share buy-backs are funded through the capital reserve.

(m) The company uses derivative financial instruments to manage the risk associated with foreign currency fluctuations arising on dividends received in currencies other than sterling. This is achieved by the use of forward foreign currency contracts. The company does not hold or issue derivative financial instruments for speculative purposes. Derivative financial instruments are recognised initially at fair value on the contract date and subsequently remeasured to the fair value at each reporting date. The resulting gain or loss being is recognised as revenue or capital in the income statement depending on the nature and motive of each derivative transaction. Derivative financial instruments with a positive fair value are recognised as financial assets and derivative financial instruments with a negative fair value are recognised as financial liabilities. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months.

(n) The directors have adopted the going concern basis in preparing the financial statements.

2. 

	Six months to 30 September 2010	Six months to 30 September 2009	Year to 31 March 2010
Revenue returns and net asset value
Revenue Return
Revenue return attributable to ordinary redeemable shareholders	£2,497,000	£2,819,000	£5,260,000
Average number of shares in issue during the period	101,776,771	101,970,223	101,934,772
Revenue return per ordinary redeemable share	2.48p	2.76p	5.16p
Capital return
Capital return attributable to ordinary redeemable shareholders	(£215,000)	£25,546,000	£34,800,000
Average number of shares in issue during the period	101,776,771	101,970,223	101,934,772
Capital return per ordinary redeemable share	(0.21p)	25.05p	34.14p
Total return
Total return per ordinary redeemable share	2.27p	27.81p	39.30p

Net asset value per share
Net assets attributable to shareholders	£110,131,000	£102,044,000	£110,217,000
Number of shares in issue at period end	101,776,771	101,970,223	100,776,771
Net asset value per ordinary redeemable share	109.28p	100.07p	109.37p
Exclusion of undistributed current period revenue	(1.33p)	(1.61p)	(1.73p)
Net asset value per share excluding income	107.95p	98.46p	107.64p

3.

	Six months to 30 September 2010 £000	Six months to 30 September 2009 £000	Year to 31 March 2010 £000
Income
From listed investments
UK equities	2,414	2,700	5,200
UK fixed interest and convertibles	93	147	293
Overseas equities and unfranked income	269	139	190
UK corporate bond interest	38	38	76
	2,814	3,024	5,759
Other income
Interest on deposits	2	4	6
Interest on VAT recoverable on investment management fees	-	19	19
Underwriting commission	8	63	157
Income on exchange traded option	-	9	19
	2,824	3,119	5,950

4. Dividends

	Six months to 30 September 2010 £000	Six months to 30 September 2009 £000	Year to 31 March 2010 £000
Year ended 31 March 2009 - fourth interim dividend of 2.00p	-	2,039	2,039
Year ended 31 March 2010 - first interim dividend of 1.15p	-	1,173	1,173
Year ended 31 March 2010 - second interim dividend of 1.15p	-	-	1,173
Year ended 31 March 2010 - third interim dividend of 1.15p	-	-	1,172
Year ended 31 March 2010 - fourth interim dividend of 1.20p	1,209	-	-
Year ended 31 March 2011 - first interim dividend of 1.15p	1,159	-	-
	2,368	3,212	5,557

5. Taxation on ordinary activities

The trust has not suffered any withholding tax on overseas income in the period and has, for taxation purposes, sufficient management expenses to offset against its taxable income.

6.

Investments	As at 30 September 2010 £000	As at 30 September 2009 £000	As at 31 March 2010 £000
Fair value through profit or loss
Opening valuation	123,509	83,512	83,512
Opening investment holding (gains)/losses	(12,268)	34,217	34,217
Opening cost	111,241	117,729	117,729
Add: additions at cost	4,701	10,681	17,854
Disposal proceeds	1,509	(9,255)	(11,209)
Less: net loss on disposal of investments	(6,029)	(7,171)	(13,133)
Disposals at cost	(4,520)	(16,426)	(24,342)
Closing cost	111,422	111,984	111,241
Add: Closing investment holding gains	11,058	923	12,268
Closing valuation	122,480	112,907	123,509
Gains/(losses) on investments
Gains/(losses) on realisation of investments at fair value	1,509	(9,255)	(11,209)
Movement in investment holding gains and losses	(1,210)	35,140	46,485
	299	25,885	35,276

Transaction costs

During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss.  These have been expensed through capital and are included within gains and losses on investments in the income statement.  The total costs were as follows:

	Six months to 30 September 2010 £000	Six months to 30 September 2009 £000	Year to 31 March 2010 £000
Acquisitions	17	47	92
Disposals	5	9	15
	22	56	107

7.

	As at 30 September 2010 £000	As at 30 September 2009 £000	As at 31 March 2010 £000
Loans and receivables
Dividends receivable	603	512	873
Interest accrued	30	30	31
Due from brokers	-	-	1,888
Tax recoverable	32	31	37
Other debtors	15	35	16
	680	608	2,845

8.

	As at 30 September 2010 £000	As at 30 September 2009 £000	As at 31 March 2010 £000
Creditors - amounts falling due within one year
Interest accrued	24	27	24
Due to brokers	-	-	2,032
Sterling bank loan	14,200	12,000	14,000
Financial liabilities carried at fair value through the income statement:
Held for trading derivatives that are not designated in hedge accounting relationships:
Forward foreign currency contracts	3	-	87
Other creditors	501	355	295
	14,728	12,382	16,438

The company has an £18,000,000 loan facility with Lloyds TSB which expires on 30 September 2011. Under this agreement £14,200,000 was drawn at 30 September 2010 at a rate of 2.42205% with a maturity date of 29 October 2010. On 29 October 2010 the loan was rolled-over at a rate of 2.4333% with a maturity date of 6 December 2010.

The fair value of the sterling loan is not materially different from its carrying value. The interest rate is set at each roll-over date at LIBOR plus a margin.

Included in other creditors is a performance fee of £303,000 (30 September 2009: £175,000, 31 March 2010: £109,000).

Martin Currie is entitled to a performance-related investment management fee calculated in respect of each financial year to 31 March (the measurement period) and payable in arrears. The fee is 0.15% of net assets for each percentage point by which the percentage performance of the company's ex-income net asset value per share, adjusted for share buybacks, exceeds the percentage capital return of the FTSE All-Share index over the relevant measurement period.

If the net asset value per share falls in a measurement period, the share of any out-performance is reduced by 50%. The fee is subject to a cap of 0.75% of the year end net assets.

In addition to the above a peer group performance fee of 0.25% of year end net assets may also be earned.

The performance fee is wholly allocated to capital.

9.

Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	Six months to 30 September 2010 £000	Six months to 30 September 2009 £000	Year to 31 March 2010 £000
Net return before finance costs and taxation	2,476	28,500	40,370
Decrease in accrued income and other debtors	272	433	90
Increase in creditors	122	210	237
Currency movements	-	(2)	-
Net gain on investments	(299)	(25,885)	(35,276)
Taxation withheld from income on investments	5	(10)	(16)
Net cash inflow from operating activities	2,576	3,246	5,405

10.

	As at 31 March 2010 £000	Cash flow £000	30 September 2010 £000
Analysis of net debt
Cash at bank	301	1,398	1,699
Bank borrowings - sterling loan	(14,000)	(200)	(14,200)
Net debt	(13,699)	1,198	(12,501)

11 Interim report

The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in s434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2010 and 30 September 2009 has not been audited.

The information for the year ended 31 March 2010 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 s498 (2), (3) or (4) of the Companies Act 2006

 

END

 

 

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