Half Yearly Report

RNS Number : 7134F

British Empire Sec & Gen Tst PLC

28 May 2013

 



BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Announcement of un-audited results for the half year ended 31 March 2013

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 2013		30 September 2012	% change
Capital Return
Net assets	£903.95m	£791.23m	14.3
Net asset value per Share	575.32p	500.47p	15.0
Share price (mid market)	497.50p	438.30p	13.5
Discount	13.53%	12.42%
	Six months to	Six months to
	31 March 2013	31 March 2012
Revenue Earnings and Dividends
Revenue earnings per Share	2.64p	4.40p
Interim dividend per Share	2.00p	2.00p

	Six months to		Year to
	31 March 2013		30 September 2012
Performance Comparison
British Empire Securities and General Trust plc (NAV total return) †		17.46%	10.25%
Morningstar Investment Trust Global Growth Index (total return) *		15.26%	13.78%
Morgan Stanley Capital International World Index  (£ adjusted total return)		17.73%	18.00%
Morgan Stanley Capital International World ex USA Index  (£ adjusted total return)		18.12%	10.33%

* The Morningstar Investment Trust Global Growth Index (total return basis) is subject to revision and the figures are at 30 April 2013.

† Source: Morningstar

 

Chairman's Statement

In the second half of the last financial year to September 2012 the Manager outperformed the benchmark index by an encouraging margin. This has continued in the six month period under review and from 1 October 2012 to 31 March 2013, there was an increase in net asset value of 17.5%. This represents an outperformance against our benchmark index (the Morningstar Investment Trust Global Growth Index) which was up by 15.3%. The ten year return is 292.2%, compared with 195.1% for the benchmark. Since the half year end the manager has underperformed the benchmark (by approximately 1%) but remains ahead over the accounting year to date. (All figures are on a total return basis).

The Manager's style remains unchanged and AVI continues to focus on making investments in companies which typically are valued in the markets at a discount to net asset value. The overall discount level in the portfolio stood at approximately 27% at the end of March, (30% at 30 September 2012). Liquidity was 8.5% at 31 March compared to 20% at the last year end, though this latter figure reflected a lag between the timing of sales and subsequent purchases. Since the half year end the Jardine Strategic holding has been sold, and this together with other sales has increased net liquidity to approximately 24%.

The interim dividend is being maintained at 2.0p per share and is well covered by earnings of 2.64p per share. Earnings included special dividends from Macquarie International Infrastructure Fund and from Ferrovial, which together contributed some 1.5p per share to our revenue account. Significant further dividends were received in April and May, after the half year end, and the level of increase in payout (excluding special dividends) from a number of the portfolio companies is encouraging.

Having renewed its authorities at the AGM to buy back and issue shares, the Board is continuing its policy of taking steps, if necessary, to limit the volatility of the discount or premium. In determining whether to implement a buy back the Board, in conjunction with the Manager, will consider a variety of factors including the absolute discount on the Company's shares, the discount relative to its peer group, the level of cash in the Company and the opportunities which the Manager is finding at the time. In the first half of this financial year, 973,947 ordinary shares were bought back at discounts of between 10.7% and 12.4% and are held in Treasury. Since the end of March, a further 310,000 shares were bought back at an average discount of 13.1% and placed in treasury.

Holdings of the Equity Index Unsecured Loan Stock 2013 were repaid in full in early April as required under the terms of the stock's Trust Deed.

The European Union's Alternative Investment Funds Management Directive (AIFMD) comes into force on 22 July 2013 and companies such as British Empire Securities and General Trust plc then have a further year, until July 2014, to comply with the Directive. However, the final details of how AIFMD will be implemented under UK law are not yet available. Your Board will work closely with Asset Value Investors and with its own independent legal advisors to ensure that any necessary adjustments to our corporate arrangements will be in place ahead of the deadline in 2014.

At the Company's Annual General Meeting in December of last year, Rosamund Blomfield-Smith retired as a director and I would like once again to thank her for her input and support over the preceding decade.

Central banks of the troubled economies in the developed world are for the moment generally continuing with substantial quantitative easing programmes. These are inflating the prices of many risk assets and making it unusually difficult for investors to assess properly what is "good value". This leads us as a Board to sound a note of caution about the direction of markets after the recent rapid rise. Irrespective of central bank policies, your Manager's aim remains to find fundamental value and realise that value in the long term and the Board is confident that AVI's investment style and processes will continue to provide good returns in the medium and longer term.

