Half Yearly Report

RNS Number : 5336S

British Empire Sec & Gen Tst PLC

19 May 2009

 



BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Announcement of un-audited results for the half year ended 31 March 2009, approved by the Board of Directors on 19 May 2009.

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 2009				30 September 2008	% change
Capital return
Net assets	£559.05m			£633.86m	(11.80)
Net asset value per share	349.23p			395.96p	(11.80)
Share price (mid market)	354.00p			396.00p	(10.61)
Premium	1.37%			0.01%	-
	Six months to			Six months to
	31 March 2009			31 March 2008
Revenue earnings and dividends
Revenue earnings per share		2.39p		2.92p
Interim dividend per share		1.80p		1.75p
		Six months to		Year to
		31 March 2009		30 September 2008
Performance comparison
British Empire Securities and General Trust plc  (NAV total return)			(10.41)%	(21.09)%
Morgan Stanley Capital International World Index  (£ adjusted total return)			(14.05)%	(14.98)%
Fundamental Data Global Growth Investment Trust Index (total return basis)			(15.98)%	(19.05)%*

* The Datastream Global Growth Investment Trust Index (total return basis)

Chairman's Statement The six months from 1 October 2008 to 31 March 2009 witnessed some of the most volatile and difficult conditions for investors in a generation. In the early autumn global financial markets became exceptionally stressed, with particular difficulties in October and November. By the AGM in December net assets had declined by 8.9% and by 31 March 2009 had fallen a total of 10.4% to £559.05m, whilst our benchmark had fallen 16.0% over the same period (all on a total return basis). Since the half-year end, to 5 May, net asset value has improved by 12.6%, comfortably ahead of our benchmark, taking us back almost to where net asset value was at the end of September last year. As a result of a few sales and some takeover activity, liquidity is again above 10%. The Manager has taken advantage of the difficult conditions and depressed values in the autumn and winter, to add selectively to the portfolio, with liquidity levels ranging from 12% to as low as 5%. During the period all but 10% of our Yen exposure has been hedged, benefitting our net asset value by approximately £1m. Since the period end the hedging has been maintained and has further benefitted net asset value. Throughout the period, your Board has continued to focus with the Manager on the Company's strengths, selecting good businesses around the world whose shares stand at a discount to estimated net asset value, and we remain confident that this approach will continue to produce, over time, good returns for shareholders. Though markets have recovered quite vigorously since March, the deleveraging process for the financial industry and for many consumers still has a distance to go, and we remain cautious about the level of sustainable progress that markets can make while this process plays out. Nonetheless, we are confident that your Manager has ample opportunity to deploy the liquidity prudently and profitably. We are paying an interim dividend of 1.80p, an increase of 3% over last year's interim dividend of 1.75p. The interim dividend will be payable on 12 June 2009 to shareholders on the register at 29 May 2009 (ex-dividend 27 May 2009). Finally, I would like to take this opportunity to thank Peter Allen for the sterling work he provided to the Company as a Director and Chairman of the Audit Committee up to his retirement on 31 March 2009. We wish him a long and happy retirement. As I indicated in my Statement in last year's Report & Accounts, your Board has appointed Andrew Robson as the new Chairman of the Audit Committee. Strone Macpherson Chairman 19 May 2009

