Half Yearly Report

RNS Number : 0527S

F&C Capital & Income Inv Tst PLC

11 May 2009

 



Date:          11 May 2009

Contact:    Julian Cane    

                     F&C Management Limited    

                     020 7628 8000    

F&C Capital and Income Investment Trust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2009

HIGHLIGHTS

• Interim dividends totalling 3.8 pence per share and a special dividend of 0.4 pence per share, to reflect the extra VAT recovered, paid in the first six months.

• Second interim dividend of 1.9 pence per share declared.

• At the end of March the shares were trading at a premium of 1.5%.

• 2,065,000 shares issued at a small premium during the six month period.

	31 March 2009	30 September 2008	% Change
Net assets	£122.82m	£158.20m	-22.4
Net asset value per ordinary share	151.65p	200.45p	-24.3
Share price	154.00p	196.50p	-21.6
	Half-year ended 31 March 2009	Half-year ended 31 March 2008	% Change
Revenue return per ordinary share	4.12p	4.04p	+2.0
Dividends per ordinary share
First interim dividend in respect of year to 30 September 2009	* 1.90p	-
30 September 2008	-	1.80p
Special dividend in respect of the year to 30 September 2009	*0.40p	-
Second interim dividend in respect of year to 30 September 2009	** 1.90p	-
30 September 2008	-	1.80p
Total dividends relating to the period	4.20p	3.60p	***+16.7

*     Paid on 31 March 2009.

**    Payable on 30 June 2009 to shareholders registered on 29 May 2009.

*** Includes special dividend of 0.40p in respect of year to 30 September 2009.

  The Chairman, commenting on the results, said:

Over the last six months, economic news has worsened, with most of the financial sector in disarray and recession taking hold of the UK economy. The UK equity market fell sharply in response to these adverse developments, down by 28.3% at its low point on 3 March 2009, but then staged a partial recovery. From 30 September 2008 to 31 March 2009, the FTSE All-Share Index fell 20.1% while your Company's share price and net asset value ("NAV") per share decreased by 21.6% and 24.3% respectively.

However, for reasons explained below, your Company's income has held up relatively well and the second interim dividend for the period from 1 January 2009 to 31 March 2009 is 1.9 pence per share. This takes the total dividends for the first half of the year to 3.8 pence per share, an increase of 5.6% on the same period last year.

Capital performance

Events of the last six months have been tumultuous with the continued near collapse of the global banking system, the major Western economies falling into steep recession and governments together with their monetary authorities introducing a stream of initiatives in order to avoid a global depression. The Bank of England cut interest rates in each of the six months, with the initial rate of 5.0% falling to 0.5%, the lowest level since the Bank was founded in 1694. Inevitably, the magnitude of the financial crisis and the deterioration it has brought about in the real economy have had a very serious negative impact on individuals, both as savers and consumers, companies and equity markets. Access to loan and bond finance has become very restricted and expensive which has led consumers to spend less and has driven a large number of companies to raise more equity; these rights issues and placings have almost invariably been accompanied by dividend cuts.

In contrast to previous periods, the investment portfolio's relatively small position in the Mining sector was the largest negative contributor to performance. The collapse of the offer from BHP Billiton to acquire Rio Tinto hit performance particularly heavily as the share price in Rio Tinto (in which the portfolio has a large investment) fell steeply, while BHP Billiton (which is not owned) rose sharply. Exposure, albeit small, to companies exposed to the economic cycle, such as building materials companies Wolseley and SIG and the car distributor Inchcape, also had a negative impact.  Each of these companies has refinanced itself and, now that their balance sheets are in better order, their share prices are starting to recover.

The strongest positive contributor to performance was the decision to have a relatively low weighting in the Bank sector. As the sector fell sharply in value, this underweighting benefited performance. Following the half-year end, the investment in HSBC has been increased; following its rights issue it should now be financially secure and its valuation looks attractive.

