Interim Results
Dunedin Income Growth Inv Tst PLC
11 September 2006
DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC
INTERIM RESULTS FOR THE 6 MONTHS ENDED 31 JULY 2006
The objective of Dunedin Income Growth Investment Trust is to achieve growth of
income and capital from a portfolio invested predominantly in companies listed
or quoted in the United Kingdom.
Highlights
• NAV total return with debt at market value 5.1% compared to a total
return for the FTSE All-Share Index of 4.5%.
• Interim dividend increased by 10.7% to 3.1p per share (2005 - 2.8p).
• Peter Wolton was appointed a director on 4 May 2006.
For further information, please contact:-
Chou Chong 0207 463 6000
Stewart Methven 0131 313 1000
Aberdeen Asset Managers Limited
Chairman's Statement
In this, my inaugural report to shareholders as Chairman, I am pleased to report
that while the six months ended 31 July 2006 constituted a volatile period for
stockmarkets, your Company recorded a respectable performance. The FTSE
All-Share Index posted a small positive return, rising by 2.6% in capital terms
and by 4.5% in total return terms (adding in dividends). The period witnessed
considerable volatility in stockmarket conditions, with markets rising to their
highest level for the last five years at the start of the period under review,
before witnessing a sharp correction in investor sentiment due to concerns over
inflation and interest rates.
Against this background, DIGIT's net asset value, measured with debt at market
value, rose by 2.9% in capital return terms, from 247.9p to 255.2p, and by 5.1%
in total return terms. The comparable figures when debt is valued at par are
increases of 2.5% and 4.6%, respectively, showing how higher interest rates
flatter the former set of figures through the reduction in the market value of
our fixed interest debt. Meanwhile, the share price rose by 6.7% from 219.5p to
234.25p, reflecting a tightening in the discount to NAV against which the shares
trade.
We are pleased to declare an interim dividend of 3.1p, which represents an
increase of 10.7% from last year's 2.8p. Part of this is continuing the policy
established last year of reducing the disparity between interim and final
payments, and part reflects the underlying dividend growth from the portfolio.
Economic and Market Background
While economic data releases have been mixed, the Monetary Policy Committee of
the Bank of England (MPC) has recently voted to raise interest rates in the UK
in response to falling spare capacity within the economy, the impact of
continued strength of the housing market and readings in the inflation rate
above target levels. In 2006, GDP in the first half has been reasonably strong,
taking the year-on-year growth rate to 2.6%. This encouraged the MPC to act, as
it took GDP growth to above trend at a time of positive growth witnessed in the
global economy.
It was, however, the combination of concerns that the Federal Reserve Board in
the US had not finished its cycle of raising interest rates, coupled with
indications that the American consumer had started to retreat, that initiated
weakness in global equity markets. Concerns of inflationary pressures within the
financial system following this period of economic growth were exacerbated by
rising commodity prices. It was not until towards the end of the period, with
comments from the Federal Reserve Board suggesting the US was closer to the end
of its tightening cycle, that bond and equity markets began to stabilise.
Indeed, at its low point, the UK equity market was down by some 10% from its
recent peak.
Against this backdrop, it is perhaps no surprise that some of the more defensive
areas of the market performed well, with food retailers, beverages and
pharmaceutical sectors making progress. With commodity prices remaining high,
the mining sector continued to do well as did industrial transportation, on the
back of a number of bids, and by fixed line telecommunications making them
amongst the strongest areas of the market. The weakest areas tended to be in
some of the better performing capital goods sectors of previous periods, and
included aerospace and general industrials.
Discount and Share Buybacks
The discount to net asset value at which our shares trade narrowed during the
six months under review, from 9.1% to 6.1%. We have continued to buy back
DIGIT's shares when we are able to do so on terms that provide a tangible
benefit to shareholders, and during the period we have bought back 235,000
shares (some 0.15% of the company) at an average price of 222.7p
Gearing
With £25m of the £35m revolving credit facility drawn down, coupled with the 7 7
/8% debenture, gearing at 31 July 2006 stood at 13.8% with debt valued at market
value, or 11.9% with debt valued at par.