Investment Manager's Report For the first six months of the financial year, the Company's net asset value per share fell 10.4% compared with falls of 16.0% for the Fundamental Data Global Growth Investment Trust Index and 14.1% for the MSCI World Index (£) (all figures are on a total return basis). The largest positive contributors during the period were First Uranium, Deutsche Wohnen, and 3i Quoted Private Equity.  The largest detractors from performance were Electra, Holmen, Tupras, Paris Orléans, and Investor. Over the five year period to 31 March 2009, the Company's net asset value per share rose 45.8% compared to an increase of 20.4% for the Fundamental Data Global Growth Investment Trust Index. As at 31 March 2009, the geographical profile on a look-through basis was as follows: Continental Europe 40.5%, UK 16.7%, Japan 12.1%, Asia Pacific 9.5%, North America 6.3%, other 4.0% and liquidity 10.9%. Over the last six months, the 'credit crunch' developed into a global economic recession and its effects have been worse than most investors, ourselves included, had expected. Investors are still trying to come to grips with how deep and long the recession might be. British Empire's total return NAV fell a further 10.4% during the period which is disappointing but better than our peer group index. Unfortunately, wide discounts in the portfolio have not provided much protection in absolute terms up until now as the sense of panic in the equity markets rendered stock analysis irrelevant. Discounts went to unreasonably wide levels as all stocks fell indiscriminately. Consolation for investors comes with the knowledge that risk appetite will pick up in time and inexpensive valuations should set up a period of subsequent good performance when sentiment improves. We should not expect an early return to strong economic growth. The economy in many countries will be characterised by continued deleveraging and increased government regulation. The result should be a rather subdued recovery and lower potential economic growth in the future. I would argue, however, that some, certainly not all, stocks have more than priced-in such an environment. A good recent example is 3i Quoted Private Equity in which British Empire owned 3% of the shares. We bought our stake for an average price of 58p per share. The company had cash of 57p per share and listed investments of 32p per share at the time we took our position. The valuation the market was placing on the company was giving almost no value to the listed equity investments. 3i Group PLC has subsequently made a bid at full NAV for the company in cash and shares. Not all the valuation stories are as clear cut as was the case with 3i QPE and not all will be as successful but with a weighted average discount of 28%, we feel there is a lot of potential value in our portfolio. As discounts across the board are wider, we have become more fully invested. Many of our investments are attractively priced and will benefit from a reduction in risk aversion. Our net cash level stood at 6.4% as at 31 March, the lowest it had been for some time, although cash levels have increased since then. Increasing levels of government intervention and regulation in the economy make the future course of markets especially difficult to foresee. To guard against the effects of 'quantitative easing' and possible mis-steps by the authorities, we have increased our position in gold mining equities to 4.5%. Macro economic uncertainties have been driving volatility in the currency markets. The weakness of Sterling against the Euro and the Yen, in particular, has been helpful in offsetting the full scale of the falls in European and Japanese equity markets for Sterling-based investors. We decided to hedge 90% of our Yen exposure for 3 months so as to try to avoid handing back those currency gains. The share price of British Empire has remained close to its NAV, which we believe is an endorsement of our view that the underlying portfolio contains value. The wide discounts to NAV seen in our portfolio provide us with some comfort despite the difficult economic and political environment. In addition, the Company is well-placed to weather difficult market conditions with a portfolio that is diversified across many currencies and countries. John Pennink Asset Value Investors Limited 19 May 2009

  Consolidated Income Statement 

For the six months to 31 March 2009 (unaudited)

For the six months to 31 March 2008 (unaudited)

For the year to 30  September 2008 (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	7,088	-	7,088	8,701	-	8,701	23,352	-	23,352
Losses on investments  held at fair value	-	(69,053)	(69,053)	-	(57,709)	(57,709)	-	(181,055)	(181,055)
Gains on forward currency contracts held at fair value	-	1,041	1,041	-	-	-	-	-	-
(Losses)/gains on Index Stock	-	(259)	(259)	-	1,221	1,221	-	2,825	2,825
Realised loss on buyback of 10 3/8 % Debenture Stock 2011	-	(5)	(5)	-	-	-	-	-	-
Realised exchange losses	-	(27)	(27)	-	(482)	(482)	-	(618)	(618)
	7,088	(68,303)	(61,215)	8,701	(56,970)	(48,269)	23,352	(178,848)	(155,496)
Expenses
Investment    management fee	(951)	(951)	(1,902)	(1,223)	(1,168)	(2,391)	(2,445)	(2,445)	(4,890)
Performance fee	-	(1,165)	(1,165)	-	(171)	(171)	-	-	-
Back VAT on management and performance fees	482	123	605	-	-	-	761	1,306	2,067
Write-back of VAT - prior year	-	-	-	-	-	-	-	127	127
Other expenses (including irrecoverable VAT)	(397)	(4)	(401)	(512)	-	(512)	(1,288)	-	(1,288)
Profit/(loss) before finance costs and tax	6,222	(70,300)	(64,078)	6,966	(58,309)	(51,343)	20,380	(179,860)	(159,480)
Finance costs	(1,172)	(4)	(1,176)	(1,199)	(4)	(1,203)	(2,442)	(7)	(2,449)
Profit/(loss before taxation	5,050	(70,304)	(65,254)	5,767	(58,313)	(52,546)	17,938	(179,867)	(161,929)
Taxation	(1,228)	477	(751)	(1,093)	37	(1,056)	(4,390)	(5,585)	(9,975)
Profit/(loss) for the period	3,822	(69,827)	(66,005)	4,674	(58,276)	(53,602)	13,548	(185,452)	(171,904)
Earnings per Ordinary Share (note 3)
Basic - Ordinary Shares	2.39p	(43.62)p	(41.23)p	2.92p	(36.40)p	(33.48)p	8.46p	(115.84)p	(107.38)p

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.

