Interim Results
London Finance & Investment Group P.L.C.
Directors Registered office
D.C. Marshall, Chairman 30 City Road,
F.W.A. Lucas, PhD London, EC1Y 2AG
J.H. Maxwell, CA, CCMI, FRSA
J.M. Robotham, OBE, FCA, MSI 8th March 2007
TO THE MEMBERS
The Directors are pleased to present the unaudited interim results of London
Finance & Investment Group P.L.C. ("the Company") for the six months ended 31st
December 2006.
Introduction
As an investment company our target is to achieve growth in shareholder value
in real terms over the medium to long term. In the short term our results can
be influenced by overall stock market performance. We continue to believe that
a combination of Strategic Investments and a General Portfolio is the most
effective way of achieving our aims. Strategic Investments are significant
investments in smaller UK quoted companies where we have expectations of above
average growth over the medium to longer term and these are balanced by a
General Portfolio which mainly consists of investments in major U.K. and
European equities.
At 31st December 2006, we held three Strategic Investments in which we have
board representation: our associated company Western Selection P.L.C.,
Marylebone Warwick Balfour Group Plc and Finsbury Food Group plc. Detailed
comments on our Strategic Investments are given below.
Results
Our net assets per share increased 11% to 58p at 31st December 2006 from 52p at
30th June 2006. Our Strategic Investments increased in value by 19% and our
General Portfolio increased by 8%. This compares with the rise in the FTSE 100
index of 7% over the half year. At the close of business on 28th February 2007,
our net asset value had further increased to 61p.
The Group made a profit before tax for the half year of £1,048,000 compared
with a profit of £85,000 for the same period last year. Our profit after tax
and minority interest was £750,000 (2005 - £101,000) giving earnings per share
of 2.50p (2005 - 0.38p).
The Group realised £2,080,000 in cash and a profit of £1,239,000 on acceptance
of a tender offer for one third of its holding in Marylebone Warwick Balfour
Group Plc ("MWB"). The profit for the period is after exceptional charges
amounting to £160,000 relating to the cost of setting up the Employee Benefit
Trusts for the Group and our associate, Western. The balance of the Group's
exceptional charge, £42,000, is for the termination of a consultancy agreement.
Strategic Investments
Western Selection P.L.C. ("Western")
During the period the final exercise date of Western's warrants took place and
all remaining warrants were exercised and 669,509 shares were issued, raising £
429,000. The Group acquired 74,721 new shares in Western and now holds
5,287,221, being 41.23% of Western's issued capital. On 2nd March 2007, Western
announced a loss after tax and exceptional items of £232,000 for its half year
to 31st December 2006 and a loss per share of 1.9p (2005 - 0.1p). Western's net
assets at market value were £10,003,000 equivalent to 99.5p per share, an
increase of 10.9% from 89.8p at 30th June 2006.
The market value of the Company's investment in Western at 31st December 2006
was £3,542,000 against a book value of £4,595,000. At market value this
represents 20% of the net assets of Lonfin. The underlying value of the
Company's investment in Western, valuing Western's own investments at market
value, was £5,300,000 (30th June 2006 - £5,100,000).
I am the Chairman of Western and Mr. Robotham is a non-executive director.
Western has strategic investments in Creston plc, Northbridge Industrial
Services PLC and Swallowfield plc. Extracts from Western's announcement on its
strategic investments are set out below:
Creston plc
Creston is a marketing services group whose strategy is to grow within its
sector both by organic growth and through selective acquisition to become a
substantial, diversified, international marketing services group. Creston's
results for the half-year to 30th September 2006 show a profit after tax
under IFRS of £1,017,000 (2005 - £765,000), equivalent to earnings of 2.1p
per share (2005 - 2.1p).
Western owns 3,000,000 shares in Creston (5.4%) with a market value at 31st
December 2006 of £6,030,000 (30th June 2006 - £4,845,000), being 47% of
Western's assets.
Northbridge Industrial Services PLC
Northbridge was formed for the purpose of acquiring companies that hire and
sell specialist industrial equipment such as load banks and generators.
