Half Yearly Report

RNS Number : 1199M

British Empire Sec & Gen Tst PLC

18 May 2010

 



BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Announcement of un-audited results for the half year ended 31 March 2010, approved by the Board of Directors on 18 May 2010.

Objective   

The investment objective of the Company is to achieve capital growth through a focused portfolio of investments, particularly in companies whose shares stand at a discount to estimated underlying net asset value.

Financial Highlights

At			At
31 March 2010			30 September 2009	% change
Capital Return
Net assets	£785.82m		£735.19m	6.89
Net asset value per share	490.89p		459.26p	6.89
Share price (mid market)	446.10p		431.50p	3.38
Discount	9.12%		6.04%	-
	Six months to		Six months to
	31 March 2010		31 March 2009
Revenue Earnings and Dividends
Revenue earnings per share	0.75p		2.39p
Interim dividend per share	1.80p		1.80p
	Six months to		Year to
	31 March 2010		30 September 2009
Performance Comparison
British Empire Securities and General Trust plc (NAV total return)		8.07%	17.83%
Morgan Stanley Capital International World Index  (£ adjusted total return)		13.52%	9.63%
Fundamental Data Global Growth Investment Trust Index (total return)		13.55%	9.06%

Chairman's Statement

The six months under review from 1 October 2009 to 31 March 2010 saw further recovery in financial markets following the exceptionally difficult conditions in the previous year. The Company's net asset value increased by 8.1% and since 31 March 2009 through to 31 March 2010 it has increased by 42.6% (figures on a total return basis).

The stock market recovery has been led by cyclical, highly geared stocks. However, because our focus is on companies with little or no gearing and relatively low volatility, the Company has suffered some underperformance against its benchmark. We continue to focus on companies with these characteristics, many of which also have substantial non-UK exposure, and all of which should represent good fundamental value.

The discount of the share price to net asset value at the half year end was just over 9%, up from 6% at the last financial year end.

The Chairman's Statement issued in November last year sounded a note of caution about the prospect for dividend growth given the likely continuing economic difficulties and low interest rate environment. We are maintaining the interim dividend at 1.8p, which whilst technically un-covered in the period, has been covered by substantial dividends receivable shortly after the half year end. Although the note of caution remains, we hope at least to maintain the Ordinary dividend for the year as a whole (2009: 6.0p) but it is unlikely, in the absence of any significant further VAT refunds, that a special dividend will be paid this year (2009: 1.25p).

Now that the general election in the UK has been held and we have a coalition, it remains to be seen if there is the political will to take radical enough action to ensure that the international markets remain confident in the UK's ability to manage, and substantially reduce, its huge fiscal deficit. Many developed nations face similar challenges in achieving the necessary reduction in government and household leverage; inadequate policies are likely to undermine market confidence. Given these uncertainties, we remain cautious about the short and medium term effects on equity markets and on many other asset classes.

Strone Macpherson

Chairman

18 May 2010

Investment Manager's Report

For the first six months of the financial year, the Company's net asset value per share rose 8.1% compared with gains of 13.6% for the Fundamental Data Global Growth Investment Trust Index and 13.5% for the MSCI World Index (£) (all figures are on a total return basis).

The largest positive contributors during the period were Jardine Strategic, Tüpraş, Jardine Matheson, Nintendo and Investor AB 'A'.

The largest detractors from performance were Paris Orléans, Vivendi, First Uranium, Simmer and Jack Mines and Holmen.

Over the five year period to 31 March 2010, the Company's net asset value per share rose 67.0% compared with gains of 56.1% for the Fundamental Data Global Growth Investment Trust Index and 47.6 % for the MSCI World Index (£) (all figures are on a total return basis).

At 31 March 2010, the geographical profile was as follows: Continental Europe 43.4%, UK 8.9%, Asia Pacific 17.2%, Japan 7.9%, Canada 3.4%, EMEA 5.1%, and liquidity 14.1% (based on country of listing except for London-listed Japanese funds which are classified as Japan). Equity markets have continued to improve over the first six months of the financial year, rallying from the low point that was reached in March 2009. Equity markets one year ago were priced for catastrophe. Since that time, the policy response of central banks and governments has been very strong and supportive of asset prices and we are now seeing signs of a cyclical economic recovery. There were good reasons for a rally and we were right to be more or less fully invested one year ago. In addition, we have benefitted from a reduction in the general level of discounts in our portfolio from 28% one year ago to 23% at 31 March 2010.

