Preliminary Announcement
For immediate release
27 May 2009
Finsbury Growth & Income Trust PLC
Announces Interim Results for the six months to 31 March 2009
Financial Highlights: (Unaudited) (Audited) % change
31 March 30 September
2009 2008
Share price 173.0p 202.0p -14.4
Net asset value per share 183.9p 215.5p -14.7
Discount of share price to net asset 5.9% 6.3% n/a
value per share
Shareholders' funds £92.4m £109.8m -15.8
Market capitalisation £86.9m £102.9m -15.5
Six months to One year to
31 March 30 September
2009 2008
Share price (total return)# -12.2% -33.1%
Net asset value per share (total -12.1% -31.4%
return)#
FTSE All-Share Index (total return) -18.3% -22.3%
Dividends Year ending Year ending 30
30 September September
2009 2008
First interim dividend 4.4p per 4.4p per share
share
Second interim dividend Yet to be 5.1p per share
declared
# Source - Fundamental Data for the AIC
For and on behalf of
Frostrow Capital LLP, Secretary
27 May 2009
- ENDS -
The following are attached:
* Chairman's Statement
* Investment Manager's Review
* Income Statement
* Reconciliation of Movements in Shareholders' Funds
* Balance Sheet
* Cash Flow Statement
* Notes to the Interim Accounts
For further information please contact:
Alastair Smith/Mark Pope, Frostrow Capital LLP 020 3008 4911/4913
Jo Stonier, Quill Communications 020 7758 2236
Nick Train, Lindsell Train Limited 020 7227 8200
Chairman's Statement
Performance
The period under review has again been an extremely challenging one for stock
markets. I am disappointed to have to report that your Company has not been
immune from the general weakness in stock markets and in the six months to 31
March 2009 your Company's net asset value per share declined by 12.1%, on a
total return basis. The Company's share price total return was a similar
decline of 12.2% with the Company's benchmark, the FTSE All-Share Index,
measured on a total return basis, falling by 18.3% during the same period.
At the period end the share price discount to net asset value per share stood
at 5.9%, slightly narrower than the discount as at 30 September 2008 of 6.3%.
Share Capital
The Company has continued to be active in buying back shares for treasury where
they were offered at a discount greater than 5% to the net asset value per
share. A total of 746,500 shares were repurchased for treasury during the
half-year in accordance with the Company's stated policy; 50,000 of these were
then reissued to new shareholders in November 2008 at a price representing a
narrower discount to net asset value per share than that at which they had been
bought into treasury. Following the half-year end a further 40,000 shares have
been repurchased to be held as treasury shares and a total of 410,000 shares
have been reissued out of treasury. As at the date of this report, a total of
2,173,250 shares are held in treasury.
Return and Dividend
The Income Statement shows a total loss per share of 26.66p consisting of a
revenue return per share of 2.99p and a capital loss per share of 29.65p.
Income was well down on the comparative period last year, almost entirely as a
result of the banking stocks in the portfolio. Further details are given in the
Investment Manager's Review.
Your Board has declared an unchanged first interim dividend of 4.4p per share
which was paid on 6 May 2009 to shareholders on the register at the close of
business on 3 April 2009. The associated ex-dividend date was 1 April 2009.
Following the payment of the first interim dividend of £2,211,000 on 6 May
2009, the Company has £1,657,000 of retained distributable revenue reserves
which is equivalent to approximately 3.3p per share.
Borrowings
Your Company has a fixed term committed revolving credit facility of £15m which
is subject to a variable rate. As at 31 March 2009 a total of £13m was drawn
down under this facility.
VAT
As shareholders will be aware from my previous statements, VAT is no longer
charged on investment management fees following the ruling by the European
Court of Justice in October 2007. Negotiations with the Company's previous and
current Investment Managers are continuing with respect to reclaiming VAT
previously paid. I am pleased to report that it has been agreed that the sum of
£31,000 will be refunded to the Company in respect of VAT paid to Lindsell
Train Limited during the three-month period ended 30 September 2007. Progress
remains slow with respect to VAT expected to be recoverable from Close
Investments Limited, the Company's previous Investment Manager, however, we
expect to have recovered the remaining VAT from Close Investments Limited by 30
September 2009. Recoverable amounts will be reflected in the accounts in
proportion to the original basis of allocation of expenses between income and
capital applicable to each year in respect of which a recovery is made.