Overseas Investments
We view the oil sector as an interesting dichotomy, with current oil prices
resulting in strong operating momentum within the sector, which is reflected in
high levels of profitability and cash generation, but not in recent months by
share price performance. Royal Dutch Shell and BP together constitute 14.7% of
the FTSE All Share Index and it is difficult for the Managers to achieve their
full allocation in this sector without undue concentration in those two UK oil
majors. In order to provide DIGIT with its preferred exposure to the oil sector
and on the basis that oil is a truly international business, we undertook our
first two investments in companies whose primary listing is overseas, with
purchases of positions in Total (France) and ENI (Italy). This allows us to
increase exposure to the sector, while diversifying stock-specific risk away
from the two oil majors listed in London.
Board
The past six months have seen the retirement of two of DIGIT's directors - Max
Ward and Robert Douglas Miller. Robert was on this Board for seventeen years,
during which time we benefited extensively from his sound judgement and wise
counsel. Max, who was my predecessor as Chairman for five years, led DIGIT with
professionalism and composure through some challenging times and turbulent
markets. I would like to thank both Max and Robert for their contributions and
to wish them well for the future.
We are delighted to welcome Peter Wolton to the Board. Peter has had a long and
distinguished career in investment management, and has managed businesses in
London and Tokyo. His knowledge and experience of the financial world will be
of great value to us in our deliberations, and we look forward to his
contribution.
Outlook
At the last year end, we cautioned that markets had made very good progress for
three consecutive years, and that some setback could be expected. With bond
markets falling on the back of concerns of potential inflationary pressure and
expectations of higher interest rates, this has had an impact on equity markets
against which valuation yardsticks are measured. Also, the yield curve of the
bond market in the US and, to a lesser extent, the UK became inverted (meaning
that short term rates are higher than long term), raising the possibility of
lower economic growth. The fear of further rises in interest rates is also
likely to moderate the pace of corporate activity, given the predilection of
much of that activity for using debt finance. This may suggest we have seen the
peak of the merger and acquisition cycle, one of the recent drivers of equity
markets.
We view the speed of response by the central banks as a positive in addressing
inflationary pressures. Despite the increased uncertainty this action, coupled
with robust corporate balance sheets and still high levels of profitability,
means that the Managers are taking advantage of the opportunities that result
from the higher level of volatility to invest in attractively valued, soundly
financed companies.
John Scott
Chairman
8 September 2006
INCOME STATEMENT
Six months ended 31 July 2006
(unaudited)
Revenue Capital Total
£'000 £'000 £'000
Realised gains on investments - 20,623 20,623
Unrealised (losses)/gains on investments - (9,503) (9,503)
Currency losses - (7) (7)
_________ _________ _________
Total capital gains of investments - 11,113 11,113
Income from investments 9,963 - 9,963
Interest receivable on short-term deposits 227 - 227
Stocklending commission 18 - 18
Investment management fee (271) (632) (903)
Administrative expenses (336) - (336)
_________ _________ _________
Net return before finance costs and taxation 9,601 10,481 20,082
Finance costs (527) (1,227) (1,754)
_________ _________ _________
Return on ordinary activities before taxation 9,074 9,254 18,328
Taxation (17) - (17)
_________ _________ _________
Return on ordinary activities after taxation 9,057 9,254 18,311
_________ _________ _________
Return per Ordinary share (pence): 5.77 5.89 11.66
_________ _________ _________
The total column of this statement represents the profit and loss account of the
Company.
The Company had no recognised gains or losses other than those recognised in the
Income Statement.
All revenue and capital items in the above statement derive from continuing
operations.