Over the period, the increase in your Company's net asset value has been 5.5% behind the benchmark index. In recent months, investors have favoured 'recovery plays'; highly indebted companies and cyclical stocks have done best. These are not the kind of stocks that we typically own. Our largest positions tend to be diversified companies with good quality underlying business and net cash on their balance sheets. Some of our large holdings have lagged the rally but as we believe they are good value and high quality, we have been adding to their weightings. Investor AB 'A', Groupe Bruxelles Lambert and Vivendi are good examples of this type of stock and we have purchased more of each.

Wide discounts provide an opportunity for actions from either inside or outside listed companies to narrow discounts to net asset value. For instance, a tender offer to buy back shares in Jardine Strategic on 5 March 2010, saw the shares move up over 18% in the following month. The tender offer was relatively small at just 1.3% of shares outstanding but it highlighted the wide discount which stood at almost 40% just before the tender announcement. An example of activity from outside the company is Forth Ports where a consortium of investors owning 27% of the stock has approached management with a view to a takeover resulting in a sharp rally in the stock. We anticipate we should see more of this type of activity in the markets providing an opportunity for value stocks to perform well.

The economic recovery has been supported to a significant degree by ultra low policy interest rates and government deficit spending. This has proven to be a powerful combination not to be resisted. The limitations of such policies, however, can now begin to be seen. The markets will start to rebel against deficit spending without end and the ongoing transfer of wealth from savers to borrowers. Greece has now hit the wall and others may go the same way if policy is not changed.  Either stimulus is removed or the markets will at some point seek to force greater restraint. The resultant transition from government led demand to private sector demand will not be easy or smooth. A collision between political will and market discipline may lead to further government intervention and regulation of the markets.

Due to our perception that the Euro is overvalued versus Sterling and the potential for contagion surrounding the Greek bailout, we have hedged a portion of our Euro exposure. We have sold forward £75m worth of Euros which equated to approximately 10% of our portfolio at the time of inception. Our overall exposure to Eurozone listed companies is 30%, which may seem high given the concerns on the Euro as a currency. Many of the companies in which we invest in Europe, however, are global businesses that earn a large portion of their revenues in foreign markets including emerging markets. A fall in the value of the Euro may actually be beneficial to these companies. The £75m position therefore hedges the residual exposure to domestic Euro-based revenues. The hedge was showing a loss of £1.8m at 31 March 2010 but was subsequently closed for a gain of £0.1m. An equivalent value hedge of £75m worth of Euros is currently in place.

The level of net liquidity in the portfolio as of 31 March 2010, was 14.1%. 6.0% was in Norwegian Kroner and 5.8% in US Dollars on that date due to fears over Sterling weakness. We have subsequently profitably closed all of the Norwegian Kroner and most of the US Dollar positions and we now have 13.2% net liquidity of which all but 0.9% (which is in US Dollars) is in Sterling.

The discount on British Empire shares was 9.1% as of 31 March 2010. This is wider than the average of 4.5% seen over the past 12 months. Discounts tend to be backward-looking and reflect recent performance. The discount does not seem to reflect the wide discount on the underlying portfolio and the potential for future performance contained in it.