Outlook
2008, which included the bankruptcy of a major American investment bank and the
effective nationalisation of some UK banks and large US financial institutions,
was the second worst year for the UK equity market since the 1920's. The global
nature of the down-turn and the negative impact of the credit crunch on
companies' access to capital and cash-flow are expected to continue well into
2010 and consequently stock market conditions will continue to be difficult and
volatile in the short term. However, your Board remains supportive of our
Investment Manager's strategy of investing in durable cash generative
franchises which are held for the long term and continues to believe that this
strategy will deliver superior investment returns to shareholders.
The outlook for dividends generally remains uncertain and while so far this
year only one portfolio holding, Lloyds, has cut its dividend, your Board and
our Investment Manager continue to monitor this situation closely.
It is encouraging that since 31 March 2009 markets have shown a strong recovery
and since the period end the Company has issued 410,000 shares out of treasury.
Anthony Townsend
Chairman
Investment Manager's Review
At the end of our half year, which is also the end of the first quarter of
2009, we find we have three more or less urgent observations about the
portfolio. These relate to three issues that we, as Investment Manager, have
been most exercised about. By extension, we judge they are the issues that you
as shareholders (as we are as well) ought to care most about too.
Lloyds Banking Group
Your Company retains a material exposure to Lloyds, with 2.2% of the Company's
net asset value in the ordinary and a further 3.7% in two preference shares. In
recent trying circumstances this exposure merits detailed analysis.
We are mortified by the (unrealised) loss of value suffered by shareholders in
these instruments. However, there are signs that the worst is past.
Lloyds' ordinary shares were trading at 70.7p at the period end. This is an
important price, because it is above 38.4p. What we mean by this is that
Lloyds' stock is nearly double the already announced price at which its
shareholders will be offered new ordinary shares, arising from the government's
conversion of its own preference shares in the bank. With such a premium it
seems highly likely that shareholders will take up their entitlement to this
further £4bn of equity. If so, Lloyds will be confirmed with a Tier 1 ratio of
14% - getting on for bomb-proof, surely - and, critically, the government's
stake in the bank will be unchanged, at 43%, still short of full control. This
escape from de facto nationalisation would likely improve the rating, we think.
Our belief is that one day Lloyds will be rated at 2.0x book value. In fact for
many "pre-HBOS" years, Lloyds traded at closer to 3.0x book. Current fully
diluted net asset value per share, adjusted for the government's asset
protection scheme, is over £1. Pre-provision profits at Lloyds are c£13bn a
year, compared to period end market capitalisation of £11.6bn. If the bank
survives then, which we acknowledge is still not certain, but more so after the
quarter's developments, its book value will grow quickly and its stock is
likely still very cheap.
Meanwhile, after the period end both our Lloyds Bank preference shares went
"ex-dividend".They offer a net dividend yield of nearly 20% and are an
important source of income for the Company. It seems that the bank intends to
service its preferred obligations through this difficult time. If it succeeds,
these shares are also cheap.
Dividends
As the 2009 results season unfolds we find that, to date, only one portfolio
constituent has cut its dividend - Lloyds, whose final has been replaced by a
measly scrip issue. There is no escaping the fact that the loss of the bulk of
the Lloyds' ordinary dividend is a blow to the Company's revenue account. We
must hope that growth across the portfolio can take up the slack. And indeed
another 83.4% of the Company's net asset value has reported dividends in
calendar 2009 with, of these, 8.5% maintaining and 74.9% increasing
distributions. Highlights were the double digit hikes from Fidessa, Reed, Shell
and Unilever.
We know there are no grounds for complacency and that dividends remain at risk
if the economy worsens. Reviewing the portfolio we recognise the dividend from
Marston's, in particular, cannot be described as "safe", given that company's
indebtedness. Nonetheless, at our recent meeting with its chairman we were left
in no doubt of the company's commitment to its payout, which costs £35m pa, a
relatively small sum, compared, say, to EBITDA (earnings before interest,
taxes, depreciation and amortisation) of £205m. Moreover, its business has
demonstrated resilience into the recession, offering good value nights-out to
Middle Britain.