INCOME STATEMENT
Six months ended 31 July 2005
(unaudited)
Revenue Capital Total
£'000 £'000 £'000
Realised gains on investments - 8,888 8,888
Unrealised (losses)/gains on investments - 7,601 7,601
Currency losses - - -
_________ _________ _________
Total capital gains of investments - 16,489 16,489
Income from investments 9,590 - 9,590
Interest receivable on short-term deposits 741 - 741
Stocklending commission 20 - 20
Investment management fee (258) (603) (861)
Administrative expenses (284) - (284)
_________ _________ _________
Net return before finance costs and taxation 9,809 15,886 25,695
Finance costs (1,040) (2,701) (3,741)
_________ _________ _________
Return on ordinary activities before taxation 8,769 13,185 21,954
Taxation - - -
_________ _________ _________
Return on ordinary activities after taxation 8,769 13,185 21,954
_________ _________ _________
Return per Ordinary share (pence): 5.55 8.34 13.89
_________ _________ _________
The total column of this statement represents the profit and loss account of the
Company.
The Company had no recognised gains or losses other than those recognised in the
Income Statement.
All revenue and capital items in the above statement derive from continuing
operations.
INCOME STATEMENT
Year ended 31 January 2006
(audited)
Revenue Capital Total
£'000 £'000 £'000
Realised gains on investments - 32,278 32,278
Unrealised (losses)/gains on investments - 24,835 24,835
Currency losses - - -
_________ _________ _________
Total capital gains of investments - 57,113 57,113
Income from investments 16,247 - 16,247
Interest receivable on short-term deposits 1,029 - 1,029
Stocklending commission 38 - 38
Investment management fee (513) (1,197) (1,710)
Administrative expenses (677) - (677)
_________ _________ _________
Net return before finance costs and taxation 16,124 55,916 72,040
Finance costs (1,604) (26,821) (28,425)
_________ _________ _________
Return on ordinary activities before taxation 14,520 29,095 43,615
Taxation - - -
_________ _________ _________
Return on ordinary activities after taxation 14,520 29,095 43,615
_________ _________ _________
Return per Ordinary share (pence): 9.20 18.43 27.63
_________ _________ _________
The total column of this statement represents the profit and loss account of the
Company.
The Company had no recognised gains or losses other than those recognised in the
Income Statement.
All revenue and capital items in the above statement derive from continuing
operations.
BALANCE SHEET
As at As at As at
31 July 31 January 31 July
2006 2006 2005
(unaudited) (audited) (unaudited)
£'000 £'000 £'000
Fixed assets
Investments at fair value through profit or loss 456,012 430,986 410,167
_________ _________ _________
Current assets
Debtors and prepayments 2,119 7,249 1,613
AAA Money Market funds 3,750 11,150 -
Cash and short term deposits 310 9,496 41,896
_________ _________ _________
6,179 27,895 43,509
_________ _________ _________
Creditors: amounts falling due within one year
Bank loan (25,000) (25,000) -
Other creditors (1,178) (7,186) (2,444)
_________ _________ _________
(26,178) (32,186) (2,444)
_________ _________ _________
Net current (liabilities)/assets (19,999) (4,291) 41,065
_________ _________ _________
Total assets less current liabilities 436,013 426,695 451,232
Creditors: amounts falling due after more than one (28,435) (28,428) (68,422)
year
_________ _________ _________
Net assets 407,578 398,267 382,810
_________ _________ _________
Capital and reserves
Called-up share capital 39,241 39,300 39,525
Share premium account 4,543 4,543 4,543
Capital redemption reserve 784 725 500
Capital reserve - realised 271,540 253,307 256,422
Capital reserve - unrealised 73,264 82,767 65,533
Revenue reserve 18,206 17,625 16,287
_________ _________ _________
Equity Shareholders' funds 407,578 398,267 382,810
_________ _________ _________
Net asset value per Ordinary share (pence): 259.55 253.24 242.13
_________ _________ _________
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Six months ended 31 July 2006
(unaudited)
Share Capital Capital Capital
Share premium redemption reserve reserve - Revenue
capital account reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 January 2006 39,300 4,543 725 253,307 82,767 17,625 398,267
Return on ordinary activities after - - - 18,757 (9,503) 9,057 18,311
taxation
Dividends paid - - - - - (8,476) (8,476)
Purchase of own shares (59) - 59 (524) - - (524)
Balance at 31 July 2006 39,241 4,543 784 271,540 73,264 18,206 407,578
