Half Yearly Report

RNS Number : 7237N

British Portfolio Trust PLC

16 June 2010

 



For Immediate Release                                                                    16th June 2010

BRITISH PORTFOLIO TRUST plc

HALF-YEARLY FINANCIAL REPORT

For the six months ended 30th April 2010

Interim Management Report

Net Asset Value

A summary of the results for the period from 1st November 2009 to 30th April 2010 is set out below. The Net Asset Value (NAV) per Ordinary Share as at 30th April 2010 was 144.4p.  This represents an increase of 13.0% over the NAV as at 31st October 2009.  Over the same period the capital return of the Company's benchmark index, the FTSE All-Share Index, rose by 10.8%.

Interim Dividend

The Board has declared an interim dividend of 1.80p per Ordinary Share (unchanged from last year), which will absorb £591,279 and is payable on 2nd September 2010 to all holders of Ordinary Shares on the Register of Members at the close of business on 30th July 2010. 

Manager's Review

The UK market continued to recover during the first half of the financial year as the measures

put in place by governments and central banks stimulated a return to economic growth and improved investor appetite for risk assets.  The portfolio outperformed the FTSE All-Share Index benefitting from both stock selection and sector strategy, along with a small contribution from gearing.  Notable amongst the stock contributors was Energy XXI, which made a significant oil discovery.  It was encouraging that a number of our holdings such as Compass, Melrose, N Brown, Cobham and Informa materially outperformed the market.  Our weighting in the mining sector, which is below that of the market, hurt our relative performance in this period, but this factor was more than offset by the low weighting in banks which were weak.  The largest negative contributor was GlaxoSmithKline, which lagged a market focused on stocks with economic sensitivity.

Portfolio activity was more pronounced than usual as we moved to position the Company for the next phase in markets.  Sales were concentrated in stocks which had recovered rapidly from oversold levels, but where the long-term outlook is unclear, such as BBA Aviation, Laird, BlueBay and International Power.  Additionally, Prudential and Spirent were sold after a period of strong performance, which left little headroom in the valuations.  The proceeds of these sales were reinvested in some of our preferred stocks in favoured market sectors such as technology, renewables, consumer cyclicals and business services.  Within the technology sector new investments were made in Sage, Logica, and, shortly after the period end, Misys.  IT software and services companies tend to be beneficiaries as the economic cycle matures and there is early evidence that customer confidence is improving, which should drive a return to growth for these companies where both expectations and valuations are reasonable.  Although we remain cautious on the outlook for discretionary consumer spending, we started positions in both ITV and Daily Mail and General Trust, where it became clear that the immediate prospects for advertising rates in the UK are surprisingly strong.  A period of poor performance from the general retail sector also left the valuation of N Brown, a predominantly on-line retailer, at appealing levels.  Finally, we added growth stocks that have more defensive revenue streams or self help opportunities, such as Xchanging, Wood Group, Associated British Foods and CPP Group (via initial public offering).

We continue to be wary of the mining sector where the correct level of commodity prices and their future direction are currently very hard to gauge.  It is likely that the level of Chinese fixed asset investment, which was the key driver of domestic growth in 2009, may not be sustainable and also that the authorities are keen to rein back the speculative activity in the property market.  These factors may well put a cap on commodity prices globally.

Fortunately there continues to be plenty of exciting investment opportunities across many other parts of the market.  We intend to use modest levels of gearing after market corrections to enhance returns as investors navigate the narrow path of this recovery. At 30th April 2010 net current liabilities represented 0.6%.

Market Review

Financial markets continued to respond to the improvement in the global economy. Fourth quarter GDP in the United States was considerably better than expectations, coming in at 5.6% annualised. The UK economy is now officially out of recession, having grown at 0.4% in the fourth quarter of 2009, and continued to grow in the first quarter of 2010. Emerging markets displayed signs of a strong economic recovery. China delivered another impressive year of economic expansion, with forecasts recently raised to over 9% real GDP growth. Demand from China and other Asian economies have played a key role in supporting the revenues and profits of many large multinational companies.

The situation in continental Europe is unfortunately less rosy. The severe global economic recession has left some of the European economies in a difficult situation. These countries need to make some painful internal adjustments such as wage and spending cuts. To compound matters in some cases fiscal deficits are also unsustainably high causing government borrowing costs to rise considerably and the single currency prevents any offset from devaluation.  This situation culminated in a sovereign debt crisis, prompting a bail out by the EU and IMF, which provided some breathing room, but the long term prognosis remains troubling for Greece in particular.