Revenue and dividend

There has been a sharp drop in income from UK shares generally as the UK domestic banks have stopped paying dividends to conserve cash and rebuild their balance sheets, and as other companies experiencing poor trading and/or needing to recapitalise have also cut dividends. Against this background, your Company's income has held up relatively well, only falling 2.0%; it benefited in particular from the devaluation of sterling which gave an uplift to those dividends declared or paid in either US dollars or euros and from interest received on previously recovered VAT. Recoverable VAT, as described below, and a reduction in the management fee, stemming from a lower level of assets under management, helped to bring about an increase in revenue return per ordinary share of 2.0% to 4.12 pence.

The first two interim dividends, each of 1.9 pence per share, give a half year total of 3.8 pence per share, an increase of 5.6% on the same period last year. In addition to the interim dividends, a special dividend of 0.4 pence per share was paid to reflect the extra VAT recovered during the period.

Recovery of VAT

In our last annual report there was a full explanation of the prospects for recovery of VAT wrongly levied by HMRC in the past on management fees. We have now received payments for claims made in respect of periods between September 1992 and December 1996 and since April 2001. These totalled £270,000 and £654,000 including simple interest.  In addition, the Company received a distribution of £472,000 from its subsidiary in liquidation in respect of VAT and interest received by the subsidiary.  Amounts relating to the intervening period have not been accrued or recognised as a contingent asset as their recoverability remains uncertain under EU law and is likely to remain so for some years. Similarly, whilst we seek to recover the difference between the simple interest received so far and compound interest which we regard as appropriate, the prospect of this remains uncertain.

Gearing

Your Company has the ability to borrow in order to invest when expected returns are greater than the cost of the borrowing and has access to a £20m facility from Lloyds TSB Scotland plc to enable it to do this. We started the financial year with no borrowings but as markets moved lower we started to borrow in the expectation of being able to achieve attractive long-term returns. Effective gearing was 5.6% of the portfolio value at the end of December, reducing to 3.8% at the end of March. Over the short-term as markets have declined further, gearing has not been profitable, but it is still our belief that it will prove to be beneficial over the longer-term. At the date of this report, £12m has been drawn down from the facility, leaving a further £8m to call on if and when required.

Share price premium/discount to NAV per share

On average, over the course of the last six months, the share price has stood at a premium to the NAV per share. Despite the weak economy and market conditions, net demand for your Company's shares has not only remained strong, but has increased. In order to fulfil demand for the shares from investors, the Company issued 2,065,000 new shares at a small premium to NAV per share during this period. This spreads the fixed costs of the Company across a larger number of shares and it is beneficial to those investing as it ensures the premium to NAV per share which they pay for their shares is relatively modest. Since the half-year end a further 1,050,000 shares have been issued at a premium to NAV per share.

As well as being prepared to issue new shares, your Company maintains its commitment to its share buy-back programme with the intention of ensuring that the Company's share price does not trade at a material discount to NAV per share. The last share buyback took place in December 2007.

Outlook

These are certainly difficult times for the UK and world economies with the unprecedented scale of the problems and of the government responses. Interest rates at only 0.5% and a commitment by the Bank of England to "quantitative easing" have never been seen before in the UK and hence it is impossible to predict with confidence what result they will have. With these stimuli it is perhaps not surprising that there now appear to be some tentative early signs of economic recovery, but it seems unlikely that any recovery will be robust so long as the economic imbalances that caused the problem, in particular the excessive levels of debt accumulated by individuals and governments, still exist. This year's Budget in particular has shown the huge magnitude of the fiscal deficit. 

Nevertheless, despite the uncertain outlook for the economy, we continue to believe that the stock market may be better placed. Company earnings and dividends will remain under pressure for at least the rest of this year, but following the sharp fall in the stock market it is probable that most of this is now anticipated and discounted in the price. In a long-term context, valuations appear attractive in absolute terms and relative to cash or bonds, which is why we have borrowed to invest; however there is still a possibility of a further set-back as the road to economic recovery is likely to be long and difficult. The outlook for our own dividend in the current year is reasonably positive despite expecting a modest decline in our own income.