There are forecasts predicting UK dividends will fall 30% in 2009/10. We hope
they are wrong. But so far, we find the Company's experience to be encouraging.
This is, of course, as it should be, given Lindsell Train's stated investment
approach, focused on cash generative and - we try to ensure - stable
businesses. Consider that over 43.7% of the Company's net asset value is
invested in just four branded goods companies - A. G. Barr, Cadbury, Diageo and
Unilever. Whatever you think about the short term prospects for price
performance from this quartet, their dividends look reassuringly secure.
Growth Companies - Technology and Media
Nearly 31% of the Company's net asset value is made up of
"Business-to-Business" media and software companies - including Euromoney,
Fidessa, Pearson, Reed, Sage and Thomson Reuters. For what it's worth this
represents something like a 10x "overweight" to these two sectors. This is a
very distinctive commitment, relative to other investors. It is also, in our
opinion, full of value and opportunity.
Non-cyclical, steady growth is an exceptionally attractive and rare corporate
characteristic today. Any company that can deliver it is likely to be
materially undervalued. We expect such growth to be found amongst companies
exposed to the two most powerful industry trends of this generation - namely
the Emerging Markets and the Internet. So, just as we believe that Cadbury, for
instance, is given little credit for the fact that 37% of its sales derive from
Developing Economies and are growing rapidly, we also think investors have not
given sufficient consideration to the beneficial impact of the Internet on
professional publishers.
The proof of this proposition, in our eyes, and the only one that really
counts, is that their shares are outperforming. Fidessa, Pearson, Sage and
Thomson Reuters are actually up so far in 2009 - because their businesses are
growing in a way that offers sanctuary from the broad economic cycle. After an
8 year bear market these shares are still cheap and unloved.
Nick Train, Lindsell Train Limited
Investment Manager
Income Statement
For the six months ended 31 March 2009
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31 March 2009 31 March 2008 30 September 2008
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Losses on - (14,571) (14,571) - (28,432) (28,432) - (51,522) (51,522)
investments
held at fair
value through
profit or loss
Exchange - 2 2 - - - - - -
difference
Income (note 2) 1,959 - 1,959 2,776 - 2,776 6,363 - 6,363
Investment (107) (217) (324) (162) (330) (492) (300) (609) (909)
management,
management and
performance
fees
(note 3)
Other expenses (212) - (212) (233) - (233) (434) - (434)
Return/(loss) 1,640 (14,786) (13,146) 2,381 (28,762) (26,381) 5,629 (52,131) (46,502)
on ordinary
activities
before finance
charges and
taxation
Finance charges (123) (250) (373) (217) (441) (658) (346) (702) (1,048)
Return/(loss) 1,517 (15,036) (13,519) 2,164 (29,203) (27,039) 5,283 (52,833) (47,550)
on ordinary
activities
before taxation
Taxation on - - - - - - - - -
ordinary
activities
Return/(loss) 1,517 (15,036) (13,519) 2,164 (29,203) (27,039) 5,283 (52,833) (47,550)
on ordinary
activities
after taxation
Return/(loss) 2.99p (29.65)p (26.66)p 4.11p (55.44)p (51.33)p 10.12p (101.20)p(91.08)p
per share (note 4)
The "Total" column of this statement represents the Income Statement of the
Company. The "Revenue" and "Capital" columns are supplementary to this and are
prepared under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations. The Company
had no recognised gains or losses other than those declared in the Income
Statement.