Strone Macpherson

Chairman

28 May 2013

Investment Manager's Report

Performance Summary

For the first 6 months of the financial year, the Company's net asset value per share rose by 17.5% compared with gains of 15.3% for the Morningstar Investment Trust Global Growth Index (the Company's benchmark), 17.7% for the MSCI World Index (£) and 18.1% for the MSCI World ex USA Index (£) (all figures are on a total return basis).

The largest positive contributors during the period were Investor AB 'A' +1.5%, Jardine Matheson Holdings +1.2%, Vivendi +1.2%, Jardine Strategic Holdings +1.1% and Aker +1.0%.

The largest detractors from performance were Detour Gold Corp -0.8% and St Barbara -0.3%.

Over the ten year period to 31 March 2013 the Company's net asset value per share rose 292.2% compared with gains of 195.1% for the Morningstar Investment Trust Global Growth Index, 157.0% for the MSCI World Index (£) and 181.6% for the MSCI World ex USA Index (£) (all figures are on a total return basis).

As at 31 March 2013, the geographical profile of the portfolio was as follows: Continental Europe 41%, UK 2%, Asia Pacific 27%, North America 19% and EMEA 2%.

Net cash at the end of the period was 8.5% compared to 20% as at 30 September 2012. The average level of net cash over the period was 12.4% (based on month end cash levels). Liquidity levels were reduced during the period as we found a number of attractive new investments.

The discount on the Company's shares was 13.5% as of 31 March 2013. The discount has averaged 10.5% during the period.

Market Review

Equity markets performed strongly over the 6 months to 31 March 2013. Policies that artificially suppress bond yields are "encouraging" investors to seek returns from riskier assets such as equities.

This is a challenging time for investors. With economic growth remaining lacklustre there are fears that the strength of equity markets has not been supported by the economic reality, leaving valuations less compelling. The flip side of this, however, is that as long as the data disappoints the Federal Reserve and other central banks around the world will retain a bias for easy monetary policy that can support asset prices. Thus far, the power of quantitative easing (QE) has had the upper hand.

The narrowing of the weighted average discount on the portfolio from 30% as at the 30 September 2012, to 27% as at 31 March 2013, has contributed to returns. In addition, we have benefitted from improving investor confidence and increased levels of corporate activity amongst companies which we own. The latter has included takeovers, strategic reviews, asset disposals and special dividends. Nexen for example was taken over by CNOOC allowing us to realise a profit. Ferrovial has been selling minority stakes in core assets and has used surplus cash on the balance sheet to fund a special dividend. In Singapore, Macquarie International Infrastructure Fund concluded its strategic review with a decision to dispose of all of its assets and return cash to shareholders. An initial return of capital was made in the period.

We have also seen confirmation of a trend to increasing dividends. In the case of three of our Scandinavian investments, the rates of dividend growth have been impressive with Kinnevik Investment AB 'A', Investor AB 'A' and Aker announcing increases of 18%, 17% and 9% respectively.

In the listed private equity sector of the closed-end fund universe there have been notable successes from asset sales at significant premia to carrying values. Electra Private Equity, for example, was boosted by the Initial Public Offering of Esure. Other companies in the sector have also benefitted from disposals at good prices. These are giving investors greater confidence in reported NAVs and, as a result, we are seeing greater interest in the sector, which has started to push discounts down.

In the period, we sold out of Prosafe and Onex at or above NAV. We are sensitive when discounts move towards net asset value and we see limited upside. In these cases, we start to reduce our exposure and rotate into companies that have a better risk reward profile.

Overall, we continue to see good value in our portfolio. Discounts remain wide in a substantial portion of our portfolio and in aggregate are currently at a level of 27%. In addition, we see the potential for further corporate activity that could push net asset values higher, as well as cause discounts to narrow from current levels.

Thus far asset markets have been the greatest beneficiaries of QE. It is uncertain whether there is any positive impact on economic growth or employment. It is impossible to predict how long extremely accommodative interest rate policies will remain in place, or indeed what impact they will have both on asset markets and on the broader economy. We remain focused on bottom-up stock picking and try to build a portfolio of companies trading on wide discounts to NAV with potential catalysts for those discounts to narrow. This strategy has served us well over the long term and we believe will continue to do so in the future.

