Half-yearly Report
The Edinburgh Investment Trust plc
Half-Yearly Financial Report
Six Months to 30 September 2010
Financial Information and Performance Statistics
The Edinburgh Investment Trust plc (the `Company') is a UK investment trust
listed on the London Stock Exchange.
Investment Objective of the Company
The Company invests primarily in UK securities with the long term objective of
achieving:
1. an increase of the Net Asset Value per share by more than the growth in the
FTSE All-Share Index; and
2. growth in dividends per share by more than the rate of UK inflation.
Performance Statistics
At At
30 31 March %
September
2010 2010 Change
Capital Return
Net asset value (`NAV') - debt at 437.86p 422.41p +3.7
par
- debt at market value 408.66p 398.92p +2.4
FTSE All-Share index 2867.58 2910.19 -1.5
Share price 417.00p 396.30p +5.2
Discount/(premium) - debt at par 4.8% 6.2%
- debt at market value (2.0)% 0.7%
Gearing - actual(1) 22.9% 24.1%
- potential(2) 23.3% 24.2%
%
For the Six Months to 30 September 2010 2009 Change
Revenue Return
First interim dividend(3) 4.75p 4.75p
Special dividend(3) 0.93p -
Revenue return per share 11.9p 10.4p +14.4
Retail price index +2.1% +1.9%
Total Return (capital growth with
income reinvested)
NAV - debt at par +5.2
- debt at market value +4.1
FTSE All-Share Index +0.2
Share price, including income +6.9
reinvested
Notes:
1. Actual gearing: borrowings less cash and investments in money market funds ÷
shareholders' funds.
2. Potential gearing: borrowings ÷ shareholders' funds.
3. Dividends declared in respect of the financial year.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT
Chairman's Statement
Introduction
When the Company's management was transferred to Invesco Asset Management
(`Invesco') in September 2008, Neil Woodford, the Invesco executive with prime
responsibility for the Company's investments, believed - as did your Board -
that the path to economic recovery was not without difficulty and that the most
appropriate portfolio in such circumstances was a defensive one, with the
potential to produce growth of earnings and dividends in a challenging
environment. This broad thinking has subsequently remained fundamentally
unchanged, as has the bulk of the portfolio.
The UK Equity Market
As described in detail in the Manager's Report, the UK equity market fell
sharply in the first three months (April-June 2010) of the review period,
reflecting investor concerns prompted principally by fiscal balances in a
number of EU Sovereign states, with the position of Greece being most
prominent. From early July the market began a process of recovery as these
concerns lessened when investors took confidence from monetary stimulus in the
US and more positive expectations elsewhere. The net effect was that over the
six months to 30 September 2010 as a whole the Company's capital benchmark, the
FTSE All-Share Index (the `Index') fell by 1.5%.
Investment Performance
Capital: The Company's defensive portfolio tends to out-perform when confidence
is weak and the Index falls; the converse is also true. In the first half of
the recent six month period, our investments did well in the weak market. The
position was to some extent reversed in the second. Overall, the result was
satisfactory: the Company's Net Asset Value (`NAV') increased by 3.7% (debt at
par) and 2.4% (debt at market value). The former measure is the better
indicator of the performance of the equity portfolio and represents good
out-performance of the Index which, as previously stated, fell by 1.5%.
Shareholders' Return: Reflecting continuing market demand, the Company's share
price increased over the six months by 5.2%, clearly much more satisfactory
than the fall of 1.5% in the Index in the same period. The discount of the
share price to NAV (with debt at par) narrowed from 6.2 to 4.8%; valuing debt
at market value, the shares traded at a premium of 2.0% to NAV, compared to a
discount of 0.7% at the year-end.
Over the six month period, the share price total return (reflecting capital
growth with income reinvested) was 6.9% - the equivalent Index measure was
0.2%.
VAT
Further to my Statement in the most recent Annual Financial Report, I can now
report that Aberdeen Asset Management, successors to Edinburgh Fund Managers
has, after the period end, obtained repayment from HMRC of VAT paid by the
Company in the period 1990-96. Aberdeen has also remitted an amount, further to
that received last year, in respect of the years 2001-02. The total of these
receipts is £3.176million reflecting allocations made when the VAT was
originally charged, £1.367million of this payment has been allocated to the
Company's capital, and £1.809million to revenue. This latter amount ( 0.93
pence per share) will be paid to shareholders immediately, as described in the
section `Company Dividend' below. Aberdeen expects to remit in due course a
further amount in respect of accrued interest: this, when received, will be
allocated wholly to revenue and will be distributed to shareholders at the next
convenient opportunity after receipt.