Reconciliation of Movements in Shareholders' Funds
(Unaudited) Called Share Special Capital Capital Revenue Total
up premium reserve redemption reserve reserve
Six months ended 31 share £'000
March 2009 capital account £'000 reserve £'000 £'000
£'000 £'000 £'000
At 30 September 2008 13,199 35,914 12,424 3,453 39,845 4,949 109,784
Net (loss)/ return - - - - (15,036) 1,517 (13,519)
from ordinary
activities
Second interim - - - - - (2,598) (2,598)
dividend (5.1p per
share) for the year
ended 30 September
2008
Repurchase of shares - - - - (1,323) - (1,323)
into treasury
Sale of shares from - - - - 87 - 87
treasury
At 31 March 2009 13,199 35,914 12,424 3,453 23,573 3,868 92,431
(Unaudited)
Six months ended 31
March 2008
At 30 September 2007 13,162 35,482 12,424 3,453 97,023 4,511 166,055
Net (loss) return from - - - - (29,203) 2,164 (27,039)
ordinary activities
Second interim - - - - - (2,527) (2,527)
dividend (4.8p per
share) for the year
ended 30 September
2007
Shares issued net of 37 432 - - - - 469
issue expenses
Repurchase of shares - - - - (2,055) - (2,055)
into treasury
Sale of shares from - - - - 1,677 - 1,677
treasury
At 31 March 2008 13,199 35,914 12,424 3,453 67,442 4,148 136,580
(Audited)
Year ended 30
September 2008
At 30 September 2007 13,162 35,482 12,424 3,453 97,023 4,511 166,055
Net (loss)/return - - - - (52,833) 5,283 (47,550)
from ordinary
activities
Second interim - - - - - (2,527) (2,527)
dividend (4.8p per
share) for the year
ended 30 September
2007
First interim - - - - - (2,318) (2,318)
dividend (4.4p per
share) for the year
ended 30 September
2008
Shares issued net of 37 432 - - - - 469
issue expenses
Repurchase of shares - - - - (6,081) - (6,081)
into treasury
Sale of shares from - - - - 1,736 - 1,736
treasury
At 30 September 2008 13,199 35,914 12,424 3,453 39,845 4,949 109,784
Balance Sheet
As at 31 March 2009
(Unaudited) (Unaudited) (Audited)
31 March 2009 31 March 2008 30 September 2008
£'000 £'000 £'000
Fixed assets
Investments held at fair 104,898 148,344 121,586
value through profit or
loss
Current assets
Debtors 623 1,691 1,159
Bank balances and short 293 741 204
term deposits
916 2,432 1,363
Current liabilities
Creditors (383) (196) (165)
Bank loan (13,000) (14,000) (13,000)
(13,383) (14,196) (13,165)
Net current liabilities (12,467) (11,764) (11,802)
Total net assets 92,431 136,580 109,784
Capital and reserves
Called up share capital 13,199 13,199 13,199
Share premium account 35,914 35,914 35,914
Special reserve 12,424 12,424 12,424
Capital redemption 3,453 3,453 3,453
reserve
Capital reserve 23,573 67,442 39,845
Revenue reserve 3,868 4,148 4,949
Equity shareholders' 92,431 136,580 109,784
funds
Net asset value pershare 183.9p 259.3p 215.5p
(note 5)
Cash Flow Statement
For the six months ended 31 March 2009
(Unaudited) (Unaudited) (Audited)
31 March 2009 31 March 2008 30 September 2008
£'000 £'000 £'000
Net cash inflow from 2,088 2,078 5,548
operating activities(note
7)
Servicing of finance
Loan interest and (284) (795) (1,185)
arrangement fees paid
Financial investment
Purchase of investments (3,035) (1,869) (5,886)
Sale of investments 5,152 14,106 21,791
Net cash inflow from 2,117 12,237 15,905
financial investment
Equity dividends paid (2,598) (2,527) (4,845)
Net cash inflowbefore 1,323 10,993 15,423
financing
Financing
Issue of new shares - 469 469
Repurchase of shares into (1,323) (2,055) (6,081)
treasury
Sale of shares from 87 1,677 1,736
treasury
Repayment of loans - (10,850) (11,850)
Net cash outflow from (1,236) (10,759) (15,726)
financing
Increase/(decrease) in cash 87 234 (303)
Reconciliation of net cash
flow to movement in net
debt
Increase/(decrease) in cash 87 234 (303)
resulting from cashflows
Decrease in debt - 10,850 11,850
Exchange movements 2 - -
Movement in debt 89 11,084 11,547
Net debt at start of period (12,796) (24,343) (24,343)
/year
Net debt at end of period/ (12,707) (13,259) (12,796)
year
Notes to the interim accounts
1. Basis of Preparation
The financial statements have been prepared under the historical cost
convention except for the measurement of investments which are valued at
fair value, and in accordance with applicable accounting standards and with
the Statement of Recommended Practice `Financial Statements of Investment
Trust Companies' dated January 2009. The financial statements have not been
reviewed by the Company's auditors.
