Interim Results

RNS Number : 0636V

Standard Life Equity Income Tst PLC

22 May 2008

 



STANDARD LIFE EQUITY INCOME TRUST PLC

Investment Objective

The objective of Standard Life Equity Income Trust is to provide shareholders with an above average income from their equity investment while also providing real growth in capital and income.

Investment Policy

The Directors intend to achieve the investment objective by investing in a diversified portfolio consisting mainly of quoted UK equities. The portfolio will normally comprise between 50 and 70 individual equity holdings. In order to reduce risk in the Company without compromising flexibility:

• no holding within the portfolio will exceed 10 per cent. of net assets; and

• the top ten holdings within the portfolio will not in aggregate exceed 50 per cent. of net assets

Convertible preference shares, convertible loan stocks, gilts and corporate bonds may make up the balance of the portfolio.

The Directors have set parameters of between 95 per cent. and 115 per cent. for the level of gearing that can be employed. The maximum level of borrowings will therefore represent 15 per cent. of net assets and the maximum cash position will be equivalent to 5 per cent. of net assets. The Directors have delegated responsibility to the Manager for the operation of the gearing level within the above parameters.

The Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management and dealing. The investment process is research-intensive and is driven by their distinctive focus on change which recognises that different factors drive individual stocks and markets at different times in the cycle. This flexible, but disciplined investment process ensures that the Manager has the opportunity to perform in different market conditions.

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2008

For further information, please contact:

Richard England

Press Manager, Standard Life Investments    Tel. [phone]

_________________________________________________________________________________________________

CHAIRMAN'S STATEMENT 

Performance

During the six months ended 31 March 2008 net asset value per share (excluding net revenue) decreased by 11.6% which compares with a fall, in capital terms, of -11.8% in the FTSE All-Share Index, the Company's benchmark.

Your Company's investment performance has held up well in a challenging investment environment over the last six months particularly when compared to its peers in the AIC UK Growth & Income sector. In terms of NAV total return the shares ranked 2nd out of 16 investment trusts over the six months ended 31 March 2008 (source: Fundamental Data).

The price of the Company's ordinary shares fell 10.1% from 311.0 pence per share to end the period at 279.5 pence per share. This represented a 6.9% discount to the net asset value per share (excluding net revenue) of 300.2 pence.

Earnings and Interim Dividend

Revenue return per share increased to 5.59 pence which compares with 5.08 pence for the equivalent period last year. The Board is declaring an interim dividend of 3.15 pence per ordinary share, an increase of 5% on the interim dividend for 2007, which will be paid on 27 June 2008 to shareholders on the register at 6 June 2008. The ex-dividend date is 4 June 2008. The Board's long term aim remains to increase the dividend in real terms.

Gearing

At 31 March 2008, your Company had bank borrowings, net of cash balances, of £11.0 million resulting in gearing of 9.8% of net assets. The gearing level was maintained at the current level throughout the six month period ended 31 March 2008 and made a negative contribution to performance in a falling market.

Share Buybacks 

The Company did not buy back any shares in the period. The Board and the Manager continue to review the level of the Company's discount on an ongoing basis.

Marketing and Shareholder Communications

The Manager's marketing activities remain targeted at private client and wealth managers. Private investors had the opportunity to meet the investment managers at the Company's Annual General Meeting in London on 14 December 2007. As shareholder feedback from this presentation has been very positive, the Manager intends to repeat the 'Meet the Manager' session at this year's AGM in December.

Principal risks and uncertainties

The Directors regularly review the principal risks and uncertainties facing the Company which have not changed over the period under review and are not expected to change in the second half of the financial year. Further details on the principal risks and uncertainties may be found in Note 15 on page 36 of the last Annual Report. The major risk identified by the Board is market price risk, namely the fluctuations related to the value of investment holdings as a result of changes in market prices. Additional risks include gearing risk and to a lesser extent, liquidity risk, credit risk and interest rate risk.