Pen Kent                        

11 May 2009

Directors' Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed securities and its principal risks are therefore market related. The Company may, from time to time, invest in leading overseas companies and so is exposed to currency risk in respect of these investments. Other key risks faced by the Company relate to investment strategy,  investment management resources, regulatory issues, operational and financial controls and counterparty failure. These risks, and the way in which they are managed, are described in more detail under the heading "Principal risks" within the Directors' Report and Business Review in the Company's annual report for the year ended 30 September 2008. The Company's principal risks and uncertainties have not changed materially since the date of that report.

Directors' Statement of Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, in respect of the report and accounts for the half-year ended 31 March 2009 of which this statement is an extract, that to the best of their knowledge: 

• the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards and gives a true and fair view of the assets, liabilities, financial position and return of the Company; 

• the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements; 

• the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

• the half-yearly report includes details on related party transactions. 

On behalf of the Board

Pen Kent

Chairman

11 May 2009

Unaudited Income Statement

Half-year ended 31 March 2009

Half-year ended 31 March 2008

Note		Revenue	Capital	Total	Revenue	Capital	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
	Losses on investments	-	(37,743)	(37,743)	-	(22,995)	(22,995)
	Foreign exchange gains	2	20	22	1	17	18
	Income	3,670	-	3,670	3,745	-	3,745
	Management fee	(139)	(139)	(278)	(180)	(180)	(360)
	Recoverable VAT	167	-	167	-	-	-
	Other expenses	(302)	(7)	(309)	(284)	(6)	(290)
	Return before finance costs and  taxation	3,398	(37,869)	(34,471)	3,282	(23,164)	(19,882)
	Finance costs	(97)	(97)	(194)	(113)	(113)	(226)
	Return on ordinary activities  before taxation	3,301	(37,966)	(34,665)	3,169	(23,277)	(20,108)
	Taxation on ordinary activities	(1)	-	(1)	(1)	-	(1)
	Return attributable to equity  shareholders	3,300	(37,966)	(34,666)	3,168	(23,277)	(20,109)
2	Return per ordinary share - pence	4.12	(47.39)	(43.27)	4.04	(29.68)	(25.64)

    The total column is the profit and loss account of the Company.  The revenue return and capital return columns are supplementary

    to this and are prepared under guidance published by the Association of Investment Companies.

    All revenue and capital items in the above statement derive from continuing operations.

    A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above

    statement.

  Unaudited Reconciliation of Movements in Shareholders' Funds

	Called-up	Share	Capital				Total equity
	share	premium	redemption	Special	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Half-year ended 31 March 2009
Balance at 30 September 2008	19,731	77,630	4,146	4,434	46,365	5,895	158,201
Movements during the half-year  ended 31 March 2009
Dividends paid	-	-	-	-	-	(4,159)	(4,159)
Ordinary shares issued	516	2,926	-	-	-	-	3,442
Return attributable to equity shareholders	-	-	-	-	(37,966)	3,300	(34,666)
Balance at 31 March 2009	20,247	80,556	4,146	4,434	8,399	5,036	122,818
Half-year ended 31 March 2008
Balance at 30 September 2007	20,548	76,334	3,154	6,034	93,581	4,480	204,131
Movements during the half-year  ended 31 March 2008
Dividends paid	-	-	-	-	-	(3,285)	(3,285)
Shares purchased and held in treasury	-	-	-	(1,600)	-	-	(1,600)
Cancellation of ordinary shares previously held in treasury	(992)	-	992	-	-	-	-
Return attributable to equity shareholders	-	-	-	-	(23,277)	3,168	(20,109)
Balance at 31 March 2008	19,556	76,334	4,146	4,434	70,304	4,363	179,137
Year ended 30 September 2008
Balance at 30 September 2007	20,548	76,334	3,154	6,034	93,581	4,480	204,131
Movements during the year  ended 30 September 2008
Dividends paid	-	-	-	-	-	(6,193)	(6,193)
Shares purchased and held in treasury	-	-	-	(1,600)	-	-	(1,600)
Cancellation of ordinary shares previously held in treasury	(992)	-	992	-	-	-	-
Ordinary shares issued	175	1,296	-	-	-	-	1,471
Return attributable to equity shareholders	-	-	-	-	(47,216)	7,608	(39,608)
Balance at 30 September 2008	19,731	77,630	4,146	4,434	46,365	5,895	158,201

