Interim Results
British Empire Sec & Gen Tst PLC
10 May 2004
BRITISH EMPIRE SECURITIES AND GENERAL TRUST p.l.c.
INTERIM ANNOUNCEMENT OF UNAUDITED HALF YEAR RESULTS
for the six months ended 31 March 2004
Net asset value per share rose by 16.6% compared to a 5.9% gain for the MSCI
World Index and gains of 9.9% and 10.1% for the Datastream Global Growth
Investment Trust Index (NAV total return) and the FTSE All-Share Index
respectively. All figures are on a total return basis. (sources: Fundamental
Data, Thompson Financial Datastream, Bloomberg).
• Over five years net asset value per share is up 97.7% (total return),
whiles its peer group of 28 global growth trusts have risen 3.1% for the
weighted sector average (source: Cazenove).
• British Empire has been generally fully invested during this six month
period, resulting in good performance as discounts to net asset values have
narrowed. Net cash 1.1% of net assets.
• British Empire has benefited from the reflationary conditions by being
exposed to assets that would benefit from low interest rates. Chief among
these has been Japan, mining stocks and emerging markets.
• Investors should expect equity returns to moderate following the one-off
adjustment from the oversold levels of one year ago. Equities have rallied
strongly and broad market indices can no longer be considered inexpensive.
• Geographical profile on a look through basis: Continental Europe 30.5%, UK
23.5%, Asia Pacific 11.7%, North America 4.6%, Japan 14.3%, Easten Europe,
Middle East, Africa 6.4%, and liquidity 9.0%
• A new management agreement has been entered into with the Investment
Manager, Asset Value Investors.
• The Company won awards:
Investment Week
1st Place - Global including US, Investment Trust of the Year Award
Moneywise
1st Place - Global category, 2004
• John Pennink, Investment Manager, said 'Good relative and absolute
performance has continued over the last six months.'
Enquiries:
John Pennink
Asset Value Investors Limited
Bennet House
54 St James's Street
London SW1A 1JT
Tel: 020 7647 2900
Chairman's Statement
I am pleased to report that the Company has performed well during the reporting
period as outlined in the Investment Manager's Report.
The Board has decided to maintain the interim dividend at 0.4p, the same level
as last year. The Board will recommend a final dividend after reviewing the full
year results.
Following the Board's review of the investment management fee arrangements as
outlined in the 2003 Annual Report and Accounts, I can report that in
consultation with the Company's advisors the Board has entered into a new
management agreement with the Investment Manager, Asset Value Investors. The new
agreement moves the fee onto a net rather than gross assets basis and carries
forward out and under performance for a three year period. The result will be to
increase the rewards available to our management company for consistent out
performance, while reducing the fees payable in times of under performance. The
Board believes that the new agreement will benefit shareholders by establishing
a more appropriate basis and time period on which to assess the Manager's
relative performance. The new arrangements should also provide the Manager with
suitable incentives for consistent good performance and further strengthen their
commitment to the Company for the future. Further details are set out below.
Change in management fee arrangements
The new fee basis will take effect from the commencement of the current
financial year on 1 October 2003. The Manager shall be entitled to a base
management fee of 0.55% of the net assets of the Company at the end of the
previous financial year increasing to 0.6% in any financial period in which the
Company out performs its benchmark, or under performs by no more than 5%.
The new fee will also include a performance element whereby the Investment
Manager will be paid 4% of any out performance in the net asset value per share
(on a total return basis) over the benchmark index at year end, with a cap on
aggregate fees of 1% per annum. To achieve the maximum management fee of 1% the
Manager would have to outperform the benchmark by 10% or more during the year
(assuming no brought forward out or under performance).
Any out performance earned in excess of the cap and any under performance in any
year will be carried forward for use in the next three years' fee calculations
on a first-in first-out basis. Despite the recent strong out performance of the
Company, there will be no brought forward out performance taken into account
when the new fee basis commences on 1 October 2003.
The previous management fee was calculated on gross assets and varied between
0.4% and 0.8% depending on performance. If the Company performed in line with
the benchmark the Manager would have received 0.6% of gross assets. The Board
believes that calculating management fees on net rather than gross assets
reduces risks to shareholders which might arise from the use of excessive
gearing and more clearly aligns the Manager's interests with those of
shareholders in increasing the net assets of the Company.
The Board also considered a number of equity benchmarks and possible composite
benchmarks but, due to the Company's wide-ranging investment remit, none of
these were felt to be satisfactory. The Board's view is that benchmarking the
Company's performance on a total return basis against that of its peer group of
global growth investment trusts is more appropriate than the present benchmark.
Consequently the Board has decided to change the Company's benchmark index from
the Thompson Financial Datastream Net Assets Index (all investment trusts) to
the Thompson Financial Datastream Global Growth Investment Trust Index
(calculated on a net asset value total return basis). Using total return
recognises the overall return received by shareholders, including dividends.