Company Dividend
The Board has declared an unchanged first interim dividend of 4.75 pence per
share together with an additional special dividend of 0.93 pence per share
representing the repayment of VAT, described in the previous section of this
Statement. Thus a total of 5.68 pence per share will be paid on 30 November
2010 to shareholders on the Company's register on 19 November 2010.
Other Matters
Board Succession: I am very pleased to report that the Board has nominated Jim
Pettigrew to succeed me as Chairman on my retirement in July 2011. Jim has wide
experience as Chief Financial Officer and as a Director of a number of major
companies in the financial services sector. He has already made a substantial
contribution to the Company since joining the Board in October 2005, and has
gained wide respect from his colleagues as a most effective Chairman of the
Audit Committee.
Electronic Communication: Following a change in legislation, Shareholders
approved a resolution at the Annual General Meeting in 2008 to permit the
Company to communicate with shareholders by electronic means. A letter from the
Company Secretary, enclosed with this Report, gives details of the Company's
proposals. The Board wishes to maintain strong links with shareholders by
ensuring that information is provided in a manner which suits individual needs.
I should therefore be grateful if you would give appropriate consideration to
the enclosed letter, and to note particularly that it is necessary to complete
and return the relevant form if you wish to continue to receive, as you do now,
full half-yearly and annual financial reports in written form, by post.
Outlook
The future pattern of economic development remains unclear despite recent
fiscal and monetary initiatives by many world governments. The UK public
spending initiatives, however right for the long term, will reduce consumer
spending both by those directly affected and by others who suffer, or fear they
may suffer, from secondary effects. Other countries present equally difficult
challenges to the international trading environment for the UK corporate sector
in which the Company invests. The Board and Manager, whilst remaining vigilant,
see no need to change the Company's investment approach at this time. We
continue to believe that its defensively orientated, concentrated portfolio,
whilst not without risks, will continue even in this difficult environment to
produce the steady growth needed to fuel the progressive dividend policy which
is important to the Company's shareholders. We also feel that the portfolio's
characteristics are such that it has potential for substantial upward re-rating
when confidence in world economies is regained.
Scott Dobbie
Chairman
10 November 2010
Manager's Report
Market Review
UK stocks ended the period little changed as positive corporate earnings were
negated by signs of slowing growth domestically and fragile confidence in the
global outlook. Sentiment early in the period supported UK equity markets as
confidence in the global recovery remained relatively firm. However, the
sovereign debt crisis that engulfed the peripheral Eurozone countries and signs
of moderating growth in China and the US saw markets falter during the summer
months as investors sought out `safe-haven' assets. The latter part of the
period saw sentiment make tentative steps forward, although economic data
remained mostly weak, the market reaction was more positive in anticipation of
a second round of quantitative easing.
Weak first quarter GDP data, with the economy hampered by the exceptionally
cold weather experienced at the start of the year, was followed by stronger
than anticipated expansion in the three months to the end of June. Second
quarter growth benefited from the impact of deferred activity and GDP expanded
by 1.2% quarter-on-quarter, according to data from the Office for National
Statistics. A decline in unemployment added to the more positive economic data,
but stubbornly high inflation and falls in retail sales and house prices
reinforced the fragile economic outlook. With doubts about the economy
remaining high, two members of the Monetary Policy Committee outlined the
challenges that still lay ahead, including the severe spending cuts announced
in the Emergency Budget, and concluded that further stimulus measures may yet
be required. The Bank of England held interest rates steady, at their historic
low of just 0.5%, despite consumer price inflation remaining well above the
Bank's 2% target throughout the period. The Bank's latest Inflation Report,
released in August, forecast that growth would be weaker than previously
thought, with inflation still expected to undershoot its 2% target over the
next two years, despite the impact of the planned VAT rise to 20% at the
beginning of next year.