VAT on Investment Management Fees

In June 2007, the European Court of Justice found in favour of the case brought against HM Revenue & Customs (HMRC) which established that VAT should not have been charged on the investment management fees paid by investment trusts. This judgment was accepted by HMRC in November 2007. The Board is pleased to report that a VAT repayment of £204,000 was received in May 2008, being repayment by Standard life Investments Ltd in relation to the amount paid in the period under their management. Repayment in respect of earlier periods since the origin of your Company is under negotiation.

Outlook

In my last statement I suggested that the key triggers for further stock market strength would include a reduction in interest rates and a resolution of the current turmoil in the credit markets. Despite official interest rates being cut in the UK in the period under report, uncertainties continue. The markets in the UK have been volatile, reflecting a slowing economy and a deteriorating outlook for inflation globally with food and energy prices increasing.

However there have been significant changes in valuations of several sectors of the market which give your Manager a fresh set of opportunities. In the longer term, the outlook for UK equities remains positive supported by high free cash flow yields, generally strong balance sheets and a likelihood of renewed merger and acquisition activity.

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge -

• the condensed set of Financial Statements have been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports'; and

• the Interim Management Report includes a fair review of the general conditions required by 4.2.7R and 4.2.8R of the Financial Services Authority's Disclosure and Transparency Rules.

The Half-Yearly Financial Report, for the six months ended 31 March 2008 comprises an Interim Management Report in the form of the Chairman's Statement, the Directors' Responsibility Statement and a condensed set of Financial Statements and has not been audited or reviewed by the auditors pursuant to the Auditing Practices Board's guidance on 'Review of Interim Financial Information'.

For and on behalf of the Directors of Standard Life Equity Income Trust PLC

Charles Wood OBE

Chairman

22 May 2008

_________________________________________________________________________________________________ 

MANAGER'S REPORT

• UK equities had their weakest quarter for more than five years

• Significant divergence in performance between sectors

• Borrowing costs remain high despite official interest rate cut to 5.25%

In line with global equities, the UK market suffered a significant sell off, reacting to weaker economic data and concerns over the credit crisis. Further problems within the financial sector, especially for banks and bond reinsurers, added to the negative sentiment towards financials.

Large trading losses and asset write downs by many of the global investment banks culminated in the collapse of Bear Stearns in the US. Concerns over the effects of a slowdown in the UK housing market weakened some of the UK banks, notably HBOS, which was also adversely affected by rumour mongering. This also weighed on the share prices of Lloyds TSB, Barclays and Royal Bank of Scotland. Mining stocks, although volatile, held up relatively well on the back of strong commodity prices and bid activity. Likewise, many oil and gas-related stocks advanced, in line with record high oil prices.

The Bank of England cut interest rates by 0.25% to 5.25%, prompted by pressures in the credit market and weakening economic data. Equities showed signs of recovering late in March as investors sought buying opportunities after the indiscriminate selling activity in the first two months of the year.

Activity

The mining company Rio Tinto was sold after bid interest boosted the stock. The holding was replaced with BHP Billiton, where negative sentiment toward the company's interest in buying Rio Tinto depressed the share price, despite the company's production profile remaining positive. The Company also reduced its holding in National Grid as a negative regulatory environment for its US division could impact on earnings.

Ongoing problems in the credit market have pushed financial stocks to extremely low valuation levels, prompting us to increase our holdings in selected stocks, including Royal Bank of Scotland and Barclays. Volatility provided a buying opportunity in Vodafone as it has the potential for further earnings upgrades. We have reduced our exposure to the general retailers sector on concerns about weakening consumer outlook, selling Marks & Spencer and Home Retail Group.

Performance

Standard Life UK Equity Income Trust returned -11.6% in Net Asset Value (Capital returns only), over the six months to 31 March 2007, with the FTSE All-Share Index returning -11.8%. However the Company comfortably outperformed the FTSE 350 High Yield index which fell -16.4% during the period (Capital returns only). The share price fell from 311.0p at the end of September 2007 to 279.5p, a decrease of 10.1% (Sources: Standard Life Investments and Thomson Financial Datastream).