Finally, the Board has also taken the opportunity to review the allocation of
the management fee to capital and revenue. The Board has decided that the first
0.3% of the base management fee will be charged to revenue, with the remainder
of the base management fee and any performance fee being charged to capital.
Overall, the Board believes that these new arrangements more closely align the
interests of shareholders and Manager, provide additional incentive for
consistent out performance while reducing rewards available for under
performance and more clearly reflect the emphasis on long-term investment return
for shareholders.
Iain Samuel Robertson CBE
Chairman
10 May 2004
Investment Manager's Report
For the first six months of the financial year, the Company's net asset value
per share rose 16.6% compared to rises of 9.9% for the Datastream Global Growth
Investment Trust Index (NAV total return), 5.9% for the MSCI World Index (£) and
10.1% for the FTSE All Share Index*. (All figures are on a total return basis).
Over the five year period to 31 March 2004, the Company is top of its peer group
of 28 global growth trusts, the net asset value per share rising 97.7% compared
to a rise of 3.1% for the weighted sector average*.
British Empire has recently won two awards:
Investment Week
1st Place - Global including US, Investment Trust of the Year Awards
Moneywise
1st Place - Global category, 2004
Significant gains in the portfolio during the reporting period were made by
Marakand Minerals +150%, Tethyan Copper +91%, The Dejima Fund +77%, Atlantis
Japan Growth Fund +61%, Prospect Japan Fund +57%, Sumitomo Warehouse +46%, Beni
Stabili +44%, Jardine Strategic Holdings +43%, Baillie Gifford Japan Trust +34%,
Wendel Investissement +34%, Fidelity Japanese Values +33%, Indian Capital Funds
+33%, The Eastern European Trust +31%, Merrill Lynch World Mining Trust +23%,
Worms & Cie +23%, Blakeney Investors +23%, JP Morgan Fleming Japanese Smaller
Companies Trust +22%, Vietnam Enterprise +21% and Industrivarden 'C' +20%.
Losses were made in Lion Selection Group -13%, LionOre Mining International
-8.4% and Private Equity Investor -7.7%.
As at 31 March 2004, the geographical profile on a look through basis was as
follows: Continental Europe 30.5%, UK 23.5%, Asia Pacific 11.7%, North America
4.6%, Japan 14.3%, Eastern Europe, Middle East, Africa 6.4% and liquidity 9.0%.
Equity markets have had a very strong 12 months following the depths of despair
that were reached in the run up to the war in Iraq. We became fully invested
approximately one year ago because investor despondency creates opportunity and
we were able to find many attractively valued stocks. Our subsequent performance
was aided by the narrowing of discounts to net asset value (NAV) in many of our
holdings as well as good performance in the NAVs themselves. Good relative and
absolute performance has continued over the last six months.
Drastic action by monetary authorities following the dotcom bust and the 9/11
attacks have produced a cyclical recovery in the global economy. The desire of
the US Federal Reserve to avoid a deflationary spiral has created extremely
accommodating monetary conditions. Much of the excess liquidity has gone into
inflating asset prices and re-igniting speculation in various markets. Equity
markets were effectively bailed out by easy monetary policy and therefore never
became exceedingly cheap. The rally of the last 12 months has meant that many
stocks are again overvalued. The above factors have now increased our caution on
the prospects for equity markets.
We have sought to benefit from the reflationary conditions by being exposed to
assets that would benefit from low interest rates. Chief among these areas has
been Japan, mining stocks and emerging markets. As can be seen from the above
list of risers, these three areas have all done well over the past six months.
We continue to believe that reflationary themes have further to run but we have
begun to take some profits in mining and emerging markets. We are maintaining
our exposure to Japan where compelling valuations, especially on smaller
companies, and a better economic environment have produced some very interesting
situations.
We see no need to abandon equities given the continuing strong liquidity
backdrop and the values we can still find on offer through certain discounted
vehicles. Better economic data, however, has inevitably led to concern over the
timing and magnitude of interest rate increases. This should serve to take the
heat out of some of the more speculative areas. Investors should expect equity
returns to moderate following the one-off adjustment from the oversold levels of
one year ago.