_______ _______ _______ _______ _______ _______ _______
Six months ended 31 July 2005
(unaudited)
Share Capital Capital Capital
Share premium redemption reserve reserve - Revenue
capital account reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 January 2005 (restated) 39,525 4,543 500 250,838 57,932 15,502 368,840
Return on ordinary activities after - - - 5,584 7,601 8,769 21,954
taxation
Dividends paid - - - - - (7,984) (7,984)
_______ _______ _______ _______ _______ _______ _______
Balance at 31 July 2005 39,525 4,543 500 256,422 65,533 16,287 382,810
_______ _______ _______ _______ _______ _______ _______
Year ended 31 January 2006 (audited)
Share Capital Capital Capital
Share premium redemption reserve reserve Revenue
capital account reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 January 2005 39,525 4,543 500 250,838 57,932 15,502 368,840
Return on ordinary activities after - - - 4,260 24,835 14,520 43,615
taxation
Dividends paid - - - - - (12,397) (12,397)
Purchase of own shares (225) - 225 (1,791) - - (1,791)
_______ _______ _______ _______ _______ _______ _______
Balance at 31 January 2006 39,300 4,543 725 253,307 82,767 17,625 398,267
_______ _______ _______ _______ _______ _______ _______
CASHFLOW STATEMENT
Six months ended Six months ended Year
ended
31 July 31 July 31 January 2006
2006 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net return on ordinary activities before finance costs 20,082 25,695 72,040
and taxation
Adjustment for:
Gains on investments (11,113) (16,489) (57,113)
Increase in accrued income (71) (423) (107)
(Increase)/decrease in other debtors (18) (9) 1
Increase/(decrease) in creditors 25 (39) 4
____________ ____________ ____________
Net cash inflow from operating activities 8,905 8,735 14,825
Net cash outflow from servicing of finance (1,751) (3,472) (5,342)
Overseas withholding tax (17) - -
Net cash (outflow)/inflow from financial investment (14,717) 21,607 40,145
Equity dividends paid (8,476) (7,984) (12,397)
____________ ____________ ____________
Net cash (outflow)/inflow before use of liquid resources (16,056) 18,886 37,231
and financing
Net cash inflow from management of liquid resources 7,400 23,200 12,050
Net cash outflow from financing (523) (1,276) (40,871)
____________ ____________ ____________
(Decrease)/increase in cash (9,179) 40,810 8,410
____________ ____________ ____________
Reconciliation of net cash flow to movements in net
funds
(Decrease)/increase in cash as above (9,179) 40,810 8,410
Exchange movements (7) - -
____________ ____________ ____________
Movement in net funds in the period (9,186) 40,810 8,410
Net funds at 1 February 2006 9,496 1,086 1,086
____________ ____________ ____________
Net funds at 31 July 2006 310 41,896 9,496
____________ ____________ ____________
Notes to the Financial Statements
For the six months ended 31 July 2006
1. Accounting policies
(a) Basis of accounting
The financial statements have been prepared under the historical
cost convention, as modified to include the revaluation of investments and in
accordance with applicable UK Accounting Standards and with the Statement of
Recommended Practice for 'Financial Statements of Investment Trust Companies'
(December 2005). They have also been prepared on the assumption that approval as
an investment trust will continue to be granted.
The financial statements and the net asset value per share
figures have been prepared in accordance with UK Generally Accepted Accounting
Practice (UK GAAP).
The interim accounts have been prepared using the same accounting
policies as the preceding annual accounts.
(b) Dividends payable
Interim and final dividends are recognised in the period in which they are paid.
2. The interim dividend will be paid on 29 September 2006 to shareholders
on the register at the close of business on 22 September 2006. The ex-dividend
date is 20 September 2006.
3. The unrevised financial information for the year ended 31
January 2006 has been extracted from the Annual Report and Accounts of the
company which have been filed with the Registrar of Companies. The auditors'
report on those accounts was unqualified.
The statement of total return and balance sheet do not represent full accounts
in accordance with section 240 of the Companies Act 1985.
4. The Interim Report will be posted to shareholders end
September 2006 and copies will be available from the investment manager.
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as rise.
Investors may not get back the amount they originally invested
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