It is now clear that analysts' forecasts for company profits were cut too severely in the depths of the recession and that the speed of the economic recovery has surprised many companies and investors.  As a result, earnings expectations have risen rapidly, particularly in the more cyclical areas of the market.  The market was driven by strong performance from commodity, industrial, travel and leisure, information technology and media companies whilst more defensive sectors such as telecommunications, pharmaceuticals and tobacco lagged.

Outlook

The outlook for equity markets remains finely balanced, with a number of  long term risks offset by the attraction of low headline valuations and improving company profits.

Current economic policies, which have done so much to resuscitate growth, cannot be sustained indefinitely. It is unclear what impact a long period of near zero interest rates has had on asset prices and there remains the outstanding question of what happens when these stimuli are withdrawn. Quantitative easing is likely to have had a favourable downward influence on long term interest rates as central banks have supported sovereign debt issuance and have been willing to purchase mortgage backed and mortgage related debt. When the Federal Reserve and the Bank of England cease these activities, there is a risk that long term interest rates begin to drift higher, even if short term interest rates are kept low.  Compounding this issue is the budgetary position of the UK, US, Japanese and some European governments. Current levels of fiscal deficits are unsustainable in the long term, but thus far bond yields have stayed low. Rising interest rates would make it much harder for Governments, and require even more severe cuts to public spending or tax rises with a consequent impact on economic growth.  Absolute levels of public indebtedness are high in the developed world, which will limit the ability of the authorities to deal with any future crisis.  Politicians are likely to seek greater involvement in markets in an attempt both to correct the excesses of the past and to raise revenue.

Although dividends in general have held up well over this period, there is significant uncertainty about the timing and level of future dividends from BP, and this is likely to have an impact on our revenue account this financial year, and in 2011.  At the time of writing it is not possible to quantify with any precision the impact of this factor, however.

In our view, however, three main positive factors underpin equity markets. First, there is the prospect that macro economic data will continue to surprise on the upside.  Secondly, both monetary policy and fiscal policy are supportive.  Although interest rates will ultimately rise if economies continue to recover, they seem set to remain at historically low levels for some time yet.  Finally, the valuation of equities remains supportive. Although equity markets have recovered strongly from their lows, the underlying valuations of many companies, particularly the large capitalisation shares, are still not excessive. Many of these companies have high and sustainable free cash flow yields which should support their share prices.

Share Buybacks and Treasury Share Transactions

During the period under review 188,000 Ordinary Shares were repurchased for cancellation at a cost of £236,021, and 1,676,000 Ordinary Shares were repurchased into treasury at a cost of £2,133,772, at an average discount of around 4.9%.  In the period from 1st May 2010 until 15th June 2010 a further 500,000 Ordinary Shares have been repurchased for cancellation.

Principal Risks and Uncertainties

The principal risks facing the Company were outlined in the Directors' Report on pages 14 and 15 of the Annual Financial Report of the Company for the year ended 31st October 2009.   These risks fall broadly under the following categories:  Investment and Strategy, Market, Accounting, Legal and Regulatory, Corporate Governance and Shareholder Relations, Operational and Financial.   In the opinion of the Board these principal risks have not changed.  However, there is currently significant uncertainty surrounding the timing and level of future BP dividends.  

Material Events and Transactions

In the six month period ended 30th April 2010 the following material events and transactions have taken place.

C R Worsley was appointed a Director on 19th April 2010.  

At the Annual General Meeting of the Company held on 9th February 2010, all the resolutions put to shareholders were passed.

The final dividend of 3.30p per share was paid on 2nd March 2010 to shareholders on the register on 29th January 2010.  The total dividend payment for the year ended 31st October 2009 was 5.10p per share.

There were no related party transactions in the period.

Responsibility Statement

The Directors confirm to the best of their knowledge that:

·     the condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports';

·     the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 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;

·     the interim management report includes a fair review of the information concerning related parties transactions as required  by  Disclosure and Transparency Rule 4.2.8R.

The half-yearly financial report was approved by the Board on 16th June 2010 and the above responsibility statement was signed on its behalf by the Chairman.