Northbridge is seeking to acquire specialist niche businesses to give it the
potential for expansion into outsourcing providers, capable of supplying a
non-cyclical customer base. Northbridge's first acquisition was Crestchic
Limited, one of the largest specialist load bank equipment manufacturers in
the world; selling and hiring to a national and international customer base.
In March 2006, Northbridge placed 6,437,500 shares at £1 and at the same
time its shares were admitted to trading on AIM. Western invested £1,500,000
for 1,500,000 shares, representing 20.3% of Northbridge's share capital. The
value of the investment at 31st December 2006 was £2,055,000 representing
16% of Western's assets.
Swallowfield plc
Swallowfield has a long history of developing and producing aerosol,
cosmetic and toiletry products stretching back to 1950. As one of Europe's
premier large contract manufacturers of such products it offers an
unrivalled breadth of product capabilities. Its skill in design, developing
and producing gift packs and themed product ranges compliments its
production capability.
Swallowfield's latest results, for the year to 30th June 2006, showed
profit, before exceptional items, of £295,000 (2005 - loss £95,000). The
company has undergone a comprehensive restructuring and rationalisation
programme, incurring exceptional costs of £563,000. Net debt has been
reduced by 15.5% and the company is now looking to extend product
capabilities in China and other low cost areas.
Western owns 1,000,000 shares in Swallowfield (8.9% of their issued share
capital). The market value of the Company's holding in Swallowfield on 31st
December 2006 was £653,000 (30th June 2006 - £455,000) representing 5% of
the company's assets.
Marylebone Warwick Balfour Group Plc ("MWB")
During the period, the Company accepted MWB's tender offer for 1,000,000
shares, realising proceeds of £2,080,000 and a profit of £1,239,000, and now
owns 2,000,000 shares, representing 2.48% of MWB's issued share capital. The
market value of the holding at 31st December, 2006 was £4,820,000, compared
with a book value of £1,680,000, which represents 27% of the net assets of
Lonfin.
MWB is in the process of a realisation program through the controlled sale of
assets with the objective of returning cash or cash equivalents to shareholders
by the end of December 2008. We expect the repayment to be above the current
market price of MWB's shares.
I am a non-executive director of MWB.
Finsbury Food Group plc ("Finsbury Food")
During the period, the Company exercised warrants to acquire 2,800,000 shares
in Finsbury Food at a cost of £893,930. At 31st December 2006, it owned
7,800,000 shares and 200,000 warrants in Finsbury Food, representing 29.7% of
their share capital and 7.88% of their warrants. The market value of our
holding was £7,020,000 on 31st December 2006 compared to a cost of £1,800,000;
this represents 39% of the net assets of Lonfin.
Finsbury Food is a supplier of ambient cakes to most of the UK's major
supermarket chains and speciality breads to Waitrose including gluten-free and
low fat products.
On 30th January 2007, Finsbury Food announced details of a proposed placing of
12,500,000 shares at 85p each to raise approximately £10,000,000 in connection
with the proposed acquisition of Lightbody Group Limited for a total maximum
consideration of £37,500,000. This acquisition will enhance the group's product
range and customer base and it is expected that the enlarged group will become
the UK's leading premium cake business.
I am the deputy chairman of Finsbury Food.
General Portfolio
The General Portfolio consists of large capitalisation companies with
significant exposure to the resources, pharmaceuticals, foods & beverages and
banking sectors. These sectors accounted for 76% of the portfolio by value at
31st December 2006 and 69% at 30th June 2006.
The year ahead
Over the medium to long term we expect superior returns from our Strategic
Investments in smaller quoted companies. However we accept that the share
prices of these investments could be volatile in the short term. Equity markets
have enjoyed a three year growth run and no longer look cheap by historical
standards. However we remain cautiously optimistic for the future.
As is our practice, we only declare one dividend a year which was paid in
October 2006 for the year ended 30th June 2006. It is our intention, subject to
unforeseen circumstances, to maintain our policy of a progressive dividend
distribution.