In addition to largely positive corporate earnings results, renewed merger and
acquisition activity also provided support to equities. International Power,
SSL International and Tomkins were all targets of takeover approaches. Cairn
Energy and Aviva both received bids for parts of their businesses, Dana
Petroleum was the subject of a £1.87 billion bid from Korea National Oil and
BHP Billiton offered $39 billion for Potash Corp. Retailers Next, DSG
International and Debenhams highlighted the difficult and uncertain outlook for
the UK consumer, but Vodafone announced improvements in service and data
revenues, while strong results from Capita and British American Tobacco were
accompanied by dividend increases of 15% and 19% respectively.
Portfolio Strategy and Review
The Company's net asset value, including reinvested dividends, rose by 5.2%
during the period, compared to a rise of 0.2% (total return) for the FTSE
All-Share Index. In a period where the outlook for the global economy became
increasingly uncertain, the portfolio's bias towards dependable growth
companies with low earnings volatility benefited returns. Over the period, the
significant overweight to the tobacco sector was positive, with Altria and
Reynolds American both making positive contributions. The utility sector
representations, most notably International Power, were also strong.
International Power rose on news that it had agreed to merge with French
utility GDF Suez. The media sector exposure, through the position in Yell,
detracted, as did the holding of Roche.
In terms of portfolio activity, the takeover of Climate Exchange, one of the
smaller holdings, was concluded during the period and the holding of Severn
Trent was sold. In the year to date (to the end of the third quarter) the stock
comfortably outperformed the wider market, rising by more than 20% against the
FTSE All-Share's 6.7% gain. In our view, the share price is now more fully
valued and we are able to find more attractive valuation opportunities in other
parts of the market.
We also sold the position in Bunzl. The stock had performed well in both
relative and absolute terms, providing the opportunity to secure profits and to
reinvest in higher conviction ideas. The stock's robust performance had also
resulted in its dividend yield becoming less attractive than some alternative
investment opportunities.
A holding in Swiss pharmaceutical group Novartis was introduced during the
period. In our view, the company shares many of the attributes exhibited by the
portfolio's existing pharmaceutical holdings; a strong balance sheet, low
volatility of earnings and positive dividend growth prospects. We believe the
introduction of a new management team has increased the opportunity to enhance
shareholder returns by improving productivity and cost control.
We continued to build positions in companies that we believe are undervalued,
taking advantage of stock specific opportunities. We added to the
representation in the aerospace and defence sector, through an increase in the
holding of BAE Systems. We believe that the group's share price reflects overly
pessimistic assumptions about potential defence spending cuts. BAE Systems
currently trades on a forward earnings multiple of around 8 times and has a
dividend yield of 4.5%. The group has strong international businesses; a proven
track record and a high degree of earnings visibility, which leaves the shares
looking more attractively valued than they have been in many years.
With a number of our favoured companies, across a range of sectors, also
offering attractive valuations, we made further purchases in stocks including
AstraZeneca, BAE Systems, BT, Capita, GlaxoSmithKline, Morrisons and Roche.
Outlook
In our view, the prospects for the UK economy remain challenging. The UK has
seen a muted recovery so far despite the scale of monetary and fiscal support
it has received and with the process of bank crisis resolution still far from
over we expect growth to be minimal in the years ahead. At the current time the
combination of consumers and banks de-leveraging is restricting growth and the
outlook for 2011 will be further challenged by fiscal consolidation. The
spending cuts required to address the UK's deficit will be severe and have
negative implications for the employment market. We believe these factors will
lead to the underlying weakness of private sector demand becoming clear. In
this scenario, we expect there to be a lack of pricing pressure in the economy
that will see inflation gradually retreat, despite the one-off impact of next
year's VAT rise.
The businesses that the Company has exposure to can, in our view, continue to
grow revenues, profits and dividends despite the current economic headwinds. A
number of these companies, including pharmaceuticals and tobacco, are insulated
from weakness in discretionary consumer spending and are benefiting from
expansion in faster growing overseas markets. Companies in the utility,
aerospace and telecom sectors can also provide sustainable earnings growth.
Selected businesses in these areas of the market are profoundly undervalued and
we are confident that as the market's belief in sustainable and robust economic
recovery fades these businesses will be much sought after. While some companies
will struggle during a protracted period of economic weakness, the Manager
expects the businesses within the portfolio to continue to deliver robust
operating performance and progressive dividend growth.
Neil Woodford
Investment Manager
10 November 2010
Related Party
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager, Company Secretary and Administrator to the Company.
Details of the management fee arrangements are given in notes 2 and 3.
There are no other related party transactions.