Andrew Barker

Chairman

155 Bishopsgate                                                                    

London EC2M 3AD

16th June 2010                                                                                  

TWENTY LARGEST EQUITY HOLDINGS

As at 30th April 2010

		Valuation £'000s	% of Total Assets*	Principal Activities
Vodafone Group		3,246	6.84	Mobile Telecommunications
GlaxoSmithKline		3,184	6.71	Pharmaceuticals & Biotechnology
BP		2,925	6.17	Oil & Gas Producers
HSBC Holdings		2,602	5.49	Banks
Royal Dutch Shell "B" Shares		2,568	5.41	Oil & Gas Producers
BG Group		2,188	4.61	Oil & Gas Producers
Unilever		1,640	3.46	Food Producers
Cobham		1,354	2.85	Aerospace & Defence
Compass Group		1,350	2.85	Travel & Leisure
Centrica		1,283	2.71	Gas, Water & Multiutilities
Reed Elsevier		1,138	2.40	Media
Rio Tinto		1,104	2.33	Mining
Brown (N) Group		1,042	2.20	General Retailers
Reckitt Benckiser		1,021	2.15	Household Goods & Home Construction
BAE Systems		971	2.05	Aerospace & Defence
Diageo		947	2.00	Beverages
AstraZeneca		838	1.77	Pharmaceuticals & Biotechnology
Barclays		775	1.63	Banks
Tesco		774	1.63	Food & Drug Retailers
Melrose		719	1.52	Industrial Engineering
		31,669	66.78

PORTFOLIO ANALYSIS

As at 30th April 2010

Sector		Valuation £'000s	% of Total     Assets*	Benchmark (FTSE All-Share) %
Oil & Gas		9,601	20.2	18.2
Financials		8,693	18.3	23.2
Consumer Services		6,967	14.7	10.3
Industrials		6,347	13.4	7.4
Consumer Goods		4,110	8.7	11.2
Health Care		4,022	8.5	7.3
Telecommunications		3,246	6.8	5.7
Basic Materials		2,192	4.6	11.8
Utilities		1,528	3.2	3.3
Technology		1,024	2.2	1.6
Net Current Liabilities		(298)	(0.6)	-
		47,432	100.0	100.0

* Total Assets are stated net of current liabilities.

SUMMARY OF RESULTS

INCOME STATEMENT

For the six months ended 30th April 2010
	Revenue	Capital	Total Return
	£'000s	£'000s	£'000s
			(Note 2)
Net gains on investments at fair value	-	5,896	5,896
Income	997	-	997
Investment management fee	(54)	(88)	(142)
Investment management fee VAT refund	-	-	---
Performance fee*	-	(93)	(93)
Administration expenses	(94)	(3)	(97)
Net return before finance costs and taxation	849	5,712	6,561
Finance costs: interest payable and similar charges	(4)	(12)	(16)
Net return on ordinary activities before taxation	845	5,700	6,545
Taxation	-	-	-
Net return attributable to Ordinary Shareholders	845	5,700	6,545
Return per Ordinary Share  (Note 1)	2.51p	16.96p	19.47p

BALANCE SHEET

As at 30th April 2010

	£'000s
Investments at fair value through profit or loss	47,730
Net Current Liabilities	(298)
Total Net Assets	47,432
Called up Share Capital	383
Share Premium Account	14,819
Capital Redemption Reserve	166
Special Reserve	32,130
Capital Reserve	(2,445)
Revenue Reserve	2,379
Shareholders' Funds	47,432

Net Asset Value per Ordinary Share	144.4p
The net asset value is based on 32,848,820 Ordinary Shares in issue.
An additional 5,504,664 Ordinary Shares were held in treasury.
*Performance fee was introduced on 1st November 2009

SUMMARY OF RESULTS

INCOME STATEMENT

For the six months ended 30th April 2009
	Revenue	Capital	Total Return
	£'000s	£'000s	£'000s
			(Note 2)
Net losses on investments at fair value	-	(1,996)	(1,996)
Income	1,132	-	1,132
Investment management fee	(78)	(159)	(237)
Investment management fee VAT refund	-	-	-
Performance fee*	-	-	-
Administration expenses	(106)	(3)	(109)
Net return before finance costs and taxation	948	(2,158)	(1,210)
Finance costs: interest payable and similar charges	(35)	(105)	(140)
Net return on ordinary activities before taxation	913	(2,263)	(1,350)
Taxation	-	-	-
Net return attributable to Ordinary Shareholders	913	(2,263)	(1,350)
Return per Ordinary Share  (Note 1)	2.44p	(6.04)p	(3.60)p

BALANCE SHEET

As at 30th April 2009

	£'000s
Investments at fair value through profit or loss	40,508
Net Current Liabilities	(2,421)
Total Net Assets	38,087
Called up Share Capital	394
Share Premium Account	14,819
Capital Redemption Reserve	155
Special Reserve	35,487
Capital Reserve	(15,351)
Revenue Reserve	2,583
Shareholders' Funds	38,087