John Pennink

Asset Value Investors Limited

18 May 2010

Consolidated Income Statement

	For the six months to 31 March 2010 (unaudited)			For the six months to 31 March 2009 (unaudited)			For the year to 30 September 2009 (audited)
	Revenue	Capital		Revenue	Capital		Revenue	Capital
	return	return	Total	return	return	Total	return	return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Income
Investment income	4,121	-	4,121	7,088	-	7,088	20,702	-	20,702
Gains/(losses)  on investments held at fair value	-	63,929	63,929	-	(69,053)	(69,053)	-	96,382	96,382
(Losses)/Gains on forward currency contracts held at fair value	-	(1,858)	(1,858)	-	1,041	1,041	-	7,897	7,897
Losses on Equities Index Stock 2013	-	(883)	(883)	-	(259)	(259)	-	(380)	(380)
Realised loss on buyback of 10 3/8 per cent Debenture Stock 2011	-	-	-	-	(5)	(5)	-	(5)	(5)
Realised exchange losses on currency balances	-	(1,910)	(1,910)	-	(27)	(27)	-	(801)	(801)
	4,121	59,278	63,399	7,088	(68,303)	(61,215)	20,702	103,093	123,795
Expenses
Investment    management fee	(1,094)	(1,094)	(2,188)	(951)	(951)	(1,902)	(1,902)	(1,902)	(3,804)
Performance fee	-	(26)	(26)	-	(1,165)	(1,165)	-	(2,313)	(2,313)
Back VAT on management and performance fees	-	-	-	482	123	605	837	123	960
Other expenses (including irrecoverable VAT)	(510)	-	(510)	(397)	(4)	(401)	(1,061)	(5)	(1,066)
Profit/(loss) before finance costs and tax	2,517	58,158	60,675	6,222	(70,300)	(64,078)	18,576	98,996	117,572
Finance costs	(1,169)	(4)	(1,173)	(1,172)	(4)	(1,176)	(2,431)	(7)	(2,438)
Profit/(loss) before taxation	1,348	58,154	59,502	5,050	(70,304)	(65,254)	16,145	98,989	115,134
Taxation	(144)	-	(144)	(1,228)	477	(751)	(3,371)	1,254	(2,117)
Profit/(loss) for the period	1,204	58,154	59,358	3,822	(69,827)	(66,005)	12,774	100,243	113,017
Earnings per Ordinary Share (note 3)	0.75p	36.33p	37.08p	2.39p	(43.62)p	(41.23)p	7.98p	62.62p	70.60p

The Group does not have any income or expense that is not included in profit for the year. Accordingly, the "Profit for the Year" is also the "Total Comprehensive Income for the Year", as defined in IAS1 (revised) and no separate Statement of Comprehensive Income has been presented.

The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under the guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of British Empire Securities and General Trust plc. There are no minority interests.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Group have been reflected in the above statement.

Consolidated Statement of Changes in Equity

For the six months to 31 March 2009 (unaudited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2008	16,008	2,927	28,078	522,684	41,406	22,753	633,856
(Loss)/profit for the period	-	-	-	(69,827)	-	3,822	(66,005)
Ordinary dividend paid	-	-	-	-	-	(6,403)	(6,403)
Special dividend paid	-	-	-	-	-	(2,401)	(2,401)
Balance at 31 March 2009	16,008	2,927	28,078	452,857	41,406	17,771	559,047

For the year ended 30 September 2009 (audited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2008	16,008	2,927	28,078	522,684	41,406	22,753	633,856
Profit for the period	-	-	-	100,243	-	12,774	113,017
Ordinary dividend paid	-	-	-	-	-	(9,284)	(9,284)
Special dividend paid	-	-	-	-	-	(2,401)	(2,401)
Balance at 30 September 2009	16,008	2,927	28,078	622,927	41,406	23,842	735,188

For the six months to 31 March 2010 (unaudited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2009	16,008	2,927	28,078	622,927	41,406	23,842	735,188
Profit for the period	-	-	-	58,154	-	1,204	59,358
Ordinary dividend paid	-	-	-	-	-	(6,723)	(6,723)
Special dividend paid	-	-	-	-	-	(2,001)	(2,001)
Balance at 31 March 2010	16,008	2,927	28,078	681,081	41,406	16,322	785,822

Consolidated Balance Sheet

	At 31 March 2010 (unaudited) £'000		At 31 March 2009 (unaudited) £'000	At 30 September 2009 (audited) £'000
Non-current assets
Investments held at fair value through profit or loss		757,768	585,253	755,359
Current assets
Investments		-	1	-
Forward currency contracts held at fair value through profit or loss		75,000	59,625	-
Sales for future settlement		47,986	1,991	1,071
Other receivables		3,274	4,633	4,092
Cash and cash equivalents		17,155	8,585	7,237
		143,415	74,835	12,400
Total assets		901,183	660,088	767,759
Current liabilities
Forward currency contracts held at fair value through profit or loss		(76,857)	(58,584)	-
Purchases for future settlement		(7,551)	(5,880)	(25)
Other payables		(1,118)	(6,854)	(3,421)
		(85,526)	(71,318)	(3,446)
Total assets less current liabilities		815,657	588,770	764,313
Non-current liabilities
10 3/8 per cent Debenture Stock 2011		(8,484)	(8,484)	(8,484)
8 1/8 per cent Debenture Stock 2023		(14,904)	(14,897)	(14,900)
Equities Index Stock 2013		(6,392)	(5,653)	(5,686)
Provision for deferred tax		(55)	(689)	(55)
Net assets		785,822	559,047	735,188