Principal Risks and Uncertainties
The principal risks and uncertainties that could affect the Company's business
can be divided into various areas:
• market risk;
• investment performance risk;
• gearing risk;
• income/dividend risk;
• share price risk;
• control system risk; and
• other risks.
A detailed explanation of these principal risks and uncertainties can be found
on pages 18 to 20 of the 2010 annual financial report, which is available on
the Company's website at http://investmenttrusts.invescoperpetual.co.uk/portal/
site/iptrust/investmentrange/investmenttrusts/edinburgh/.
In the view of the Board, these principal risks and uncertainties are as much
applicable to the remaining six months of the financial year as they were to
the six months under review.
Going Concern
The financial statements have been prepared on a going concern basis. The
Directors consider this is the appropriate basis as the Company has adequate
resources to continue in operational existence for the foreseeable future. In
considering this, the Directors took into account the diversified portfolio of
readily realisable securities which can be used to meet funding commitments,
and the ability of the Company to meet all its liabilities and ongoing expenses
from its assets.
Directors' Responsibility Statement
In respect of the Preparation of the Half-Yearly Financial Report
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that to the best of their knowledge:
* the condensed set of financial statements contained within the half-yearly
financial report have been prepared in accordance with the Accounting
Standards Board's Statement `Half-Yearly Financial Reports';
* the interim management report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency
Rules; and
* the interim management report includes a fair review of the information
required on related party transactions.
Signed on behalf of the Board of Directors.
Scott Dobbie
Chairman
10 November 2010
Top Twenty Holdings
At 30 September 2010
UK listed and ordinary shares unless otherwise stated
Market
Value % of
Investment Sector £'000 Portfolio
GlaxoSmithKline Pharmaceuticals & 98,719 9.4
Biotechnology
AstraZeneca Pharmaceuticals & 96,991 9.2
Biotechnology
British American Tobacco Tobacco 74,214 7.1
Vodafone Mobile Telecommunications 59,264 5.6
Reynolds American
- US common stock Tobacco 55,891 5.3
BT Fixed Line 50,650 4.8
Telecommunications
BG Oil & Gas Producers 49,071 4.7
Imperial Tobacco Tobacco 47,288 4.5
Tesco Food & Drug Retailers 45,460 4.3
National Grid Gas & Water Multiutilities 40,929 3.8
Top ten holdings 618,477 58.7
Altria - US common stock Tobacco 37,678 3.6
BAE Systems Aerospace & Defence 33,716 3.2
Roche - Swiss common stock Pharmaceuticals & 32,548 3.1
Biotechnology
Reckitt Benckiser Household Goods 31,123 3.0
Capita Support Services 28,595 2.7
Rolls Royce Aerospace & Defence 27,112 2.6
Centrica Gas & Water Multiutilities 25,193 2.4
Scottish & Southern Energy Electricity 22,661 2.2
International Power Electricity 19,016 1.8
Novartis - Swiss common Pharmaceuticals & 17,422 1.7
stock Biotechnology
Top twenty holdings 893,541 85.0
Aggregate value of other 158,952 15.0
investments
Total investments 1,052,493 100.0
Independent Review Report
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2010 which comprises the condensed income statement, condensed
reconciliation of movement in shareholders' funds, condensed balance sheet,
condensed cash flow statement and the related explanatory notes. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules (the `DTR') of the UK's Financial Services Authority
(the `UK FSA'). Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work, for
this report, or for the conclusions we have reached.
Directors' Responsibilities
The half-yearly report is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the half-yearly
financial report in accordance with the DTR of the UK FSA. As disclosed in note
1, the annual financial statements of the Company are prepared in accordance
with UK Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice). The condensed set of financial statements included in
this half-yearly financial report has been prepared in accordance with the
Statement `Half-Yearly Financial Reports' as issued by the UK Accounting
Standards Board.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 `Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2010 is not prepared, in
all material respects, in accordance with the Statement `Half-Yearly Financial
Reports' as issued by the UK Accounting Standards Board and the DTR of the UK
FSA.