Net Asset Value per Ordinary Share	107.0 p
The net asset value is based on 35,610,220 Ordinary Shares in issue.
An additional 3,828,664 Ordinary Shares were held in treasury.
*Performance fee was introduced on 1st November 2009

SUMMARY OF RESULTS

INCOME STATEMENT

For the year ended 31st October 2009

	Revenue	Capital	Total       Return
	£'000s	£'000s	£'000s
			(Note 2)
Net gains on investments at fair value	-	5,364	5,364
Income	2,001	-	2,001
Investment management fee	(157)	(322)	(479)
Investment management fee VAT refund	9	27	36
Performance fee*	-	-	-
Administration expenses	(205)	(4)	(209)
Net return before finance costs and taxation	1,648	5,065	6,713
Finance costs: interest payable and similar charges	(41)	(122)	(163)
Net return on ordinary activities before taxation	1,607	4,943	6,550
Taxation	-	-	-
Net return attributable to Ordinary Shareholders	1,607	4,943	6,550
Return per Ordinary Share (Note 1)	4.42p	13.61p	18.03p
BALANCE SHEET As at 31st October 2009
			£'000s
Investments at fair value through profit or loss			45,388
Net Current Liabilities			(1,024)
Total Net Assets			44,364
Called up Share Capital			385
Share Premium Account			14,819
Capital Redemption Reserve			164
Special Reserve			34,500
Capital Reserve			(8,145)
Revenue Reserve			2,641
Shareholders' Funds			44,364
Net Asset Value per Ordinary Share			127.8p
The net asset value is based on 34,712,820 Ordinary Shares in issue.
An additional 3,828,664 Ordinary Shares were held in treasury.
*Performance fee was introduced on 1st November 2009

SUMMARY OF RESULTS

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the six months ended 30th April 2010 and comparative periods

	Called up Share Capital £'000s	Share Premium Account £'000s	Capital Redemption Reserve £'000s	Special Reserve £'000s	Capital Reserve £'000s	Hedging Reserve £'000s	Revenue Reserve £'000s	Total £'000s
Six months ended 30th April 2010
Net Assets at 31st October 2009	385	14,819	164	34,500	(8,145)	-	2,641	44,364
Revenue Return	-	-	-	-	-	-	845	845
Shares repurchased during the period	(2)	-	2	(2,370)	-	-	-	(2,370)
Dividends on Ordinary Shares	-	-	-	-	-	-	(1,107)	(1,107)
Capital Return	-	-	-	-	5,700	-	-	5,700
Net Assets at 30th April 2010	383	14,819	166	32,130	(2,445)	-	2,379	47,432
Six months ended 30th April 2009
Net Assets at 31st October 2008	425	14,819	124	38,193	(13,088)	(7)	2,996	43,462
Amortisation of Hedging Reserve	-	-	-	-	-	7	-	7
Revenue Return	-	-	-	-	-	-	913	913
Shares repurchased during the period	(31)	-	31	(2,706)	-	-	-	(2,706)
Dividends on Ordinary Shares	-	-	-	-	-	-	(1,326)	(1,326)
Capital Return	-	-	-	-	(2,263)	-	-	(2,263)
Net Assets at 30th April 2009	394	14,819	155	35,487	(15,351)	-	2,583	38,087
Year ended 31st October 2009
Net Assets at 31st October 2008	425	14,819	124	38,193	(13,088)	(7)	2,996	43,462
Amortisation of Hedging Reserve	-	-	-	-	-	7	-	7
Revenue Return	-	-	-	-	-	-	1,607	1,607
Shares repurchased during the year	(40)	-	40	(3,693)	-	-	-	(3,693)
Dividends on Ordinary Shares	-	-	-	-	-	-	(1,962)	(1,962)
Capital Return	-	-	-	-	4,943	-	-	4,943
Net Assets at 31st October 2009	385	14,819	164	34,500	(8,145)	-	2,641	44,364

