Interim Results
CHAIRMAN'S STATEMENT
RESULTS
The challenges facing investors during this six month period are not entirely
apparent in the relatively modest 4.1% increase in the FTSE All Share over the
reporting period. At one point, at the height of pre war uncertainty, the UK
market had fallen a further 16% from its already depressed value at the start
of the year, only then quickly to recover. Temple Bar's total assets, including
accrued revenue, rose by 5.7%; the FTSE 350 Higher Yield index increased by
2.85%. Pre tax earnings have been struck after a change in accounting
allocation basis, whereby 60% (previously 50%) of the cost of interest and
management fees is charged against the capital account, better to reflect the
sources of past and prospective gains. Post tax earnings were £8.8m compared
with £8.0m in 2002, a rise of 10%. The board has declared an interim dividend
of 8.43p, an increase of 2.5% over 2002, which will be payable on 30 September
2003 to those shareholders on the register at the close of business on 12
September 2003.
INVESTMENT BACKGROUND
Although the extremes of market movement were influenced by the build up to the
war in Iraq and subsequent campaign, investor concern also centred around the
prospects for the global economy. These two issues were not entirely
unconnected. Particularly destructive to equity markets in the early part of
the period was the fear of the effect of war related disruption and higher oil
prices on a global economy already struggling to overcome the deflationary
forces associated with the bursting of a market bubble. Risk aversion was a
priority, with investors especially sensitive to geopolitical issues following
the events of 11th September 2001. For the UK, more than overseas equity
markets, an added ingredient was the forced selling of equities by life
companies as their solvency margins came under pressure.
With hindsight it is easy to see that once the oil fields of Southern Iraq had
been secured by the coalition, the worst fears concerning the economic impact
of the war were unlikely to be realised. Equity markets thus recovered whilst
the campaign was still raging and investors were able to focus again on pure
economic issues, albeit with Severe Acute Respiratory Syndrome (SARS) as an
added concern. The economic debate continued between those who considered that
sufficient monetary and fiscal stimuli were being applied to allow the US
economy to emerge from a normal recessionary cycle; and those who feared that
the headwinds from the imbalances evident in the US current account deficit and
from general deflationary forces were too strong. Until the end of the period,
the strength of government bond markets and the weakening of the US dollar
versus the Euro suggested that the latter argument was gaining the upper hand,
although such a view does not sit easily with the recovery in equity markets in
the second quarter of the year.
Against this background, discerning patterns of sectoral performance in the UK
market is not easy. Other than tobacco, the most obvious defensive sectors,
Food Producers and Beverages, were among the weaker sectors. This was due to a
combination of investors' search for more economically sensitive stocks and
disappointing trading news from the likes of Unilever and Scottish & Newcastle
where, arguably, investor enthusiasm for their defensive qualities had been
overdone. Utilities were also among the weaker performers.
On the positive side the Construction and Building sector continued to be
strong, influenced by a robust housing market as well as support from
government spending on infrastructure. Companies which had been depressed by
the deteriorating geopolitical situation towards the end of last year, such as
stocks in the leisure and hotel sector, staged a revival. As markets recovered,
we saw a partial lifting of the concern over large pension fund deficits,
enabling some of the cyclical stocks with large final salary pension schemes to
bounce back. Corporate activity was also a positive factor, particularly in the
retail sector. Of the three largest sectors, Banks was the best performing.
Those financials perceived to have least life insurance exposure posted the
strongest gains, although this did not include HSBC and Standard Chartered,
where exposure to the Far East and the economic effects of SARS was a concern.
Pharmaceuticals were flat in relative terms, whilst Oils, on the basis that the
best news for the oil price was behind us, were the weakest.
Given the traditionally defensive nature of Temple Bar's portfolio we can be
reasonably satisfied with having outperformed the FTSE All Share over this
period. Performance was aided by a bias towards mid cap stocks, with the best
performances from Yule Catto, Bellway and RMC. Our overweight positions in
Construction and Building Materials and Leisure and Hotels proved helpful, as
did our underweight in Oils. A large holding in Barclays, the second best
performing bank behind HBOS, contributed positively. In general the portfolio
benefited from being underweight some of the large cap stocks.