David C. Marshall
Chairman
Unaudited Consolidated Profit & Loss Account
Half year ended Year ended
31st December 30th June
2006 2005 2006
£000 £000 £000
Operating Income
Dividends received 155 99 179
Interest and sundry income 18 15 30
Profit on sales of investments 1,337 179 401
---------- ---------- ----------
1,510 293 610
Management services income 251 285 587
---------- ---------- ----------
1,761 578 1,197
---------- ---------- ----------
Administrative expenses
Investment operations (170) (163) (337)
Management services (274) (295) (557)
---------- ---------- ----------
Total administrative expenses (444) (458) (894)
---------- ---------- ----------
Operating profit 1,317 120 303
Share of result of associated undertaking
Operating profit 9 68 169
Exceptional costs (202) (40) (40)
Interest payable (76) (63) (123)
---------- ---------- ----------
Profit on ordinary activities before 1,048 85 309
taxation
Tax on result of ordinary activities (309) (1) (4)
---------- ---------- ----------
Profit on ordinary activities after 739 84 305
taxation
Minority interest 11 17 (2)
---------- ---------- ----------
Profit attributable to members of the 750 101 303
holding company
---------- ---------- ----------
Reconciliation of headline earnings
Earnings per share 2.5p 0.4p 1.1p
Adjustment for exceptional items, net of 0.5p - -
tax
---------- ---------- ----------
Headline earnings per share 3.0p 0.4p 1.1p
---------- ---------- ----------
Fully diluted earnings per share 2.5p 0.4p 1.1p
Dividend per share Nil Nil 1.05p
Consolidated Statement of Recognised Gains and Losses
Unrealised gains on investments held as :-
Fixed assets 2,313 3,079 3,768
Current assets 364 449 427
Deferred taxation on unrealised gains (734) (1,036) (1,188)
---------- ---------- ----------
1,943 2,492 3,007
Profit attributable to members 750 101 303
Share capital issued 60 954 949
Dividend paid in respect of the previous (315) (262) (262)
year
---------- ---------- ----------
Total recognised gains and losses for the 2,438 3,285 3,997
year
---------- ---------- ----------
Unaudited Consolidated Balance Sheet
31st December 30th June
2006 2005 2006
£000 £000 £000
Fixed assets
Tangible assets 423 436 430
Investments 15,382 12,473 13,247
---------- ---------- ----------
15,805 12,909 13,677
---------- ---------- ----------
Current assets
Listed investments 5,382 4,687 4,907
Debtors 177 239 196
Cash, bank balances and deposits 878 93 171
---------- ---------- ----------
6,437 5,019 5,274
---------- ---------- ----------
Total Assets 22,242 17,928 18,951
---------- ---------- ----------
Capital and Reserves
Called up share capital 1,560 1,500 1,500
Share premium account 1,855 1,859 1,854
Reserves 7,186 4,729 5,244
Profit and loss account 7,468 6,831 7,033
---------- ---------- ----------
Shareholders funds 18,069 14,919 15,631
Creditors falling due within one year 2,023 1,753 1,893
Deferred taxation 2,097 1,212 1,363
Minority equity interest 53 44 64
---------- ---------- ----------
22,242 17,928 18,951
---------- ---------- ----------
Consolidated Cash Flow Statement
Half year ended Year ended
31st December 30th June
2006 2005 2006
£000 £000 £000
Cash outflow on operating activities (305) (58) (120)
---------- ---------- ----------
Returns on investments and servicing of
finance
Dividend received 282 201 281
Interest paid (54) (64) (95)
---------- ---------- ----------
Net cash inflow from returns on investments 228 137 186
and servicing
of finance
---------- ---------- ----------
Taxation paid (3) (1) (4)
---------- ---------- ----------
Investing activities
Tangible assets purchased - (11) (12)
Fixed assets investments purchases (888) (664) (664)
Fixed assets investments disposals 2,080 - -
---------- ---------- ----------
Net cash inflow/(outflow) from investment 1,192 (675) (676)
activities
---------- ---------- ----------
Equity dividend paid - Company (315) (262) (262)