John Pennink

Joe Bauernfreund

Asset Value Investors Limited

28 May 2013

 Consolidated Statement of Comprehensive Income

	For the six months to 31 March 2013 (unaudited)			For the six months to 31 March 2012 (unaudited)			For the year to 30 September 2012 (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 (note 2)	7,193	-	7,193	9,805	-	9,805	30,865	-	30,865
Gains on investments held at fair value	-	133,017	133,017	-	29,969	29,969	-	55,533	55,533
Unclaimed distribution monies	-	-	-	-	52	52	-	52	52
Losses on Equities Index Stock 2013 held at fair value	-	(1,166)	(1,166)	-	-	-	-	(243)	(243)
Exchange gains/(losses) on currency balances	-	151	151	-	(823)	(823)	-	(1,242)	(1,242)
	7,193	132,002	139,195	9,805	29,198	39,003	30,865	54,100	84,965
Expenses
Investment    management fee	(1,176)	(1,176)	(2,352)	(1,100)	(1,100)	(2,200)	(2,200)	(2,200)	(4,400)
Other expenses (including irrecoverable VAT)	(654)	(26)	(680)	(597)	(4)	(601)	(1,235)	(58)	(1,293)
Profit before finance costs and  taxation	5,363	130,800	136,163	8,108	28,094	36,202	27,430	51,842	79,272
Finance costs	(739)	(4)	(743)	(730)	(4)	(734)	(1,486)	(7)	(1,493)
Profit before taxation	4,624	130,796	135,420	7,378	28,090	35,468	25,944	51,835	77,779
Taxation	(454)	-	(454)	(324)	-	(324)	(1,894)	9	(1,885)
Profit for the period	4,170	130,796	134,966	7,054	28,090	35,144	24,050	51,844	75,894
Earnings per Ordinary Share  (note 3)	2.64p	82.88p	85.52p	4.40p	17.55p	21.95p	15.06p	32.46p	47.52p

The Company did not have any income or expense that is not included in consolidated profit for the period. Accordingly, the "Profit for the period" is also the "Total Comprehensive Income for the period", as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income for the Company has been presented.

The total column of this statement is the profit and loss account of the Group. 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 2012 (unaudited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 30 September 2011	16,008	2,927	28,078	620,938	41,406	31,028	740,385
Total comprehensive income for the period	-	-	-	28,090	-	7,054	35,144
Ordinary dividend paid	-	-	-	-	-	(10,406)	(10,406)
Special dividend paid	-	-	-	-	-	(3,201)	(3,201)
Balance as at 31 March 2012	16,008	2,927	28,078	649,028	41,406	24,475	761,922

For the year ended 30 September 2012 (audited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 30 September 2011	16,008	2,927	28,078	620,938	41,406	31,028	740,385
Ordinary Shares bought back and cancelled	(7)	7	-	(264)	-	-	(264)
Ordinary Shares bought back and held in treasury	-	-	-	(7,982)	-	-	(7,982)
Total comprehensive income for the period	-	-	-	51,844	-	24,050	75,894
Ordinary dividends paid	-	-	-	-	-	(13,607)	(13,607)
Special dividend paid	-	-	-	-	-	(3,201)	(3,201)
Balance as at 30 September 2012	16,001	2,934	28,078	664,536	41,406	38,270	791,225

For the six months to 31 March 2013 (unaudited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 30 September 2012	16,001	2,934	28,078	664,536	41,406	38,270	791,225
Ordinary Shares bought back and held in treasury	-	-	-	(4,878)	-	-	(4,878)
Total comprehensive income for the period	-	-	-	130,796	-	4,170	134,966
Ordinary dividend paid	-	-	-	-	-	(11,836)	(11,836)
Special dividend paid	-	-	-	-	-	(5,523)	(5,523)
Balance as at 31 March 2013	16,001	2,934	28,078	790,454	41,406	25,081	903,954

Consolidated Balance Sheet

	At 31 March 2013 (unaudited) £'000		At 31 March 2012 (unaudited) £'000	At 30 September 2012 (audited) £'000
Non-current assets
Investments held at fair value through profit or loss		915,399	773,307	807,181
Current assets
Sales for future settlement		181	5,593	1,296
Other receivables		5,396	5,685	4,480
Cash and cash equivalents		8,362	1	7,780
		13,939	11,279	13,556
Total assets		929,338	784,586	820,737
Current liabilities
Purchases for future settlement		(1,298)	-	(5,634)
Other payables		(9,134)	(903)	(1,892)
Equities Index Stock 2013 held at fair value through profit or loss		-	-	(7,038)
Bank overdraft		-	(12)	-
		(10,432)	(915)	(14,564)
Total assets less current liabilities		918,906	783,671	806,173
Non-current liabilities
8 1/8 per cent Debenture Stock 2023		(14,925)	(14,918)	(14,921)
Equities Index Stock 2013 held at fair value through profit or loss		-	(6,795)	-
Provision for deferred tax		(27)	(36)	(27)
Net assets		903,954	761,922	791,225