T e m p l e B a r I n v e s t m e n t
OUTLOOK
The fate of the global economy, and hence of equity markets, seems to lie with
the ability of the American authorities to reflate the US economy. The recent
news in this regard is mixed. Surveys of consumer confidence looking forward
have suggested a rebound in activity. This is supported by the continuing
relative strength of the housing market and the recent non manufacturing
Institute of Supply Management (ISM) index which rose to its highest level
since September 2000. However, the manufacturing ISM index for June was weaker
than expected and the rise in the provisional June unemployment rate to 6.4%
suggests companies are still under pressure to cut costs.
The dilemma facing the US authorities in balancing the interests of equity and
of bond investors is illustrated by the reaction to the recent cut in interest
rates. Some bond investors were disappointed that the cut was only 0.25%, not
0.5%, and government bonds sold off, as the Fed was interpreted as being
slightly less concerned about deflation. The delicate task for the authorities
is to encourage equity investors that the economy is recovering without
upsetting the bond markets, where an adverse reaction might choke off any
recovery in its infancy.
This is all somewhat frustrating for investors in UK equity markets where,
arguably, the economy is in better shape and valuations are far less stretched
than in the US. While it is unlikely that the UK market can make much progress
if Wall Street is weak, UK investors at least have the comfort of a reasonable
dividend yield while they await better times.
22 July 2003
John Reeve
Twenty largest holdings
at 30 June 2003
Company Valuation % of
£'000 portfolio
GlaxoSmithKline 19,303 5.69
HSBC 18,919 5.58
BP 18,193 5.37
Barclays 14,109 4.16
Lloyds TSB 12,018 3.54
Shell Transport & 11,857 3.50
Trading
BT 11,576 3.42
British American 11,435 3.37
Tobacco
Scottish Power 9,847 2.91
Dixons 8,260 2.44
Gallaher 8,101 2.39
Prudential 8,067 2.38
GKN 7,751 2.29
Investec UK Smaller Companies Fund 7,565 2.23
Alliance & Leicester 7,099 2.09
Hilton 5,816 1.72
Diageo 4,992 1.47
Boots 4,872 1.44
Rio Tinto 4,507 1.33
Reuters 4,411 1.30
198,698 58.62
Statement of total return (incorporating the revenue account)
for the six months ended 30 June 2003
Six months Six months Year
ended 30 ended ended
June 2003
30 June 31
(unaudited) 2002 December
2002
(unaudited)
(audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains/ (losses) 4 - 17,204 17,204 - (15,223) (15,223) - (75,090) (75,090)
on investments
Income 5 10,217 - 10,217 9,816 - 9,816 18,142 - 18,142
Investment (271) (406) (677) (428) (428) (856) (771) (771) (1,542)
management fee
Other expenses (200) - (200) (226) - (226) (417) - (417)
Net return before 9,746 16,798 26,544 9,162 (15,651) (6,489) 16,954 (75,861) (58,907)
finance costs and
taxation
Interest payable (912) (1,368) (2,280) (1,140) (1,140) (2,280) (2,280) (2,279) (4,559)
Return on 8,834 15,430 24,264 8,022 (16,791) (8,769) 14,674 (78,140) (63,466)
ordinary
activities before
taxation
Taxation - - - (134) 134 - - - -
Return on 8,834 15,430 24,264 7,888 (16,657) (8,769) 14,674 (78,140) (63,466)
ordinary
activities after
taxation
Ordinary (4,882) - (4,882) (4,760) - (4,760) (14,817) - (14,817)
dividends
Transfers to/ 3,952 15,430 19,382 3,128 (16,657) (13,529) (143) (78,140) (78,283)
(from) reserves
Return per 15.26p 26.65p 41.91p 13.62p (28.77)p (15.15)p 25.34p (134.96)p (109.62)
ordinary share p
Dividend per 8.43p 8.22p 25.59p
ordinary share
Consolidated cash flow statement
for the six months ended 30 June 2003