Salim Tharani
For and on behalf of KPMG Audit Plc
Chartered Accountants
Edinburgh
10 November 2010Condensed Income Statement
Six Months to 30 September
2010
(Unaudited)
Revenue Capital Total
£'000 £'000 £'000
Gains on investments - 26,347 26,347
Foreign exchange gains - - -
Income
UK dividends 22,110 - 22,110
Scrip dividends 404 - 404
Overseas dividends 3,122 - 3,122
Income from money market funds 3 - 3
UK unfranked investment
income - interest - - -
Deposit interest - - -
Underwriting and other income 148 - 148
25,787 26,347 52,134
Operating costs
Investment management fee - note 2 (692) (1,615) (2,307)
Performance fee - note 3 - - -
VAT recoverable on management fees - 1,809 1,367 3,176
note 4
Other expenses (375) (1) (376)
Net return before finance costs and 26,529 26,098 52,627
taxation
Finance costs - note 2 (2,938) (6,853) (9,791)
Return on ordinary activities before 23,591 19,245 42,836
tax
Tax on ordinary activities (430) - (430)
Return on ordinary activities after 23,161 19,245 42,406
tax
Return per ordinary share - note 5 11.9p 9.8p 21.7p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The supplementary
revenue and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the Association
of Investment Companies. All items in the above statement derive from
continuing operations and the Company has no other gains or losses therefore no
statement of recognised gains or losses is presented. No operations were
acquired or discontinued in the period.
Condensed Income Statement continued
Year Ended
31 March
Six Months to 30 September 2009 2010
(Unaudited) (Audited)
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Gains on investments - 137,595 137,595 212,356
Foreign exchange gains/ - 27 27 (187)
(losses)
Income
UK dividends 21,231 - 21,231 38,795
Scrip dividends 541 - 541 870
Overseas dividends 2,138 - 2,138 5,936
Income from money market 5 - 5 7
funds
UK unfranked investment
income - interest 401 - 401 1,190
Deposit interest 1 - 1 1
Underwriting and other 61 - 61 159
income
24,378 137,622 162,000 259,127
Operating costs
Investment management (571) (1,332) (1,903) (4,079)
fee - note 2
Performance fee - note 3 - - - -
VAT recovered on - - - 963
management fees
Other expenses (363) (6) (369) (703)
Net return before finance
costs
and taxation 23,444 136,284 159,728 255,308
Finance costs - note 2 (2,925) (6,825) (9,750) (19,502)
Return on ordinary
activities
before tax 20,519 129,459 149,978 235,806
Tax on ordinary (256) - (256) (809)
activities
Return on ordinary 20,263 129,459 149,722 234,997
activities
after tax
Return per ordinary share 10.4p 66.3p 76.7p 120.4p
- note 5
Condensed Reconciliation of Movements in Shareholders' Funds
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months to 30 September 2010 (Unaudited)
At 31 March 2010 48,779 6,639 24,676 698,000 49,231 827,325
Dividends paid
- final - - - - (12,390) (12,390)
Net return on
ordinary
activities - - - 19,245 23,161 42,406
At 30 September 48,779 6,639 24,676 717,245 60,002 857,341
2010
For the year ended 31 March 2010 (Audited)
At 31 March 2009 48,779 6,639 24,676 501,670 59,636 641,400
Dividends paid
- third interim - - - - (9,268) (9,268)
- final - - - - (12,000) (12,000)
Net return on
ordinary
activities - - - 196,330 38,667 234,997
Dividends paid
- first interim - - - - (9,268) (9,268)
- second interim - - - - (9,268) (9,268)
- third interim - - - - (9,268) (9,268)
At 31 March 2010 48,779 6,639 24,676 698,000 49,231 827,325
For the six months to 30 September 2009 (Unaudited)
At 31 March 2009 48,779 6,639 24,676 501,670 59,636 641,400
Dividends paid
- third interim - - - - (9,268) (9,268)
- final - - - - (12,000) (12,000)
Net return on
ordinary
activities - - - 129,459 20,263 149,722
At 30 September 48,779 6,639 24,676 631,129 58,631 769,854
2009
Condensed Balance Sheet
Registered number SC1836
At At At
30 31 March 30 September
September
2010 2010 2009
(Unaudited) (Audited) (Unaudited)
£'000 £'000 £'000
Fixed assets
Investments held at fair
value
through profit or loss 1,052,493 1,021,857 965,324
Current assets
Amounts due from brokers - - 5,573
VAT recoverable on management 3,176 - -
fees
Prepayments and accrued 4,419 7,233 3,856
income
Cash and cash funds 3,959 231 2,558
11,554 7,464 11,987
Creditors: amounts falling due
within one year
Amounts due to brokers (4,589) - (5,609)