The same accounting policies used for the year ended 30 September 2008 have
been applied.
2. Income
(Unaudited) (Unaudited) (Audited)
Six months ended Six months Year ended
ended 30
31 March 2009 September
31 March 2008 2008
£'000 £'000 £'000
Franked investment income 1,884 2,697 6,237
Limited Liability Partnership 70 - 11
profit-share
Fixed interest income - 47 65
Money market dividend 5 28 44
Bank interest - 4 6
Total 1,959 2,776 6,363
3. Investment Management, Management and Performance Fees
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended 30 September
31 March 2009 31 March
2008 2008
£'000 £'000 £'000
Investment management fee 205 331 601
Management fee 103 137 262
Performance fee - - -
VAT thereon* 16 24 46
Total 324 492 909
* VAT on management fee.
4. Return/(loss) pershare
The total return per share is based on the total loss attributable to equity
shareholders of £13,519,000 (six months ended 31 March 2008: loss of £
27,039,000; year ended 30 September 2008:loss of £47,550,000) and on
50,709,699 shares (six months ended 31 March 2008: 52,671,134; year ended 30
September 2008: 52,206,113), being the weighted average number of shares in
issue.
The revenue return per share is calculated by dividing the net revenue
return of £1,517,000 (six months ended 31 March 2008: return of £2,164,000;
year ended 30 September 2008: return of £5,283,000) by the weighted average
number of shares in issue as above.
The capital loss per share is calculated by dividing the net capital loss
attributable to shareholders of £15,036,000 (six months ended 31 March 2008:
loss of £29,203,000; year ended 30 September 2008: loss of £52,833,000) by
the weighted average number of shares in issue as above.
5. Net asset value per share
The net asset value per share is based on net assets attributable to shares
of £92,431,000 (31 March 2008: £136,580,000 and 30 September 2008: £
109,784,000) and on 50,254,173 shares in issue (excluding treasury shares)
(31 March 2008: 52,674,423 and 30 September 2008: 50,950,673) (excluding
treasury shares)
6. Transaction costs
Purchase transaction costs for the six months ended 31 March 2009 were £
19,000 (six months ended 31 March 2008: £22,000; year ended 30 September
2008: £50,000).
Sales transaction costs for the six months ended 31 March 2009 were £9,000
(six months ended 31 March 2008: £31,000; year ended 30 September 2008: £
33,000).
7. Reconciliation of net totallossbefore finance costs and taxation to net cash
inflow from operating activities
(Unaudited) (Unaudited) (Audited)
Six months ended Six months Year ended
31 March 2009 ended 31 30 September
£'000 March 2008 2008
£'000 £'000
Total loss before finance charges and taxation (13,146) (26,381) (46,502)
Capital loss before finance charges and taxation 14,788 28,762 52,131
Gains on exchange movements (2) - -
Net revenue before finance costs and taxation 1,640 2,381 5,629
Decrease/(increase) in accrued income and 541 (182) 346
prepayments
(5) 244 248
(Increase)/decrease in debtors
129 (35) (66)
Increase/(decrease) in creditors
Investment management, management and performance
fees charged to capital (217) (330) (609)
Net cash inflow from operating activities 2,088 2,078 5,548
8. 2008 Accounts
The figures and financial information for the year ended 30 September 2008
are extracted from the latest published accounts of the Company and do not
constitute statutory accounts for the year.
Those accounts have been delivered to the Registrar of Companies and
included the Report of the Auditors which was unqualified and did not
contain a reference to any matters to which the auditors drew attention by
way of emphasis without qualifying the report, and did not contain a
statement under either Section 237(2) or 237(3) of the Companies Act 1985.
Frostrow Capital LLP
Company Secretary
27 May 2009
- ENDS -
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