John Pennink
Asset Value Investors Limited
10 May 2004
* Sources: Fundamental Data, Thompson Financial Datastream, Cazenove, Bloomberg
Group Statement of Total Return (incorporating the revenue account)
For the six months to For the six months to For the year to
31 March 2004 31 March 2003 30 September 2003
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on - 59,209 59,209 - (7,941) (7,941) - 71,502 71,502
investments
Realised exchange - (535) (535) - 72 72 - 8 8
differences
(Appreciation)/depreciation
of loan stock - (452) (452) - 221 221 - (740) (740)
Income 3,582 - 3,582 2,319 617 2,936 8,162 1,003 9,165
Investment management fee
(incl. irrecoverable VAT) (562) (1,517) (2,079) (685) (186) (871) (1,373) (709) (2,082)
Other expenses
(incl. irrecoverable VAT) (432) - (432) (515) - (515) (1,002) - (1,002)
Net return before finance
costs and taxation 2,588 56,705 59,293 1,119 (7,217) (6,098) 5,787 71,064 76,851
Finance costs (1,353) (4) (1,357) (1,353) (3) (1,356) (2,704) (7) (2,711)
Return on ordinary
activities before taxation 1,235 56,701 57,936 (234) (7,220) (7,454) 3,083 71,057 74,140
Taxation on ordinary 22 - 22 - - - (357) (395) (752)
activities
Return attributable to
equity shareholders 1,257 56,701 57,958 (234) (7,220) (7,454) 2,726 70,662 73,388
Dividend in respect of (640) - (640) (640) - (640) (2,481) - (2,481)
equity shares
Transfer to/(from) reserves 617 56,701 57,318 (874) (7,220) (8,094) 245 70,662 70,907
Return per Ordinary Share
Basic 0.79p 35.42p 36.21p (0.15p) (4.51p) (4.66p) 1.70p 44.14p 45.84p
Group Balance Sheet
As at 31 March As at 31 As at 30
2004 March September
(unaudited) 2003 2003
(unaudited) (audited)
£'000 £'000 £'000
Fixed assets
Investments - securities 432,296 297,600 382,106
Current assets
Investments held by dealing subsidiary 7 5 6
Debtors 9,636 5,746 1,435
Cash at bank and on deposit 4,537 2,122 1,159
14,180 7,873 2,600
Creditors: amounts falling due within one year (7,140) (3,637) (3,070)
Net current assets/(liabilities) 7,040 4,236 (470)
Total assets less current liabilities 439,336 301,836 381,636
Creditors: amounts falling due after more than one year (33,628) (32,511) (33,246)
Provision for liabilities and charges (64) - (64)
Net assets 405,644 269,325 348,326
Capital and reserve
Called-up share capital
Ordinary Shares 16,008 16,008 16,008
Reserves
Capital redemption reserve 2,927 2,927 2,927
Share premium account 28,078 28,078 28,078
Capital reserve - realised 236,287 224,619 224,827
- unrealised 69,003 (53,912) 23,762
Merger reserve 41,406 41,406 41,406
Revenue reserve 11,935 10,199 11,318
Equity shareholders' funds 405,644 269,325 348,326
Net asset value per Ordinary Share 253.40p 168.24p 217.59p
Number of Ordinary Shares in issue 160,080,089 160,080,089 160,080,089
Summarised Group Statement of Cash Flows
Six months to Six months to Year to
31 March 31 March 30 September
2004 2003 2003
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net cash inflow from operating activities 1,149 47 3,931
Servicing of finance (1,337) (1,345) (2,707)
Taxation 176 - 110
Capital expenditure and financial investment 4,710 4,369 2,304
Equity dividends paid (1,841) (2,401) (3,041)
Net cash inflow before financing 2,857 670 597
Financing (165) (2,284) (2,601)
Increase/(decrease) in cash 2,692 (1,614) (2,004)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash 2,692 (1,614) (2,004)
Buyback of index loan stock 165 182 412
Changes in net debt resulting from cash flows 2,857 (1,432) (1,592)
Currency (losses)/gains (534) 57 8
Other (547) 218 (747)
Movement in net debt 1,776 (1,157) (2,331)
Opening net debt (32,087) (29,756) (29,756)
Closing net debt (30,311) (30,913) (32,087)
Reconciliation of operating profit to net cash flow
from operating activities
Net return before finance costs and taxation 2,588 1,119 5,787
Performance fee charged to capital (331) (186) (709)
Management fee charged to capital (466) - -
Changes in working capital and other non-cash items (642) (886) (1,147)
Net cash inflow from operating activities 1,149 47 3,931
Notes
1. The unaudited results have been prepared on the basis of accounting policies
set out in the statutory accounts of the Group for the year ended 30
September 2003.
2. The results for the first six months should not be taken as a guide to the
full year's results.
3. Income from revenue sources comprises:
Six months to Six months to Year to
31 March 31 March 30 September
2004 2003 2003
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Dividends 2,666 2,271 6,693
Interest 915 49 1,468
Other income 1 (1) 1
Total 3,582 2,319 8,162
4. During the period the Company bought back 75,000 units of Equities Index
Unsecured Loan Stock 2013 for cancellation at a cost of £165,000.
5. At 31 March 2004 the Company had 160,080,099 Ordinary Shares and 3,133,197
units of Equities Index Unsecured Loan Stock 2013 in issue.
6. The interim dividend of 0.40p per Ordinary Share will be paid on 11 June 2004
to Ordinary Shareholders on the register at 21 May 2004 (ex-dividend 19 May
2004).
7. These are not full statutory accounts in terms of section 240 of the
Companies Act 1985. The full audited accounts for the year to 30 September
2003, which were unqualified, have been lodged with the Registrar of
Companies.
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