Accruals (3,419) (3,426) (3,402)
(8,008) (3,426) (9,011)
Net current assets 3,546 4,038 2,976
Total assets less current 1,056,039 1,025,895 968,300
liabilities
Creditors: amounts falling due
after
more than one year
Debenture stock (196,987) (196,859) (196,735)
Provision for performance fee (1,711) (1,711) (1,711)
Net assets 857,341 827,325 769,854
Capital and reserves
Share capital 48,779 48,779 48,779
Share premium 6,639 6,639 6,639
Capital redemption reserve 24,676 24,676 24,676
Capital reserve 717,245 698,000 631,129
Revenue reserve 60,002 49,231 58,631
Shareholders' funds 857,341 827,325 769,854
Net asset value per ordinary 437.86p 422.41p 392.89p
share
Basic - note 7
Condensed Cash Flow Statement
Six Months Six Months
to to Year Ended
30 30 S 31 March
September eptember
2010 2009 2010
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Net return before finance
costs and taxation 52,627 159,728 255,308
Scrip dividends (404) (541) (870)
Gains on investments (26,347) (137,595) (212,356)
Foreign exchange (gains)/losses - (27) 187
(Increase)/decrease in debtors (362) 1,857 (1,535)
Decrease in creditors (45) (2,031) (2,006)
Overseas tax paid (430) (256) (809)
Net cash inflow from operating 25,039 21,135 37,919
activities
Servicing of finance (9,625) (9,625) (19,250)
Financial investment
Purchase of investments (82,800) (122,607) (201,812)
Sale of investments 83,504 134,903 232,628
Equity dividends paid (12,390) (21,268) (49,072)
Net cash inflow before
management
of liquid resources and 3,728 2,538 413
financing
Net cash outflow from
management of liquid - (1,500) -
resources
Increase in cash 3,728 1,038 413
Cashflow from movement in - 1,500 -
liquid resources
Exchange movements - 15 (187)
Debenture stock non-cash (128) (128) (252)
movement
Net debt at beginning of period (196,628) (196,602) (196,602)
Net debt at end of period (193,028) (194,177) (196,628)
Analysis of changes in net
debt:
Brought forward:
Cash and cash funds 231 5 5
Debenture stock (196,859) (196,607) (196,607)
Net debt brought forward (196,628) (196,602) (196,602)
Movements in the period:
Cash inflow from cash and 3,728 2,538 413
cash funds
Exchange movements - 15 (187)
Debenture stock non-cash (128) (128) (252)
movement
Net debt carried forward (193,028) (194,177) (196,628)
Notes to the Condensed Financial Statements
1. Basis of preparation
The condensed financial statements of the Company have been prepared using the
same accounting policies as those adopted in the 2010 annual financial report,
which are consistent with applicable United Kingdom Accounting Standards, and
with the Statement of Recommended Practice `Financial Statements of Investment
Trust Companies and Venture Capital Trusts'. The Financial Statements are also
prepared on a going concern basis.
2. Investment management fee and finance costs
Invesco Asset Management Limited (`IAML') acts as Manager and Secretary to the
Company under an investment management agreement dated 15 September 2008. The
agreement is terminable by either party by giving not less than 3 months'
notice.
The management fee is payable monthly in arrears and is equal to 0.05% of the
market capitalisation of the Company's ordinary shares at each month end.
Investment management fee and finance costs are allocated 30% to revenue and
70% to capital.
3. Performance fee
IAML is entitled to a performance fee of 15% of the out-performance of the NAV
(with debt at par), up to a maximum of 1% of net assets in any one year, in
respect of each rolling three year period in which the Company outperforms its
benchmark ( the FTSE All-Share Index) plus a hurdle rate, being the equivalent
of 1.25% per annum, as adjusted for shorter periods.
A deferred fee of £1,711,000 is shown as a provision following transitional
arrangements under which half of any performance fee earned is paid, and half
deferred. This provision represents half of the performance fee for the first
performance fee period from the change of manager in September 2008 to 31 March
2009, and becomes payable after 31 March 2011, if and when cumulative
performance meets or exceeds the benchmark plus hurdle rate.
No performance fee is due for the half-years ended 30 September 2009 and 30
September 2010, or for the year ended 31 March 2010. Performance fees are
allocated wholly to capital.