---------- ---------- ----------
Financing
Share capital issued 60 954 949
Net (repayment)/drawdown of loan facility (150) (50) 50
---------- ---------- ----------
Net cash (outflow)/inflow from financing (90) 904 999
---------- ---------- ----------
Increase in cash 707 45 123
---------- ---------- ----------
(a) Reconciliation of operating profit to net cash flow from operating
activities
31st 30th June
December
2006 2006
£000 £000
Operating profit 1,317 303
Exceptional costs (118) (40)
Dividends receivable (155) (179)
Depreciation charges 7 13
Profit on sale of fixed asset investment (1,239) -
Decrease/(increase) in debtors 19 (15)
(Decrease)/increase in creditors (25) 13
Decrease in current asset investments (111) (215)
---------- ----------
(305) (120)
---------- ----------
(b) Reconciliation of net cash flow to movement in net debt
At start Cash At end of
of period flow Period
£000 £000 £000
2006
Cash at bank 171 707 878
Bank loan (1,650) 150 (1,500)
---------- ---------- ----------
(1,479) 857 (622)
---------- ---------- ----------
2005/
Cash at bank 48 123 171
Bank loan (1,600) (50) (1,650)
---------- ---------- ----------
(1,552) 73 (1,479)
---------- ---------- ----------
Balance Sheet Analysis taking investments at market value
31st December 30th June
2006 2005 2006
£000 £000 £000
Principal investments at market value:
Marylebone Warwick Balfour Group Plc 4,820 4,455 5,910
Finsbury Food Group plc 7,020 4,760 4,340
Western Selection P.L.C. 3,542 3,258 2,997
---------- ---------- ----------
15,382 12,473 13,247
General equity portfolio - (see analysis 5,382 4,687 4,907
attached)
Tangible fixed assets 423 436 430
Cash, bank balances and deposits 878 93 171
Bank loan (1,500) (1,550) (1,650)
Other net (liabilities)/assets (346) 36 (47)
Deferred taxation (2,097) (1,212) (1,363)
Minority interests (53) (43) (64)
---------- ---------- ----------
Net assets 18,069 14,920 15,631
---------- ---------- ----------
Net Assets per share 57.9p 49.7p 52.1p
Net Assets per share at 28th February 2007 60.7p
Notes:-
1. The results for the half-year are unaudited and have been prepared in
accordance with International Financial Reporting Standards which was the
basis on which the accounts for the year ended 30th June 2006 were
prepared. The financial information in this interim report does not
constitute statutory accounts within the meaning of Section 240(5) of the
Companies Act 1985. The audited accounts of the Group for the year ended
30th June 2006 have been reported on by the Group's auditors and have been
delivered to the Registrar of Companies. The report of the auditors was
unqualified and did not contain a statement under Section 237(2) or 272(3)
of the Companies Act 1985.
2. Earnings per share are based on the profit after taxation and minorities,
and on the weighted average number of shares in issue during the period -
30,065,017 (December 2005 - 26,785,377and June 2006 - 28,672,672).
Market Value of General Portfolio
31st December 2006
£000 %
GlaxoSmithKline 188 3.5
British American Tobacco 171 3.2
Diageo 171 3.2
Beiersdorf 169 3.1
Nestle 163 3.0
Land Securities Group 163 3.0
Anglo American 162 3.0
Imperial Tobacco Group 161 3.0
Schindler-Holdings 160 3.0
ING Groep 156 2.9
Holcim 154 2.9
Carlsberg 152 2.8
Reckitt Benckiser 152 2.8
Standard Chartered 149 2.8
UBS 149 2.8
ABN AMRO 148 2.7
Heineken 146 2.7
Unilever 143 2.7
Credit Suisse Group 143 2.7
Pernod-Ricard 141 2.6
Roche Holdings 137 2.5
Intercontinental Hotels Group 133 2.5
L'Oreal 128 2.4
Henkel 128 2.4
Koninklijke 126 2.3
Associated British Foods 125 2.3
BHP Billiton 121 2.3
HSBC Holding 120 2.2
Johnson Matthey 120 2.2
BASF 119 2.2
Total 118 2.2
Novartis 118 2.2
Cadbury Schweppes 117 2.2
Royal Dutch Shell 116 2.2
BP 114 2.1
Rio Tinto 109 2.0
LVMH Moët Hennessy - Louis Vuitton 108 2.0
Sanofi-Aventis 99 1.8
Other 85 1.6
---------- ----------
5,382 100.0
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