Equity attributable to equity Shareholders
Ordinary Share capital		16,008	16,008	16,008
Capital redemption reserve		2,927	2,927	2,927
Share premium		28,078	28,078	28,078
Capital reserve		681,081	452,857	622,927
Merger reserve		41,406	41,406	41,406
Revenue reserve		16,322	17,771	23,842
Total equity		785,822	559,047	735,188
Net asset value per Ordinary Share (note 6)		490.89p	349.23p	459.26p
Number of Ordinary Shares in issue	160,080,089		160,080,089	160,080,089

Consolidated Cash Flow Statement

Six months to 31 March 2010 (unaudited) £'000		Six months to  31 March 2009 (unaudited) £'000	Year to 30 September 2009 (audited) £'000
Net cash inflow from operating activities
Profit/(loss) before taxation	59,502	(65,254)	115,134
Losses on Equities Index Stock 2013 held at fair value	883	259	380
Losses on buyback of 10 3/8 per cent Debenture Stock 2011	-	5	5
Realised exchange losses on currency balances	1,910	27	801
(Gains)/losses on investments held at fair value through profit or loss	(63,929)	69,053	(96,382)
Purchases of investments	(443,586)	(103,176)	(289,003)
Sales of investments	465,716	113,791	290,013
Decrease/(increase) in other receivables	679	(571)	1,576
(Decrease)/increase in creditors	(445)	993	2,203
Taxation	(5)	(1,053)	(8,262)
Amortisation of Debenture issue expenses	4	4	7
Decrease in value of investments - current assets	-	2	3
Net cash inflow from operating activities	20,729	14,080	16,475
Financing activities
Dividends paid	(8,724)	(8,804)	(11,685)
Buyback of Equities Index Stock 2013	(177)	(9)	(97)
Buyback of 10 3/8 per cent Debenture Stock 2011	-	(36)	(36)
Cash outflow from financing activities	(8,901)	(8,849)	(11,818)
Increase in cash and cash equivalents	11,828	5,231	4,657
Exchange movements	(1,910)	(27)	(801)
Change in cash and cash equivalents	9,918	5,204	3,856
Cash and cash equivalents at beginning of period	7,237	3,381	3,381
Cash and cash equivalents at end of period	17,155	8,585	7,237

Notes to the Financial Statements

1.   Significant accounting policies

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The accounting policies and methods of computation followed in these half year financial statements are consistent with the most recent annual financial statements.

The half year financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

These financial statements are presented in sterling because this is the currency of the primary economic environment in which the Group operates.

2.   Income

	31 March	31 March	30 September
	2010	2009	2009
	£'000	£'000	£'000
Income from investments
Listed investments	4,113	6,618	19,964
Other income
Deposit interest	8	472	741
Loss from dealing activities of subsidiary	-	(2)	(3)
	8	470	738
Total income	4,121	7,088	20,702

3.   Earnings per Ordinary Share

	31 March	31 March	30 September
	2010	2009	2009
	£'000	£'000	£'000
Total earnings per Ordinary Share
Total profit/(loss)	59,358,000	(66,005,000)	113,017,000
Weighted average number of Ordinary Shares in issue during the period	160,080,089	160,080,089	160,080,089
Total earnings per Ordinary Share	37.08p	(41.23)p	70.60p
The total earnings per Ordinary Share detailed above can be further analysed between revenue and capital as below:
Revenue earnings per Ordinary Share
Revenue profit	1,204,000	3,822,000	12,774,000
Weighted average number of Ordinary Shares in issue during the period	160,080,089	160,080,089	160,080,089
Revenue earnings per Ordinary share	0.75p	2.39p	7.98p
Capital earnings per Ordinary Share
Capital profit/(loss)	58,154,000	(69,827,000)	100,243,000
Weighted average number of Ordinary Shares in issue during the period	160,080,089	160,080,089	160,080,089
Capital earnings per Ordinary Share	36.33p	(43.62)p	62.62p

4.   Comparative information

The financial information contained in this half year report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the six months ended 31 March 2010 and 31 March 2009 have not been audited.