30 June 2003 30 June 2002 31 December 2002
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Cash flow from operating 9,781 8,742 16,388
activities
Return on investments and
servicing of finance
Interest paid (2,279) (2,279) (4,559)
Taxation
UK tax recovered - - 112
Capital expenditure and financial
Investment
Purchases of investments (72,719) (86,851) (166,183)
Sales of investments 85,557 86,271 164,096
12,838 (580) (2,087)
Equity dividends paid (10,058) (9,761) (14,520)
Cash inflow/(outflow) before 10,282 (3,878) (4,666)
management of liquid resources
and financing
Management of liquid resources
Money market deposits (placed) / (10,072) 6,951 7,000
withdrawn
Financing
Gross proceeds from issue of 49 57 57
shares
Increase in cash 259 3,130 2,391
Reconciliation of net cash flow
to movement in net debt
Increase in cash 259 3,130 2,391
Cash used to increase/(decrease) 10,072 (6,951) (7,000)
liquid resources
Change in net debt 10,331 (3,821) (4,609)
Net debt at 1 January (48,077) (43,468) (43,468)
Net debt at 30 June (37,746) (47,289) (48,077)
Consolidated summary balance sheet
at 30 June 2003
30 June 2003 30 June 2002 31 December
2002
£'000 £'000
£'000
(unaudited) (unaudited)
(audited)
Investments 338,967 390,346 334,811
Net current assets 21,530 15,474 6,255
Amounts falling due after one (63,000) (63,000) (63,000)
year
Net assets 297,497 342,820 278,066
Attributable to ordinary 297,497 342,820 278,066
shareholders
Net asset value per ordinary 513.71p 592.07p 480.24p
share:
Number of shares in issue 57,911,367 57,901,599 57,901,599
Notes to the interim results
1. Principal activity
The principal activity of the Company remains that of an investment trust. The
principal activity of its trading subsidiary is investment dealing.
2. Recharges to capital and accounting policies
40% (2002 and prior years: 50%) of the management fee and interest payable on
the debenture stocks is charged to the revenue account and 60% (2002 and prior
years: 50%) is charged to capital reserves, net of corporation tax relief and
inclusive of any related irrecoverable value added tax.
The unaudited interim financial statements have been prepared on a basis
consistent with the statutory financial statements for the year ended 31
December 2002.
3. Dividend
The interim dividend of 8.43p (2002: 8.22p) per ordinary share will absorb £
4,882,000 and will be paid on 30 September 2003 to shareholders registered on
12 September 2003.
4. Gains / (losses) on investments
5.
30 June 2003 30 June
2002 31 December 2002
£'000 £'000
£'000
Net realised gains/(losses) on (7,898) 10,502 (7,451)
sales
Net increase/(decrease) in 25,102 (25,725) (67,639)
unrealised appreciation
Gains/ (losses) on investments 17,204 (15,223) (75,090)
5. Income
6.
30 June 2003 30 June 31 December 2002
2002
£'000 £'000
£'000
UK dividends net of tax credits 8,942 8,609 15,407
Income from UK fixed interest 721 770 1,519
securities
Scrip dividends 188 88 293
Bank interest 277 306 629
Underwriting commission - 43 72
Dealing profit 89 - 222
10,217 9,816 18,142
6. Comparative figures
The information for the year ended 31 December 2002 does not constitute
statutory accounts, but has been extracted from the latest published audited
accounts, which have been filed with the Registrar of Companies. The report of
the auditors on those accounts contained no qualification or statement under
section 237(2) or (3) of the Companies Act 1985.
7. Publication
This interim report is being sent to shareholders and copies will be made
available to the public at the registered office of the Company.
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