The Company outperformed the FTSE 350 High Yield Index in volatile market conditions, in part due to its holdings in mining stocks, such as Rio Tinto, Kazakhmys and Xstrata, which performed well on the back of surging commodity prices, and bids within the sector. 

The main negative contribution came from our position in the banking sector, as the full extent of the global credit crisis claimed its first global casualty with the failure of the American investment bank Bear Stearns. As a result, the Company's holdings in Royal Bank of Scotland damaged performance for the period; also the Company's underweight position in HSBC adversely affected performance as the bank's strong balance sheet and Asian exposure allowed it to outperform the sector.

The Company's overweight position in British Energy supported performance as the company became the subject of takeover speculation. Tullow Oil gained strongly on the back of surging oil prices and bid speculation. Several economically sensitive stocks such as IMI, GKN and Carillion recovered strongly in the first quarter, against a background of robust trading updates and earnings reports.

Outlook

The worsening credit crisis has the potential to spark further bouts of volatility for UK equities. In addition, signs of an economic slowdown in the US and the UK will also concern investors. However, UK companies in general have reported better than expected earnings and robust dividend growth, which should bolster the market in the long term. The resolution of the credit crisis will be a key trigger, while interest rate cuts and further merger and acquisition activity will provide support. The current environment provides some investment opportunities, but effective stock selection will remain critical.

Standard Life Investments Limited

Manager

22 May 2008

_________________________________________________________________________________________________

INCOME STATEMENT 

FOR THE PERIOD ENDED 31 MARCH 2008

	Six months ended 31 March 2008
		(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
(Losses)/gains on investments	-	(15,066)	(15,066)
Income	2,544	-	2,544
Investment management fee	(129)	(301)	(430)
Administrative expenses	(164)	-	(164)
	___________	___________	___________
Net return before finance costs and taxation	2,251	(15,367)	(13,116)
Interest payable	(126)	(293)	(419)
	___________	___________	___________
Return on ordinary activities before taxation	2,125	(15,660)	(13,535)
Taxation on ordinary activities	(4)	-	(4)
	___________	___________	___________
Return on ordinary activities after taxation	2,121	(15,660)	(13,539)
	___________	___________	___________
Return per Ordinary share	5.59p	(41.29p)	(35.70p)
	___________	___________	___________

___________________________________________________________________________________________

	Six months ended 31 March 2007
		(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
(Losses)/gains on investments	-	11,502	11,502
Income	2,414	-	2,414
Investment management fee	(173)	(404)	(577)
Administrative expenses	(153)	-	(153)
	___________	___________	___________
Net return before finance costs and taxation	2,088	11,098	13,186
Interest payable	(113)	(250)	(363)
	___________	___________	___________
Return on ordinary activities before taxation	1,975	10,848	12,823
Taxation on ordinary activities	-	-	-
	___________	___________	___________
Return on ordinary activities after taxation	1,975	10,848	12,823
	___________	___________	___________
Return per Ordinary share	5.08p	27.90p	32.98p
	___________	___________	___________

___________________________________________________________________________________________

	Year ended 30 September 2007
		(audited)
	Revenue	Capital	Total
	£'000	£'000	£'000
(Losses)/gains on investments	-	9,519	9,519
Income	5,404	-	5,404
Investment management fee	(336)	(783)	(1,119)
Administrative expenses	(280)	-	(280)
	___________	___________	___________
Net return before finance costs and taxation	4,788	8,736	13,524
Interest payable	(176)	(390)	(566)
	___________	___________	___________
Return on ordinary activities before taxation	4,612	8,346	12,958
Taxation on ordinary activities	(6)	-	(6)
	___________	___________	___________
Return on ordinary activities after taxation	4,606	8,346	12,952
	___________	___________	___________
Return per Ordinary share	11.99p	21.73p	33.72p
	___________	___________	___________