  Consolidated Statement of Changes in Equity

For the six months to 31 March 2008 (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 2007	16,008	2,927	28,078	708,136	41,406	18,569	815,124
(Loss)/profit for the period	-	-	-	(58,276)	-	4,674	(53,602)
Ordinary dividend paid	-	-	-	-	-	(5,763)	(5,763)
Special dividend paid	-	-	-	-	-	(800)	(800)
Balance at 31 March 2008	16,008	2,927	28,078	649,860	41,406	16,680	754,959

For the year ended 30 September 2008 (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 2007	16,008	2,927	28,078	708,136	41,406	18,569	815,124
(Loss)/profit for the period	-	-	-	(185,452)	-	13,548	(171,904)
Ordinary dividends paid	-	-	-	-	-	(8,564)	(8,564)
Special dividend paid	-	-	-	-	-	(800)	(800)
Balance at 30 September 2008	16,008	2,927	28,078	522,684	41,406	22,753	633,856

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

Consolidated Balance Sheet

	At 31 March 2009 (unaudited) £'000		At  31 March 2008 (unaudited)  £'000	At  30 September 2008  (audited)  £'000
Non current assets
Investments held at fair value through profit or loss		585,253	780,244	663,765
Current assets
Investments		1	6	3
Forward currency contracts held at fair value through profit or loss		59,625	-	-
Sales for future settlement		1,991	144	-
Other receivables		4,633	6,936	5,121
Cash and cash equivalents		8,585	1,980	3,381
		74,835	9,066	8,505
Total assets		660,088	789,310	672,270
Current liabilities
Forward currency contracts held at fair value through profit or loss		(58,584)	-	-
Purchases for future settlement		(5,880)	(72)	(2,732)
Other payables		(6,854)	(3,319)	(6,561)
		(71,318)	(3,391)	(9,293)
Total assets less current liabilities		588,770	785,919	662,977
Non-current liabilities
10 3/8 % Debenture Stock 2011		(8,484)	(8,515)	(8,515)
8 1/8 % Debenture Stock 2023		(14,897)	(14,890)	(14,893)
Equities Index Stock 2013		(5,653)	(7,131)	(5,403)
Provision for deferred tax		(689)	(424)	(310)
Net assets		559,047	754,959	633,856

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	452,857	649,860	522,684
Merger reserve	41,406	41,406	41,406
Revenue reserve	17,771	16,680	22,753
Total equity	559,047	754,959	633,856
Net asset value per Ordinary Share - basic (note 6)	349.23p	471.61p	395.96p
Number of Ordinary Shares in issue	160,080,089	160,080,089	160,080,089

Consolidated Cash Flow Statement

Six months to 31 March 2009 (unaudited) £'000			Six months to   31 March 2008  (unaudited)  £'000	Year to  30 September   2008 (audited)  £'000
Net cash inflow from operating activities  (see below)	14,080		5,211	9,672
Financing activities
Dividends paid	(8,804)		(6,563)	(9,364)
Buyback of Index Stock	(9)		(112)	(235)
Buyback of 10 3/8 % Debenture Stock 2011	(36)		-	-
Cash outflow from financing activities	(8,849)		(6,675)	(9,599)
Increase/(decrease) in cash and cash equivalents	5,231		(1,464)	73
Exchange movements	(27)		(482)	(618)
Change in cash and cash equivalents	5,204		(1,946)	(545)
Cash and cash equivalents at beginning of period	3,381		3,926	3,926
Cash and cash equivalents at end of period	8,585		1,980	3,381
Reconciliation of loss before taxation to net cash inflow from operating activities
Loss before taxation		(65,254)	(52,546)	(161,929)
Losses/(gains) on Index Stock held at fair value		259	(1,221)	(2,825)
Losses on buyback of 10 3/8 % Debenture Stock 2011		5	-	-
Losses on exchange movements		27	482	618
Losses on investments held at fair value through profit or loss		69,053	57,709	181,055
Purchases of investments		(103,176)	(242,416)	(408,565)
Sales of investments		113,791	246,557	408,642
Increase in other receivables		(571)	(2,674)	(640)
Increase/(decrease) in creditors		993	(458)	(896)
Taxation		(1,053)	(228)	(5,800)
Amortisation of Debenture issue expenses		4	4	7
Decrease in value of investments - current assets		2	2	5
Net cash inflow from operating activities		14,080	5,211	9,672