Unaudited Balance Sheet

	31 March 2009	31 March 2008	30 September 2008
	£'000s	£'000s	£'000s
Fixed assets
Listed investments	127,723	181,034	157,136
Current assets
Debtors	928	1,717	1,908
Cash at bank and short-term deposits	4,557	707	437
	5,485	2,424	2,345
Current liabilities
Short-term loans	(10,000)	(4,000)	-
Other creditors	(390)	(321)	(1,280)
	(10,390)	(4,321)	(1,280)
Net current (liabilities)/assets	(4,905)	(1,897)	1,065
Net assets	122,818	179,137	158,201
Capital and reserves
Called-up share capital	20,247	19,556	19,731
Share premium account	80,556	76,334	77,630
Capital redemption reserve	4,146	4,146	4,146
Special reserve	4,434	4,434	4,434
Capital reserves	8,399	70,304	46,365
Revenue reserve	5,036	4,363	5,895
Total equity shareholders' funds	122,818	179,137	158,201
Net asset value per ordinary share - pence	151.65	229.00	200.45

Unaudited Summary Cash Flow Statement

	Half-year ended	Half-year ended
	31 March 2009	31 March 2008
	£'000s	£'000s
Net cash inflow from operating activities	3,742	2,181
Interest paid	(141)	(243)
Total tax paid	-	(6)
Equity dividends paid	(4,159)	(3,285)
Net cash (outflow)/inflow from purchases and sales of investments	(7,957)	9,281
Net cash (outflow)/inflow before use of liquid resources and  financing	(8,515)	7,928
Increase in short-term deposits	(4,091)	(703)
Net cash inflow/(outflow) from financing	13,442	(7,600)
Increase/(decrease) in cash	836	(375)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash	836	(375)
Increase in short-term deposits	4,093	703
(Increase)/decrease in short-term loans	(10,000)	6,000
Exchange movement	20	17
Movement in net debt	(5,051)	6,345
Net debt at the beginning of the period	(392)	(9,654)
Net debt at the end of the period	(5,443)	(3,309)
Represented by:
Cash at bank	4,557	707
Bank overdraft	-	(16)
	4,557	691
Short-term loans	(10,000)	(4,000)
	(5,443)	(3,309)

  Notes

1    Accounting policies

These results have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 September 2008.  These accounting policies are expected to be followed throughout the year ending 30 September 2009.

2    Return per ordinary share

Return per ordinary share attributable to ordinary shareholders reflects the overall performance of the Company in the period. Net revenue recognised in the first six months is not indicative of the total likely to be received in the full accounting year.

	Half-year ended 31 March 2009 £'000s	Half-year ended 31 March 2008 £'000s	Year  ended 30 September 2008 £'000s
Revenue return	3,300	3,168	7,608
Capital return	(37,966)	(23,277)	(47,216)
Total return	(34,666)	(20,109)	(39,608)
	Number	Number	Number
Weighted average ordinary shares in issue	80,116,686	78,440,022	78,479,263

3    Dividend

The second interim dividend in respect of the year ending 30 September 2009 of 1.90p will be paid on 30 June 2009 to shareholders registered on 29 May 2009. The total cost of this dividend, based on 82,039,268 shares in issue and entitled to dividend on 11 May 2009, is £1,559,000.

4    Results

The results for the half-year ended 31 March 2009 and 31 March 2008, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 September 2008; the report of the independent auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 September 2008 are an extract from those accounts.

5    Half-yearly report and accounts 

The half-yearly report and accounts will be posted to shareholders and made available on the internet at www.fandccit.com in late May 2009. Copies may be obtained during normal business hours from the Company's Registered Office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

11 May 2009

 

END

 

 

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