4. VAT Recoverable on Management Fees
Subsequent to the period Aberdeen Asset Management formally advised the
Company that they had obtained repayment of VAT on management fees for the
period 1990-96 and an additional payment of VAT for the period 2001-02,
totalling £3.176 million, and would be paying these monies to the Company. As
the amount is known and receipt virtually certain, the Company has accounted
for this as an adjusting post balance sheet event. As explained in the
Chairman's Statement, the amount is allocated £1.809 million to revenue and £
1.367 million to capital, reflecting the allocations made when the VAT was
originally charged.
The Board expects the Company to receive interest on these repayments, however,
as the amount involved and the timing of receipt is uncertain, no provision has
been made in these financial statements.
5. Return per ordinary share
The basic revenue, capital and total returns per share are based on the returns
after tax and the average number of shares in issue during the period as
follows:
Six months six months year ended
to to
30 30 31 March
September September
2010 2009 2010
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Returns after tax:
Revenue 23,161 20,263 38,667
Capital 19,245 129,459 196,330
Total return after tax 42,406 149,722 234,997
Weighted average number
of shares
during the period 195,116,734 195,116,734 195,116,734
6. Dividends
A first interim dividend of 4.75p (2010: 4.75p) for the year ended 31 March
2011, together with an additional special dividend of 0.93p, representing VAT
recovered on management fees, making a total dividend payment of 5.68p, will be
paid on 30 November 2010 to shareholders on the register on 19 November 2010.
7. Net asset value (`NAV') per ordinary share
(a) Debt at par
The shareholders' funds in the balance sheet are accounted for in accordance
with accounting standards, however, this does not reflect the rights of
shareholders on a return of assets under the Articles of Association. These
rights are reflected in the net assets with debt at par and the corresponding
NAV per share.
30 September 31 March 30 September
2010 2010 2009
(Unaudited) (Audited) (Unaudited)
(pence) (pence) (pence)
NAV per ordinary share 439.40 424.02 394.56
Less: unamortised discount and
expenses
arising from debenture issue (1.54) (1.61) (1.67)
NAV - debt at par 437.86 422.41 392.89
(b) Debt at market value
30 September 31 March 30 September
2010 2010 2009
(Unaudited) (Audited) (Unaudited)
(pence) (pence) (pence)
NAV - debt at par 437.86 422.41 392.89
Debt at par 102.50 102.50 102.50
Debt at market value (131.70) (125.99) (131.57)
NAV - debt at market value 408.66 398.92 363.82
8. Share capital
30 September 31 March 30 September
2010 2010 2009
(Unaudited) (Audited) (Unaudited)
Allotted, called-up and fully
paid
Number of ordinary shares of 195,116,734 195,116,734 195,116,734
25p each
9. It is the intention of the Directors to conduct the affairs of the Company
so that it satisfies the conditions for approval as an investment trust company
set out in section 1158 of the Corporation Tax Act 2010.
10. The financial information contained in this half-yearly financial report,
which has not been audited, does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006. The financial information for the
half years ended 30 September 2010 and 2009 has not been audited. The figures
and financial information for the year ended 31 March 2010 are extracted and
abridged from the latest published accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the Registrar of
Companies and included the Report of the Independent Auditors, which was
unqualified.
By order of the Board
Invesco Asset Management Limited
Company Secretary
10 November 2010
http://investmenttrusts.invescoperpetual.co.uk/portal/site/iptrust/
investmentrange/investmenttrusts/edinburgh/
Directors, Manager and Administration
Directors
Scott Dobbie, Chairman
Jim Pettigrew, Audit Committee Chairman
Richard Barfield, Senior Independent Director
Nicola Ralston
William Samuel
Sir Nigel Wicks
Manager and Company Secretary
Invesco Asset Management Limited
30 Finsbury Square
London EC2A 1AG
Company Secretarial contact: Carolyn Ladd
Invesco Perpetual Investor Services
Invesco Perpetual has an Investor Services
Team, available to assist you from 8.30 a.m.
to 6 p.m. each working day. Please feel free
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Tel: 0800 085 8677
You can now invest in the shares of the
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Oxfordshire RG9 1HH
Tel: 0800 085 8677
Textphone: 01491 576104
Fax: 01491 416000
Registered Office
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Registered in Scotland: No. SC1836
Registrars
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