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
	2009	2008	2008
	£'000	£'000	£'000
Income from investments
Listed investments	6,618	8,409	22,954
Other income
Deposit interest	472	294	403
Loss from dealing activities of subsidiary	(2)	(2)	(5)
	470	292	398
Total income	7,088	8,701	23,352

3.  Earnings per Ordinary Share							31 March		31 March	30 September
							2009		2008	2008
							£'000		£'000	£'000
Total basic earnings per Ordinary Share
Total loss	(66,005,000)								(53,602,000)	(171,904,000)
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					(41.23)p				(33.48)p	(107.38)p
The total earnings per Ordinary Share detailed above can be further analysed between revenue and capital as below:
Basic revenue earnings per Ordinary Share
Revenue profit			3,822,000						4,674,000	13,548,000
Weighted average number of Ordinary Shares in issue during the period				160,080,089					160,080,089	160,080,089
Basic revenue earnings per Ordinary share								2.39p	2.92p	8.46p
Basic capital earnings per Ordinary Share
Capital loss		(69,827,000)							(58,276,000)	(185,452,000)
Weighted average number of Ordinary Shares in issue during the period				160,080,089					160,080,089	160,080,089
Basic capital earnings per Ordinary Share						(43.62)p			(36.40)p	(115.84)p

4.  Comparative information

The financial information contained in this half year report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the six months ended 31 March 2009 and 31 March 2008 has not been audited.

The information for the year ended 30 September 2008 has been extracted from the latest published audited financial statements.  The audited financial statements for the year ended 30 September 2008 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 237(2) or (3) of the Companies Act 1985.

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 2008	22,753		522,684	545,437
Movement during the period:
Profit/(loss) for the period		3,822	(69,827)	(66,005)
Ordinary dividend paid: Ordinary Shares		(6,403)	-	(6,403)
Special dividend paid: Ordinary Shares		(2,401)	-	(2,401)
At 31 March 2009		17,771	452,857	470,628

6.  Net asset value per Ordinary Share

The net asset value per Ordinary Share is based on net assets of £559,047,000 (six months to 31 March 2008: £754,959,000; year ended 30 September 2008: £633,856,000) and on 160,080,089 (six months to 31 March 2008: 160,080,089, year ended 30 September 2008: 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 6,539 units of Equities Index Unsecured Loan Stock 2013 for cancellation at a cost of £9,482.

8. 10 3/8  per cent Debenture Stock 2011

During the period the Company bought back 31,500 units of 10 3/8 per cent Debenture Stock 2011 for cancellation at a cost of £36,304.

9.  Dividends

During the period the Company paid a final dividend of 4.00p per Ordinary Share and a special dividend of 1.50p per Ordinary Share for the year ended 30 September 2008 on 9 January 2009 to Ordinary Shareholders on the register at 12 December 2008 (ex-dividend 10 December 2008).

The interim dividend of 1.80p per Ordinary Share for the year ending 30 September 2009 will be paid on 12 June 2009 to Ordinary Shareholders on the register at the close of business on 29 May 2009 (ex-dividend 27 May 2009).

10.  Contingent assets  The Board is taking steps to reclaim such back VAT on investment management fees as it can and has recovered £2,671,261 up to the date of this report.  For the six months to 31 March 2009 £604,321 has been recovered and shown within these financial statements. This has been allocated £481,625 as revenue and £122,696 as capital within the Income Statement in line with VAT previously written-off on investment management and performance fees previously charged.  Interest amounting to £423,466 relating to these recoveries has also been received by the Company. 11.  Copies of this Half Year Report Printed copies of this Half Year Report will be sent to shareholders shortly.  Additional copies may be obtained from the office of the Company Secretary - Phoenix Administration Services Limited, Springfield Lodge, Colchester Road, Chelmsford, Essex, CM2 5PW. A copy of this Half Year Report (PDF) can be viewed and downloaded from the Company's website at: www.british-empire.co.uk

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 financial statements herein have been prepared in accordance with International Financial Reporting Standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
b)	the Interim Management Report, which comprises the Chairman's Statement and Investment Manager's Report, includes a fair review of:

i)	important events which have occurred during the first six months of the financial year and their impact on the condensed financial statements, and the principal risks and uncertainties for the remaining six months of the financial year; and
ii)	related party transaction information under Disclosure & Transparency Rule 4.2.8R.

 

END

 

 

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