Equity attributable to equity Shareholders
Ordinary share capital	16,001	16,008	16,001
Capital redemption reserve	2,934	2,927	2,934
Share premium	28,078	28,078	28,078
Capital reserve	790,454	649,028	664,536
Merger reserve	41,406	41,406	41,406
Revenue reserve	25,081	24,475	38,270
Total equity	903,954	761,922	791,225
Net asset value per Ordinary Share - basic  (note 6)	575.32p	475.96p	500.47p
Number of Ordinary Shares in issue excluding treasury	157,121,038	160,080,089	158,094,985

Consolidated Cash Flow Statement

Six months to 31 March 2013 (unaudited) £'000		Six months to  31 March 2012 (unaudited) £'000	Year to 30 September 2012(audited) £'000
Net cash inflow from operating activities
Profit before taxation	135,420	35,468	77,779
Losses on Equities Index Stock 2013 held at fair value	1,166	-	243
Realised exchange (gains)/ losses on currency balances	(151)	823	1,242
Gains on investments held at fair value through profit or loss	(133,017)	(29,969)	(55,533)
Purchases of investments	(321,126)	(254,805)	(556,735)
Sales of investments	342,704	259,644	563,194
(Increase)/decrease in other receivables	(806)	(1,463)	733
Increase/(decrease) in creditors	7,242	(62)	927
Taxation	(564)	(883)	(3,443)
Amortisation of Debenture issue expenses	4	4	7
Net cash inflow from operating activities	30,872	8,757	28,414
Financing activities
Dividends paid	(17,359)	(13,607)	(16,808)
Payments for Ordinary Shares bought back and cancelled	-	-	(264)
Payments for Ordinary Shares bought back and held in treasury	(4,878)	-	(7,982)
Redemption of Equities Index Stock 2013	(8,204)	-	-
Cash outflow from financing activities	(30,441)	(13,607)	(25,054)
Increase/(decrease) in cash and cash equivalents	431	(4,850)	3,360
Exchange movements	151	(823)	(1,242)
Change in cash and cash equivalents	582	(5,673)	2,118
Cash and cash equivalents at beginning of period	7,780	5,662	5,662
Cash and cash equivalents at end of period	8,362	(11)	7,780

 

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") as adopted by the European Union. The accounting policies and methods of computation followed in these half year financial statements are consistent with the most recent annual financial statements for the year ended 30 September 2012.

The factors which have an impact on Going Concern are set out in the Going Concern section of the Director's Report in the Company's Annual Report to 30 September 2012. At 31 March 2013 there have been no significant changes to these factors. Accordingly, the Directors believe that it is appropriate to continue to adopt the Going Concern basis in preparing the half year 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 as this is the currency of the primary economic environment in which the Group operates.

2.   Income

	31 March	31 March	30 September
	2013	2012	2012
	£'000	£'000	£'000
Income from investments
Listed investments	7,180	9,796	30,849
Other income
Deposit interest	7	9	16
Underwriting commission	6	-	-
Total income	7,193	9,805	30,865

3.   Earnings per Ordinary Share

	31 March	31 March	30 September
	2013	2012	2012
Total earnings per Ordinary Share
Total profit	£134,966,000	£35,144,000	£75,894,000
Weighted average number of Ordinary Shares in issue during the period	157,806,227	160,080,089	159,727,619
Total earnings per Ordinary Share	85.52p	21.95p	47.52p
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	£4,170,000	£7,054,000	£24,050,000
Weighted average number of Ordinary Shares in issue during the period	157,806,227	160,080,089	159,727,619
Revenue earnings per Ordinary share	2.64p	4.40p	15.06p
Capital earnings per Ordinary Share
Capital profit	£130,796,000	£28,090,000	£51,844,000
Weighted average number of Ordinary Shares in issue during the period	157,806,227	160,080,089	159,727,619
Capital earnings per Ordinary Share	82.88p	17.55p	32.46p