___________________________________________________________________________________________

BALANCE SHEET 

As at 31 March 2008

	As at	As at	As at
	31 March	31 March	30 September
	2008	2007	2007
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	125,003	146,419	141,018
	___________	___________	___________
Current assets
Loans and receivables	1,530	1,169	882
AAA money market funds	2,908	266	3,713
Cash at bank and in hand	54	54	50
	___________	___________	___________
	4,492	1,489	4,645
	___________	___________	___________
Creditors: amounts falling due within one year
Bank loan	(13,000)	(14,000)	(13,000)
Other creditors	(527)	(466)	(330)
	___________	___________	___________
	(13,527)	(14,466)	(13,330)
	___________	___________	___________
Net current liabilities	(9,035)	(12,977)	(8,685)
	___________	___________	___________
Net assets	115,968	133,442	132,333
	___________	___________	___________
Capital and reserves
Called-up share capital	9,935	9,935	9,935
Share premium account	20,373	20,373	20,373
Capital redemption reserve	12,615	12,615	12,615
Capital reserve - realised	69,039	64,138	68,758
Capital reserve - unrealised	-	23,162	15,941
Revenue reserve	4,006	3,219	4,711
	___________	___________	___________
Equity Shareholders' funds	115,968	133,442	132,333
	___________	___________	___________
Net asset value per Ordinary share	305.74p	351.53p	348.88p
	___________	___________	___________

___________________________________________________________________________________________

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

As at 31 March 2008

Six months ended 31 March 2008 (unaudited)
		Share	Capital	Capital	Capital
	Share	premium	redemption	reserve	reserve	Revenue
	capital	account	reserve	- realised	- unrealised	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2007	9,935	20,373	12,615	68,758	15,941	4,711	132,333
Reclassification of reserves (note 4)	-	-	-	15,941	(15,941)	-	-
Return on ordinary activities after taxation	-	-	-	(15,660)	-	2,121	(13,539)
Dividends paid (7.45p)	-	-	-	-	-	(2,826)	(2,826)
Purchase of own shares	-	-	-	-	-	-	-
	______	________	_________	________	_________	_______	________
Balance at 31 March 2008	9,935	20,373	12,615	69,039	-	4,006	115,968
	______	________	_________	________	_________	_______	________
Six months ended 31 March 2007 (unaudited)
		Share	Capital	Capital	Capital
	Share	premium	redemption	reserve	reserve	Revenue
	capital	account	reserve	- realised	- unrealised	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2006	9,935	20,373	12,615	64,960	17,319	3,969	129,171
Return on ordinary activities after taxation	-	-	-	5,005	5,843	1,975	12,823
Dividends paid (6.90p)	-	-	-	-	-	(2,725)	(2,725)
Purchase of own shares	-	-	-	(5,827)	-	-	(5,827)
	______	________	_________	________	_________	_______	________
Balance at 31 March 2007	9,935	20,373	12,615	64,138	23,162	3,219	133,442
	______	________	_________	________	_________	_______	________
Year ended 30 September 2007 (audited)
		Share	Capital	Capital	Capital
	Share	premium	redemption	reserve	reserve	Revenue
	capital	account	reserve	- realised	- unrealised	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2006	9,935	20,373	12,615	64,960	17,319	3,969	129,171
Return on ordinary activities after taxation	-	-	-	9,724	(1,378)	4,606	12,952
Dividends paid (9.90p)	-	-	-	-	-	(3,864)	(3,864)
Purchase of own shares	-	-	-	(5,926)	-	-	(5,926)
	______	________	_________	________	_________	_______	________
Balance at 30 September 2007	9,935	20,373	12,615	68,758	15,941	4,711	132,333
	______	________	_________	________	_________	_______	________