The information for the year ended 30 September 2009 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 30 September 2009 have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or reference to any matters to which the auditors drew attention by way of emphasis without qualifying the audit report or statement under Section 498(2) or (3) of the Companies Act 2006.

5.   Retained earnings

The table below shows the movement in the retained earnings analysed between revenue and capital items.

	Revenue		Capital	Total
	£'000		£'000	£'000
At 30 September 2009	23,842		622,927	646,769
Movement during the period:
Profit for the period		1,204	58,154	59,358
Ordinary dividend paid: Ordinary Shares		(6,723)	-	(6,723)
Special dividend paid: Ordinary Shares		(2,001)	-	(2,001)
At 31 March 2010		16,322	681,081	697,403

6.   Net asset value per Ordinary Share

The net asset value per Ordinary Share is based on net assets of £785,822,000 (six months to 31 March 2009: £559,047,000; year ended 30 September 2009: £735,188,000) and on 160,080,089 (six months to 31 March 2009: 160,080,089, year ended 30 September 2009: 160,080,089) Ordinary Shares, being the number of Ordinary Shares in issue at the period ends.

7.   Equities Index Unsecured Loan Stock 2013

During the period the Company bought back 77,703 units of Equities Index Unsecured Loan Stock 2013 for cancellation at a cost of £176,847.

8.   Dividends

During the period the Company paid a final dividend of 4.20p per Ordinary Share and a special dividend of 1.25p per Ordinary Share for the year ended 30 September 2009 on 8 January 2010 to Ordinary Shareholders on the register at 11 December 2009 (ex-dividend 9 December 2009). The interim dividend of 1.80p per Ordinary Share for the year ending 30 September 2010 will be paid on 11 June 2010 to Ordinary Shareholders on the register at the close of business on 28 May 2010 (ex-dividend 26 May 2010).

9.   Contingent assets

While most of the Back VAT has now been recovered, the Company will continue to pursue recovery of outstanding Back VAT, and interest, as far as is practical. The Directors consider it inappropriate to recognise any Back VAT not yet recovered, in these financial statements.

The Board is taking steps to reclaim such Back VAT on investment management fees as it can and has recovered and accounted for £3,027,102 up to the date of this report. For the six months to 31 March 2010 no Back VAT has been recovered and shown within these financial statements.

10. Related party transactions

The Company has related party transactions with Asset Value Investors Limited. Management fees for the period amounted to £2,188,000 (six months to 31 March 2009: £1,902,000; year ended 30 September 2009: £3,804,000) and the performance fees for the period amounted to £26,000 relating to the prior year (six months to 31 March 2009: £1,165,000; year ended 30 September 2009: £2,313,000).

At the half year end, the following amounts were outstanding in respect of management fees: £364,000 (half year end 31 March 2009: £317,000; year ended 30 September 2009: £317,000) and performance fees: £nil (half year end 31 March 2009: £1,165,000; year ended 30 September 2009: £2,313,000).

11. Interim Management Report

There have been no changes to the related party disclosures set out in the Annual Report of the Company for the year ended 30 September 2009, except as above. The Directors consider that the Chairman's Statement, the Investment Manager's Report, the above statement on related party disclosures and the Directors' Responsibility Statement below, together constitute the Interim Management Report of the Company for the half year to 31 March 2010 and satisfy the requirements of the FSA's Disclosure Rules and Transparency Rules (DTR) 4.2.3 to 4.2.11.

12. Responsibility Statement

The Directors of the Company (Mr Strone Macpherson (Chairman), Mr Steven Bates, Mrs Rosamund Blomfield-Smith, Mr John May and Mr Andrew Robson) being the responsible persons, confirm to the best of their knowledge that:

a) the condensed set of financial statements, which has been prepared in accordance with International Financial Reporting Standards, gives a true and fair view of the assets, liabilities, financial position and profit of the Company;

b) the Interim Management Report includes a fair review, as required by DTR 4.2.7R, of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

c) the Interim Management Report includes a fair review of the information concerning related parties transactions as required by DTR 4.2.8R.

13. Copies of the Half Year Report

Printed copies of this Half Year Report will be sent to shareholders shortly.  Additional copies may be obtained from the Company Secretary - Phoenix Administration Services Limited, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW.  A copy of the Half Year Report can be viewed and downloaded from the Company's website www.british-empire.co.uk .

Phoenix Administration Services Limited

18 May 2010

 

END

 

 

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