4. Comparative information

The financial information contained in this Half Year Report does not constitute statutory accounts as defined in section 435(1) of the Companies Act 2006. The financial information for the half year periods ended 31 March 2012 and 31 March 2013 has not been audited. The figures and financial information for the year ended 30 September 2012 are an extract from the latest published audited financial statements and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and include the report of the auditors, which was unqualified and did not contain a statement under either section 498(2) or 498(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 2012	38,270		664,536	702,806
Movement during the period:
Ordinary Shares bought back and held in treasury		-	(4,878)	(4,878)
Total comprehensive income for the period		4,170	130,796	134,966
Ordinary dividend paid: Ordinary Shares		(11,836)	-	(11,836)
Special dividend paid: Ordinary Shares		(5,523)	-	(5,523)
At 31 March 2013		25,081	790,454	815,535

6.   Net asset value per Ordinary Share

The net asset value per Ordinary Share is based on net assets of £903,954,000 (31 March 2012: £761,922,000; 30 September 2012: £791,225,000) and on 157,121,038 (31 March 2012: 160,080,089; 30 September 2012: 158,094,985) Ordinary Shares, being the number of Ordinary Shares in issue excluding treasury at the period ends.

7.   Share Capital

During the period 973,947 (six months to 31 March 2012: nil; year ended 30 September 2012: 1,919,104) Ordinary Shares were bought back and placed in treasury for an aggregate consideration of £4,877,525 (six months to 31 March 2012: nil; year ended 30 September 2012: £7,982,558).No Ordinary Shares were bought back and cancelled in the period (six months to 31 March 2012: nil; year ended 30 September 2012: 66,000 for an aggregate consideration of £263,875).

8.   Equities Index Unsecured Loan Stock 2013 (the Loan Stock)

The Company did not buy back any units of the Loan Stock for cancellation during the period. In accordance with the provisions of the Trust Deed governing the Loan Stock, the Company repaid the Capital Value and the final interest amount for the quarter ending 31 March 2013 on 15 April 2013 to holders on the register at the close of business on 28 March 2013.

9.   Dividends

During the period the Company paid a final dividend of 7.5p per Ordinary Share and a special dividend of 3.5p per Ordinary Share for the year ended 30 September 2012 on 7 January 2013 to Ordinary Shareholders on the register at 7 December 2012 (ex-dividend 5 December 2012). The interim dividend of 2.00p per Ordinary Share for the year ending 31 March 2013 will be paid on 21 June 2013 to Ordinary Shareholders on the register at the close of business on 7 June 2013 (ex-dividend 5 June 2013).

10. Contingent assets

While most of the Back VAT has now been recovered, the Company will continue to examine methods to recover further Back VAT, and interest, but does not anticipate any further significant recovery in the near term.

11. Principal financial risks

The principal financial risks which the Company faces include exposure to:

- Market price risk

- Foreign currency risk

- Interest rate risk

- Liquidity risk

- Credit risk

Further details of the Company's management of these risks and exposure to them is set out in Note 18 of the Company's Annual Report for the year ended 30 September 2012, as issued on 12 November 2012. There have been no changes to the management of or exposure to these risks since that date.

12. Related party transactions

The Company has related party transactions with Asset Value Investors Limited. Management fees for the period amounted to £2,352,000 (six months to 31 March 2012: £2,200,000; year ended 30 September 2012: £4,400,000) and the performance fees for the period amounted to £nil (six months to 31 March 2012: £nil; year ended 30 September 2012: £nil).

At the half year end, the following amounts were outstanding in respect of management fees: £392,000 (half year end 31 March 2012: £367,000; year ended 30 September 2012: £367,000) and performance fees: £nil (half year end 31 March 2012: £nil; year ended 30 September 2012: £nil).

13. 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 2012, 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 2013 and satisfy the requirements of the FCA's Disclosure Rules and Transparency Rules (DTR) 4.2.3 to 4.2.11.

14. Responsibility Statement

The Directors of the Company (Mr Strone Macpherson (Chairman), Mr Steven Bates, Mrs Susan Noble, Mr Nigel Rich 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 IAS34, gives a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 31 March 2013;

b) the Interim Management Report includes a fair review, under the FCA's Disclosure and Transparency rules 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.

15. 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 Corporate 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

28 May 2013

The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages is neither incorporated into nor forms part of the above announcement.

 

END

 

 

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