_________________________________________________________________________________________________________

CASHFLOW STATEMENT

For the period ended 31 March 2008 

	Six months	Six months
	ended	ended	Year ended
	31 March	31 March	30 September
	2008	2007	2007
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	(13,116)	13,186	13,524
Adjustments for:
Losses/(gains) on investments	15,066	(11,502)	(9,519)
Expenses charged to capital	301	404	783
	___________	___________	___________
Revenue before finance costs and taxation	2,251	2,088	4,788
Increase in accrued income	(388)	(454)	(157)
(Increase)/decrease in other debtors	(8)	6	1
Increase in other creditors	90	272	24
Expenses charged to capital	(301)	(404)	(783)
	___________	___________	___________
Net cash inflow from operating activities	1,644	1,508	3,873
Net cash outflow from servicing of finance	(557)	(393)	(485)
Net tax paid	-	-	(11)
Net cash inflow from financial investment	938	3,362	6,781
Equity dividends paid	(2,826)	(2,725)	(3,864)
Net cash inflow/(outflow) from management of liquid resources	805	(266)	(3,713)
	___________	___________	___________
Net cash inflow before financing	4	1,486	2,581
Net cash outflow from financing	-	(2,327)	(3,426)
	___________	___________	___________
Increase/(decrease) in cash	4	(841)	(845)
	___________	___________	___________
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash as above	4	(841)	(845)
Net change in liquid resources	(805)	266	3,713
Cash inflow from drawdown of loans	-	(3,500)	(2,500)
	___________	___________	___________
Change in net debt resulting from cash flows	(801)	(4,075)	368
	___________	___________	___________
Movement in net debt in the period	(801)	(4,075)	368
Opening net debt	(9,237)	(9,605)	(9,605)
	___________	___________	___________
Closing net debt	(10,038)	(13,680)	(9,237)
	___________	___________	___________
Represented by:
Cash at bank and in hand	54	54	50
AAA money market funds	2,908	266	3,713
Bank loan	(13,000)	(14,000)	(13,000)
	___________	___________	___________
	(10,038)	(13,680)	(9,237)
	___________	___________	___________

_______________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

1.    Accounting policies

(a)    Basis of accounting

The accounts have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards, with pronouncements on half-yearly reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice for 'Financial Statements of Investments Trust Companies' (December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted.

The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).

The interim accounts have been prepared using the same accounting policies as the preceding annual accounts.

(b)    Dividends payable

    Dividends are recognised in the period in which they are paid.

• The Board has declared an interim dividend in respect of the year ending 30 September 2008 of 3.15p per share (2007 - interim dividend of 3.00p per share). The dividend will have a record date of 6 June 2008 and will be paid on 27 June 2008 to Ordinary Shareholders on the register at the record date. The ex-dividend date will be 4 June 2008.

• The revenue return per Ordinary share for the six months ended 31 March 2008 is based on net revenue on ordinary activities after taxation for the period of £2,121,000 (30 September 2007 - £4,606,000; 31 March 2007 - £1,975,000) and on 37,930,579 (30 September 2007 - 38,414,493; 31 March 2007 - 38,878,278) Ordinary Shares, being the weighted average number of Ordinary shares in issue for the period.

• The capital return per Ordinary share for the six months ended 31 March 2008 is based on net capital losses for the period of £15,660,000 (net capital gains, 30 September 2007 - £8,346,0000; net capital gains, 31 March 2007 - £10,848,000) and on 37,930,579 (30 September 2007 - 38,414,493; 31 March 2007 - 38,878,278) Ordinary Shares, being the weighted average number of Ordinary Shares in issue for the period.

• The net asset value per Ordinary share is based on Equity Shareholders' funds at 31 March 2008 of £115,968,000 (30 September 2007 - £132,333,000; 31 March 2007 - £133,442,000) and on 37,930,579 (30 September 2007 - 37,930,579; 31 March 2007 - 37,960,579) Ordinary Shares, being the number of Ordinary shares in issue at the period end.

• No shares were bought back into treasury by the Company during the six months ended 31 March 2008.

• The financial information contained in this Half Yearly Financial Report is not the Company's statutory financial statements. The financial information for the six months ended 31 March 2008 and 31 March 2007 is not for a financial year and has not been audited. The statutory financial statements for the financial year ended 30 September 2007 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain statements under section 237(2) and (3) of the Companies Act 1985.

• The Interim Report will be posted to shareholders in June 2008 and will be available from the Secretaries and the Managers, Standard Life Investments (www.sli.co.uk/its).

For Aberdeen Asset Management PLC

SECRETARIES

22 May 2008

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.

 

END

 

 

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