SUMMARY OF RESULTS

CASH FLOW STATEMENT

For the six months ended 30th April 2010 and comparative periods

	Six Months ended 30th April 2010		Six Months ended 30th April 2009		Year ended 31st October 2009
	£'000s		£'000s		£'000s
Net cash inflow from operating activities	627		371		1,206
Return on investments and servicing of finance
Interest paid	(16)		(133)		(156)
Capital expenditure and financial investment
Purchases of fixed asset investments	(9,039)		(3,853)		(11,752)
Sales of fixed asset investments	12,480		10,393		20,637
Net cash inflow from capital expenditure and financial investment	3,441		6,540		8,885
Equity dividends paid	(1,107)		(1,326)		(1,962)
Net cash inflow before financing	2,945		5,452		7,973
Financing
Purchase of Ordinary Shares for cancellation and held in treasury	(2,370)		(2,699)		(3,692)
Repayment of loan	-		(3,000)		(4,500)
Net cash outflow from financing	(2,370)		(5,699)		(8,192)
Increase (Decrease) in cash	575		(247)		(219)
Reconciliation of Return on Ordinary Activities before Finance Costs and Taxation to Net Cash Flow from Operating Activities
Total Return before finance costs and taxation	6,561		(1,210)		6,713
Add: Net (gains) losses on investments at fair value	(5,896)		1,996		(5,364)
	665		786		1,349
(Increase) Decrease in debtors	(151)		(149)		84
Increase (Decrease) in creditors	113		(266)		(227)
Net cash inflow from operating activities	627		371		1,206
Reconciliation of net cash flow to movement in net debt
Net cash inflow (outflow)	575		(247)		(219)
Repayment of loan	-		3,000		4,500
Movement in net funds	575		2,753		4,281
Net debt brought forward	(909)		(5,190)		(5,190)
Net debt carried forward	(334)		(2,437)		(909)

Note 1

The returns per Ordinary Share have been calculated using a weighted average number of shares in issue of 33,614,501 (30th April 2009 - 37,426,010; 31st October 2009 - 36,330,832).

Note 2

The total return column of this statement is the profit and loss account of the Company.

All revenue and capital items derive from continuing operations.  No operations were acquired or discontinued in the period.

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

Included in the cost of investments are transaction costs on purchases which amounted to £49,504 (30th April 2009 - £8,222; 31st October 2009 - £49,136) and transaction costs on sales which amounted to £16,401 (30th April 2009 - £8,940; 31st October 2009 - £27,824).

Note 3

Investments are designated as held at fair value through profit or loss in accordance with FRS 26 'Financial Instruments: Recognition and Measurement'.  Listed investments are valued at bid market prices.

Note 4

In accordance with FRS 21'Events after the Balance Sheet Date' the final dividend payable on Ordinary Shares is recognised as a liability when approved by shareholders.  Interim dividends are recognised only when paid.

Dividends paid on Ordinary Shares in respect of earnings for each period are as follows:

	Six months ended	Six months ended	Year ended
	30th April 2010	30th April 2009	31st October 2009
	£'000s	£'000s	£'000s
Final dividend 3.30p paid 2nd March 2010           (2009 -3.30p)	1,107	1,233	1,233
Special dividend Nil  (2009 -0.25p)	-	93	93
Interim dividend 1.80p paid 2nd September 2009	-	-	636
	1,107	1,326	1,962

Dividends payable at the period end are not recognised as a liability under FRS 21 'Events after the Balance Sheet Date'.  Details of these dividends are set out below.

	Six months ended		Six months ended	Year  ended
	30th April 2010		30th April 2009	31st October 2009
	£'000s		£'000s	£'000s
Interim dividend 1.80p payable 2nd September 2010 (2009 -1.80p)		591	641	-
Final dividend 3.30p		-	-	1,146
		591	641	1,146

The proposed dividends above are based on the number of shares in issue at the period end.  However, the dividends payable will be based on the number of shares in issue on the record date and will reflect any purchases and cancellations of shares by the Company settled subsequent to the period end.

Note 5

The Directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements, as the assets of the Company consist mainly of securities which are readily realisable and accordingly, that the Company has adequate financial resources to continue in operational existence for the foreseeable future.

Note 6

The half-yearly financial report has neither been audited nor reviewed by the Company's auditors.  The financial information for the year ended 31st October 2009 has been extracted from the statutory financial statements of the Company for that year, which have been delivered to the Registrar of Companies. The Auditors' Report on those financial statements was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

In accordance with the UK's disclosure requirements for listed companies, the Company is required to make limited additional and updated disclosures, mainly relating to the first and third quarters of the financial year. These Interim Management Statements are released via the Regulatory News Service and posted on the Company's website www.britishportfoliotrust.co.uk on or shortly before 19th March and 19th September each year.

The half-yearly financial report will be sent to Shareholders shortly and made available to the public at the Registered Office of the Company, 155 Bishopsgate, London EC2M 3AD.

For further information, please contact:-

Simon White

RCM (UK) Limited

Tel: [phone]

 

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